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Record negative rates drive Danish FSA to crack down on Banks

Denmark’s financial regulator is planning to crack down on banks that respond to years of negative interest rates by channeling customers into investment products that may not suit their needs.

Photo: Lars Krabbe/IND

With retail deposit rates at or below zero, banks "have a strong incentive" to get customers to invest in products that generate fees and commissions, the Financial Supervisory Authority said on Thursday.

The watchdog now plans to “place extra focus on monitoring that the products customers are offered actually suit their risk profiles.” The FSA said it has sent a letter to the banks it supervises to drive home the point. Eight years of negative rates in Denmark -- a world record -- have left banks desperate for alternative income streams.

But the paths they’ve chosen haven’t always been legal. Earlier this year, Danske Bank was fined for advising clients to put their savings into investment products that ended up losing them money. The bank had failed to properly warn clients of the risks they faced, according to the watchdog.

"It’s important that customers can trust the investment products they are offered," said Jesper Berg, the head of the FSA. Banks have increasingly started passing the central bank’s negative rates on to retail clients. Starting Jan. 1, Danske clients with deposits exceeding 250,000 kroner (USD 40,700) will need to start absorbing negative rates.

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