The Financial Markets Amendment Act 2018 was published for consultation on 27 July 2016. The most significant amendments will be discussed in this newsletter.
Introduction requirement for approval letter of comfort (403-verklaring)
Financial undertakings, monitored by the Dutch Central Bank (De Nederlandsche Bank N.V.) (DCB), will be subject to the obligation of having a certificate of no objection before issuing a letter of comfort (403-verklaring) or similar guarantee. This will be provided in the new section 3.6.6 “Letter of comfort”. This section will also apply to insurers.
Giving a letter of comfort has its advantages and disadvantages. Firstly, the letter of comfort can undermine the solvability of the parent. Secondly, the issuance of a letter of comfort can have a negative impact in the macro-prudential area, which can lead to an unwanted development in the financial sector a whole. Thirdly, an interconnectedness can occur by issuing a letter of comfort within the group, whereby the resolvability decreases disproportionately. These disadvantages have led to the introduction of the requirement for approval for letters of comfort.
In addition, the new provision fills gaps in European legislation. For example, in the Bank Recovery and Resolution Directive (BRRD), a provision has been introduced which requires permission with respect to agreements establishing financial support within a group. However, this provision is only applicable to banks and investments firms (not also to insurers) and does not entail issuing (unilateral) guarantees, such as a letter of comfort.
The requirements for the approval are:
- It can be reasonably expected that the guarantee does not endanger the liquidity or solvability in the near future of the entity who acts as guarantor;
- It can be reasonably expected that the guarantee is not a threat to the financial stability in the near future;
- The guarantee cannot undermine the resolvability of the group entity who issues the support.
The DCB will grant the approval, unless the European Central Bank (ECB) takes its place in accordance with article 3:1a Financial Supervision Act (Wet op het financieel toezicht) (FSA). Permission or approval is dealt with in line with the provisions of article 3:300 FSA and further, for granting financial support, arising from the BRRD. Letters of comfort issued before the Financial Markets Amendment Act 2018 comes into force, are not subject to approval. Letters of comfort issued after entry into force of the act do need to be submitted for approval.
A letter of comfort that has been issued without obtaining approval will be invalid. This only applies to entities having their registered office in the Netherlands and who are supervised by the DCB.
Concentration of banking and securities cases in the Amsterdam court (rechtbank Amsterdam)
In the Financial Markets Amendment Act 2015 a new article 1:23a FSA was introduced, which stipulates that the Amsterdam court has exclusive jurisdiction with regard to civil procedures in accordance with article 5:1 FSA. This article did not enter into force. The legislative proposal for the Financial Markets Amendment Act 2018 now works out this article in more detail with, among other things, consumer protection stipulations.
Prohibition of attachment by garnishment against DCB
The DCB has, among other things, the legal duty to ensure the good functioning of payment transactions. This can be hindered when an attachment in execution or prejudgment garnishment is imposed on DCB. Therefore, attachment on bank balances for the benefit of payment transactions as held by DCB, are no longer permitted. This thus does not concern a total prohibition of attachment against DCB. The prohibition will be included under articles 436 and 703 Code of Civil Procedure (Wetboek van Burgerlijke Rechtsvordering) (CCP).
Amendments in the Financial Undertakings Remuneration Policy Act (Wet beloningsbeleid financiële ondernemingen)
The general exception on the bonus ceiling (from the directive capital requirements: CRD IV) will be further constrained under article 1:121 FSA with respect to three types of financial undertakings.
Currently, fund managers of investment funds and UCITS’ and investment funds who trade for their own risk and account are excluded from the bonus ceiling. The amendment stipulates that the remuneration requirements will also be applicable to subsidiaries who do not fall under the scope of the CRD IV, unless there are specific remuneration requirements that are regulated in sectoral regulations applicable to these subsidiaries. This means that the bonus ceiling can still be applicable to the excluded financial undertakings, when they are within a group to which consolidated monitoring under the CRD IV applies. This exception will also be constrained for other groups where prudential consolidated monitoring is applicable.
The amendment will also provide for a basis to determine further regulations in a governmental decree with regard to the definition of “standard remuneration” and with regard to obligations to disclose and file. Furthermore, the adjustment of the variable remuneration in article 1:126 FSA will be clarified in the sense that an adjustment of the variable remuneration may lead to a decrease of the initially granted variable remuneration.
Extension of the decision period with regard to a banking license application
In the legislative proposal a new article 1:102 paragraph 6 FSA is introduced that stipulates that the decision period for a banking license application will be extended from 13 weeks to 26 weeks. In practice the regulator often demands additional information from the applicant, which leads to a suspension of the decision period. This means that the decision period of 13 weeks is exceeded very often. The new term of 26 weeks gives a more realistic picture of the duration of a licence application.
Use of information system DUO (Education Executive Agency) with respect to professional qualifications by the Netherlands Authority Financial Markets (AFM)
The AFM monitors the compliance of professional standards as stipulated in article 4:9 paragraph 2 FSA. Currently this is done by requesting information from the financial services provider with respect to staff advising under their responsibility and on what products they advise on. By using the information system of DUO with respect to professional qualifications, this process can be performed more effective and efficient. The AFM can request information from DUO, using the BSN-number of the concerned person.
Usage deposit guarantee scheme for financing deposit transfers
The DCB is given the authority to provide an amount out of the deposit guarantee scheme to finance a transfer of (a part of) deposit’s which are held by a bank who is placed under emergency regulations or bankruptcy (see article 11 paragraph 6 of the deposit guarantee schemes directive). This will be laid down in a new paragraph 18.104.22.168c of the FSA.
The DCB can decide to finance a private transfer of deposits if the deposit holder will not be placed in a worse position than under the deposit guarantee scheme. If this is uncertain, the DCB will nonetheless make the payments to the deposit holders directly under the deposit guarantee scheme.
Financial Markets Amendment Decree 2017 (Wijzigingsbesluit financiële markten 2017)
The Financial Markets Amendment Decree 2017 will go into force on 1 July 2017. The most significant amendments will be discussed in below.
Commission from an investment account
Article 86c Market Conduct Supervision Financial Institutions Decree (besluit gedragstoezicht financiële ondernemingen Wft) (MCSD) stipulates a prohibition of commissions which have been paid (indirectly) by a provider to the advisor or intermediary for advising and offering intermediary services with respect to, among other things, payment protectors, complex products and mortgage credits. Only commissions paid directly by the client to the advisor or intermediary are permitted. There are investment firms who offer the possibility to financial services providers, who are exempted from article 2:96 FSA (“national regime”) according to article 11 paragraph 1 and 2 Exemption Regulations under the FSA, to get the commission paid by the client from an investment account which is managed by the investment firm. This commission construction will be explicitly excluded through the amendment of article 86c paragraph 4 MCSD, because it would create unwanted steering and therefore an unequal playing field between on the one hand providers of insurances with a wealth component and providers of bank savings products and on the other hand investment firms who offer wealth services on the other hand.
Expansion professional standards FSA for advising on a general pension fund and voluntarily joining a sectoral pension fund
In the certificate overview in table 2 of article 10 MCSD, the pension advisor will be included. The ratio behind this is that a pension advisor also needs to have the necessary knowledge and skills to compare the different pension products and to provide a proper advice.
Requirements for an automated advise will be provided for in a new article 32b MCSD. In an automated advise, recommendations of one or more specific financial products will be provided to a certain consumer or client (advise), without interference of a natural person (for example via internet). The level of consumer protection will be similar to receiving advise from a natural person. The automated advice must be regularly or periodically updated.