The Netherlands - law and regulations

New legislation and regulations

Financial Markets Amendment Bill 2013

  • The majority of provisions of this bill came into force on 1 January 2013, introducing the following substantive changes:

  • The public offer rules are amended on a few points

  • Based on a new second subsection of section 5:4 FMSA, the Netherlands Authority for the Financial Markets (AFM) can rule that the "conversion exception" does not apply.

  • The bill provides a basis for further regulating the remuneration or fees of financial service providers and for prohibiting certain types of commission (see also the Financial Markets Amendment Decree 2013). Disclosure requirements have also been tightened and made mandatory for all distribution channels.

  • The bill incorporates the moral-ethical statement (banker's oath).

  • A number of provisions taking effect on 1 July 2013 relate to the solvency requirements for premium pension institutions and the requirement that these institutions have professional liability insurance.

  • The new requirement that a shareholder requesting discussion of an agenda item should disclose its entire beneficial interest in shares to the company will also come into force on 1 July 2013.

See Financial Markets Newsletter of July 2012 for a longer summary of the Financial Markets Amendment Act 2013.

Financial Markets Amendment Decree 2013
This decree also took effect on 1 January 2013. The majority of its provisions relate to the supervision of conduct at financial enterprises:

  • Product development process
    The AFM has been given powers to supervise and regulate the product development process in financial undertakings.

  • Ban on commissions
    From 1 January 2013, the consumer or client should pay for advice on and mediation in certain financial products on a direct basis. This concerns payment protection, complex products, mortgage credit, income insurance, death-related risks insurance, funeral insurance and other designated financial products. If a financial services provider advises on or mediates in simple non-life insurance, remuneration by way of a commission will continue to be permitted, provided that the provider meets the commission rules in effect since 1 January 2012.

  • Services provision document
    Before a financial services provider offers a financial service, the consumer or client must first be provided with a services provision document. This document should be tailored to the consumer's or client's request. It should contain standardised and comparable information about the nature and scope of the services provided, the interests of the financial service provider and the costs of the financial services. The changes to the services provision document will take effect on 1 July 2013. The AFM is holding a consultation about the new draft document until 1 February 2013.

  • New competence requirements
    These requirements for financial services providers have been updated. They will become effective on 1 January 2014. All employees who are involved in advising customers must have a diploma showing their competence. The competence requirements for proxies have also been tightened.

  • Dispute resolution
    Dispute resolution bodies will have to meet stricter criteria in order to be recognised under the FMSA. There will be additional requirements for governance, sharing information, expertise, and representation. Internal complaints procedures of financial undertakings will also be subject to further requirements.

  • Transparency of offerors of mortgage credit
    The Netherlands Competition Authority concluded in a 2011 review that consumers wishing to change mortgage lenders experience a number of restrictions, in particular after the end of the fixed interest period. The new Decree contains a number of provisions aimed at increasing transparency with regard to mortgage credit.

  • Ban on investment in cluster munitions
    Companies have an obligation to avoid providing direct aid to a (foreign) company that produces, sells or distributes cluster munitions. The ban is included in the Market Abuse Decree and applies to parties which regularly deal on the financial markets, such as institutional investors and offerors of investment products. It also applies to branches of Netherlands enterprises abroad. The scope of the ban is limited to new investments. The ban took effect on 1 January 2013, and the provision concerning enforcement of the ban will take effect on 1 April 2013.

  • Changes to integrity testing
    Integrity testing will from now on include tax offences. A provision is also introduced that a person's integrity is not beyond doubt if he or she has been convicted for an offence and less than eight years have passed since the conviction became final. In the case of offences of more than eight years ago or where a conviction has not yet become final, the supervisor may take the specific circumstances into account. These changes are aimed at promoting legal certainty and limiting any potential differences of view between the AFM and DNB.

See Financial Markets Newsletter of July 2012 for a longer summary of the Financial Markets Amendment Decree 2013.

Implementation Solvency II Directive

The bill implementing the Solvency II Directive has been published in the Official Gazette. The Solvency II Directive amends the prudential supervision on insurance companies and provides for maximum harmonisation of solvency requirements. The Directive applies to life insurers and non-life insurers with a gross annual premium income of more than EUR 5 million or those which outline a total technical provision on their balance sheet of more than EUR 25 million. The Directive also applies to reinsurance companies and insurers covering liability, credit and suretyship.

Three sections of the implementing act came into force on 1 January 2013. These allow provisions of the Directive to be implemented by ministerial regulations. The other sections will take effect at a later date. The deadline for transposition of the Directive is 30 June 2013, the deadline for its application 1 January 2014.

Act on funding of financial supervision

This Act came into force on 1 January 2013 and provides for how the costs of the AFM and DNB are financed. The new funding system is based on a fixed contribution to the costs of financial supervisors. To determine how supervisor costs are charged, the supervised institutions are divided into categories. A percentage-based share in the funding will be set for each category. A Decree contains further rules on this.

Corporate governance

The Act implementing recommendations of the Monitoring Commission Corporate Governance Code will take effect on 1 July 2013.

The Act relates to listed companies and introduces the following changes:

  • The threshold for the right to request an item to be added to the agenda of the general meeting will be increased from 1% to 3% (a lower threshold may be set in the articles of association).

  • The threshold for the notification of a stake is lowered from 5% to 3%.

  • (Gross) short position must be notified to the AFM.

  • Provisions are introduced for the identification of shareholders in Dutch issuing institutions.

  • An investor alone or with other investors holding a stake of at least 1% of the issued share capital or (depositary receipts for) shares representing a joint market value of at least EUR 250,000 has the right to ask the company to pass information on to other shareholders before a shareholders meeting.

Amendment of Act to prevent money laundering and financing of terrorism

The amendments came into force on 1 January 2013. The changes implement recommendations made by the FATF, in particular concerning:

  • client due diligence

  • notification of unusual transactions

  • criminal and civil indemnification of institutions that have notified the authorities of suspicious activities

The bill anticipates expected changes to European rules following recent recommendations of the Financial Action Task Force.

Enforcement of EU financial market regulations

Pursuant to a new decree that took effect on 1 January 2013, the AFM and DNB may impose a fine or issue an order with penalties for non-compliance if they find that provisions from EU regulations have been violated.

Banker's oath

Rules on the banker's oath took effect on 1 January 2013. The oath (or promise) has to be taken by persons who are tested on integrity. These are the policy makers and members of the supervisory body in the financial undertaking. Those who were already performing work for the undertaking on 1 January 2013 will have to take the oath or make the promise before 1 January 2014.

The government has announced that it will look at introducing an oath or promise for other types of employees.

Cross-border cooperation between financial supervisors

Rules on cross-border cooperation between the AFM and DNB on the one hand and the European supervisors EBA, ESMA and EIOPA, the European Systemic Risk Board, and the European Commission on the other took effect on 1 January 2013.

The Netherlands - other

Consultation on supplementary supervision of financial conglomerates

The Ministry of Finance has held a consultation on the implementation of Directive 2011/89/EU, which provides for supplementary supervision of financial entities in a financial conglomerate. A draft implementing bill is currently being reviewed by the Dutch Council of State.

The implementation deadline of the Directive is 10 June 2013.

The Directive is aimed at ensuring consistency between the various forms of group supervision of banks and insurers, so as to avoid overlap and lacunas. The Directive contains supplemental rules on the cooperation between supervisors and the role of the coordinating supervisor. The changes include:

  • The European supervisors may issue common guidelines

  • Member States may require the coordinating supervisor to carry out stress tests at financial conglomerates

  • Financial conglomerates have to give more insight into the legal structure, management and organisation of the group and publish annual information on this.

  • Managers of alternative investment funds receive the same treatment as mangers of UCITs

  • One of the four calculation methods for adequacy at group level is abolished.

New commission to review stability of the Dutch banking sector

A new commission has been set up to investigate whether the structure of the Dutch banking sector should be reformed to safeguard financial stability. Interested parties may provide input until 15 February 2013 on how the stability of the sector could be improved. The commission is expected to publish a report with its findings mid June 2013.

AFM news

  • Agenda 2013
    According to its 2013 agenda and budget, the AFM wants to devote extra attention this year to professional clients of financial undertakings. It also wants to look at the extent to which conduct supervision contributes to the stability of the financial system. In this connection, the AFM will especially consider the functioning of the markets for derivatives and structured products. It will also look at 'shadow banking' and securities lending. In addition to these new focus points, the AFM will continue to work on regular supervisory themes such as information on pensions and quality of financial service provision.

  • Best practices with regard to market abuse
    The AFM has published examples (in Dutch) of best practices used by investment firms to recognise and detect market abuse.

  • Register for financial information leaflets
    Financial information leaflets that have to be provided for complex financial products may now be viewed on the AFM website.

  • AFM and FINRA sign Memorandum of Understanding
    The AFM and the U.S. financial industry regulator FINRA have signed a Memorandum of Understanding about exchange of information. The aim is to improve cooperation in combating potential market abuse.

  • Frequently asked question about "walkaway rights"
    The AFM has published an answer on its website to the question whether qualified investors are also entitled to withdraw their acceptance of securities offered within two working days of a supplement's publication if securities are exclusively offered to them. The AFM believes qualified investors do not have this right. An offer of securities exclusively to qualified investors does not require an approved prospectus. No approved supplement is therefore required if an important new development occurs.

Europe

EMIR developments

Although the EU regulation on OTC derivatives, central counterparties and trade repositories (EMIR) took effect on 16 August 2012, many further rules – including clearing and reporting requirements - will not come into force until the Commission has adopted these. The Commission approved three implementing technical standards and six regulatory technical standards in December 2012. The implementing technical standards have been published in the Official Journal and took effect on 10 January 2013. The regulatory technical standards are subject to a scrutiny period by the European Parliament and the Council, which ends on 19 February.

On its website, the Commission answers frequently asked questions about the EMIR and its implementation. And the AFM has published a brochure about the consequences of European derivatives legislation and has explained in which situations non-financial parties have to meet EMIR requirements.

Regulation supplementing the AIFM Directive

The European Commission has adopted a delegated regulation supplementing the Directive on Alternative Investment Fund Managers (AIFMD). The delegated regulation contains provisions on exemptions, general operating conditions, depositaries, leverage, transparency and supervision. It is subject to a scrutiny period by the European Parliament and the Council until the end of March.

Furthermore, the ESMA has published two consultation documents clarifying terms used in the AIFMD:

  • Draft regulatory technical standards on types of AIFMs (consultation)

  • Guidelines on key concepts of the AIFMD (consultation)

Prevention of benchmark manipulation

The European Commission has amended its proposals for insider trading and market manipulation legislation to fight rate fixing. Manipulation of benchmarks such as LIBOR and EURIBOR will be explicitly prohibited and subject to sanctions. The EU's justice ministers agreed to the Commission's amended proposals in December 2012 and the European Parliament is expected to discuss the proposals in May 2013.

ESMA and EBA have drawn up draft guidelines for the setting of EURIBOR and for the supervision of banks involved in the setting process:

  • Report on the administration and management of EURIBOR (link)

  • Principles for Benchmarks-Setting Processes in the EU (consultation)

  • EBA Recommendations on supervisory oversight of activities related to banks’ participation in the EURIBOR panel (link)

IOSCO is holding a consultation until 11 February 2013 about rules for and supervision of financial benchmark setting (link).

See Financial Markets Newsletter of November 2011 for a longer summary of the new rules on market manipulation and insider dealing.

Council publishes proposals for banking union

The EU Council published its proposals for a single supervisory mechanism for banks in the Eurozone last month. De Brauw has sent out a legal alert to clients about this. The legal alert can also be downloaded from www.debrauw.com.

Stricter European rules for rating agencies

On 16 January 2013, the European Parliament agreed to the introduction of stricter rules for rating agencies The new rules are aimed at addressing a number of problems including over-reliance on ratings by financial market participants and conflicts of interests caused by 'the issuer pays' remuneration model .

As part of the more stringent regime, unsolicited ratings of government debt may not be published more frequently than three times a year. In addition, agencies may only issue their ratings after close of business or at least one hour before the start of trading on European exchanges. Rating agencies may not publish ratings of their major shareholders. And it will become easier to hold agencies liable for wilful violations or gross negligence. Rating agency clients will have to request ratings from at least two rating agencies. And finally, by 2020 European regulation must cease referring directly to external ratings and financial undertakings may no longer be required to automatically sell assets if they receive an unfavourable rating.

Fines and periodic penalty payments

The ESMA may impose fines or periodic penalty payments on a rating agency that has intentionally or negligently violated the Rating Agencies Regulation. The European Commission has published delegated rules to be followed by the ESMA in imposing such fines – see Regulation (EU) No. 946/2012).

European Securities and Markets Authority - publications

New version of Questions and answers on prospectuses

ESMA has published the 18th version of its Questions and answers on prospectuses (link). The list of questions has been amended on a number of points. Some questions had become obsolete because of new clarifications and amendments to regulation. In other instances ESMA adjusted or incorporated answers given by its predecessor CESR. ESMA also included a new question about information to be provided under the Prospectus Regulation about the type of underlying value of securities.

Memorandum of Understanding with Brazilian supervisor

The European supervisors and the Brazilian Comissão de Valores Mobiliários have agreed to cooperate and exchange information on cross-border supervision of alternative investment funds, including hedge funds, private equity funds and real estate funds.

Advice on delegated acts of the Prospectus Directive

The ESMA has submitted the third part of its final advice on possible delegated acts for the Prospectus Directive to the European Commission. In its advice, the ESMA proposes clarifications of, and amendments to, the Prospectus Regulation in order to increase legal clarity and propose application of the proportionate disclosure regime for convertible/exchangeable debt securities.

Other ESMA publications

  • MiFID Supervisory Briefing – appropriateness and execution only (link)

  • MiFID Supervisory Briefing – suitability (link)

  • Joint Committee publishes report on the implementation of anti-money laundering and counter-terrorist financing requirements for e-money in the EU (link)

  • Guidelines on repo arrangements for UCITS funds (link)

  • Opinion on the interpretation of Article 50(2)(a) of the UCITS Directive (link).

  • Waivers from Pre-trade Transparency - CESR positions and ESMA opinions (link)

  • Guide to investing (link)

  • 2013 CRA work programme (link)

European Banking Authority - publications

  • Opinion on the recommendations of the High-level Expert Group on reforming the structure of the EU banking sector (link)

  • Update on supervisory reporting requirements for liquidity and leverage ratio; feedback documents and amended templates (link)

  • Opinion in response to the European Commission’s consultation regarding a possible framework for the recovery and resolution of financial institutions other than banks (link)

  • Credit institutions Register (link)

  • EBA Discussion Paper on Draft Regulatory Standards on Prudent Valuation (link)

  • Consultation on technical standards on cooperatives, mutuals, savings institutions and similar institutions (link)

  • Report on the assessment of SME proposals for CRD IV/CRR (link)

  • Follow-up review of banks' transparency in their 2011 Pillar 3 reports (link)

  • Final report on the recapitalization of European banks (link)

  • Work programme 2013 (link)

International

Bank for International Settlements - publications

  • Basel III counterparty credit risk – Frequently asked questions (link)

  • Payment, clearing and settlement systems in the CPSS countries; overview of clearing and settlement in, inter alia, the UK, the US, France, Hong Kong and the Netherlands (link)

  • Working paper: The liquidity consequences of the euro area sovereign debt crisis (link)

Basel Committee on Banking Supervision - publications

  • Revisions to the Basel Securitisation Framework - consultative document (link)

  • Implementation of the Basel III Framework – progress report (link)

  • A framework for dealing with domestic systemically important banks (link)

  • Report to G20 Finance Ministers and Central Bank Governors on Basel III implementation (link)

  • Basel III regulatory consistency assessment (Level 2) Preliminary reports: European Union, Japan and United States of America (link)

IOSCO - publications

  • Credit Rating Agencies: Internal Controls Designed to Ensure the Integrity of the Credit Rating Process and Procedures to Manage Conflicts of Interest (link)

  • Consultation on Supervisory Colleges for Credit Rating Agencies (link)

  • Principles for on-going disclosure for Asset-Backed Securities (link)

  • Recommendations for securitisation regulation (link)

  • Survey on the Principles for the Regulation and Supervision of Commodity Derivatives Markets (link)

International publications

Capital Markets Law Journal

  • OTC derivatives, the courts and regulatory reform / Joanne P. Braithwaite – CMLJ, Vol. 7, No 4, p. 364

  • Why MiFID matters to private law – the example of MiFID's impact on an asset manager's civil liability / Danny Busch – CMLJ, Vol 7, No 4, p. 386

Journal of International Banking Law & Regulation

  • The European Financial Markets Supervisory Authorities and their Power to Issue Binding Decisions / Paul Weismann – J.I.B.L.R. Vol 27, issue 12, november 2012, p. 495

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