Denmark’s Financial Regulator Launches Strategic Reform to Ease Burden on Smaller Banks

The Danish Financial Supervisory Authority has unveiled a wide-ranging strategic initiative aimed at reducing the regulatory load on smaller financial institutions operating within Denmark’s banking sector. The project is designed to introduce a more proportionate supervisory framework for banks that operate primarily on a domestic basis and do not maintain complex or international business models. By concentrating on institutions with straightforward risk profiles, the authority intends to simplify compliance requirements without compromising the resilience and stability of the broader financial system.

The initiative places particular emphasis on areas such as recovery planning, capital redemption procedures and risk management obligations. The objective is to ensure that small savings banks are not subjected to the same detailed and resource-intensive regulatory standards as large, systemically important banking groups. This development builds on earlier adjustments to liquidity rules and fit and proper assessments, signaling an ongoing commitment by Danish regulators to embed risk-based supervision into the national framework.

Central to the strategy is a response to the steady expansion of financial regulation that followed the global financial crisis. Much of the regulatory growth stemmed from European Union legislation, which introduced uniform rules applied across institutions irrespective of size or structural complexity. The Danish Financial Supervisory Authority is now reviewing areas where national discretion allows for a more flexible interpretation for non-complex banks. The aim is to implement a proportionality regime that reflects actual operational risk rather than imposing excessive administrative requirements on smaller domestic lenders. By shifting away from a uniform regulatory template, the regulator hopes to promote efficiency in the banking environment while preserving strong protections for consumers and investors.

Concrete reforms are already under preparation to modify how smaller institutions manage recovery planning and capital structures. Among the proposed changes is a reduction in the frequency of mandatory recovery plan submissions for companies qualifying for simplified obligations, moving from annual reporting to once every three years. Additionally, the threshold for submitting a simplified capital raising plan instead of a full recovery plan is expected to increase from a balance sheet total of one billion Danish kroner to two billion. The authority is also developing streamlined procedures for obtaining approval to redeem a bank’s own capital instruments, particularly in cases involving market-making activities. These measures are intended to give small and medium-sized banks greater flexibility in handling share management and capital adequacy requirements.

Further adjustments are planned within the executive order on management, which governs corporate governance and risk management standards. The regulator intends to expand the application of proportionality within this framework, with specific updates scheduled for readiness by 2027 to ensure operational soundness remains intact throughout the transition. On solvency matters, the authority plans to issue guidance enabling smaller banks to rely on simplified methodologies when calculating capital needs and solvency supplements. This would significantly reduce the need for extensive supplementary analyses and sensitivity testing typically required of larger, more complex institutions. By refining these technical processes, the regulator aims to maintain sufficient capital coverage while easing the administrative strain on institutions with limited staff and operational scale.

The proportionality initiative is presented as a national effort that complements broader simplification work undertaken at the European level, particularly by the European Banking Authority. Although many regulatory details are determined within the EU framework, Danish authorities actively participate in technical discussions to advocate for risk-sensitive and proportionate standards. The current project will continue evaluating additional opportunities for simplification throughout 2026 to ensure that the supervisory framework remains aligned with practical realities.

At its core, the reform seeks to create a balanced oversight environment in which regulatory intensity corresponds directly to a bank’s systemic significance and individual risk profile. Through this recalibrated approach, Denmark aims to preserve a secure and stable financial market while ensuring that smaller institutions serving local communities can operate within a regulatory structure that is both manageable and appropriately tailored to their scale.

By fLEXI tEAM