Strategy and Assessments

Every year, a resolution plan is prepared for each financial institution in Denmark. This includes an assessment of the resolution possibilities and the strategy in a resolution scenario.

Critical Functions and Core Business Areas

The institutions' critical functions must be identified to ensure they can continue in a resolution scenario. The institutions themselves must report their assessment of which critical functions they perform, based on the EBA's data reporting template for resolution planning. Institutions typically base their assessment on the following elements, but may also have various policies on the matter:

  • What market share does the institution have within the specific function?
  • Would it be easy to find substitution options for the specific function?
  • What impact on the market would there be from a disruption of the specific function?

The business areas that the institution considers particularly important, including core business areas, are not necessarily the same as the critical functions. This is partly because core business areas are crucial for the institution's revenue, while critical functions can have a broader societal significance beyond the institution, for example deposits.

Operational Continuity

In connection with resolution, it is important to focus on operational continuity. This refers to the ability to continue the institution's critical services and maintain access to service providers in a resolution scenario. This includes IT systems that support critical functions and core business areas. To support operational continuity, both the institution and the resolution authorities work on the following aspects:

  • Identification of critical and essential suppliers
  • Identification of operational assets* and key personnel
  • Contractual provisions that ensure access to services from these suppliers can continue in a resolution scenario, i.e., are not interrupted solely due to resolution
  • Sufficient financial resources to ensure access to services
  • Pre-determined costs to continue services, potentially distributed internally within the institution beforehand
  • Contingency arrangements to retain key employees
  • Systematic access to information (suppliers, operational assets, key personnel, contractual provisions, etc.) in the form of a "service catalogue" where necessary information can be retrieved
  • Management support and sound decision-making processes to ensure access to services in a resolution scenario and thereby support operational continuity.

*Operational assets are defined by the Single Resolution Board as non-financial assets that support services within a group, such as properties, IT systems, and data warehouses.

Contractual provisions

To handle a resolution scenario as effectively as possible, it is crucial to enable the continuation of the institution's contracts during resolution, including ensuring access to critical services. A particular issue arises with contracts governed by third-country law, as these contracts may not necessarily include the same provisions regarding a resolution scenario as contracts made under EU law, due to the common EU regulations.

A party to a contract governed by third-country law is therefore not necessarily aware of the Danish resolution authorities' powers. Companies are therefore generally required to include contractual provisions in their third-country contracts, according to sections 274 and 276 of the Danish Financial Business Act (FIL), where the counterparty acknowledges the Danish Financial Supervisory Authority and the Danish Financial Stability Company’s powers to write down obligations or convert obligations into equity, or the Danish Resolution Authority's power to suspend contracts. This provides greater legal certainty and transparency by including provisions on these powers in the contracts. Additionally, it facilitates enforcement and improves the ability to ensure access to suppliers supporting critical functions and core business areas in a resolution scenario.

The Danish Financial Supervisory Authority and the Danish Financial Stability Company can exercise their write-down and conversion powers over obligations, regardless of whether this is stated in the contracts. The same applies to the Danish Financial Stability Company's suspension power. The EBA's guidelines on improving resolvability include a section on contractual provisions and cross-border contracts. This includes that institutions in their self-assessments should perform:

  • Mapping of the institution's cross-border contracts governed by third-country law.
  • Mapping of contracts with service providers supporting critical functions and/or core business areas. These contracts may be based on both third-country law and EU law (as covered by the outsourcing regulations and the EBA's guidelines).

To support operational continuity, the institutions' contracts with service providers (supporting critical functions and/or core business areas) must include provisions ensuring the continuation of the function in the event of the institution entering resolution. The contractual assurance applies beyond third-country contracts to both external and intra-group contracts made under EU law. The requirement concerning contracts made under third-country law falls under Section 276 of the Danish Financial Business Act, whereas the recommendation to ensure EU contracts follows from the EBA's guidelines on improving resolvability. The table below provides an overview of the types of contracts covered by the EBA's guidelines on resolvability in relation to operational continuity.

The clauses aim to make the counterparty aware that the Danish Financial Stability Company possesses these powers, thereby ensuring transparency and greater legal certainty. Pursuant to Section 30 of the Act on the Restructuring and Resolution of Certain Financial Enterprises (RAL), the Danish Financial Stability Company has the authority to terminate or amend terms in a contract entered by a company or entity under resolution, when necessary to support the implementation of resolution measures. This authority enables the Danish Financial Stability Company to exercise resolution powers to ensure the continuation of critical functions. The resolution authority’s power to regulate contracts applies regardless of whether the contract is governed by Danish or foreign law.

Access to Financial Market Infrastructures (FMIs)

It is crucial to understand and mitigate any contractual or other obstacles to maintaining access to financial market infrastructures (FMIs*) during resolution. Accordingly, the guidelines encourage institutions to develop contingency plans for access to FMIs that support critical functions and core business lines. The box below outlines some of the key FMIs in Denmark.

*Financial market infrastructures, or FMIs, are defined in accordance with CPMI-IOSCO’s definition and include, at a minimum: payment systems, (international) central securities depositories, securities settlement systems, central counterparties, and trade repositories (source). No central counterparties have been established in Denmark. In addition to payment systems, there are also marketplaces such as Nasdaq CPH and its First North market.

Central FMIs in Denmark

When citizens, businesses, and financial actors can easily exchange payments and securities transactions with each other, it is due to a network of systems.

Kronos2 – Danish payments

The Danish central bank's system, Kronos2, plays a central role in the infrastructure for handling payments in Denmark. Kronos2 is used, among other things, to secure payments between financial institutions in Danish kroner. From 2025, the handling will be moved to the common European platform for payments and securities trading, Target Services, which is owned by the European Central Bank (ECB).

T2-Denmark – Payments in euros and settlement of professional investors' securities transactions

T2 (previously named Target2) is the pan-European payment system for the settlement of large, time-critical payments in euro. The system is used by credit institutions and settlement systems in EU countries to make payments to each other. The Danish central bank and several Danish credit institutions participate in T2. T2 is based on a shared technical infrastructure (the Single Shared Platform), while account and business relationships with the participating credit institutions continue to be handled by the individual central banks, e.g. the Danish central bank. ​

ES-CPH – Securities settlement in Danish kroner

Euronext Securities Copenhagen (ES-CPH) undertakes the settlement of Danish securities transactions. In Denmark, the professional participants’ mutual securities transactions are settled in the European securities settlement system, T2S, while private investors’ transactions are settled through ES-CPH’s own settlement system (ES-CPH settlement system). For both settlement systems, participants must have a custody account at ES-CPH in order to use the systems. In a securities transaction, securities are exchanged in custody accounts at ES-CPH, while payment is executed via the participants’ Kronos2 accounts.

Sumclearing, Intradagclearing, and Straksclearing – Retail payments

The three systems, also known as ‘facilities’, that handle Danish retail payments are called the ‘Straksclearing’, the ‘Intradagclearing’ and the ‘Sumclearing’ systems.

In the Straksclearing system, the credit institutions’ customers can make account-to-account transfers which are received by the recipient immediately after the transfer has been made. This includes, for example, transfers via online banking or mobile payments. Instant payments have an upper limit of DKK 500,000 and can be made around the clock every day of the year.

The Intradagclearing and the Sumclearing are so-called multilateral net settlement systems, which means that it is not the individual transaction that is settled between the credit institutions. Rather, the credit institutions settle the difference between payments to and from their customers at fixed times of day. The amounts exchanged between two credit institutions are called the net positions.

Continuous Linked Settlement - CLS

CLS is a multilateral system that handles currency trading. Foreign exchange transactions involving Danish kroner are settled via CLS Bank’s account at the Danish central bank. CLS is owned by large international credit institutions.

Source: The Danish central bank

The objective is not to create a separate contingency plan for each FMI but rather to develop a comprehensive plan for maintaining access to the various FMIs in a resolution scenario. This includes outlining measures expected from FMIs and how institutions will respond to them. Institutions must also consider expected requirements from FMIs regarding collateral, liquidity, or information and plan how they will meet these requirements. As part of their contingency plans, institutions also analyse alternative providers of FMI services.

When developing contingency plans, institutions focus on ensuring the following:

  • Sufficient system support and retention of key employees to ensure continued access to FMIs during and leading up to a resolution scenario.
  • A clear understanding of the requirements from FMIs for continued access during and leading up to a resolution.
  • A clear communication plan for dialogue with FMIs, especially in the event of a crisis or during the period leading up to and during resolution.
  • Awareness of anticipated measures from FMIs, including liquidity obligations (e.g., how liquidity and collateral requirements are expected to be applied) and the methods and assumptions used to estimate liquidity needs under stress.

There is a high degree of regulatory coordination regarding FMIs because the exchange of information between supervisory, resolution, and FMI authorities will be crucial if either an institution or an FMI faces distress.

Governance

Governance Related to Resolution Planning

Institutions have to prioritise resolution planning and secure management support for these efforts as part of ensuring an effective resolution planning. Adequate staffing resources should be allocated to resolution planning to address and resolve potential barriers to resolution. The guidelines set the following requirements for management involvement in resolution planning:

  • Appointment of an executive director responsible for the institution’s resolution planning, per Article 91 of Directive 2013/36 (a member of the executive board).
  • Appointment of a senior-level executive responsible for implementing, managing, and coordinating the internal resolution planning/work program.

The guidelines specify in bullet points the tasks the director and senior experienced employee should perform, as outlined in the following box.

Institutions must also ensure that strategic decisions consider resolution-related interdependencies that affect resolvability (e.g., mergers or changes to the IT environment). Additionally, institutions should ensure effective information flow on resolution matters between the board of directors, the responsible senior employee, and other relevant staff so they can fulfill their roles before, during, and after the resolution event. Finally, institutions must ensure a quality assurance process, such as involving internal audit.

Governance in a Resolution Scenario

During the resolution of an institution, the Danish Financial Stability Company assumes control of the institution. This involves taking over the powers previously assigned to the executive management, board of directors, and shareholders. Upon taking control, a new executive management team is installed, and the existing board of directors is replaced.

Employees are informed about the takeover, which is also publicly announced. Employees play a crucial role during the resolution as they contribute to operationalising the resolution and maintaining essential functions and operations while the resolution is carried out. Therefore, it is vital that the institution has procedures to ensure the availability of key employees in a resolution scenario and their ability to contribute to an efficient resolution of the institution.

Funding and Liquidity During Resolution

In a resolution scenario, it is essential to secure sufficient liquidity and funding to implement the preferred resolution strategy. Therefore, institutions must establish clear processes and have the capacity to estimate liquidity and funding needs.

Institutions must also be able to calculate and report their liquidity position in a timely manner during resolution and identify and mobilise available collateral that can be used to obtain funding during and after the resolution process. Resolution planning must include information on liquidity sources available in a resolution, as well as potential regulatory and operational barriers.

Liquidity Analysis

Institutions prepare a liquidity analysis to identify the entities and currencies critical to liquidity and where liquidity risks may arise within the group.

Institutions must demonstrate their ability to calculate and report their liquidity position on short notice and show capacity to conduct liquidity analyses on current positions at the group level and for significant entities and currencies.

Liquidity is a highly dynamic area; and as part of the liquidity management, institutions have to identify liquidity drivers both before and during resolution, considering different types of crises.

Institutions must also be attentive to various issues, including:

  • Legal, regulatory, and operational barriers to liquidity transfers, particularly within a group.
  • Obligations related to payment, clearing, and securities settlement activities.
  • Counterparty and collateral requirements.
  • Contractual suspension, termination, and netting rights.
  • Minimum liquidity needs and intraday peak liquidity requirements.
  • Operating expenses and working capital requirements.
  • Available central bank liquidity facilities, including terms and conditions for access and repayment.

Mobilising Assets and Other Private Resources

Institutions may need to use other assets than usual as collateral if liquidity challenges arise, particularly during resolution.

Institutions must have the capacity to:

  • Identify all assets potentially usable as collateral.
  • Determine which assets are suitable for supporting resolution funding.
  • Distinguish between encumbered and unencumbered assets.
  • Monitor available and unencumbered collateral at the group level and for each significant legal entity or branch within the resolution group by currency.
  • Report detailed information on available collateral even under rapidly changing conditions.

To enable quick mobilisation of assets, institutions must develop and document all necessary operational steps. This mobilisation must be assessed, evaluated, and tested regularly (at least annually) to ensure it is effective and operationally robust.

Institutions prepare inventories of assets eligible for pledging to Danmarks Nationalbank, the Danish central bank or, if they have subsidiaries in the Banking Union, to the ECB (European Central Bank). These inventories ensure assets are legally available in a resolution scenario. Institutions regularly assess their collateral management capabilities, including monitoring, operationalising, and mobilising collateral, as well as developing and documenting all necessary procedures.

Institutions are particularly mindful of obstacles to fund transfers and legal barriers in foreign jurisdictions. They must be able to calculate and report the value of assets that can be freely transferred across the group while meeting local regulatory requirements and operational liquidity needs.

Access to Standard Central Bank Facilities

In their self-assessments, institutions must evaluate their potential need or ability to request liquidity from standard central bank facilities.

Institutions must ensure that the conditions for accessing standard central bank facilities for significant legal entities under resolution can be met, including minimum requirements, collateral needs, duration, or other terms.

As Danish financial institutions, they have access to Danmarks Nationalbank, the Danish central bank’s instruments, and if they have a subsidiary in the Banking Union, they also have access to the ECB’s facilities.

Institutions must provide information on the size and location of assets within the group that are expected to qualify as collateral for central bank facilities.

In Denmark, Danmarks Nationalbank, the Danish central bank, can also provide emergency liquidity assistance (ELA) to solvent credit institutions with acute liquidity needs that cannot obtain liquidity from the market. Danmarks Nationalbank, the central bank, evaluates whether the fundamental criteria for granting temporary ELA facilities are met in each specific case.

Information Systems

High-quality data available on time is a prerequisite for valuing the institution. Given the time-intensive nature of gathering data, institutions must have management information systems (MIS) capable of providing data within short timeframes.

Most of the EBA's guidelines on improving resolvability related to MIS are covered by regulations on resolution planning and preparedness. These regulations require financial institutions to be able to submit an updated balance sheet with a detailed statement of assets, liabilities, and other obligations shortly after the institution is deemed failing or likely to fail.

The resolution authority regularly tests Danish financial institutions’ ability to provide data.

At the conclusion of the test, the resolution authority assesses the institution’s ability to deliver relevant data and identifies any barriers to resolution.

Once annually, external and internal auditors must ensure that the institution can always calculate and present the required data for updated valuations.

Execution of Resolution

The operational execution of write-downs and conversions requires the involvement of the failing institution. To execute write-downs and conversions effectively, the institution must have policies and processes in place, which the resolution authority must be familiar with.

This information should be included in a playbook for write-downs and conversions formulated in the institution’s self-assessment, outlining operational execution based on EBA guidelines for improving resolvability.

The institution has to provide detailed descriptions of all actions necessary to support effective execution of write-downs and conversions from receiving instructions to final execution and communication with affected parties. This includes describing governance procedures to ensure decisions are made promptly in a resolution scenario.

The playbook should also outline the process for providing the necessary information for valuation (refer to the earlier section on information systems). Finally, there has to be details about both internal and external execution processes.

Last updated 03-04-2025