European Banking Authority Closes Investigation into Danish and Estonian Bank Regulators Over Danske Bank Oversight

On April 17, the European Banking Authority (EBA) announced that it had closed “its formal investigation into a possible breach of Union law by the Estonian Financial Services Authority (FSA)  (Finantsinspektsioon) and the Danish Financial Services Authority (Finanstilsynet) in connection with money laundering activities linked to Danske Bank and its Estonian branch in particular.”  The EBA’s terse release added only that the EBA’s Board of Supervisors had voted the day before to reject a proposal for a breach of European Union law recommendation.

Previously, the EBA had announced on February 19 that it had opened an investigation of the Danish and Estonian FSAs  under Article 17 of the EBA’s founding Regulation.  The abrupt end of the EBA’s investigation, however, sent vague and ambiguous signals about the basis and significance of that decision.

One report by EU Observer took the view that the Board of Supervisors’ action had “cleared Danish and Estonian financial regulators of breaking any EU laws in their handling of” the Danske Bank situation.  Reuters reported, however, that “[n]ational banking supervisors who control the [EBA} effectively forced it to clear” the Estonian and Danish FSAs.  All but one of the 28 national supervisors on the Board reportedly rejected the EBA’s recommendation.  That rejection, according to Reuters, “blocked any further legal action by the EBA against the Estonian and Danish supervisors and signaled EU states’ reluctance to let the bloc’s authorities investigate the exposure of their banking systems to financial crime.”

Note: The lack of transparency in this action by the EBA should satisfy no one.  Given the already white-hot glare of publicity over the Danske Bank scandal since last fall, and calls by the European Commission and European Parliament members for further inquiry into the FSAs’ oversight of Danske Bank, the EBA must have known, at the time it opened the investigation of the Danish and Estonian FSAs, that even that initial step would create a particularly dark cloud of suspicion over those FSAs.

For its part, the Board of Supervisors’ decision, while entirely within its authority, does nothing to dispel doubts about the capacity of the EBA to play any meaningful role in ensuring effective AML oversight within the Union.   If it truly concluded, on the basis of available evidence, that there is no basis to pursue the inquiry further against either FSA, the Board owes it to the Commission – and to the FSAs whose conduct was called into question – to say so in specific terms.