Recently, The Netherlands Authority for the Financial Markets (AFM) published its 2012 annual report (Dutch). It appears from this report that in the event of violations the AFM chose to take fewer formal measures, such as penalties, than in previous years. The AFM has a preference for reaching compliance with the law by consulting with market parties.
On the basis of the Dutch Financial Supervision Act (Wft) the AFM has various formal enforcement tools available. A distinction can be made between remedial and punitive sanctions. A remedial sanction is aimed at the termination of a violation, giving the offender a period of time to end the violation, without this having (financial) consequences. The order subject to a penalty for non-compliance is an example of this, as well as giving an instruction. A punitive sanction, such as a penalty, is aimed at punishment. It does not matter whether the violation has meanwhile already ended. On the basis of the Dutch General Administrative Law Act (Awb) it is possible to impose both an order subject to a penalty for non-compliance and a penalty with regard to the same violation. Enforcement may also manifest itself in the withdrawal of a license. This is a final measure which may be used if an enterprise or service provider can no longer meet the statutory requirements, or when important facts have not been disclosed during the application process.
Besides administrative-law enforcement tools, criminal-law measures can be taken against violation of the Wft. Violation of various sections of the Wft is regarded in the Dutch Economic Offences Act as an economic offense, for instance the ban on offering investment objects in the Netherlands without having a license of the AFM as set out in Section 2:55 of the Wft.
Informal Enforcement Tools
Besides the above-described statutory tools to enforce compliance with the law, the AFM also regularly uses informal tools, such as entering into discussions about a violation of standards by the party involved. In such a discussion the AFM will explain why the law is not complied with, will ask the question how the requirements can still be met and in which manner the party involved will avoid repetition. A warning letter is also in line with this. Thus, the enterprise will be given the opportunity to take measures before formal enforcement is initiated. This development of applying informal tools is not new in itself and is described already for some time in the enforcement policy of the AFM and De Nederlandsche Bank (DNB).
Decreasing Trend Formal Enforcement
Remarkably, in the 2012 annual report formal enforcement measures have decreased considerably, from 261 in 2011 to 187 in 2012. Fewer penalties have been imposed, fewer instructions have been given and fewer reports have been made to the Public Prosecution Office. In the annual report it is explained that the AFM opts for the most effective tool to stimulate compliance with the law and that informal tools such as a warning have appeared to be effective. Almost all financial service providers who received a warning from the AFM have observed this warning.
The shift from formal to informal measures is with the qualification that the number of orders subject to a penalty for non-compliance imposed has increased from 19 in 2011 to 28 in 2012. The AFM argues in this regard that these orders were particularly imposed if the AFM “had doubts about the lawfulness of certain activities”. This will concern orders subject to a penalty for non-compliance in the event that the obligation of Section 5:20 of the Awb to provide information to the supervisory authority is not met, which can also be derived from the penalty decrees published by the AFM in 2012. Not meeting the obligation to provide information is a violation; some “doubts about the lawfulness of certain activities” on the part of the AFM is insufficient basis to enforce the law against these activities. The AFM must first establish a violation before statutory enforcement tools can be used.
Favorable Development for Market Parties
Facilitation of compliance through informal measures is not only a wish of the AFM from a policy perspective, but is also put into practice. This is a favorable development for financial service providers and enterprises. Formal measures come with a burden. Besides the expenses of legal proceedings (objections and appeals), the mandatory publication of imposed measures is burdensome.
It is important that the informal procedure on the basis of the enforcement policy is used particularly for parties who are already under the AFM’s supervision, for instance because they have a license. The supervisory authority is much stricter for a party who enters the market without the required license and who, in the words of the AFM, “evades supervision”; in that case formal measures will be chosen sooner. The AFM is also stricter in the event of repeated violations, in which case formal enforcement should be expected more quickly.