Danske Bank A/S : Explanatory account to the Danish FSA

Danish Financial Supervisory Authority

Århusgade 110

DK-2100 København Ø

For the attention of Anne Fenger and Ulla Brøns Petersen

Sent to: Ulla Brøns Petersen

([e-mail]), Anne Aarup Fenger

([e-mail]), DABA supervisory contact ([e-mail])

Contact: Rob De Ridder

File no. 21-00306521-003066

Danske Bank A/S

Holmens Kanal 2-12

DK-1092 København K

Tel. [phone] www.danskebank.com

1 September 2021

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Explanatory account submitted to the Danish Financial Supervisory Authority

Background and purpose

The purpose of this letter is to answer the questions presented in the letter dated 11 August 2021 from the Danish Financial Supervisory Authority (the Danish FSA) in which the Danish FSA requests answers to a number of questions related to the 14,000-16,000 closed estate cases that may be based on flawed data (Additional issue 1a) and to questions related to the total portfolio of potential additional issues.

As previously communicated, we apologise for the problems that this case has caused our customers and other involved parties. As the Danish FSA is well aware, we are fully committed to resolving the outstanding matters and to compensating affected customers as quickly as possible. We will continue to take further initiatives to ensure that improvements are implemented on an ongoing basis and as soon as possible.

The answers given by Danske Bank overall cover two main areas:

1. The 14,000-16,000 closed "court cases" and the answers to the questions asked by the Danish FSA about these estate cases.
2. An update of Appendix 2 to the bank's memorandum dated 28 June 2021 regarding the 27 potential additional issues and answers to clarifying questions about these issues. In addition, a description is given of the interdependencies that may exist in relation to the 27 potential additional issues in respect of the four root causes and of interdependencies among the 27 potential issues.

The bank's explanatory account reflects the current status of the analysis work and the work to remediate the errors in the customer cases. The analysis work continues and the figures may therefore be changed in future as and when the bank gains increased insight.

1. In relation to closed "court cases" and the answers to the questions asked by the Danish

FSA in that context., the following questions are answered:

1. What are the characteristics of the issue in these cases and how may third parties be affected? - How may a third party have a claim against the bank if the debtor does not?
2. Is the problem covered by Danish television channel TV 2 identical to the problems described by the bank in its explanatory account dated 10 September 2020 and 20 October 2020?
3. The Danish FSA requests that Danske Bank confirm that adequate measures have been taken to ensure that the issue can no longer arise.
4. What is the relationship between the number of affected customers and the number of affected closed estate cases?

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1. What are the characteristics of the issue in these cases and how may third parties be affected? - How may a third party have a claim against the bank if the debtor does not?

Characteristics of the issues

The characteristics of the mentioned cases which are subject to Potential additional issue 1a are as follows:

There are four types of cases in which debt was owed to the bank: estates of deceased persons, bankruptcy estates, debt relief cases and reconstruction proceedings (collectively referred to as "estates" or "estate cases"- previously referred to as "court cases")

• The bank has proved a claim against the estate in question
• The estates were in debt to other creditors
• Dividend has been paid from the estate to creditors, which means that the assets of the estate have been divided between the creditors
• The administration of the respective estate cases has been completed and closed before the probate and bankruptcy courts, which means that it is too late for the bank to correct the potentially incorrect claims proved against the individual estate

Impact on third parties

As a result of the flawed data in the bank's debt collection system, the bank may have proved an incorrect claim against an estate.

In estate cases, the assets of the estate are divided between the creditors on the basis of the often overdue debt owed to the individual creditors. If the bank has proved too large a claim against an estate on the basis of flawed data, the bank will have received a dividend payment that was larger than the one to which the bank was entitled, and other creditors will have received a smaller dividend payment than the one to which they were entitled. If the bank has proved too small a claim against an estate as a result of one of the four root causes and the potential additional issues, the bank will have received a smaller dividend payment. In those cases, the bank will not increase its claim.

The bank is having a dialogue with the Danish Court Administration about how to handle the affected cases correctly and with as little burden as possible to the Danish probate and bankruptcy courts, creditors and other involved parties, including about whether some of the cases need to be retried. Hence it has yet to be decided whether some cases need to be retried or whether re-payment of dividend can and is to take place without the cases being retried. A working group has been appointed and it consists of representatives of the bank, the Danish Court Administration and selected probate and bankruptcy courts, and the group is still working to find a solution.

1. Is the issue covered by Danish television broadcaster TV 2 identical to the issues described by the bank in its explanatory accounts dated 10 September 2020 and 20 October 2020?

TV 2's media coverage is based on the issue included the bank's explanatory accounts submitted to the Danish FSA on 10 September 2020 and 20 October 2020 and identified as Potential additional issue 1a under the heading "court cases". Furthermore, we point out that the term "court cases" has been used for designating the category that, in reality, concerns estate cases (see the above description).

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1. The Danish FSA requests that Danske Bank confirm that adequate measures have been taken to ensure that the issue can no longer arise.

Measures taken by Danske Bank

The bank is of the opinion that, in respect of the vast majority of cases and on the basis of information currently available, adequate measures have been taken to ensure that the issue can no longer arise. Since 17 December 2019, the bank's measures have involved both withdrawal and correction of cases, and an explanatory account of these measures was submitted to the Danish FSA in the bank's replies of 10 September 2020 and 20 October 2020. Among other things, the measures have been adjusted on an ongoing basis as the bank has learned more about the nature of the issue and as the bank has become aware of the potential additional issues. This means that, in some cases, we have found out that the corrections were thus incomplete. We would like to point out that the bank has not yet completed the analysis of all of the potential additional issues, which means that new insight may give rise to additional or changed measures in future.

The bank thus points out that, in connection with the bank's clean-up activities, it has unfortunately identified cases that, for various reasons, have not followed the necessary procedures or where the established measures have not been effective enough. These deviations are included as part of the dialogue with the Danish Court Administration.

We have identified the following deviations from the established measures and procedures for estate cases:

• Consideration for debtors and third parties
  In some cases, a debtor and/or a third party may be put in an inferior position if the bank's claim is not proved against an estate or is withdrawn. A problem may rise if an administrator, as a result of a lack of information from the bank, includes a misleading and too large a claim on behalf of the bank, and the future process for co-debtors and guarantors becomes complicated if the bank does not prove and calculate its claims against the respective estates. In such cases, the bank has therefore calculated and proved its claims as correctly as possible on the existing basis and stated that the claims proved may be incorrect, for instance, because of some of the other potential additional issues.
• Insufficient process for one type of cases
  For one type of cases, estates of deceased persons, 700 cases were filed and 610 of these cases were closed during the period from 1 February 2020 to 17 August
  2021. Unfortunately, the bank's process for this type of cases was inadequate since the bank assumed that it would also later be possible to adjust the claims. Of the 610 cases closed, Danske Bank may have received too high a dividend payment only in 100 of the closed cases that resulted in dividend payment to Danske Bank. The remaining 90 cases are still pending, and the bank will rectify them as soon as possible.
• Delayed instructions for debt collection agencies
  As communicated on 1 December 2020, the bank did not instruct debt collection agencies to withdraw the active cases until 22 April 2020.

All the issues mentioned above are included in the adjustment and correction of closed cases currently undertaken by the bank.

We will inform the Danish FSA if the bank becomes aware of other deviations in estate cases or other types of cases.

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1. Relationship between the number of affected customers and the number of affected closed estate cases

Preliminary estimate of affected estate cases (14,000-16,000 estate cases):

These are cases where the assets of an estate are divided between the creditors of the estate on the basis of the debt owed to the individual creditors. In general, this does not affect the customer, but the various creditors and the dividend payments between them.

The scope of Potential additional issue 1a regarding closed estate cases has yet to be fully analysed. The estimate of the number of cases (approximately 14,000-16,000) is an early and preliminary estimate of the potentially affected number of cases covered by the initial dialogue with the Danish Court Administration, which requested information about the estimated percentage distribution of cases in the various judicial districts in June 2021. The estimate is based on an initial spot check and should be expected to be revised once the work to determine the scope has been completed.

At the request of the Danish Court Administration, the bank has shared the initial estimates by email on 14 June 2021. TV 2 applied for and was subsequently granted access to this information.

Possible relationship:

The issue concerning the 14,000-16,000 cases is based on the fact that the bank has potentially filed an incorrect amount of outstanding debt in the estate cases because the individual customer may be affected by either the four root causes and/or the identified potential additional issues. The incorrect amount of outstanding debt will be rectified for the customer through the remediation process for the four root causes or the potential additional issues. Cases involving creditors will be addressed through the remediation process for Potential additional issue 1a.

Additional involved customers (10,000-15,000 customers):

The additional involved 10,000-15,000 customers referred to in the bank's memorandum of 28 June 2021submitted to the Danish FSA are an estimate of the additional number of customers who may be entitled to compensation as a result of the potential additional issues identified and thus do not directly concern the closed estate cases in which mainly creditors are in scope in general.

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