This country-specific Q&A provides an overview of the legal framework and key issues surrounding fintech law in Denmark.
This Q&A is part of the global guide to Fintech.
For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/fintech-2nd-edition
What are the sources of payments law in your jurisdiction?
The provision of payment services within or into Denmark is regulated by the Danish Payments Act (In Danish: Lov nr. 652 af 8. juni 2017 med senere ændringer, om betalinger) (the Danish Payments Act).
The Danish Payments Act implements the Original and Revised European Union (EU) Payment Service Directive (PSD1 and PSD2), the EU Directive on Electronic Money, and the EU Directive on Interchange Fees for Card-Based Payments Transaction, which all are fully implemented into Danish law.
Can payment services be provided by non-banks, and if so on what conditions?
Payment services can be provided by non-banks, either by an electronic money institution or payment institution, see the Danish Payments Act § 9.
An electronic money institution is defined as a legal entity authorized to issue electronic money. A payment institution is defined as a legal entity authorized to offer payment services. Both are hereafter referred to as payment service providers.
A payment service provider must apply for a license at the Danish Financial Supervisory Authority. The payment service provider must fulfil the conditions set out in the Danish Payments Acts chapter 2 in order to be granted such license. When applying, the applicant must provide all information necessary for the Danish Financial Supervisory Authority to assess whether the applicant fulfils the criteria.
For a payment service provider to be granted a license, it will have to comply with the criteria set out in § 10 in the Danish Payments Act:
- The applicant must be a limited liability company, and the management must consist of both an executive committee and a board of directors.
- The applicant must be situated and have its head office located in Denmark, and at least perform some its activities in Denmark.
- The applicant must have an initial capital of at least:
- 350,000 Euro for electronic money institutes
- 125,000 Euro for payment institutes, applying in accordance with annex 1, no. 1-5, to the Danish Payments Act.
- 20,000 Euro for payment institutes, applying in accordance with annex 1, no. 6, to the Danish Payments Act.
- 50.000 Euro for payment institutes, applying in accordance with annex 1, no. 7, to the Danish Payments Act.
- Members of the executive committee, board of directors, the anti-money laundry (AML) responsible person and members of the actual management responsible for compliance and AML, must comply with the fit and proper requirements in § 30 of the Danish Payments Act.
- Direct or indirect owners of at least 10 % of the shares, voting rights or other powers with a decisive influence on the applicant, must be approved by the Danish Financial Supervisory Authority in accordance with § 23 in the Danish Payments Act.
- The applicant must not have close links between the payment institution and other natural/legal person’s that will prevent the Danish Financial Supervisory Authority in exercising their supervisory functions.
- The applicant must have proper and effective organisational structures, procedures and codes of practice.
- The applicant must have the resources to comply with the Danish Anti-Money Laundry Act (In Danish: Lov nr. 930 af 6. september 2019, hvidvaskloven) (The Danish Anti-Money Laundry Act).
- The applicant must secure the funds related to the user of the payment service by ring fencing the funds, in accordance with § 35 in the Danish Payments Act.
- The applicant must ensure proper organization of its activities.
In addition to the criteria set out above, applicants applying in accordance with annex 1, no. 7, to the Danish Payments Act, must have a liability insurance or otherwise provide a guarantee that the applicant will reimburse potential claims against the applicant.
If the applicant provides other services than payment services (for which the applicant applies), the Danish Financial Supervisory Authority can decide that the payment services must be carried out by a separate legal entity from the applicant under the following criteria:
- If the activities effects or are deemed to effect the solidity of the applicant, or
- the activities otherwise effect the Danish Financial Supervisory Authority in exercising their supervisory function.
What are the most popular payment methods and payment instruments in your jurisdiction?
The most used payment method in Denmark is payment cards, which makes up 73 % of all retail payments in Denmark. The most used payment instrument is the national payment card Dankort which make up the majority of card payments in Denmark. However, the use of international payment cards, like Mastercard Debit and Visa Debit has increased lately, and made up 27% of payment card payments in the first half-year of 2019.
The use of digital cards like Apple Pay, Google Pay and the national solution Mobilt Dankort is growing, but overall the use is still limited. Regarding mobile payments, it is the national solution, MobilePay, that is the most used; hence there is not a mainstream competitor to MobilePay at the moment.
What is the status of open banking in your jurisdiction (i.e. access to banks’ transaction data and push-payment functionality by third party service providers)? Is it mandated by law, if so to which entities, and what is state of implementation in practice?
Financial institutions are obliged to provide access to account data and payment initiation to licensed third party payment providers in accordance with the Danish Payments Act (In Danish: Lov nr. 652 af 8. juni 2017 med senere ændringer, om betalinger, med senere ændringer), on objective, non-discriminatory and proportionate terms. This is in accordance with the TPP-regime found in Revised Payment Service Directive (PSD2) directive.
Danske Bank has launched their own open banking platform (which is used by e.g. MobilePay, Nordic API Gateway & Minna Technologies). The same tendency is seen throughout the rest of the Danish banking-sector.
How does the regulation of data in your jurisdiction impact on the provision of financial services to consumers and businesses?
Regarding the protection of personal data, providers of financial services in Denmark are subject to the EU General Data Protection Regulation (GDPR), as well as the Danish Data Protection Act (In Danish: Lov nr. 502 af 23. maj 2018, databeskyttelsesloven) (the Danish Data Protection Act).
After the implementation of the Revised EU Payment Service Directive (PSD2), the regulation of processing payment data is eased in Denmark, however the processing is still regulated and is applicable to all businesses that process payment data.
It is important to note that the restrictions on processing payment data, c.f. The Danish Payments Act (In Danish: Lov nr. 652 af 8. juni 2017 med senere ændringer, om betalinger) is only applicable to data within the definition of payment data in the Danish Payments Act. This means that only data that can be identified to a person and connected to the specific use of the payment service is covered by the Danish Payment Act.
Likewise, data collected clearly separate from the payments is not covered by the Danish Payments Act, and is only regulated through GDPR and the Danish Data Protection Act. Personal data rendered anonymous in a way such that the person no longer can be identified, is not regarded personal data, hence the processing is not subject to data protection regulation.
Processing of payment data is only allowed in connection with:
- The completion or corrective actions regarding a payment,
- Services that are addressed directly to the user, but only upon request and with an explicit consent from the user,
- Depersonalisation of payment data.
Processing used in order to stipulate individual prices and/or terms is excluded from the abovementioned lawful purposes. However, processing concerning individual prices/terms is allowed in conjunction with the performance of a credit rating.
What are regulators in your jurisdiction doing to encourage innovation in the financial sector? Are there any initiatives such as sandboxes, or special regulatory conditions for fintechs?
The Danish Financial Supervisory Authority in conjunction with the Danish government has a vision to make it easier for fintechs to grow in Denmark. The Danish Financial Supervisory Authority is likewise working to minimise legal uncertainties regarding fintech, and provide additional guidelines to help fintechs.
Further, the Danish Financial Supervisory Authority has launched a fintech sandbox ‘FT Lab’, where selected companies can test their innovations in a secure environment. The purpose of the sandbox is to provide a basis for testing financial products, promoting the development of these and enabling the Danish Financial Supervisory Authority to better understand fintech and support the use of new technology.
At the moment, there are no special regulatory conditions applicable to fintech.
Do you foresee any imminent risks to the growth of the fintech market in your jurisdiction?
Generally, we do not foresee any risks to the growth of the fintech market in Denmark and the fintech market has been growing year-over-year. Further, we see an increasing trend towards collaborations where financial institutions are seeking out partnerships with start-ups proving a more agile approach to new fintech solutions.
The fintech environment is strong and able to attract investments and capital. This is underpinned by Copenhagen FinTech Lab’s continuous ability to attract partners and sponsors both domestically and internationally, including international banks, IT-giants and payment service providers such as Nordea, SAP, Visa and Mastercard.
What tax incentives exist in your jurisdiction to encourage fintech investment?
No special tax-investment schemes with a focus on fintech are available in Denmark.
However, investments into R&D may be deducted for tax purposes, in the year in which the investments are made, or may be capitalized and subjected to accelerated depreciations. Furthermore, an investment incentive scheme has been introduced for R&D activities, under which the tax value of R&D deductions may be taken at the following – progressively increasing – percentages:
Tax value (measured in %)
Insofar as taxpayers elect to deduct borne R&D expenses in the income year in which they are incurred, that taxpayer may opt to have any tax loss paid out at the (corporate income) tax value of the expenses, i.e. 22% of incurred R&D expenses may be made payable to the taxpayer, under the tax credit regime.
Due to the lack of skilled workers in the fintech and IT-area in general, and due to the general high burden of taxation in Denmark, attractive tax-schemes have been made available to foreign scientists and high paid workers. If the worker fulfils the criteria, the worker will only be taxed 32.84 % for the first seven years of work, compared to the ordinary marginal tax rate of up to 56.5 %.
Lastly, a general investment scheme where natural persons can invest up to DKK 50,000 each year in shares, and only pay a yearly tax of 17 % of the yield compared to a tax of 27 % of the yield when the shares are sold.
Even though the scheme has not been around for long, it is not expected to have a significant influence on fintech investments or other investments in general due to the low yearly investment cap.
Which areas of fintech are attracting investment in your jurisdiction, and at what level (Series A, Series B etc)?
Overall, the payments area is attracting the most investment, both in seed rounds and on Series A, B and C level, followed by smaller investments in neo-banking and new types of real estate investment schemes. At this point in time there is approximately 162 fintech start-ups in Denmark.
If a fintech entrepreneur was looking for a jurisdiction in which to begin operations, why would it choose yours?
Denmark ranked no. 3 in the latest Ease of Doing Business Rank. Further, the Danish society and infrastructure in general is highly digitalised and one of the countries with the highest digital performance in the EU. The highly digitalised infrastructure of the country makes it possible to establish a company in approximately ten minutes through the website virk.dk run by the Danish Business Authority.
The population of Denmark is fast to embrace digital solutions, including fintech, and in general has a high degree of knowledge in the digital area. An example hereof is the recent report by AudienceProject, where the Danish app for mobile payments ‘Mobilepay’ by Danske Bank was ranked as the app most people would be reluctant to live without, superseding Facebook for the first time. Danes are regarded as some of the best non-native English speakers; hence, language is not generally a barrier to doing business in Denmark.
Further, there is an overall progressive movement within the fintech area in Denmark, supported by a number of corporations and interest groups, providing various opportunities for fintech entrepreneurs. The best example hereof is Copenhagen FinTech Lab, which is the leading fintech hub in Denmark founded by corporations and sponsors by a number of interest groups and corporations with interest in growing the fintech market in Denmark.
The Danish Financial Supervisory Authority is continuously seeking to ease the access to legal transparency in the area of fintech, providing guidance and setting up the FT lab, which is the Danish Financial Supervisory Authority’s sandbox initiative where selected companies can test their innovative solutions from a regulatory perspective.
Due to the country’s limited size, highly digital infrastructure and the population’s knowledge of English, Denmark makes a good business case, to enrol new projects. Easing the access to and legal uncertainties in the area of fintech is also a focus area for the Danish government and the Danish Financial Supervisory Authority.
Access to talent is often cited as a key issue for fintechs – are there any immigration rules in your jurisdiction which would help or hinder that access, whether in force now or imminently? For instance, are quotas systems/immigration caps in place in your jurisdiction and how are they determined?
Workers from inside the EU, the European Economic Area and Switzerland are free to live and work in Denmark; however, a registration certificate is needed if the worker want to stay in Denmark for more than 3 months.
Workers from other areas must as a main rule obtain a working permit before carrying out any work in Denmark. There are several different schemes under which a worker can obtain a working permit. For example, it is possible to be granted a work permit if; the worker has been offered a job in Denmark with an annual salary of DKK 426,985.06 (As per September 2019) or higher, and if the worker can present an actual contract and the employment terms of the contract is in accordance with Danish standards.
Likewise, if the worker has been offered a job on the Positive List (which is a list of professions experiencing a shortage of qualified workers, the list is updated twice a year), it is possible to get a working permit with a lower salary than under the pay limit scheme. There is often fintech-related job is on the list (at the moment (October 2019) jobs like IT-engineer, IT-consultant and programmer and system developer).
If there are gaps in access to talent, are regulators looking to fill these and if so how? How much impact does the fintech industry have on influencing immigration policy in your jurisdiction?
As mentioned earlier, an attractive tax-scheme has been made available to scientists and high paid workers. If the worker fulfil the criteria, the worker will only be taxed 32.84 % of his salary for the first seven years of work.
Immigration is generally a hot topic within Danish politics which is not easily influenced by specific sectors. However in order to accommodate tech based sectors, the Positive List, which is mentioned above, has been introduced to make access for employees in this type of sector easier.
What protections can a fintech use in your jurisdiction to protect its intellectual property?
Under the Danish Copyright Act (In Danish: Lov nr. 144 af 23. oktober 2014, om ophavsret) (The Danish Copyright Act), the source code and object code of software can be protected by copyright. Furthermore, text (manuals etc.), GUI (graphical user interfaces) and specific design elements can be protected by copyright by itself. For the item to be protected by copyright the criterion on originality under EU law must be met.
As a fintech-company, where software is a valuable part and plays a key role, it is important to secure the rights to software. Under the Danish Copyright Act, who is granted the copyright to software depends under which circumstances the software is developed.
If employees of a company develop the software, the rights will automatically be granted to the company. Opposite, if a software developer develops the software under a separate agreement with the company, the rights vests with the developer per default, even though the buyer has planned some of the functionality of the software.Hence, it is important to manage the rights to such software (e.g. a full transfer or specific licensing terms) in the contract under which the software is developed.
It is likewise possible to protect databases either through a copyright protection if the selection or arrangement of the databases content is original. Alternatively, through the sui generis right, if there has been a substantial investment in either obtaining, the verification or the presentation of the data.
Design elements can also be protected as either a national or EU-community right; the right can be registered or unregistered. The design must be deemed novel and with an individual character to enjoy the protection, c.f. the Danish Design Law (In Danish: Lov nr. 89 af 29. januar 2019 med senere ændringer, designloven,).
Software related inventions cannot be patented as such under the Danish Patent Act (In Danish: Lov nr. 90 af 29. januar 2019, patentloven (in accordance with the European patent convention)). Software can however be patented if the invention has a further technical effect which goes beyond the basic software/hardware interaction, or if the invention in some way is combined with hardware, assumed that the general requirements for patent protection is fulfilled.
How are cryptocurrencies treated under the regulatory framework in your jurisdiction?
Cryptocurrencies are not regulated separately under Danish law. However, according to the new Danish Anti-Money Laundry Act (In Danish: Lov nr. 930 af 6. september 2019, hvidvaskloven), which enters into force the 1st of January 2020, suppliers of currency exchange-services between virtual currencies and FIAT-currencies and suppliers of custodian-wallets will have to comply with the new Danish Anti-Money Laundry Act.
Virtual Currencies are defined as a digital representation of value, which;
A) is not issued or warranted by any central bank or other public authority,
B) is not necessarily tied to any legally established currencies, and
C) Does not possess the same legal status as currency or money, but is accepted by natural and legal persons as a means of exchange, which can be transferred, stored or traded electronically.
A supplier of a custodian-wallet is an entity, which supplies the service of protecting cryptographic-keys on behalf of its customers with a view to hold, store or transfer virtual currencies.
The Danish Financial Supervisory Authority has issued a statement, stating that a cryptocurrency may fall within the Danish Payments Act (In Danish: Lov nr. 652 af 8. juni 2017 med senere ændringer, om betalinger). Whether or not a particular coin or token will constitute electronic money will be decided on a case-by-case assessment. This will be the case if a coin or token;
A) represents an electronically stored monetary value,
B) represented by a claim on the issuer, which is issued on receipt of funds,
C) with the purpose of making payment transactions, and
D) which is accepted as a payment by other natural/legal persons than the issuer himself.
The Danish Financial Supervisory Authority has in a specific case concluded that a token did not constitute electronic money, with the reasoning that the specific token itself was the means of payment; hence, the payment did not function independently of the underlying claim on the issuer, and therefore did not fulfil the criteria for electronic money.
How are initial coin offerings treated in your jurisdiction? Do you foresee any change in this over the next 12-24 months?
At the moment, an initial coin offering (ICO) is not directly regulated in Denmark. This will change when the new Anti-Money Laundry directive enters into force the 1st of January 2020.
Suppliers of currency exchange-services between cryptocurrencies and FIAT-currencies and suppliers of custodian-wallets will have to comply with the Danish Anti-Money Laundry Act (In Danish: Lov nr. 930 af 6. september 2019 med senere ændringer, hvidvaskloven,). A FIAT-currency is defined according to the Danish Anti-Money Laundry Act as a legal mean of payment issued by a central bank.
If the ICO involves the exchange of FIAT currencies, which is likely to be the case in the majority of all ICOs, based on the assumption that the purpose of the ICO is to gain financing through an exchange of the cryptocurrency for a FIAT currency, then the issuer of the coin must comply with the Danish Anti-Money Laundry Act.
Whether an ICO is covered by the EU Prospectus Regulation/ Danish Capital Markets Act (In Danish: Lov nr. 931 af 6. september 2019) or the Danish Payments Act (In Danish: Lov nr. 652 af 8. juni 2017 med senere ændringer, om betalinger), is based on an individual assessment of each case.
The Danish Financial Supervisory Authority has issued a statement, stating that certain tokens, if the token resembles transferable securities, is regulated in Danish Capital Markets Act & the EU Prospectus Regulation. Hence, if the ICO is covered, the issuer must issue a prospectus.
According to the Danish Financial Supervisory Authority, this will often not be the case if the token does not grant the investor any economically or decisional-making power over the issuing company. However, this is still down to a case-by-case assessment.
Are you aware of any live blockchain projects (beyond proof of concept) in your jurisdiction and if so in what areas?
There are a number of live blockchain projects in Denmark. One notable example includes, Openledger, which was founded in 2014. It provides a range of services including, financial smart contracts, decentralized exchanges and public ledgers, and aims at enabling businesses to leverage blockchain solutions. We expect to see more live blockchain projects becoming active in the coming years.
To what extent are you aware of artificial intelligence already being used in the financial sector in your jurisdiction, and do you think regulation will impede or encourage its further use?
Nets and KMPG have co-developed an AI-powered (Machine learning based) payment fraud prevention solution called Nets Fraud Ensemble. Which have reduced fraud transactions by 25 % during the first month of operation.
The regulation of AI is still in its early form. However, it is an area of focus both in Denmark and on an EU-level. In April the European Commission published, its guidelines for working with AI. In addition, a regulation of AI from EU is in the pipeline within the next couple of years.
Insurtech is generally thought to be developing but some way behind other areas of fintech such as payments. Is there much insurtech business in your jurisdiction and if so what form does it generally take?
Insuretech businesses have in general received less focus than fintech providers related to payment services and other services related to the banking sector. Insurtech has therefore in general been included in the general reference to fintech in Denmark. It is therefore difficult to single out what form it generally takes in Denmark.
Are there any areas of fintech that are particularly strong in your jurisdiction?
The strongest area for fintech in Denmark is within the B2B segment, where the payments area is most competitive, followed by tools for managing finances, tax, invoicing and accounting targeting SME’s. Within the B2C area there has been a focus primarily on innovative investment solutions.
What is the status of collaboration vs disruption in your jurisdiction as between fintechs and incumbent financial institutions?
In the past, we have mainly seen Fintech solutions being developed by incumbent financial institutions (e.g. MobilePay developed by Danske Bank). However, as previously mentioned, we see an increasing trend towards collaborations between financial institutions and fintechs, leveraging a more agile approach to development. This includes, for example, the Copenhagen Fintech Accelerator project, led by two incumbent financial institutions, Nykredit and Danske Bank, in which 8 fintechs have been selected to co-operate with the financial institutions to develop new solutions within the financial sector. We expect to see an increasing focus on such collaboration exercises moving forward.
To what extent are the banks and other incumbent financial institutions in your jurisdiction carrying out their own fintech development / innovation programmes?
Traditionally, banks and other incumbent financial institutions Denmark have focused on developing their own Fintech solutions and innovation programmes, as opposed to partnering with local fintechs. However, as previously stated, we are beginning to see a growing shift in the market towards collaboration between incumbent financial institutions and fintechs, either through formal partnerships or acquisition.
Are there any strong examples of disruption through fintech in your jurisdiction?
Over the last few years, we have seen a number of examples of disruption through fintech in Denmark. A particular focus of this disruption has been within open banking and data aggregation, where new start-ups have been able to disrupt the market, partly at least, as a result of PSD2. An example of this includes Lunar Way, a digital mobile-based banking app, which now has more than 100,000 users across the Nordics.