On 27 July 2016, the preliminary draft of the Financial Markets Amendment Decree 2017 (Wijzigingsbesluit financiële markten 2017) and the bill amending the Dutch Financial Supervision Act 2018 (Wijzigingswet financiële markten 2018) were offered for consultation.
The most important changes proposed include the inducement ban for advisors and intermediaries, the requirement that the Dutch Central Bank must approve guarantees issued by parent companies, and an amendment to the current rules regarding the remuneration policies of financial institutions. It is envisaged that the proposed amendments will enter into force on 1 July 2017 and 1 July 2018 respectively. Unlike previous years, there is no proposed legislation to amend the Dutch Financial Supervision Act in 2017, which means that there will be no amendments in the first half of next year.
Furthermore, the Dutch legislator is currently exploring whether the Dutch Financial Supervision Act can be made clearer and more accessible to the market.
Changes from 1 July 2017
The preliminary draft of the Financial Markets Amendment Decree 2017 (Wijzigingsbesluit financiële markten 2017) proposes amendments relating to:
(I) the inducement ban for advisors and intermediaries advising on investments in investment funds; and (II) robo-advice.
Scope of the inducement ban
Investment firms and financial service providers are prohibited from paying or receiving inducements to or from the provider for which they act as advisor or an intermediary. They must be paid directly by the client. In practice, certain investment firms that manage portfolio's for clients allow that the fee paid by a client to an advisor/intermediary is transferred from the investment account of the client. Consequently, the total amount on the investment account is not used to build up capital, since part of that amount is used to pay the advisor/intermediary. This is not appropriate according to the Dutch legislator. Therefore, the Conduct of Business Supervision on Financial Undertakings Decree under the Dutch Financial Supervision Act (Besluit gedragstoezicht financiële markten) will be amended to prohibit this.
Robo-advice on financial products
Robo-advice means that clients are advised by "robo-advisors" without involving an actual person. The Dutch legislator wants to ensure that a client accessing such automated advice has the same protection as a client that is advised by an actual person. That is why financial institutions providing automated advice will be required to have procedures in place to ensure compliance with the same laws and regulations that apply to advice given by an actual person. In addition, for each financial product that is available using the automated service the investment firm must appoint a person that is responsible for the automated advice given.
Changes from 1 July 2018
The preliminary draft amending the Dutch Financial Supervision Act (Wijzigingswet financiële markten 2018) includes amendments relating to:
(I) the approval of the Dutch Central Bank ("DNB") of guarantees issued by banks, investment firms or insurance companies; (II) a longer decision period for an application for a banking license; and (III) remuneration policies of financial institutions.
Power of DNB to approve company guarantees
According to the Dutch legislator, guarantees relating to the debts of another (legal) person can undermine the solvency of the parent company and can reduce the liquidation possibilities of the group. The Dutch legislator therefore proposes that the DNB, or the European Central Bank ("ECB") for significant banks, must grant prior approval for the issuance of guarantees by (parent companies of) banks, investment firms an insurance companies with their statutory seat in the Netherlands. These guarantees include letters of comfort with respect to subsidiaries (403-verklaring).
A guarantee issued without approval will be null and void. The proposed amendment will not affect guarantees issued before the date this amendment of the Dutch Financial Supervision Act comes into effect.
Changes in remuneration policy
The Dutch legislator also proposes to amend the current rules on remuneration policies of financial institutions. Managers of investment funds, managers of UCITS and investment firms acting for their own account are currently exempt from the 20% bonus cap. The Dutch legislator proposes that this exemption should no longer apply if these entities are part of a consolidated group. This amendment is in line with the guidelines on sound remuneration policies under the Capital Requirements Directive IV, issued by the European Banking Association in December 2015 (source).
The legislative text of the proposed amendment and the explanatory memorandum can be found here.
An outline policy memorandum regarding a revision of the Dutch Financial Supervision Act
As a result of recommendations from the Council of State (Raad van State), the Dutch legislator is currently exploring whether the Dutch Financial Supervision Act can be made more user friendly.
The Dutch Financial Supervision Act, which entered into force on 1 January 2007, has been amended 75 times. As a result, the existing legislation has become difficult to apply in practice. The Dutch Minister of Finance aims to explore how to make the Dutch Financial Supervision Act clearer and more accessible.
The Dutch legislator has already held discussions with representatives from the financial sector, supervisory authorities, academics, and other stakeholders such as consumer organizations. Based on these discussions, together with further studies and analysis, the Dutch Minister of Finance published five options to amend the Dutch Financial Supervision Act in a consultation document dated 22 November 2016. The consultation period ends on 28 February 2017. The consultation document can be found here.