Several amendments to the Financial Markets Supervision Act will come into force shortly. Financial undertakings should be prepared for a broader application of the “fit and proper” test. Also, a wider range of their employees will have to take the “bankers’ oath”. Undertakings will also have to bring their remuneration policies in line with a stricter bonus cap.
Scope of the “fit and proper” test extended
The current fit and proper requirements that apply to daily policy makers and supervisory board members at banks and insurance companies will be extended. Persons working under the responsibility of banks and insurance companies will be subject to the fit and proper test if they:
- have an executive position, and
- are responsible for employees whose activities may materially influence the bank’s or insurance company’s risk profile.
This means, for example, that the highest ranking executive of departments, including investment management, legal, treasury, compliance and internal audit, will now also have to comply with the fit and proper requirements.
Scope of the bankers’ oath extended
In addition to daily policy makers and supervisory board members at financial undertakings, the following persons will be required to take the banker’s oath:
- executives at banks and insurance companies who fall within the extended scope of the fit and proper requirements.
- persons working in the Netherlands under the responsibility of financial undertakings and whose activities may materially influence the financial undertaking’s risk profile.
- persons working in the Netherlands under the responsibility of financial undertakings and directly involved in providing financial services.
For banks with their seat in the Netherlands, the bankers’ oath will be extended to all persons working under their responsibility within the Netherlands who:
- are employees of the bank, that is, have an employment contract with the bank, or
- carry out activities that are part of the bank’s core business or of the essential business processes that support the bank’s core business.
This means that not only employees but also persons seconded to financial undertakings may have to take the bankers’ oath. There is a one-year transitional period – starting when the new rules enter into force – for those meeting the criteria and who are currently employed by or fall under the responsibility of the financial undertaking.
Group finance company exception limited
The Financial Markets Supervision Act currently offers group finance companies (GFCs) an exception to the banking licence requirement if they:
- attract repayable funds through the offering of securities, and
- extend – that is, on-lend – at least 95% of the funds attracted from the public to group companies.
These GFCs must meet certain other requirements, notably relating to a guarantee of the GFC’s obligations.
The following amendments to this exception will come into force shortly:
- The exception is only available if at least 95% of the funds obtained from the public is on-lent within the group. On-lending to borrowers outside the group is therefore limited. It is not relevant which group entity on-lends the funds to borrowers outside the group.
- The exception is only available if the group’s core business does not consist of on-lending outside the group on its own account, unless the holding or group company on-lending the funds to borrowers outside the group has obtained a banking licence in:
- the Netherlands
- another EU Member State
- a state designated by the Minister of Finance as having adequate supervision.
Under the current GFC regime Australia, Canada, Japan, the United States of America and Switzerland are designated states with adequate supervision in regard to bank guarantees. It is possible that the same states will be designated as having adequate supervision with regard to the banking licence, but no designation of this kind has taken place yet.
A GFC that only attracts funds from professional market parties will not fall within the scope of the banking licence requirement and will not need to rely on the exception. For GFCs that rely on the current exception, there is a transitional period of six months to adapt to the new regime. However, a GFC that obtains funds from the public before the new regime enters into force (and does not rely on the exception prior to that date) will need a banking licence if it does not meet the new requirements. Contracts entered into under the old regime will be grandfathered. The old regime will apply to those contracts irrespective of their duration.
AIFMs allowed to market to Dutch non-professional investors
Fund managers holding a licence pursuant to the Alternative Investment Fund Managers’ Directive (“AIFMs”) will be allowed to market units in the funds managed under their licence to non-professional investors in the Netherlands. This means that AIFMs from other EEA Member States (such as Luxembourg and Ireland) will be allowed to market to retail investors in the Netherlands without needing a separate licence. In order to start marketing a fund to non-professional investors, the following steps will have to be taken:
- An article 32 AIFM Directive passport-notification will have to be made to the home member-state regulator
- The intention to offer units to retail investors will have to be notified directly to the Netherlands Authority for the Financial Markets (“AFM”) by the AIFM.
Once both steps have been completed, units in a fund may be offered to retail investors in the Netherlands. Following the marketing to those retail investors, AIFMs will have to comply with a number of “top-up retail rules” (most importantly relating to extensive information and disclosure requirements towards investors).
The amendments above stem from the Financial Markets Amendment Bill 2015. See our previous article on this bill (in Dutch) for more detailed information. The Royal Decree that determines when the amendments will enter into force has not yet been published, but the expected date is 1 April 2015.
Stricter remuneration rules implemented
A bonus cap will be implemented: financial undertakings may not award variable pay above 20% of the annual fixed remuneration. In addition, severance payments to daily policy makers at all financial undertakings will be limited to 100% of annual fixed remuneration. In certain situations, financial undertakings will also be obliged to lower or claw back bonuses already awarded.
All financial undertakings with corporate seat in the Netherlands must ensure that their own remuneration policies and practices and those of their subsidiaries reflect these new rules. If the financial undertaking is part of a group and the holding company has its corporate seat in the Netherlands, the holding company must ensure that all legal and other entities within the group apply the rules. Holding companies of groups are exempted where the main activities are not within the financial sector.
There is a transitional period for the bonus cap: until 31 December 2015, the bonus cap does not apply to variable remuneration stemming from obligations pre-dating 1 January 2015. Another transitional provision regards the limitation of the severance payments: until 1 July 2015, this limit will not apply to severance payments agreed to prior to 1 January 2015. However, this transitional provision does not apply to the daily policy makers of banks and insurers.
The law implementing these rules was meant to enter into force as of 1 January 2015, but has not yet been adopted by the First Chamber of the Dutch parliament.
For more detailed information on the new remuneration rules, see our article in July’s In context.
All financial supervision costs to be borne by financial undertakings
The government contribution towards the cost of financial supervision will be abolished as of 1 January 2015 and all costs of supervision going forward will be borne by the supervised entities. This means that financial undertakings should budget for a substantial increase in what they spend on supervision-related costs.