Danske Bank ordered to close Estonian branch within 8 months

The Estonian branch of Denmark's Danske Bank was ordered on Tuesday to cease its activities in Estonia within eight months due to alleged violations of financial regulations, said the Estonian Financial Supervisory Authority (FSA).

The FSA management board issued a precept to Danske Bank, prohibiting the branch of the bank from operating in Estonia within eight months from receipt of the precept, and the bank must consider the interests of its current customers in doing so, said a press release.

Nothing changes for now for customers of Danske Bank's Estonia branch, and all customer contracts continue to be in force. The reorganization of customer relationships will be carried out gradually over the next eight months. The bank will return all customer deposits in full, the release noted.

However, the bank may not force current borrowers to terminate their loan agreements or repay their loans early only because of the precept, it added.

Danske Bank must transfer all the loan contracts of its branch within eight months to some other unrelated bank or entity that is authorized to operate in Estonia and that will continue to serve those loans. If it cannot do so after reasonable attempts, it will find another lawful solution for how those loan contracts may continue to be served, provided that customer interests are adequately protected, said the release.

At the end of 2018, the branch had around 14,700 depositors and 12,300 borrowers in Estonia. The actual extent and nature of violations became apparent in autumn 2018 from internal investigation reports commissioned by Danske Bank, which were carried out under pressure from the public, it noted.

After analyzing the report thoroughly, together with the results of on-site inspections by FSA at the branch and input received from the Estonian Financial Intelligence Unit, the FSA concluded that the bank should not be allowed to operate in Estonia.

Danske Bank must present an action plan for closing its branch in Estonia to the FSA within 20 days. The FSA will monitor the process of closure of the branch very carefully and is ready if necessary to take additional supervisory measures to protect the interests of the customers of the branch and the credibility of the financial sector.

Kilvar Kessler, chair of the FSA management board, said that the serious violations by Danske Bank over many years and the damage done to the credibility of the Estonian financial environment require unambiguous condemnation.

"Our priority is to make sure that the customers of the bank are treated fairly and without unnecessary disruption, and so Finantsinspektsioon (FSA) has decided to impose a substantive penalty of 100,000 euros per day for each breach of the precept until it has been executed in full, up to a maximum value of 10 percent of the total net turnover of Danske Bank A/S, as this is the upper limit under Estonian law," Kessler said.

The FSA forced the bank to end its business serving non-resident customers in Estonia in 2015 in light of the evidence that was available at that time.

In September 2018, Danske Bank CEO Thomas F. Borgen announced his resignation following a money laundering scandal in the bank's Estonian branch.

Headquartered in Copenhagen, Danske Bank is the largest bank in Denmark and a major retail bank in the northern European region with over 5 million retail customers.