How Danske Bank organizes due diligence in the fund distribution business.
Danske Invest is one of the largest fund managers in the Nordic region and offers a wide range of equity and bond funds distributed via Danske Bank – its parent company -, and also via other selected sub-distributors of Danske Bank.
In 2019, Danske Bank felt the need to take a hard look at their due diligence process with the aim to structure and centralize this work in a better way, since several internal units were involved in similar types of due diligence.
“It was about pinpointing all of these obligations to ensure that we are selling the funds in a compliant way, tapping into different processes and stakeholders internally at Danske Bank, because the majority of this was happening, but no one had the complete overview of who was doing what.”
Mikkel Jæger, Fund Distribution Oversight part of Product Management and Selection, Danske Bank
Why a special team for due diligence?
It is an obligation according to national laws and the EU directive MiFID II to make sure that funds are being sold to the right target market. Since Danske Bank is acting as a distributor for its subsidiary fund company Danske Invest, this type of work must be undertaken between the two connected legal entities, and also in relation to other external companies.
To keep track of the activities and avoid duplicate work in a group of many stakeholders, Danske Bank decided to set up a dedicated team for their distribution oversight, and this team is now also responsible for due diligence in the fund distribution business.
Mikkel Jæger comments on why a large company like Danske Bank needed a dedicated team for due diligence:
“You cannot place the responsibility of collecting answers for multiple due diligence questionnaires on just one of your stakeholders or your administration office, you need a real team that is responsible for it.”
The greatest challenge during the due diligence process.
In the past, the fund distribution related due diligence work at Danske Bank was performed by sending questionnaires back and forth via email to distributors, and several iterations was usually needed in order to obtain the needed information.
While spending most of the time collecting documents and other types of relevant information from all sub-distributors, there was usually not much time left to go into detail and analyze the given answers nor to perform an in-depth risk assessment at the end.
Putting an end to the laborious task of sending multiple questionnaires.
The whole team at Danske Bank soon realized that there must be a better way of reviewing their sub-distributors. Therefore, everyone concluded that there was a need for a more structured process for information exchange and a need for more efficient communication lines.
Karl Rogler and Mikkel Jæger joined forces on this initiative and together with their colleagues renewed the process for the ‘know your distributor’ due diligence and decided to use a cloud service provider to speed up the processes. As Mikkel Jæger outlined:
“It was nothing that just came up, rather something that had been a wish for some years. We needed assistance in collecting all data in an efficient, structured way. We wanted to have our own hands on it, not outsourcing everything to another company, but actually doing most of it ourselves, especially when it came to the actual risk assessment.”
Why GRC WATCH?
1. Being able to do both – performing and responding to due diligence.
In 2020, the first round of due diligence was performed in GRC WATCH. Separate company profiles were completed for Danske Bank and Danske Invest. In that way, the team at Danske Bank was not only able to perform due diligence on distributors but also respond to any due diligence requests coming their way from various stakeholders. For example, the sub-distributors of Danske Bank were also eager to do due diligence on fund companies who were part of their offering. In that regard, GRC WATCH facilitated due diligence in both directions between the same parties.
2. Easily share information with others by just granting access to one’s profile.
Right now, a total of six people is taking care of the due diligence process of GRC WATCH and updates the company profile on a regular basis on behalf of Danske Invest and Danske Bank. Collecting and saving all information in one place has been much appreciated from the start, as Mikkel Jaeger explained:
“We liked the functionality of having your own profile and being able to update all information in just one place. That made everything so much easier and enabled a more straight-forward due diligence process. As we saved time on chasing documents internally, we gained more time for analyzing information about our counterparties and for conducting a detailed risk assessment of our distributors.”
3. Active support provided by the GRC WATCH support team.
Together with the team at GRC WATCH, Danske Bank was able to implement a more structured risk assessment process that is built around 19 criteria and to align the questions in their old questionnaire with the one in GRC WATCH. Mikkel Jæger says about this collaboration that:
“Even though we are partners – coming from two different companies – it really feels like GRC WATCH is basically just the other team in Danske Bank assisting us with this tool for due diligence. At least this is how I feel about it.”
4. Possibility to submit feedback that will be considered for questionnaire updates and platform improvements.
“Linda Hellström and Susanna von Langsdorff made it really clear right from the start that they make regular updates on their platform and for this, are always looking for input from their network members. Of course, we are not able to dictate everything, but if you have a valid argument why a question or functionality should be added, then it will be taken into consideration and that is what we also liked about GRC WATCH.”
In fact, GRC WATCH always welcomes feedback from network members – both when it comes to the choice of questions in the questionnaires as well as features in the platform.
If you are interested in sharing your ideas with the team of GRC WATCH and be part of our feedback group for more standardized due diligence questionnaires, reach out to Linda Hellström or Susanna Langsdorff at any time.
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