Danske Bank's watchdog gets drawn deeper into European probe

[COPENHAGEN] Danske Bank A/S's financial regulator in Denmark has been placed under formal investigation by European authorities, to find out whether it did enough to try to prevent one of the bloc's worst ever money laundering scandals.

The Financial Supervisory Authority in Copenhagen said on Monday it had been notified by the European Banking Authority that an initial probe into the Danish watchdog had entered a "new phase."

The development follows Danske's admission in September that much of about US$230 billion that flowed through a tiny Estonian branch until as recently as 2015 needs to be treated as suspicious in origin. Denmark's biggest bank is now under criminal investigation in several jurisdictions, including in the US, and is facing fines potentially in the billions of dollars.

The EBA started looking into the actions taken by Danske's supervisors back in September, following a request by the European Commission. The London-based authority now has two months to complete its investigation. It's up to the EBA's board, which is made up of representatives from national supervisory authorities across Europe, to draw a final conclusion in the case, the Danish FSA said.

The EBA had initially also looked into whether the supervisory authority in Estonia had done enough to prevent suspicious transactions at the Danske branch in the Baltic country.

The Danish FSA issued a scathing report in May last year that focused on the governance issues around the scandal, and forced Danske to add to its capital reserves as part of a series of measures designed to deal with the case. But it was subsequently criticized for not taking tougher actions against the bank earlier. The FSA countered that much of the information it received from Danske over the years had been misleading, making it hard for the watchdog to act.

What's more, the former chairman of the Danish FSA's board, Henrik Ramlau-Hansen, had been chief financial officer at Danske. He stepped down from the watchdog last year amid widespread criticism that his presence raised serious doubts about the impartiality of the FSA in the case.

The current director general of the FSA, Jesper Berg, took on the role in late 2015. He was preceded by Ulrik Nodgaard, who ran the watchdog from 2009. Mr Nodgaard is the current head of the Danish Bankers' Association, a lobby organization that represents the interests of the financial industry.

Danish Business Minister Rasmus Jarlov has said he sees no reason to believe that the FSA did anything wrong. Since the Danske scandal came to light, Denmark has significantly stepped up its efforts to fight money laundering, including raising fines by 700 per cent and adding the specter of prison sentences to the list of penalties executives may face if caught breaching the rules.

BLOOMBERG