Group finance companies are exempt from the requirement to obtain a banking licence provided that the conditions laid down in Section 3:2 of the Dutch Financial Supervision Act are met. These finance companies attract funding in the market and lend the proceeds to their group companies. Section 3:2 of the Dutch Financial Supervision Act was amended at the beginning of the year, which led to clarification of the conditions. In addition, the exemption no longer applies if the main business of the group is providing financing to third parties. A transitional regime applies to companies that attracted funding in the market prior to 1 January 2015.

Background

A transitional regime has been created in relation to the amended rules for group finance companies. The transitional regime is available for agreements entered into before 1 January 2015. The old Section 3:2 of the Dutch Financial Supervision Act (Wet op het financieel toezicht, the “Wft”) continues to apply to agreements on attracting transferable debt securities from the public in accordance with Chapter 5.1 of the Wft, which were entered into before 1 January 2015. Chapter 5.1 of the Wft contains the implementation of the EU Prospectus Directive.

Furthermore, group finance companies with their statutory seat in the Netherlands that relied on the exemption set out in the old Section 3:2 Wft and were exempted from prudential supervision prior to 1 January 2015 do not need to obtain a banking licence.  

These group finance companies must now demonstrate that they comply with the conditions laid down in Section 3:2 Wft within six months of the Financial Markets Amendment Act 2015 (Wijzigingswet financiële markten 2015) coming into effect . Group finance companies that fail to comply with this requirement must obtain a banking licence.

Relevance

The banking licence exemption is frequently used by group finance companies. This development is relevant, for example, to group finance companies that are part of a group whose main business is providing financing to third parties. Group finance companies that attracted funds from the public as funding for a licensed bank in the group can no longer make use of the exemption.

Having said this, the Dutch Central Bank has confirmed that group finance companies that comply with the conditions of the previous and current Section 3:2 Wft are not required to take any action and do not need to notify the Dutch Central Bank. They will only have to demonstrate that they comply with the conditions laid down in Section 3:2 Wft upon request of the Dutch Central Bank.

An exemption from the requirement to obtain a banking licence is available if a group finance company attracts funding from the public provided that:

  1. funding is obtained through the issuance of transferable debt securities in accordance with Chapter 5.1 Wft;
  2. at least 95% of the proceeds are extended to group companies;
  3. the main business of the group does not consist of providing financing to third parties; and
  4. the obligations of the finance companies are guaranteed by (i) a parent guarantee, (ii) a keep-well agreement issued by the parent, or (iii) a  bank guarantee.

If a parent guarantee or a keep-well agreement is issued, the parent company must further ensure that a group finance company is in a position to satisfy its obligations to pay the repayable funds it has attracted from the public. Although there is little guidance on this requirement set out in Section 3:2(2) Wft, it appears to be a best efforts obligation for the parent company to check whether or not the subsidiary will be able to meet its obligations prior to providing a guarantee. It follows from Section 3:2(2) Wft that this condition is, in any event, met when a bank guarantee is provided. Even though group finance companies that comply with the previous and current conditions of Section 3:2 Wft are not required to pro-actively approach DNB, careful monitoring of compliance with the conditions for the exemption remains important.