COMMISSION BAN FOR INVESTMENT FIRMS – 1 JANUARY 2014
As of 1 January 2014, the commission rules which were in force for investment firms have been replaced by a commission ban. Introduction of the commission ban renders any form of indirect remuneration (i.e. remuneration that does not originate from a client) illegal across the market.
Scope of the commission ban
The ban on commission payments has been implemented by way of an amendment to s.168a of the Market Conduct Supervision (Financial Institutions) Decree (the "Decree"), which prior to 1 January 2014 already laid down the rules regarding commission payments for investment firms. As a result of the amendment of s.168a of the Decree, investment firms may no longer extend commissions to, nor receive them from, third parties in connection with the investment services or ancillary services that they provide.
Clients in relation to which the commission ban applies
The ban on commission payments only applies if certain investment services are provided to non-professional investors within the meaning of the MiFID Directive (2004/39/EC) ("retail investors"). The provision of investment services or ancillary services to professional investors will still be governed by commission rules similar to those in place on 31 December 2013.
Investment firms to which the commission ban applies
The commission ban applies to all investment firms which are active on the Dutch market, except for investment firms that perform investment services on a cross-border basis (i.e. without having a Dutch branch office) on the basis of an appropriate EEA passport.
Investment services in relation to which the commission ban applies
The commission ban is applicable to the provision of investment services with regard to the services of portfolio management, investment advice and execution-only services. These are the investment services as described in clauses a to d of the definition of providing an investment service in s.1 of Part 1 of the Dutch Financial Supervision Act (the "Act"). Remuneration by way of commissions (from third parties) will still be permitted for the provision of the investment services of underwriting or placing financial instruments, whether on or without a firm commitment basis, subject to compliance with the commission rules stemming from the MiFID Implementing Directive (2006/73/EC) that already applied to investment firms before the present commission ban entered into force.
Exceptions to the commission ban
There are only three exceptions to the commission ban. The commission ban does not apply to:
- commissions which are paid directly by the client or by a person acting in the name of the client;
- business gifts not exceeding EUR 100 on an annual basis; and
- commissions that are necessary for or enable the provision of the relevant service.
Entry into force and transitional law
The commission ban entered into force on 1 January 2014. The transitional arrangements for the commission ban are laid down in s.168aa of the Decree. S.168aa provides for two transitional regimes.
The first transitional regime concerns investment services and ancillary services relating to transactions in financial instruments, except for units in an open-ended investment fund. Investment services and ancillary services relating to transactions performed prior to 1 January 2014, in financial instruments that are not units in an open-ended investment fund, will remain subject to the commission rules as were in force on 31 December 2013. With these financial instruments – which generally have fixed and limited terms to maturity – it is often impossible to convert clients' existing positions into commission-free versions of the same financial instruments. Examples of such instruments include structured products and bank bonds with a particular term or maturity date. Therefore, a grandfathering regime applies to these financial instruments. Since many of these financial instruments have a short term to maturity, the expectation is that for these financial instruments the transition to commission-free services will also be made within a few years.
The second transitional regime concerns investment services and ancillary services relating to transactions in units in an open-ended investment fund. With these services, it will still be permitted to receive commissions from or pay commissions to third parties, for example distribution fees, for one year after the commission ban enters into force, provided that the entire commission is paid on to the client. Unlike with other financial instruments, it is, according to the Dutch legislator, generally easier for investment firms to convert these units into commission free versions of the same instruments. Notwithstanding the transitional period, market participants are asked to make the switch to commission-free services and products as soon as possible.
The commission rules for investment firms that applied up to 31 December 2013 were based on the implementation of the MiFID Directive and the MiFID Implementing Directive. The commission ban for investment firms expands on and tightens the commission rules stemming from Article 26 of the MiFID Implementing Directive.
The basis for a deviation from the provisions laid down in the MiFID Implementing Directive derives from Article 4(1) of the MiFID Implementing Directive. Pursuant to Article 4(3) of the MiFID Implementing Directive, any EU member state that wishes to impose additional requirements of its own must notify the European Commission of those requirements at least one month before the requirements take effect. Such notification was submitted to the European Commission on 28 November 2013.
With the entry into force of the commission ban, the Dutch legislator acts in anticipation of the revised rules on commission payments that are expected to be introduced through a recast of the MiFID Directive (i.e. MiFID II).
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