Deposit guarantee scheme
ICAAP and SREP
Single European Rulebook
This update looks at some of the key legislation and compliance developments that will be relevant for banks in the Netherlands in 2012.
It is expected that on January 1 2012 a number of amendments to the Act on Financial Supervision and certain lower government decrees will enter into force to meet the implementation requirements of the EU Capital Requirements Directives (CRD) II and III. These amendments will help the Netherlands to catch up with the other EU member states that met the timelines set out in the directives and will result in Dutch law reflecting the new rules for:
- large exposures of banks;
- recognition of (innovative) Tier 1 hybrid capital instruments;
- capital requirements for resecuritisation positions;
- remuneration policies; and
- the other technical amendments of CRD II and CRD III.
The amendments to the Act on Financial Supervision and the government decrees will also close the legislative gap that has existed since January 1 2011, when the Dutch Central Bank (DCB) imposed certain CRD II and CRD III rules on banks in accordance with the EU requirements in the absence of formal national legislation.
On December 8 2011 the DCB published the results of the recapitalisation test for Dutch banks. The test was performed following the October 2011 EU-wide agreement regarding the temporary increase of Tier 1 elements of the own funds requirements to 9% to address exposures on sovereign debt. With the exception of one bank which had a shortfall of approximately €160 million, all other Dutch banks passed the recapitalisation test and no Dutch banks are expected to need extraordinary capital raising programmes during 2012. Therefore, the banks are expected to proceed with their ordinary recapitalisation programmes during 2012 in order for those banks to meet the upcoming CRD IV requirements.
At the beginning of 2012 the Ministry of Finance will propose to Parliament a package of changes to the regulations concerning the bank deposit guarantee scheme. The changes are likely to be adopted in the first quarter of 2012 and enter into force during the second half of the year. This timing would mean an amendment of the relevant Dutch regulations well ahead of the corresponding EU requirements (arising in connection with the proposed new directive on deposit guarantee schemes, published in Summer 2010). The changes to the deposit guarantee scheme will require banks to make contributions on a quarterly basis equivalent to 2.5 basis points per calendar quarter over the deposit-taking basis of the relevant bank to an ex ante financed scheme insofar as such banks offer protection under the deposit guarantee scheme. For banks established in the Netherlands, participation in the scheme is mandatory; for EU banks raising deposits in the Netherlands, the scheme will be optional as they will still be able to comply with the deposit guarantee scheme of their home state. In anticipation of the new Dutch regime entering into force, the DCB has introduced a proposal to amend the regulations on bank reporting in order to establish the calculation of the ex ante levy. Banks are expected to furnish the additional elements of the DCB reporting on the number and size of deposits by June 2012.
In September 2009 the banking industry introduced the Banking Code, an instrument of self-regulation addressing remuneration matters, among other things. The code was followed by the Regulation on Collected Remuneration, which was introduced on January 1 2011. In 2012 further measures will be taken regarding:
- incentive-based compensation packages offered by banks receiving state support and state guarantees; and
- increased scrutiny of the appropriateness of banks' corporate governance and overall policies addressing behavioural aspects of banks' businesses.
Banks will be subject to a review programme organised by the DCB on the behaviour and culture in banks. This review programme will be aligned to various principles set out in the Banking Code. First, banks' policies will need to ensure that customer interests prevail and are embedded in the policies serving other stakeholders' interests. The review programme will also be supported by the new requirements introduced by revisions to the Act on Financial Supervision on the suitability of daily policymakers and members of supervisory boards, which are likely to become effective from January 1 2012. These requirements will affect the current 'fit and proper' tests of policymakers and supervisory directors, and test suitability where individuals must meet not only the requirements of expertise and experience, but also the requirements of adequacy of competence in view of the composition of the whole team of executives, in particular the composition and availability of members of the bank's supervisory bodies.
It is expected that the outcome of the Internal Capital Adequacy Assessment Process (ICAAP), which will be conducted in the first quarter of 2012, and the feedback of the supervisory authorities based on the Supervisory Review Evaluation and Process (SREP) will build on certain aspects of the requirements introduced in 2011. Some of these requirements have already resulted in the need for banks to furnish the DCB with interim reports on compliance. Other requirements will receive closer attention on the occasion of the 2012 ICAAP and SREP exercise. As a result of the revisions to the Regulation on Liquidity 2011, adopted by the DCB in Summer 2011 (for further details please see "The development of liquidity risk management"), interim reports were due on compliance with the Internal Liquidity Adequacy Assessment Process as part of ICAAP in Autumn 2011. Another requirement on furnishing interim reports related to the implementation plan adopted by banks for compliance with Basel III requirements. Finally, as noted above, some Dutch banks participated in recapitalisation testing regarding temporary additional capital requirements to address market concerns over sovereign exposures.
Consistent with the DCB's intensive scrutiny of the Dutch banking sector, it is likely that some banks will face criticism as they self-assess capital adequacy based on ICAAP and that such banks will, as a result of SREP, be given tighter deadlines to meet the requirements of the future capital adequacy provisions that are likely to come into force on January 1 2013 after the adoption of CRD IV. Not only will banks be exposed to higher capital requirements as a result of raising the Tier 1 (core capital) requirements, the need for revisions of certain asset positions (eg, to address the revised rules on large exposures, securitisations and over-the-counter derivatives) will be on the 2012 agenda of banks in order to ensure compliance with the revised rules.
The year 2012 will also see the introduction of fundamental changes to the Dutch legislative environment for many other reasons. In particular, the decision to implement Basel III rules by means of a regulation in order to establish a single rulebook for Europe will mean that most of the DCB regulations addressing solvency and liquidity requirements for banks will be replaced with the EU CRD IV Regulation text. This transition from national legislation towards European single rulebook legislation will also have a major impact on the existing Act on Financial Supervision, many government decrees and national legislative instruments. The legislature has not yet communicated to the market how this significant change will be organised. Hopefully, more clarity will be given in the course of the first quarter of 2012. It would be helpful for Dutch and foreign banks active in the Netherlands if the legislature provided the market with a precise comparison and impact analysis of the fundamental legislative overhaul caused by the CRD IV proposals, particularly in view of the many national discretions as regards implementing the original CRD and other rules introduced in the Netherlands since 2007.
For further information on this topic please contact Bart PM Joosen at FMLA Financial Markets Lawyers by telephone (+31 20 348 52 00), fax (+31 20 348 5201) or email ([email protected]).