On 9 September 2009 the Board of the Dutch Banking Association (Nederlandse Vereniging van Banken) adopted and presented the Banking Code (Code Banken). The Banking Code has its roots in the report entitled "Restoring Trust" ("Naar herstel van vertrouwen") published by the Advisory Committee on the Future of Banks in the Netherlands (Adviescommissie Toekomst Banken, the "Maas Committee") on 7 April 2009.

This newsletter describes the key points of the Banking Code, particularly the rules for banks' policies on remuneration. It also deals with the government’s response to the Banking Code and a letter from the Minister of Finance on remuneration policy in the financial services industry (both published on 24 November 2009). Finally, this newsletter discusses some other relevant developments concerning variable remuneration in the financial sector.

  • Contents
  • Applicability
  • Comply or explain principle
  • Key points of the Banking Code
  • Supervision of compliance
  • Government’s response
  • Letter from Minister of Finance on remuneration policy in financial services industry
  • Other relevant developments relating to variable remuneration
  • Contact


The Banking Code applies to the following activities of banks that are licensed to operate as such under the Dutch Financial Supervision Act (Wet financieel toezicht, the "DFSA"):

  • activities in the Netherlands;
  • cross-border activities in another EU Member State performed from the Dutch head office; and
  • activities in another EU Member State performed through a branch office.

With respect to the following activities, the application of the Banking Code is merely recommended:

  • activities of DFSA-licensed banks performed from the Dutch head office or through a branch office in non-EU Member States;
  • activities of independent foreign bank subsidiaries of DFSA-licensed banks; and
  • activities in the Netherlands (whether or not performed through a branch office) of banks with a banking licence granted in another EU Member State.

The Banking Code is independent of the revised Corporate Governance Code, which has applied to all listed companies, including banks, since 1 January 2009. The Banking Code contains principles that sometimes supplement and sometimes overlap with those in the Corporate Governance Code.

Banks are expected to apply the Banking Code from 1 January 2010. The government had planned to have a governmental decree that will provide for the statutory basis for the Code to take effect on that date. This has not yet occurred. However, on 9 December 2009 the Minister of Finance presented a draft governmental decree (and accompanying explanatory notes) to the lower chamber of the Dutch Parliament. Once finalised and approved, the decree will apply retroactively from 1 January 2010.

"Comply or explain" principle

The Banking Code formulates principles for banks and adopts the "comply or explain" approach. This means that a bank must comply with the principles unless it has a justification for deviating from one or more of them and explains this justification. A justification can consist of the specific characteristics of a bank, such as the market in which it operates.

The Banking Code introduces an obligation for banks to state each year in their annual report how they have applied the principles of the Banking Code or to provide a reasoned explanation of why a principle has not been applied or not applied in full. This annual report must then be posted on the bank’s website. This obligation applies from the annual report for 2010.

Key points of the Banking Code

Supervisory Board

The Banking Code contains various principles on the composition, expertise, duties and procedures of a bank's supervisory board. For example, the supervisory board should have a sufficient number of members to be able to perform its duties properly. Whereas the Maas Committee recommended the strict rule that the supervisory board of large banks should have at least ten members and that of small banks at least six members, the Banking Code provides that the appropriate number of members depends on the bank's nature, size and complexity. However, the Code requires a minimum of three members.

Under the Banking Code the chairman of the supervisory board is required to:

  • have sufficient expertise in and experience of the financial services industry, and
  • be familiar with the socioeconomic and political culture and the social environment of the main markets in which the bank operates.

This is formulated more broadly than the provision in the Maas Committee’s report, which mainly required familiarity with Dutch culture. Other principles relating to the supervisory board include:

  • each member of the supervisory board should receive suitable compensation;
  • there should be an ongoing education programme for members of the supervisory board (known as the "banking examination"), in any event as regards relevant developments within the bank and the financial sector, corporate governance, duties of care towards clients, integrity risk management, financial reporting and audits;
  • an evaluation of the functioning of the supervisory board should be carried out annually (once every three years under independent supervision);
  • there should be a check on whether the members of the management board continue to meet the expertise requirements of the Dutch Central Bank (De Nederlandsche Bank, "DCB"); and
  • the bank’s risk management should receive special attention.

Management board

The Banking Code provides as a basic principle that complementarity, collegial management and diversity are preconditions for the proper performance of the management board’s duties. The principle of ongoing education also applies to the management board, in order to ensure that the expertise of its members is kept at the required standard (the "banking examination").

A striking innovation introduced by the Banking Code is that each member of the management board should in future sign a declaration of moral and ethical conduct (also known as the "banker’s oath") to stress the importance of performing the board's duties in a careful, expert and honest manner. The management board should also ensure that the declaration is translated into principles that serve as a guide for the actions of all bank staff.

Balancing of interests

The financial crisis fueled the debate about how the supervisory board and management board should balance the different interests of the bank’s stakeholders. In its report the Maas Committee took as its premise that the interests of clients and depositors should take precedence. However, the Banking Code describes the decision-making process differently by providing that the management board should make a balanced assessment of the interests of all the bank’s stakeholders, such as its clients, shareholders and staff. As regards the duties of the management board, the Banking Code specifically adds that:

  • giving priority to the clients’ interests is essential for the bank’s continuity;
  • the management board should ensure that the bank always treats its clients with due care; and
  • the management board should ensure that the duty of care owed to the client forms an intrinsic part of the bank’s culture.

However, this last requirement seems to refer mainly to a legal and contractual obligation of the bank to treat its clients with due care rather than a duty of the supervisory and management boards, as formulated by the Maas Committee, to give precedence to the interests of clients when making corporate decisions.

Risk management

The Banking Code provides that the management board is responsible for adopting, implementing, monitoring and, where necessary, adjusting the bank’s overall risk policy. For this purpose the management board should charge one of its members with responsibility for preparing decisions on risk management issues. This member of the management board should not also have individual responsibility for commercial matters and should operate independently from those areas.  

Risk management must also involve taking account of the importance of financial stability and the impact which systemic risk could have on the bank's risk profile.  

The management board is responsible for ensuring that risk management is adequately organised in such a way that the board is aware in good time of any material risks run by the bank, so that these risks can be properly managed.

Each bank should have a Product Approval Process. This should ensure careful consideration of the risks by the bank’s risk manager and careful assessment of any other relevant factors, including the duty of care owed to the client.

The bank’s risk policy should be submitted by the management board to the supervisory board for approval at least once a year. The supervisory board should periodically assess whether the corporate activities are, in a general sense, in keeping with the bank’s risk strategy.  


Under the Banking Code the management board is required to ensure that a systematic audit is conducted of the management of the risks related to the bank’s business activities. An internal auditor should be appointed who:

  • is independent;
  • reports to the chairman of the management board;
  • has a reporting line to the audit committee;
  • periodically exchanges information with the external auditor and the audit committee; and
  • assesses the effectiveness of the system of internal governance measures, the risk management and the bank’s control procedures.

The external auditor should report his findings on the quality and effectiveness of the system of governance, risk management and the bank’s control procedures to the management board and the supervisory board.

The internal auditor should take the initiative of arranging discussions with the DCB and the external auditor at least once a year to discuss at an early stage one another’s risk analyses and findings, as well as an audit plan.

Remuneration policy

Further to the Maas Committee report, the Banking Code contains an extensive section on the policy regarding variable remuneration. The principles contained in this section do not have retroactive effect, although the explanatory notes to the Banking Code state that the supervisory board should endeavour as quickly as possible to modify existing contracts with management board members to bring them into line with the Banking Code.

The key points of the principles on the bank’s remuneration policy are as follows:

  • the remuneration policy should take account of the bank’s long-term interests, the relevant international context and public acceptance and support;
  • the total income of a management board member should be in reasonable proportion to the remuneration policy adopted by the bank and should be slightly below the median level for comparable positions in both the financial services industry and other sectors;
  • severance pay should not, in principle, exceed one year’s salary;
  • variable remuneration should be based on both financial and non-financial performance criteria that are as objective as possible; in this connection, the Maas Committee mentioned as examples of such non-financial criteria client satisfaction, risk management, investor relations, operational objectives, human resources, integrity, compliance and sustainability;
  • an important difference from the Corporate Governance Code is that the Banking Code introduces a cap on bonuses. Each bank is required to set a maximum ratio of variable remuneration to fixed salary that is appropriate to its operations. The variable remuneration of a management board member should not exceed 100% of his fixed salary. This point is controversial, particularly since this may be an obstacle for banks that operate internationally if comparable caps are not introduced in other countries (see also below under "G20"); and
  • the supervisory board should have the discretionary power to adjust the variable remuneration if application of the performance criteria would, in its view, have unfair or unintended effects and to claw back variable remuneration paid to a management board member on the basis of incorrect data, whether financial or otherwise.  

The supervisory board’s duties in relation to remuneration policy are:

  • to implement and evaluate the remuneration policy that has been adopted;
  • to approve the remuneration policy for the senior management and the principles of remuneration policy for other staff, including the awarding of performance, exit and welcome packages; and
  • to ensure that the variable remuneration is in keeping with the bank’s overall remuneration policy and that the packages are not excessive.

Shareholder structure

The Maas Committee’s report contains an extensive section on the shareholder structure of banks. It states specifically that the structure should be such as to counteract the undesirable developments that have resulted from certain groups of shareholders focusing mainly on short-term profits. The Committee makes a number of specific recommendations for this purpose. Strikingly, however, none of them has been included in the Banking Code. It seems they had insufficient support. Nonetheless, this does not mean that this subject is no longer relevant for banks in the context of their corporate governance and careful business operations. They will have to determine for themselves whether their shareholder structure and their overall corporate governance are compatible with the duties and responsibilities described in the Banking Code. However, the Banking Code does not explicitly mention a general responsibility of this kind.

Supervision of compliance

Compliance with the Banking Code will be monitored annually by an independent monitoring committee, whose members are to be designated by the Dutch Banking Association after consultation with the Minister of Finance.  

Government’s response

In a response issued on 24 November 2009, the government expressed support for the Banking Code, undertaking that it will become law in the form of a governmental decree. A bank should account for its compliance with the Code and a statement in this regard will form part of the annual report. The government has also undertaken to present a bill in 2010 to supplement the Banking Code by introducing a mandatory test of the expertise of supervisory board members. In addition, the Minister of Justice intended to produce a letter before the end of 2009 reviewing the position of shareholders. At the time of drafting this newsletter, such a letter has not yet been published. Furthermore the government will consider the desirability of introducing a statutory right to claw back bonuses that have been awarded wrongly.  

Letter from Minister of Finance concerning remuneration policy in financial services industry

The Minister of Finance published a letter on remuneration policy in the financial services industry on 24 November 2009. The principles on controlled remuneration policy introduced by the DCB and the Netherlands Authority for the Financial Markets (the "AFM") on 6 May 2009 will be given a statutory basis and the authority for supervision by the latter will probably be provided for in the Decree on Conduct of Business Supervision of Financial Undertakings under the DFSA.  

According to the Minister of Finance, as a result of the Banking Code banks are taking practical steps to take account of clients’ interests. To determine the median to which variable remuneration should be related, a labour market benchmark group is being compiled and will include comparable positions outside the financial services industry. In this way, pay increases can be kept within certain bounds. The remuneration should track market developments rather than lead the way. The ratio of fixed to variable salary is the most relevant factor and should be central to the monitoring by the DCB and the AFM of the remuneration policy for all employees and management board members.

Other relevant developments in the field of variable remuneration

Since the start of the financial crisis the subject of remuneration policy has attracted considerable attention, for example from legislators and regulatory authorities. It follows that the remuneration section of the Banking Code as described above does not stand alone. As already noted, the provisions of the Corporate Governance Code for listed companies were tightened up on 10 December 2008. In addition, the policy of the European Commission on variable remuneration was published on 29 April 2009 and that of the DCB and the AFM on 6 May 2009. This new policy was described in our newsletter of 18 May 2009.

Directive on Alternative Investment Fund Managers

The President of the European Commission has proposed that the rules of the proposed Directive on Alternative Investment Fund Managers be extended to cover the remuneration of managers of hedge funds and private equity funds. Article 9a of the proposal provides that the Member States must require alternative investment fund managers to have remuneration policies and practices that are consistent with sound risk management. However, this is merely a proposal of the President and not yet a proposal of the entire European Commission. Whether this proposal will ultimately be adopted is therefore still uncertain.


As already noted above, however, there is also international debate at present about whether variable remuneration at banks should be capped. The EU heads of government reached an agreement on this on 17 September 2009. They agreed that banks may pay only a given percentage of their profit or revenues in variable remuneration. Similarly, any bonus must be related to the banker's fixed remuneration. However, the agreement is less specific than the corresponding provisions of the Banking Code described above and will therefore require further elaboration.

It was decided at the G20 Summit in Pittsburgh on 24 and 25 September 2009 that the aim should be to reward long-term value creation rather than short-term gain. For this purpose, principles have been drawn up to (i) avoid multi-year guaranteed bonuses; (ii) require the payment of bonuses to be deferred for a period of at least three years; (iii) create the possibility of clawing back bonuses if financial performance later proves to be negative. Although variable compensation is not capped, it should be proportionate to the risks and the bank’s net cash flow. In addition, it should be possible for the supervisors to modify compensation policies.