On 20 September 2012 the consultation document for the Amendment Act Financial Markets 2014 (Wijzigingswet Financiële Markten 2014, "Amendment Act") was published. The Amendment Act will likely enter into effect on 1 January 2014 and will lead to amendments in Dutch regulatory law in a number of areas. On the same date as the Amendment Act, a consultation document was published which introduces legislation providing for additional capital buffers for system-relevant banks and investment firms. The consultation period for both documents ends on 18 October 2012. In this newsflash, we will discuss the following topics as included in the consultation documents:

  1. General duty of care
  2. Segregation of assets of investment institutions
  3. Automatic set-off bank savings deposit and residential mortgage loan
  4. Supervision on clearing institutions
  5. Capital buffers CRD IV: system-relevant buffer
  1. General duty of care

The Amendment Act provides for a statutory general duty of care for financial services providers which shall apply in addition to the existing specific duty of care provisions in the Dutch Financial Supervision Act (Wet op het financieel toezicht, "Wft"). Financial services providers are entities which offer, act as an intermediary for or provide advice on financial products such as loans, savings products and insurance products. The proposal comprises the following:

  • The proposal introduces a new provision which contains the obligation for financial services providers to take into account the interests of the consumer, client or beneficiary in a prudent manner. For financial services providers that provide advice, the proposed provision further elaborates by stating that an adviser is required to act in accordance with the interests of the consumer, client or beneficiary. According to the explanatory notes, no periodic penalty payment or administrative fine can be imposed in case of violation of these general duties of care, but the AFM may deploy its other powers of enforcement as set out in the Wft, including the power to give an instruction to follow a certain line of conduct.
  • In addition, the proposal provides that a financial services provider must abstain from acts or omissions that cause or may cause apparent negative effects for the consumer, client or beneficiary. In case of violation of this provision, the AFM has the power to impose periodic penalty payments or administrative fines.
  • The general duty of care will act as a catch-all provision that will apply when the specific provisions set out in the Wft are not applicable.
  • The general duty of care applies to financial services providers. According to the explanatory notes, the proposal does not contain a a general duty of care for investment firms due to the fact that the Wft already contains a provision that an investment firm must act honestly, fairly and professionally in accordance with the interests of the clients when performing investment services.
  1. Segregation of assets of investment institutions

The Amendment Act will modify the current rules regarding the segregation of assets of investment institutions and undertakings for collective investment in transferable securities (UCITS). The current rules on segregation of assets only apply with respect to investment funds (i.e. investment institutions that do not have legal personality). These rules include:

  1. rules regarding the priority of claims: recourse on the assets of an investment fund is only possible for debts that relate to the management and custody of the investment fund and on the participation rights in that fund; and
  2. legal segregation of assets: the legal ownership of the assets of an investment fund must be held by a separate legal entity.

The proposal comprises the following:

  • The proposed rules will apply to all investment institutions (investment institutions and UCITS with or without legal personality).
  • The new rules provide for an obligation to hold the assets of an investment institution in a separate legal entity if there is an actual risk based on the investment policy that the own assets of the investment institution and the own assets of the entity holding the legal ownership will be inadequate to cover the liabilities which relate to the management and custody and holding the legal ownership of the assets of the investment institution.
  • Currently, sub-funds are excepted from the obligations set out above. Upon the entry into effect of the Amendment Act, this exception will lapse.
  1. Automatic set-off bank savings deposit and residential mortgage loan

The Amendment Act provides for the automatic set-off of a "mortgage related bank savings deposit" (bankspaardeposito eigen woning) and the connected residential mortgage loan:

  • In case the deposit-guarantee scheme, emergency regulations or bankruptcy proceedings are declared applicable, a mortgage related bank savings deposit and the connected residential mortgage loan will be set-off by operation of law.
  • Set-off will also take place when the mortgage related bank savings deposit is held with another bank than the entity granting the connected residential mortgage loan, unless this would adversely affect the net debt position of the grantor of the loan.
  1. Supervision on clearing institutions

The Amendment Act introduces supervision of clearing institutions. The bill for an Act for the regulation of clearing services of 29 September 2009 will be repealed. According to the proposed Amendment Act, clearing institutions are entities that perform activities aimed at:

  • issuing or licensing of payment products;
  • forwarding requests of payment service users to payment service providers or persons who approve payment orders on behalf of payment service providers;
  • approving payment orders on behalf of payment service providers;
  • netting payments between payment service providers;
  • other activities set out by government decree.

The proposal comprises the following:

  • Pursuant to the Amendment Act it will be prohibited to carry on the business of a clearing institution vis-á-vis a payment service provider without a license from the Dutch Central Bank.
  • Contrary to the previous proposed bill for payment services, the Amendment Act is limited to clearing institutions that perform activities with respect to the settlement of retail giro-payment transactions.
  • The prohibition applies to clearing institutions which carry on the business of a clearing institution in the Netherlands. First, this comprises clearing institutions that have their seat in the Netherlands. In addition, the prohibition applies to clearing institutions that have their seat outside the Netherlands which carry our activities with respect to more than 25% of the payment transactions in the Netherlands, measured per calendar year.
  • Clearing institutions which carry on their activities upon the entry into effect of the Amendment Act will obtain a license by operation of law. These clearing institutions will be required to demonstrate within three months after the entry into effect that they comply with the licence requirements.
  1. Capital buffers CRD IV: system-relevant buffer

The envisaged date for the entry into effect of the European Capital Requirements Directive IV (CRD IV) is 1 January 2013. With a view to the implementation of CRD IV, the Dutch legislator wishes to lay down the new capital buffers that CRD IV will gradually introduce in Dutch legislation. The consultation document comprises the following:

  • The Wft will contain a legal basis pursuant to which the capital buffers provided for by CRD IV will be laid down in the Prudential Rules Decree (Besluit prudentiële regels Wft). These buffers will apply on top of the existing solvency requirements. The following buffers will be introduced:
  1. systemic risk buffer: a buffer of 1-3% of the bank or investment firm;
  2. countercyclical capital buffer: a buffer for all banks and investment firms which is built up in good times, and used in economic downturns;
  3. capital conservation buffer: a buffer of 2,5% that is equal for all banks and investment firms.
  • The consultation document only provides further detail on the systemic risk buffer. Banks and investment firms which have been determined to be systemically relevant are obliged to built up their systemic risk buffer as from 2016. As of 2019 the system risk capital buffer should be fully built up.
  • The degree of systemic relevance will be determined by the Dutch Central Bank based on the degree of risk that the situation at the institution could at a given moment in time endanger the stability of the system. The consultation document contains several criteria on the basis of which the Dutch Central Bank can make this determination.
  • DNB determines the amount of the systemic risk buffer. Depending on the degree of systemic relevance, the institution will need to maintain additional capital (in CRD IV-terminology: Common Equity Tier 1 Capital) of 1-3% of the risk-weighted assets.
  • According to the explanatory notes, it is important to present the draft legislation with respect to the systemic risk buffer as soon as possible to the market in view of the impact of this buffer on the relevant institutions. Draft legislation for the other two capital buffers (which will also gradually apply as of 2016) will be presented for consultation at a later stage.