The Supervisory Board of the Danish Financial Supervisory Authority has decided that Danske Bank might have broken the criminal law over the sale of Flexinvest Free, its controversial investment product that caters for many different risk classes, to HNW customers.

The regulator contacted the police because it suspects the bank of misleading its customers. It has told Compliance Matters that although the bank became aware that a very large proportion of its customers could expect a negative net return, it did not inform them. The bank also allegedly continued to sell investment strategies in Flexinvest Free (in Danish, Flexinvest Fri) to new customers for an extended period. It also neglected to tell these new customers about the expected negative net return.

The Danish FSA sees this as a very serious breach of the consumer protection rules that apply in this area.

Measures to take

It has also decided to take out a number of injunctions against Danske Bank in connection with the sale of Flexinvest Free with its expected negative net return.

As a result of the FSA's decision, Danske Bank will have to conduct new 'suitability tests' on all customers who have investment agreements regarding Flexinvest Fri. The bank must also send a corrected letter off to each Flexinvest Free customer who has had an expected negative net return.

In addition, the regulator has subjected the bank to a number of other orders to ensure that it complies with the investor protection rules when selling and advising people about products in which to invest.

Low risks and short horizons

The Danish FSA is keeping an ever-closer eye on firms that offer investment products to customers with low risk appetites and short time-horizons, partly because of the case of Danske and more generally because of very low interest rates.

Jesper Berg, the chief of the FSA, said: “It is crucial for customer confidence that banks' advice is fair. Recent interest rate developments place great demands on banks' advice in connection with the sale of wealth products. The challenge is particularly daunting because customers have an alternative in the form of a deposit account, which with today's interest rate level is, for many, quite an attractive savings product."