Although the 2006 Financial System Stability Assessment (FSSA) of Denmark by the International Monetary Fund (IMF) does not formally assess the country against the Objectives and Principles of Securities Regulation promulgated by the International Organization of Securities Commissions (IOSCO), an accompanying Technical Note does attest that the supervisory framework and practices generally adhere to sound supervisory practices and principles regarding the regulation of securities markets as codified in the IOSCO Principles. The FSSA also observes that the financial sector is deep, diversified and well-developed and that it operates within a strong legal framework, which is closely aligned with the European Union directives and prescriptions. The Danish Financial Supervisory Authority (DFSA), as the integrated financial sector supervisor, aims to observe the IOSCO standards in its supervisory objectives, according to the DFSA website. The DFSA shares the responsibility of financial supervision with the National Bank of Denmark and has clear terms of coordination and power-sharing with it. The 2007 IMF Technical Note finds no gaps in the DFSA's supervision and praises Denmark for being one of the fastest states to integrate EU laws into domestic legislation and to go beyond the standards of other comparable countries in the effective enforcement of securities regulation. By way of recommendation, the Technical Note calls for greater allocation of financial and staff resources to the DFSA commensurate to its supervisory responsibilities.

General Overview

The 2006 Financial System Stability Assessment (FSSA) conducted for Denmark by the International Monetary Fund (IMF) and the subsequent detailed assessment published in 2007 did not address the country's observance of the Objectives and Principles of Securities Regulation promulgated by the International Organization of Securities Commissions (IOSCO). However, the FSSA did find that the "Danish financial sector is deep, diversified, and dynamic" (p. 10) and that the "securities markets in Denmark operate within a strong legal framework" (p. 28). A Technical Note published by the IMF in 2007 as background information to the FSSA is more explicit when it states that the regulatory framework of securities supervision was reviewed with reference to the IOSCO Objectives and Principles of Securities Regulation and attests that "the DFSA [Danish Financial Supervisory Authority] generally adheres to sound supervisory practices and principles regarding the regulation of securities markets" (p. 6). Praising the legal framework of securities regulation, the Technical Note mentions that Denmark is committed to transposing all EU Directives into national law, and is in fact one of the fastest countries to do so. The DFSA also has the required authority to promulgate regulations to complement EU legislation. Its enforcement powers are also effective and greater than comparable EU countries.

The Technical Note, however, mentions that a formal principle by principle assessment against the IOSCO Principles was not conducted. The Danish Financial Supervisory Authority (DFSA) website further claims that as the integrated supervisor of the financial sector, the DFSA aims to be impartial and professional and take prompt action in case management. The DFSA also declares that "as part of this objective, Finanstilsynet [DFSA] observes international standards issued by ... IOSCO." By way of recommendation, the IMF Technical Note advises Denmark to provide adequate resources to the DFSA to perform its supervisory responsibilities. The DFSA is listed as an ordinary member on the IOSCO website and is also a signatory to the IOSCO multilateral memorandum of understanding (MMoU) that is based on the thirty IOSCO Objectives and Principles of Securities Regulation (IOSCO Principles) adopted in 1998 and the experience gathered by securities regulators in using bilateral MoUs. The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU.

Per the 2006 IMF FSSA, financial sector supervision is shared between the DFSA and the National Bank of Denmark (DNB). The DFSA "covers three areas: regulation, supervision, and information on financial institutions and securities markets" (p. 26). Its responsibility is to ensure the growth of Danish capital markets in an increasingly globalized economy, and to maintain the confidence of investors and participants in the Danish securities sector. The legal framework for supervision is provided by the Financial Business Act of 2006 as well as other laws and regulations detailing the rights and responsibilities of the financial institutions supervised by the DFSA, and the annual budget laws. In the words of the IMF Technical Note there are no gaps in the DFSA's supervision of the financial system and "as a unified regulator, the DFSA has used its structure to strengthen its consolidated supervision and prevent regulatory gaps" (p. 7). The 2007 detailed assessment of Securities Clearance and Settlement Systems in Denmark by the IMF adds that as the financial sector regulator, the DFSA is responsible for the authorization and prudential supervision of the capital markets institutions and participants, including the stock exchanges and the central securities depositories. The Securities Trading Act spells out the supervisory functions and responsibilities of the DFSA. Additionally, in furtherance of its objective to "maintain a safe and secure currency and to facilitate and regulate the circulation of money and the extending of credit" (p. 8), the DNB opines that it is responsible for monitoring the stability and efficiency of the securities settlement systems. The amended Securities Trading Act of 2006 seconds this opinion and lays it down in the law.

As the 2007 IMF detailed assessment continues, the Danish Securities Council "has overall responsibility for the framework within which the securities market operates and for supervision of the market" (p. 8). It mainly focuses on market supervision and surveillance, issuing rules and regulations pertaining to the general functioning of the securities market, the clearing and settlement institutions and the central securities depositories. The Council is represented by the securities issuers, dealers, and investors, as well as the DNB. The IMF Technical Note adds that the DSC "offers a unique approach to involve the private sector in the design and the implementation of securities regulation, while preserving the autonomy of the DFSA" (p. 7). It advises the DFSA on the issuance of securities regulation and in areas such as best trading practices. It also ensures the compliance of listed and traded companies with accounting regulations in their annual and interim reports, the Technical Note adds.

The bottlenecks hindering Denmark's growth to its full potential in the securities sector and as an attractive investment destination include, according to the 2006 IMF FSSA, heavy concentration of listed companies that reduce liquidity and activity in the system; the absence of a pan-European clearing and settlement infrastructures to keep up with harmonized trading under the aegis of OMX and NOREX; and the less than optimal activity in the investment fund industry, including hedge funds. Institutional efforts have been made to remedy some of the above situations. For instance, an alternative market place, FirstNorth, has been established to facilitate the listing of small companies by imposing reduced listing requirements. These markets have the potential of increasing market activity and size, but come with the risk of becoming opaque and defeating the recent advances in transparency and corporate governance, eventually weakening investor protection. Also, hedge funds are gradually being allowed in the Danish market and are being subject to extensive information obligations and frequent redemption windows. They are, however, being supervised mainly through the reliance on the investors' vigilance and control of their fund managers. The FSSA therefore advises clearer regulation in key areas such as asset valuation practices to keep this sector well regulated.

Denmark enacted the European Union's (EU) Market in Financial Instruments Directive (MiFID) in February 2007 and issued seven regulations pertaining to investor protection, transaction reporting, best execution, pre- and post-trade information, and organizational structure, per information in the 2007 Institute of International Bankers Global Survey report. The MiFID went into effect in November 2007 and guidelines were also issued by the DFSA on its implementation. The MiFID, as the report notes, "leads to more detailed regulation of securities industry, primarily in the client-firm relationship" (p. 69). It defines investment advice more narrowly and promises to increase competition between banks and exchanges as well as among the exchanges themselves and between the exchanges and multilateral trading facilities in Denmark and Europe as a whole.

Despite the presence of a large number of smaller institutions, conglomeration, cross-border operations and concentrations characterize the Danish financial system, notes the 2006 IMF FSSA. Further, "well-functioning money and securities markets exist to support the availability of both long-term and short-term investment opportunities" (p. 36). The capital markets in Denmark are dominated by bonds, principally mortgage bonds issued by mortgage banks, and treasury bills, according to the 2007 IMF assessment of Securities Clearance and Settlement Systems in Denmark. As the 2006 FSSA points out "the market for government securities is quite liquid and benefits from the setup of electronic trading platforms, and a sound issuance policy" (p. 24). Derivatives trading is a limited activity, the 2007 IMF report continues. The Copenhagen Stock Exchange (CSE) trades both in bonds and stocks and uses the common electronic trading platform, SAXESS. The Nordic-Baltic countries have formed a strategic alliance of their capital markets called NOREX and use SAXESS as their trading system. The NOREX has a common infrastructure, harmonized trading rules and membership requirements. Apart from the NOREX, Danish government bonds are also traded on the MTS platform established in Belgium in 2003 to promote internationally the sale of Danish government securities. As the IMF Technical Note adds, the formation of the OMX Group and the alliance of the Danish, Swedish and Finnish stock exchanges has resulted in increased cooperation between the three national financial sector supervisors and a memorandum of understanding (MoU) was also signed between them in July 2005 for coordination in the oversight of the OMX.

Most of the trading in Denmark is over-the-counter (OTC), although they need to be reported to the CSE to maintain the transparency in the process. All securities traded on the exchanges and OTC are cleared and settled by the Danish Central Securities Depository (VP), which is jointly owned by the financial institutions and the DNB and settles in the Danish krone (DKK). Euro transactions are settled in the International Central Securities Depository (ICSD), Euroclear, and Clearstream, which also settle in DKK. The VP is linked for a delivery-versus-payment with both the Euroclear and the Clearstream, respectively. All securities are dematerialized and are settled on a multilateral netting basis, the report mentions. As of 2008, there are 30 investment companies, 3 large investment management companies, 12 small investment management companies, per information on a DFSA statistical report of the same year.

The Principles

1. The responsibilities of the regulator should be clear and objectively stated.

II

Per the 2007 detailed assessment of banking supervision in Denmark by the IMF, the statutory supervisory responsibilities of the DFSA are provided in the 2005 Financial Business Act. The DFSA is the integrated financial supervisor in Denmark and supervises entities' compliance with the Financial Business Act and regulations implementing this Act. Further, the Danish Commerce and Companies Agency supervises those provisions in the Financial Business Act that deal with company incorporation and registration matters. The DNB is accountable to the Ministry of Economic and Business Affairs (OEM) but is also under the jurisdiction of independent councils established under the Financial Business Act and comprised of independent experts and industry representatives; viz., the Financial Business Council covering financial companies and holding companies, the Danish Securities Council (DSC) covering securities regulation, and the Pension Market Council covering pension funds. Therefore, although the DFSA has the power to impose sanctions for violations of its authority, the councils decide matters of significance to a supervised institution. The Councils were created with the objective of taking decisions and supervising institutions independent of the OEM and therefore without political interference. The Councils also ensure that listed companies observe financial information regulations pertaining to annual reports and interim reports.

As the 2006 IMF FSSA adds, "the Danish Securities Council (the Council) has overall responsibility for the framework within which the securities market operates and for supervision of the market. The main focus of the Council is on market supervision and surveillance. Thus, it issues rules relating to the general conditions under which the Danish securities market operates, as well as rules that regulate clearing and settlement institutions and the Central Securities Depositories" (p. 55). The detailed banking assessment acknowledges that Danish tradition has been to create a public authority by government decision rather than through an act of law. It, nevertheless, feels that a clear legislative provision establishing the DFSA would be desirable in terms of according clarity in the autonomy and accountability of the DFSA and in making its organization and supervisory functions more transparent. However, the available information does not directly address Denmark's compliance with this principle.

2. The regulator should be operationally independent and accountable in the exercise of its functions and powers.

II

The 2007 detailed IMF assessment on banking supervision finds no evidence of government or industry interference in the functioning of the DFSA. However, given that the DFSA is under the OEM, its independence and decision-making cannot escape being overruled or ignored. The assessment, therefore, reiterates its suggestion to root the DFSA's authority and independence in a statutory provision. Further, as the assessment notes, the DFSA does not have formal budgetary independence since its budget is a part of the government budget. This may have implications on its operational flexibility. Staffing resources appear adequate and commensurate with the current levels of supervisory responsibilities; however, they may need to be augmented if the DFSA undertakes additional responsibilities such as on-site inspections relating to the implementation of Basel II and the new money laundering law.

The Danish authorities respond by accepting the suggestion of providing a statutory basis to the DFSA's authority and autonomy and of separating its budget from the government budget. However, they do assert that the end should be to make available adequate funds to the DFSA rather than revamp the budgetary procedure. Also, the budget should be more clearly delineated to provide a transparent overview as to how resources for each separate supervisory activity is allocated and used. As for the last recommendation pertaining to increased resources for additional responsibilities, the authorities state that they have indeed been provided in the wake of the EU Capital Requirement Directive and the Third Money-Laundering Directive. Further, the DFSA is building up its stress-testing capacity and that would require further increase in resources. However, the available information does not directly address Denmark's compliance with this principle.

3. The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers.

II

See Principle 2.

4. The regulator should adopt clear and consistent regulatory processes.

II

As the 2007 detailed assessment by the IMF on insurance supervision in Denmark points out, the DFSA has clearly defined supervisory processes, which are laid out in manuals and followed closely by its staff. The DFSA adopts a risk-based supervisory approach that metes out equal treatment to all supervised entities under the Danish Administrative Law. However, there is insufficient information publicly available as to Denmark's compliance with this principle.

5. The staff of the regulator should observe the highest professional standards, including appropriate standards of confidentiality.

II

There is insufficient information publicly available as to Denmark's compliance with this principle.

6. The regulatory regime should make appropriate use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, to the extent appropriate to the size and complexity of the markets.

II

There is insufficient information publicly available as to Denmark's compliance with this principle. Nevertheless, the 2007 IMF Technical Note mentions that the DFSA had delegated some powers to the CSE under a delegation agreement. This agreement was amended to better conform to the EU regulations, and in 2006 the DFSA took back the responsibility of approving listing prospectuses and reviewing takeover bids from the CSE.

7. SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities.

II

There is insufficient information publicly available as to Denmark's compliance with this principle.

8. The regulator should have comprehensive inspection, investigation and surveillance powers.

II

There is insufficient information publicly available as to Denmark's compliance with this principle.

9. The regulator should have comprehensive enforcement powers.

II

In the words of the 2007 Technical Note by the IMF, "The DFSA has demonstrated effectiveness in the area of enforcement of securities regulation beyond the standard of other comparable countries" (p. 7). This is made possible, per the Technical Note, by the DFSA's active cooperation with government investigation authorities and market entities. Stock exchanges transmit their information regarding suspicious situations to the DFSA for further investigation. After assessing these situations, the DFSA discusses fraudulent cases with the DSC and forwards them to the police. The Technical Note points out that Denmark has convicted the most number of insider trading cases vis-à-vis other European countries in recent years. However, the assessment does not directly address Denmark's compliance with this principle.

10. The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program.

II

There is insufficient information publicly available as to Denmark's compliance with this principle.

11. The regulator should have authority to share both public and non-public information with domestic and foreign counterparts.

EN

Since the DFSA is "an integrated supervisory agency...there is no need for special agreements on how to share information between supervisors of different sectors" (p. 17), notes the 2007 IMF detailed assessment on banking supervision. Nevertheless, it does cooperate regularly with the DNB and also has a MoU with the latter in the area of financial surveillance. Further, the DFSA has MoUs with foreign regulators and is part of the information exchange and cooperation system of the EU. The DFSA is also a signatory to the IOSCO MMoU. The MMoU is based on the thirty IOSCO Principles adopted in 1998 and the experience gathered by securities regulators in using bilateral MoUs. The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU.

12. Regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts.

EN

See Principle 11.

13. The regulatory system should allow for assistance to be provided to foreign regulators who need to make inquiries in the discharge of their functions and exercise of their powers.

EN

The DFSA is a signatory to the IOSCO MMoU. The IOSCO MMoU is based on the thirty IOSCO Principles adopted in 1998 and the experience gathered by securities regulators in using bilateral MoUs. The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU.

14. There should be full, timely and accurate disclosure of financial results and other information that is material to investors’ decisions.

EN

The 2004 IIB Global Survey report mentions that a June 2004 Act sets the "future requirements for enforcement of financial information for companies whose securities are traded on a regulated market" (p. 63). These requirements have been laid out in accordance with the Committee of European Securities Regulators principles that were issued as part of the "effort to create a more integrated and efficient capital market in the European Union" (p. 58). There is little further information publicly available as to Denmark's compliance with this principle.

15. Holders of securities in a company should be treated in a fair and equitable manner.

II

According to a 2002 Gregory and Simmelkjaer assessment of individual corporate governance codes relevant to the EU and its member states, all shares in Danish companies must carry voting rights. Further, the assessment explains that "it is permissible for Danish companies to issue different classes of shares, such as common and preferred shares, but no share may carry more than ten times the voting power of any other share of the same par value" (p. 37) and the company can limit the number of votes that can be cast by any one shareholder. Shareholders have the right to bring actions against directors and management for damages because of violation of the Companies Act and other requirements. Further, as the assessment adds, the "Danish Companies Law directly addresses the rights of minority shareholders, giving every shareholder the right to propose at the general meeting the appointment of an independent expert to examine the founding of the company, an action of management or certain issues in bookkeeping" (p. 38). In addition, during a change of majority control of a company, the Law provides minority shareholders with the opportunity to sell their shares at a price corresponding to the price paid for the controlling interest. There is little further information directly addressing Denmark's compliance with this principle.

16. Accounting and auditing standards should be of a high and internationally acceptable quality.

II

In line with the European Commission's (EC) Regulation No. 1606 of 2002, listed companies in Denmark are required to use International Financial Reporting Standards (IFRSs) as endorsed by the European Union for preparation of consolidated accounts. The 2007 detailed assessment of banking supervision in Denmark by the IMF also notes that "the DFSA has the power to specify accounting arrangements which, from 2005, must be consistent with IFRS [International Financial Reporting Standards], as required by EU regulations" (p. 35). The Deloitte IAS Plus 2007 website update further explains that all listed companies that are already using IFRSs in their consolidated financial statements must prepare separate financial statements in accordance with IFRSs starting in 2009. However, listed companies that do not prepare consolidated financial statements are not required to apply IFRSs until 2009. In addition, the 2008 EC report on the implementation of IAS regulation notes that financial entities will be required to apply IFRSs in their annual accounts after 2009. Denmark also permits the use of IFRSs in the consolidated and annual accounts of all other companies. The Danish Securities Council (DSC) website further states that compliance of listed companies with the accounting regulations in their financial reporting is enforced by the DSC. The enforcement activities of the DSC were specified pursuant to the EC Regulation No. 1606/2002 of 2002 and Act no. 491 of 2004.

According to a 2007 Institute of State Authorized Public Accountants self-assessment, Denmark adopts International Auditing and Assurance Standards Board pronouncements as national standards although with modifications to reflect local legal environment. The self-assessment reiterates that all of the International Standards on Auditing (ISAs) promulgated by the IAASB have been adopted with the exception of three ISAs. However, the ISAs not adopted at the time of the self-assessment were likely to be adopted in the spring of 2007, the self-assessment adds. Moreover, with the enactment of Directive 2006/43/EC of the European Parliament and Council (effective May 2006), all statutory audits of annual and consolidated accounts must be carried out on the basis of ISAs as adopted by the European Commission (EC). EU member states shall adopt and publish the provisions necessary to comply with this Directive before June 29, 2008. Member states may impose additional requirements relating to the statuary audits of annual and consolidated accounts for periods expiring on June 29, 2010. The above information, however, does not directly address Denmark's compliance with this principle.

17. The regulatory system should set standards for the eligibility and the regulation of those who wish to market or operate a collective investment scheme.

II

The regulatory changes effected in the Danish market have led to a steady growth in the mutual fund sector and allowed mutual fund products to be better tailored to fit market needs, the 2007 IMF Technical Note attests. As it elaborates, the mutual fund legislation initially permitted them to be organized only in line with the EU Directives on UCITS, which severely restricted investments both in terms of types and concentration. However, mutual fund legislative framework was liberalized in the 1990s, per the Technical Note, and allowed the setting up of "Special Purpose Associations" or non-UCITS mutual funds. Further liberalization included the provision that allowed one or more institutional investors to form their own mutual fund enabling them to outsource the investment portfolio to an investment adviser. The above information, however, does not directly address Denmark's compliance with this principle.

18. The regulatory system should provide for rules governing the legal form and structure of collective investment schemes and the segregation and protection of client assets.

II

There is insufficient information publicly available as to Denmark's compliance with this principle.

19. Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a collective investment scheme for a particular investor and the value of the investor’s interest in the scheme.

II

There is insufficient information publicly available as to Denmark's compliance with this principle.

20. Regulation should ensure that there is a proper and disclosed basis for asset valuation and the pricing and the redemption of units in a collective investment scheme.

II

There is insufficient information publicly available as to Denmark's compliance with this principle.

21. Regulation should provide for minimum entry standards for market intermediaries.

II

There is insufficient information publicly available as to Denmark's compliance with this principle.

22. There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake.

II

There is insufficient information publicly available as to Denmark's compliance with this principle.

23. Market intermediaries should be required to comply with standards for internal organization and operational conduct that aim to protect the interests of clients, ensure proper management of risk, and under which management of the intermediary accepts primary responsibility for these matters.

II

There is insufficient information publicly available as to Denmark's compliance with this principle.

24. There should be procedures for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk.

II

There is insufficient information publicly available as to Denmark's compliance with this principle.

25. The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight.

II

There is insufficient information publicly available as to Denmark's compliance with this principle.

26. There should be ongoing regulatory supervision of exchanges and trading systems which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants.

II

There is insufficient information publicly available as to Denmark's compliance with this principle.

27. Regulation should promote transparency of trading.

II

There is insufficient information publicly available as to Denmark's compliance with this principle.

28. Regulation should be designed to detect and deter manipulation and other unfair trading practices.

II

There is insufficient information publicly available as to Denmark's compliance with this principle. Denmark enacted the EU Market in Financial Instruments Directive (MiFID) in February 2007 and issued seven regulations pertaining to investor protection, transaction reporting, best execution, pre- and post-trade information, and organizational structure, per information in the 2007 IIB report. The MiFID went into effect in November 2007 and guidelines were also issued by the DFSA on its implementation. The MiFID, as the report notes, "leads to more detailed regulation of securities industry, primarily in the client-firm relationship" (p. 69). It defines investment advice more narrowly, notes the report.

29. Regulation should aim to ensure the proper management of large exposures, default risk and market disruption.

II

There is insufficient information publicly available as to Denmark's compliance with this principle.

30. Systems for clearing and settlement of securities transactions should be subject to regulatory oversight, and designed to ensure that they are fair, effective and efficient and that they reduce systemic risk.

FC

The 2007 detailed IMF assessment on Securities Clearance and Settlement Systems in Denmark notes that the Danish Central Securities Depository (VP) is the sole central securities depository (CSD) in Denmark registering securities and clearing and settling exchange as well as OTC transactions of securities. The DFSA supervises the VP, while the DNB oversees its operations. The Securities Trading Act provides the regulatory framework. Under the STA, the DFSA "monitor[s] the business activities of VP and their rules, procedures, controls, and safeguard arrangements to ensure that they are adequate and in conformity with the STA and executive orders issued on the basis of this Act" (p. 41). The amended Securities Trading Act of 2006 explicitly lays down the oversight power of the DNB with respect to the clearing and settlement systems to maintain their security and efficiency and ultimately maintain safe and secure currency system and money markets. The DFSA and the DNB have also signed a memorandum of understanding to cooperate in the oversight of the payment and securities settlement systems in Denmark. As the assessment mentions, the MoU "stipulates that the joint oversight task on VP shall be based on relevant international standards, i.e., the observance of CPSS/IOSCO recommendation for Securities Settlement Systems" (p. 41). In short, as the assessment finds, "the VP is subject to transparent and effective regulation and oversight. This framework has to comply with international standards" (p. 42). Further, the VP maintains safe and secure operations, is cost effective and follows the 100 percent cost recovery model, has objective, clear and publicly accessible criteria for participation, and adequate procedures for exit. It has a well-developed IT security policy and annually reviews other operational risks to the system and the adequacy of its risk control measures. In sum, the VP's "operational reliability is high and sufficient capacity is available to handle stress volumes" (p. 34).