Danske Bank has announced that its head of Banking DK, and member of the executive board Jesper Nielsen has been dismissed after it emerged that the bank will have to pay up to DKK400m (€53.6m) to reimburse customers who paid excessive fees on a type of investment account available in the Danish market.
The Flexinvest Fri account enables customers to access professional investment capabilities for investments starting at DKK5,000. A key element of the product is that the bank offers to managed all related issues, such as ensuring trades are done and relevant tax is paid, while customers have easy online and mobile access to a single account point of contact. (https://danskebank.dk/privat/produkter/investering/flexinvest-fri)
However, as discovered by the bank itself during an internal review, management decided to hike the level of fees at the time that it was implementing measures in 2017, linked to Mifid II.
"At the time, interest rates were low, and the expected returns were similarly low. In this perspective, the management decisions caused the fees to be set at too high a level in relation to the expected returns. This meant that fees were too high for all customers, and it made the product unsuitable for some customers. As a result, all customers who invested in the Flexinvest Fri product during the period in question will receive compensation from the bank before the end of 2019," the bank stated.
Danske Bank estimates that some 87,000 customers in Denmark who invested in the Flexinvest Fri product are affected.
This includes a group of customers who were already invested when the fees were hiked on 1 July 2017, and a second group who bought the product from 1 February 2017.
Those in the first group will receive compensation for the fees running through a period of 1 July 2017 to 19 November 2018, when the fees were lowered.
Those in the second group will also be compensated "for the returns they could have obtained by placing their investments in a relevant alternative to Flexinvest Fri."
Danske Bank said the typical customer will receive compensation of DKK1,000-2,000, with payments to be made "as soon as possible and before the end of the year."
The scandal came to light through a report from an employee in September 2018, along with a number of customer complaints about high fees.
This led to a review of the product and this in turn confirmed the issue of rising costs for customers relative to expectations of low returns. Fees were lowered across the board in November 2018.
"The Danish Financial Supervisory Authority (the FSA) has been informed on an ongoing basis and is currently looking into the matter. In this connection, we expect to receive justified and severe criticism from the FSA," the bank added.
Ironically, the mea culpa announced by Danske Bank comes in stark contrast to the naming of Danske Bank Asset Management as the best AM in the Danish market, according to the annual Prospera survey.
This looked at the assessment of some 91 organisations with more than DKK200bn (€26.8bn) in externally managed funds, and through its methodology ranked Danske Bank AM ahead of Nykredit, SEB, Nordea and Jyske Bank.