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The regulatory regime applicable to banks

i Basic structure of banking regulation

The Netherlands has a twin peaks supervision model, which focuses on system and prudential supervision on the one hand, and conduct of business supervision on the other. The European Central Bank (ECB) and the Dutch Central Bank (DCB) are the system and prudential supervisors. The responsibility for conduct of business supervision lies with the Netherlands Authority for the Financial Markets (AFM), the aim being to foster orderly and transparent market processes, maintain integrity in the relationship between market parties and overseeing due care in the provision of services to customers. This cross-sectoral functional approach is reflected in the Dutch Financial Markets Supervision Act (FMSA), which has been in force since 2007. The FMSA and the various decrees and regulations deriving from it include the majority of regulatory rules that apply to the financial markets. Many of the rules contained in the FMSA follow the implementation of European directives. However, with the aim of further integrating the single market, more and more regulatory requirements are adopted in the form of European regulations. In view of the increasing complexity of the FMSA and difficulties in its compatibility with the sectoral approach of European legislation, in 2016 the first tentative steps were taken towards a thorough review of the design of the FMSA, although this is not expected to affect the substantive rules. During 2018, the review remained a work in progress at the Ministry of Finance, and it is not clear when further papers or proposals can be expected.

ii Regulation of banks with a registered office in the Netherlands

Banks established in the Netherlands are required to obtain a banking licence from the ECB. The DCB is responsible for the processing of licence applications. To obtain a banking licence, banks must, inter alia, comply with the following requirements:

  1. the day-to-day policymakers of a bank and its management team members must be suitable for the banking business; in addition, the members of the supervisory board (or comparable body) should also be suitable for the performance of their supervisory tasks;
  2. the integrity of the persons determining or co-determining the day-to-day policy, the management team members and the members of the supervisory board (or comparable body) of the bank must be beyond doubt;
  3. the bank must have sound and prudent business operations, including procedures and measures for adequate risk management and client acceptance;
  4. at least two natural persons should determine the day-to-day policy of the bank and perform their activities from within the Netherlands;
  5. the supervisory board (or comparable body) should consist of at least three persons;
  6. the bank must have a transparent control structure safeguarding adequate supervision; and
  7. the bank must comply with certain financial safeguards, such as minimum own funds, solvency and liquidity requirements.

Once a licence has been granted, a bank must continue to comply with these requirements. Dispensation may be granted from certain specific requirements for obtaining a banking licence provided the applicant demonstrates that he or she cannot reasonably comply with the requirements, and that the objectives the requirements seek to protect can be achieved through alternative means. To stimulate innovation in the financial sector, the DCB, since 2017, is also open, where appropriate, to more tailor-made solutions for innovative products, services or business models through its regulatory sandbox.

In January 2019, the formal application period for a banking licence was changed from 13 weeks to 26 weeks. This allows the DCB and the ECB to rely less on stop-the-clock information requests, and will give applicants a more realistic view of the required decision-making time. Other recent changes to the application process include the obligation to prepare an exit plan, which should identify how the applicant could cease its banking operations in an orderly manner when so required. In March 2018, the ECB published two guides detailing the process and requirements for acquiring a banking licence in the eurozone. In January 2019, these guides were supplemented with more specific expectations regarding capital requirements and the programme of operations.

If a bank wishes to render investment services or perform investment activities in the Netherlands, it must apply for a wider banking and investment firm licence. In this case, there are additional requirements that relate to the conduct of business requirements with which investment firms need to comply. A licensed bank does not need a separate licence for the provision of payment services or certain other financial services also regulated under the FMSA, such as the offering of (consumer) credit, providing advice about financial products (other than financial instruments) and acting as an intermediary with respect to such products. The services involved, however, need to be covered by the banking licence, and the bank involved is subject to additional conduct of business rules when offering such services (see Section IV).

Since 2016, the FMSA contains a separate regime for credit unions, defined as cooperatives of members sharing a certain profession or business that take repayable funds from their members and grant credits for their own account to their members for the purposes of their profession or business. For this reason, Dutch credit unions will be formally exempted from the regular rules of banking regulation in the forthcoming amendment of CRD IV and the CRR.

iii Regulation of foreign banks and activities

In general, branches of foreign banks established to carry out regulated banking activities in the Netherlands are subject to the same licence requirements and ongoing obligations as banks with a registered office in the Netherlands. This means that these branches usually require a banking licence. However, foreign banks with their registered office in another EU or EEA Member State may conduct banking activities through a branch office or on a cross-border basis in the Netherlands using a European passport. On this basis, banks from other eurozone countries may conduct banking activities in the Netherlands under their ECB banking licence, provided the ECB has been notified thereof. Similarly, banks with their registered office in an EU or EEA Member State that is not a eurozone country may conduct banking activities in the Netherlands under their home Member State banking licence following a notification procedure in their home Member State. Those non-eurozone banks holding a European passport in the Netherlands are directly supervised by the ECB. The DCB remains responsible for the supervision of non-EEA banks that have established a branch or provide cross-border services in the Netherlands.