The Supreme Court has now decided on the scope of the fit & proper requirement for management members of financial companies. The ruling shows that the assessment of a management member’s fit & proper qualities is not limited to conduct in financial companies but also conduct in other non-financial companies.
The case concerned a review of the Danish FSA’s decision to order a board member to resign from the boards of directors of two financial companies. The order had been issued as the board member had previously been a board member of a non-financial company, which had received two reprimands for misleading marketing and which had been subject to special supervision by the Danish FSA.
It was therefore the Danish FSA’s opinion that the board member’s conduct in that company implied that the board member was not fit & proper to be a board member of two other financial companies - although there were no relations between the companies. The City Court, the High Court and the Supreme Court gave judgment in favour of that opinion.
The fit & proper requirement
A management member of a financial company must comply with special fit & proper requirements.
A management member of a financial company may therefore not act in a way where there are grounds for assuming that the person will be unable to discharge his duties in a proper manner. The fit & proper requirements of the Financial Business Act are based on the considerations for the interests of society in building up and maintaining a stable and well-managed financial sector.
If a management member fails to comply with the fit & proper requirements, the Danish FSA may order the person to resign, which was the case in the proceedings before the Supreme Court.
The scope of the claim
The fundamental question of the case was whether the board member’s conduct in a non-financial company may form the basis of an order to resign from a position as board member of financial companies when the conduct was not related to the financial companies. The Supreme Court found that this was the case.
According to the Supreme Court, the board member’s conduct in the non-financial company gave reason to assume that the person would neither be able to discharge his duties as board member of the two financial companies in a proper manner.
In addition, the Supreme Court established that it cannot in all cases be a condition for an order that the conduct would involve a significant risk that the company would be unable to continue its operations within two-three years. The five-year duration of the order was considered proportional by the Supreme Court.