Danske Reported to Police for Overcharging Retail Investors

(Bloomberg) -- Denmark’s financial watchdog has reported Danske Bank A/S to the police after it overcharged retail investors.

The bank, which is already under criminal investigation in the U.S. and across Europe for its role in an Estonian money laundering scandal, misled its customers about the returns they could expect on short-term investments, the Financial Supervisory Authority in Copenhagen said in a statement on Friday. Even though Danske was aware that many of its clients were facing negative net returns, it didn’t alert them to that risk, the FSA said.

The scandal, centered around an investment platform called Flexinvest Fri, has already cost a top Danske executive his job and comes as the bank is struggling to rebuild its image against the backdrop of its dirty-money affair. Shares in Danske Bank have plunged about 30% this year after falling almost 50% in 2018, as investors turned their back on the lender.

In its statement on Friday, the FSA called Danske’s practice of overcharging retail clients “a very serious breach” for which the bank now faces a number of regulatory orders. These include conducting new reviews of each customer using Flexinvest Fri to ensure that they’ve been sold appropriate investment products.

The FSA’s criticism was “harsh and justified,” said Chris Vogelzang, who started as Danske Bank’s chief executive officer in June. Thomas Borgen, his predecessor, was ousted last year and has since had preliminary criminal charges brought against him in connection with the laundering case. Borgen was initially replaced on an interim basis by Jesper Nielsen, who had overseen the unit that offered Flexinvest Fri. Nielsen was fired in late June.

Vogelzang said that when Danske became aware of the problem in late 2018, it “launched a thorough investigation and notified the FSA. Our customers must be able to trust that we have their best interests in mind and that we provide correct and adequate information and advisory services to them. We have not lived up to this in this case.”

The FSA said it is monitoring closely the kind of investment products being offered to customers with low risk appetites and short time horizons, in part due to the Danske case but also because of the extremely low interest-rate environment. Denmark’s central bank first cut its benchmark rate below zero in mid-2012, earlier than any other country.

To contact the reporters on this story: Frances Schwartzkopff in Copenhagen at fschwartzko1@bloomberg.net;Christian Wienberg in Copenhagen at cwienberg@bloomberg.net

To contact the editor responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net

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