Introduction

On 1 January 2014 the Financial Markets (Amendment) Act 2014 entered into force. One of the amendments entails a license requirement for clearing and settlement institutions. Until 1 April 2014 all clearing and settlement institutions were granted a license by operation of law. The three month period was granted for the institutions to prove that they met the license requirements, failing which the Dutch Central Bank (DCB) could withdraw the automatically granted license.

What are clearing and settlement institutions?

The main task of clearing and settlement institutions is to facilitate payments by transfer. They provide for the forwarding, approval and netting (clearing and settlement services) of payments by transfer.

Why is supervision over large clearing and settlement institutions necessary?

Nowadays the better part of the payments in the Netherlands is made by transfer. Any disruption of the payment transfer system could cause major damage.

In addition, an adequate system of supervision is desirable from an international competitive perspective. Clearing and settlement institutions which have been granted a Dutch license will likely be regarded more solid, enabling them to provide their services cross-border more easily.

When is a license required?

Institutions that provide clearing and settlement services outside their group (so called “external transactions”), must report these with the DCB. The license requirement applies to clearing and settlement institutions that provide over 120 million external transactions per year. About four to ten clearing and settlement institutions are expected to exceed this limit.

Who is responsible for the supervision?

The DCB and the Netherlands Authority for the Financial Markets (AFM) are responsible for the supervision on clearing and settlement institutions in the Netherlands are the. The DCB acts as the license granting authority while the AFM is responsible for the market conduct supervision.

How is the supervision effectuated?

The institutions on which supervision is conducted can be divided into two groups. A lighter regime applies to institutions that provide less than 120 external transactions a year while the strict regime applies to the institutions subject to the license requirement. For the lighter regime, only the intention to provide clearing and settlement services has to be reported along with certain additional information to be determined by governmental decree. With regard to the institutions that are subject to the license requirement, the DCB and the AFM may impose any enforcement instrument available to them under the Dutch Financial Services Act.

In addition, the DCB has the authority to prohibit clearing and settlement institutions in the lighter regime to perform their activities if they fail to comply with the regulatory requirements.