THE NETHERLANDS – LAWS AND REGULATION
Financial Markets Amendment Act 2010 – entry into force
The majority of provisions in the Financial Markets Amendment Act 2010 (FMSA) will enter into force on 1 July 2011. These include the voluntary supervisory regime for investment institutions, and the major exemption for offerors of investment objects. Some portions of the amendment will take effect on a different date, including:
- the "wild west sign"- 1 January
2012
This is the mandatory exemption notice for offerors of securities that are exempt from the prohibition of offering securities to the public without an approved prospectus, pursuant to section 5:3 paragraph 1 FMSA. - the exemption from licensing requirements for
investment object, securities and participation rights in
investment institutions – 1 January 2012
This threshold is raised from EUR 50,000 to EUR 100,000 per investment object, security or participation right.
Financial Markets Amendment Decree 2010
A number of articles of the Financial Markets Amendment Decree 2010 will also take effect on 1 July 2011. Some of the amendments arise from a change in the European rules on deposit guarantee systems. The payment delay will be reduced to three months and can no longer be extended. It should be noted, however, that the European rules have been amended again in the meantime: the payment delay has been further reduced to 20 working days with an option to extend the period once by no more than 10 working days. A further amendment of the Dutch rules to reflect the latest European rules can therefore be expected.
AFM publishes rules on the mandatory exemption notice
The AFM has drawn up rules on the use of the mandatory exemption notice. From 1 January 2012, the text for the notice should read: "Attention! This investment falls outside AFM supervision. No licence required for this activity", or "Attention! This investment falls outside AFM supervision. No prospectus required for this activity." The text must be followed by a standard drawing of a person thinking, with a question mark next to him.
The AFM has also released the new text of the Further Regulation on Conduct of Business Supervision of Financial Undertakings. This regulation outlines how the mandatory exemption notice should be used and where it should be placed, e.g. in advertising and other information materials. The Further Regulation will take effect later this year.
Implementation of amendments to Settlement Finality Directive and Directive on Financial Collateral Arrangements
Legislation implementing amendments to the Settlement Finality Directive and the Directive on Financial Collateral Arrangements came into force on 11 May 2011.
The existing Settlement Finality Directive provides that transfer orders become irrevocable after entry into a payment or securities settlement system. This should minimise systemic risk, and safeguard the stability of settlement systems. As such systems are increasingly interconnected, the amending directive requires coordination of their rules.
The amendments to the Directive on Financial Collateral Arrangements ensure that credit claims (i.e. loans) can be used as financial collateral, in addition to cash and securities. This is intended to enable banks to provide more credit to consumers and businesses, thus improving competition between banks and promoting the availability of credit to consumers and businesses at more favourable terms.
Implementation of Directive on holdings in the financial sector
This Directive - also referred to as the Anton Veneta Directive – was implemented in the Netherlands on 7 May 2011. The implementing legislation requires the Dutch Central Bank (DNB) to assess any takeover of a Dutch bank by a foreign bank on the basis of five exclusively prudential criteria. Political considerations may no longer play a role.
The Anton Veneta Directive was drawn up after the Netherlands flagged the fact that cross-border takeovers seemed to be infrequent in the European financial sector.
Implementation of Consumer Credit Directive
The Consumer Credit Directive was implemented in the Netherlands on 25 May 2011. The implementing act introduces a new chapter on consumer credit agreements into the Dutch Civil Code, and amends the Financial Markets Supervision Act (FMSA) and the Consumer Credit Act.
The implementing act changes the existing scope of the FMSA. Whereas previously any credit repayable within three months fell outside the scope of the FMSA, now the exclusion applies only to credit repayable within three months and for which insignificant fees are charged.
Even though the Directive allows for their exclusion, in the Netherlands the following types of agreement will continue to fall under the scope of the FMSA:
- credit secured by a mortgage
- credit for acquiring or retaining property rights in land or in an existing or planned building
- credit involving a total amount of less than EUR 200 or more than EUR 75,000
- credit provided free of interest and other charges
- credit in the form of a permitted overdraft which has to be repaid within one month (but note that this type of credit is subject to a mitigated regime)
- securities-backed credit
In addition, an implementation decree entered into force on 2 June 2011. This decree amends the Decree on the Supervision of Market Conduct FMSA, the Decree on Administrative Penalties Financial Sector and the Costs of Credits Decree.
Transition period
The new rules apply to all credit agreements concluded on or after 25 May 2011. Agreements concluded before 25 May 2011 are subject to the former rules, except for open-ended agreements. These open-ended agreements are subject to a number of the new consumer credit rules in the Dutch Civil Code, such as the consumer's right to terminate the credit agreement at no cost, and certain information requirements that must be observed during the term of the agreement.
Further information
De Brauw has issued two Legal Alerts about the implementation of the Consumer Credit Directive. Please let one of your contacts at De Brauw know if you would like to receive the Legal Alerts by e-mail. You can also download them from our website.
Exemption no longer necessary for secondary trading on a multilateral trading facility
Until recently, there was an exemption for the public offer of securities made exclusively as part of a multilateral trading facility (MTF), and where the securities had already been admitted to trading on a trading platform in accordance with the host state's applicable rules. As many member states and the European Commission did not regard the publication of trading information as a public offer of securities, the exemption was removed from the FMSA's Exemption Regulation. In explaining this change, the Minister stated that the exemption was no longer needed and that the Netherlands is now fully in line with the European interpretation of the term "offer to the public", thus creating a level playing field between MTFs from the Netherlands, and those from other member states.
Accepted Market Practices Regulation FMSA
The Accepted Market Practices Regulation FMSA came into effect on 13 May 2011. Under the regulation, "liquidity agreements" are exempted from the prohibition on market manipulation. These agreements enable issuers to trade in their own shares through a third party to promote regular trading in these shares, and to prevent price fluctuations that are caused exclusively by a lack of regular trading.
The option to exempt certain categories of transactions or trade orders from the prohibition on market manipulation is based on section 5:58 paragraph 3 FMSA. The Market Abuse Decree FMSA provides that the Netherlands Authority for the Financial Markets (AFM) will regularly review the categories of transactions or trade orders for which an exemption is justified and will advise the Minister of Finance on this. The ESMA maintains a list on its website of accepted market practices in the various member states.
Insurers Code
A code of conduct for insurers has been published. It was effective retroactively from 1 January 2011. Similar to the Banking Code, the Insurers Code sets out principles on management, supervision of management, risk control, audits and remuneration policy. The code applies to all insurers licensed under the FMSA. These insurers must explain their application of the Code's principles in their annual reports.
THE NETHERLANDS - OTHER
Seven financial markets bills submitted to the Dutch Parliament
The Minister of Finance has submitted an extensive set of measures to the Second Chamber regarding the financial markets:
- Financial Markets Amendment Bill 2012
This bill is part of a periodic amendment cycle which in principle covers the laws and regulations of all national financial markets. Amendments resulting from European legislation do not form part of this process. The Financial Markets Amendment Bill 2012 includes the following substantive changes: - Money Transfer Offices Act
This Act is to be repealed. Provisions on money transfers have already been moved to the FMSA. Under the bill, the rules for other types of money transactions – e.g. currency exchange transactions – will also be moved to the FMSA. Additionally, a licence requirement has been introduced for exchange businesses. - Public offer rules
In June of last year, the Ministry of Finance held a consultation regarding the revision of public offer rules, including the introduction of the put up or shut up provisions. The revisions proposed under the bill are related to this consultation. - Amendment of Trust Offices Supervision
Act
To reduce the risk of money laundering through services provided in the Netherlands by unregulated foreign trust offices, the bill proposes to bring these services within the scope of the Trust Offices Supervision Act. The bill also proposes to consider mediation in connection with the sale of legal entities as a service within the meaning of the Trust Offices Supervision Act. - War risks cover
Under the bill, insurance companies are no longer banned from covering war risks abroad. - Enforcement of European financial markets
regulations
The bill introduces a framework for designating a supervisory authority charged with enforcing European financial markets regulations and, where necessary, imposing sanctions. - European Auction Regulation
The bill implements the European Regulation on the auctioning of emission allowances (no. 1031/2010) which includes rules on the structure of and access to auctions and the appointment and duties of an auctioneer, and provisions regarding the auction monitor. - Bill on strengthening the governance of DNB and the
AFM
In a letter to the Second Chamber earlier this year, the Minister of Finance proposed a number of changes to the governance of the supervisors. The Bill contains a number of those proposals: -
- establishing a Supervisory Chairman and a financial institutions supervisory council
- widening the statutory task of the supervisory boards of DNB and the AFM
- limiting the number of re-appointments within the managing boards of DNB and the AFM
- profiles and an integrity and suitability test for managing and supervisory directors of DNB and the AFM.
- Bill introducing notification requirements for
cash-settled instruments
Cash-settled instruments (e.g. contracts for difference and total return equity swaps) can be used to influence the exercising of voting rights on underlying shares without there being a legal entitlement to the shares themselves. In certain circumstances, these instruments may also enable the holder to acquire a stake in a listed company in a simpler way, and without notification as required by the FMSA's transparency requirements. In view of this, the cabinet proposes to extend the current rules for notification of votes, capital, control and capital interest in issuing institutions by introducing a notification requirement for cash-settled instruments. The notification requirement will apply to those who, at the time the bill takes effect, are deemed to have at least 3% of the capital at their disposal and have not previously notified the AFM of this. In addition, an initial notification requirement has been proposed for persons with at least 3% of the capital at the time that this bill takes effect, and who have previously notified the AFM of this. This latter notification only needs to be made if, as a result of this bill taking effect, the number and type of shares has changed as compared to the previous notification. - Bill implementing CRD II
CRD II is the collective name for three directives amending the Capital Requirements Directive. The implementing bill, among other things, amends the FMSA and the Prudential Rules Decree FMSA. These amendments relate to -
- The waiver from DNB's supervision for banks belonging to a central credit institution that exercises control on business operations, procurement, solvency and liquidity of the member banks. Banks in countries that became EU member states after 1980 are affected by the waiver deadline. The bill will rectify this.
- Criteria for including hybrid capital instruments in the core capital or higher additional capital.
- Tightening existing exemptions in order to achieve a stricter regime for large positions
- Introduction of the "college of supervisors", a cooperative body for supervisors of cross-border banks.
- Stricter rules for securitisations
- Bill introducing suitability test and closer
cooperation between supervisors
This bill amends the rules with regard to the expertise of day-to-day policy makers of financial undertakings, and members of the body that supervises the financial undertaking's policies and general course of business. The bill proposes to replace the existing expertise test by a wider suitability test. In addition, a proposed measure outlines that where supervisors do not unanimously agree on a director's integrity and suitability, the negative view will prevail, even if that is not the lead supervisor's view - Bill on Financial Markets BES and bill to prevent
money laundering and financing of terrorism BES
The last two bills relate to the supervision of the financial markets on the islands of Bonaire, St Eustatius and Saba. Since the islands have become part of the Dutch state, the Dutch Minister of Finance is responsible for the sound operation and integrity of the financial markets on those islands. The bills replace the temporary supervisory legislation, which has been in force since 10 October 2010.
Bill submitted implementing E-money Directive
The Ministry of Finance has submitted a bill implementing the E-Money Directive.
The bill will amend the FMSA and make a significant change to the prudential rules for electronic money institutions. The European Commission believes that the prudential requirements for e-money institutions are currently too strict. Accordingly, the prudential rules have been brought into line with the rules for payment institutions. Under the Directive, a credit institution may only carry on a banking business. The definition of credit institution in the FMSA is therefore replaced by "bank". The conditions under which an e-money institution can obtain dispensation are also amended. This should facilitate the entry of newcomers to the electronic money market. The provisions on starting capital and shareholders' equity have also been adjusted and the bill allows e-money institutions to develop other business activities in addition to e-money services.
The definition of electronic money and the scope of the Directive have been clarified in the bill. Both money on a plastic card and electronic money stored on a central server can fall within the scope of the definition. The aim is not to include (internet) bank accounts in the definition of electronic money. Funds issued by an e-money institution are not regarded as deposits and not covered by the deposit guarantee system.
The Directive should have been implemented by 30 April 2011, but the Ministry of Finance will give retroactive effect to the bill. Existing issuers of e-money may base their business operations on the old provisions until 30 October 2011.
Amendment of Decree on Conduct of Business Supervision of Financial Undertakings FMSA
A number of the E-Money Directive's provisions will be temporarily implemented in this Decree. These provisions relate to the obligation of e-money institutions to repay the money at the request of the holder of the e-money. The e-money institutions may not apply a threshold amount. Whether an institution may charge costs depend on the moment that the holder requests repayment.
The amendment of the Decree took effect on 30 June. In anticipation of the definitive implementation of the Directive, the supervisors will, where possible, interpret the Dutch legislation on e-money in conformity with the Directive.
Key Investor Information document replaces Simplified Prospectus
From 1 July 2011, investment companies may replace simplified prospectuses by the Key Investor Information document (KII). From 1 July 2012, they will have an obligation to use the KII. In this regard, the AFM has published standard warnings and a risk indicator. Investment companies which provide KIIs must include the new warnings in their advertisements. For investment companies that continue to use the Simplified Prospectus, the existing warnings and risk indicator apply.
The new rules arise from the amended UCITS Directive that became effective on 1 July 2010. ESMA has published several guidelines on the KII.
AFM and DNB explain enforcement policy
The AFM and DNB have published an explanation of their joint enforcement policy. The explanation is aimed at highlighting the practical circumstances which are relevant in deciding if a violation has taken place and whether to proceed with enforcement.
Memorandum of Understanding on crisis management
The Ministry of Finance, the AFM and DNB have published a memorandum of understanding outlining the necessary arrangements in the event of an operational disruption of the payment and securities system. The memorandum aims to create a framework for cooperation and the exchange of information between the Minister, AFM and DNB in connection with the tripartite crisis management.
Financial supervisors look at "crowd funding"
The AFM and DNB have taken a joint look at new finance models known as "crowd funding". This is where the demand and supply of funding come into contact via an internet platform. The supervisors note that the creators of such platforms should be aware that this type of financing may be subject to regulation. In addition, users of the platforms may be exposed to risks. In a joint statement, the AFM and DNB have addressed a number of questions of consumers about this issue.
Covenant between the AFM and DNB on supervision of rating agencies
In June 2010, the AFM was designated by the Minister of Finance as the competent authority in connection with the EU Regulation on Rating Agencies. In view of this designation, the AFM and DNB entered into a covenant on cooperation and coordination in respect of supervision, regulation and policy, national and (inter)national consultation and other shared tasks. The covenant includes some new provisions on exchange of information relating to rating agencies. In addition, two provisions have been included about exchange of information in connection with proposed external communications and international policy-related and regulatory activities.
The covenant now allows supervisors to share information without prior notice of this to the company which has supplied the information and regardless of whether the information has been supplied to meet a statutory obligation. The AFM and DNB believe that the operation of the "twin peaks model" is now sufficiently known and that the statutory protection of confidentiality is adequately safeguarded under the FMSA.
The covenant entered into force on 11 June 2011, with retroactive effect from 7 June 2011.
EUROPE
ESMA publications
Prospectus Q&As updated
ESMA has published an update to its Q&As regarding prospectuses.
Consultation on delegated acts concerning the amended Prospectus Directive
ESMA has launched a consultation on delegated acts concerning the amended Prospectus Directive. These delegated acts relate to:
- the formatting of the final terms to the base prospectus, the format and content of the prospectus's summary, and the specific form and content of the key information in the prospectus
- the ways to prevent the same information from being disclosed repeatedly, where a prospectus consists of a number of separate documents.
Other publications
- Technical Advice to the Commission on Fees for CRAs
- Guidelines on the application of the endorsement regime under Article 4 (3) of the Credit Rating Agencies Regulation No 1060/2009
Supervision of the Dutch financial sector - IMF publishes final findings and recommendations
The IMF has published its final report on the stability of the Dutch financial sector. The IMF concludes that the AFM and DNB meet international standards of supervision, but suggests a number of essential changes to improve supervision. An important recommendation is to enable supervisors to intervene in the product development process at an earlier stage and to give them rule-making authority for that purpose.
INTERNATIONAL PUBLICATONS
Capital Markets Law Journal
- Pricing terms in sovereign debt contracts: a Greek case study with implications for the European crisis resolution mechanism / Stephen J. Choi, Mitu Gulati and Eric A. Posner – Capital Markets Law Journal volume 6, nr. 2, april 2011
- Bondholders and banks – why the difference in protections? Philip R. Wood - Capital Markets Law Journal volume 6, nr. 2, april 2011
- Systemic risk, SIFI's and financial stability / Rosa Maria Lastra - Capital Markets Law Journal volume 6, nr. 2, april 2011
Journal of International Banking Law and Regulation
- The AIFM Directive: An Overview of the Final Rules / Phoebus Athanassiou – J.I.B.L.R. issue 5, 2011, p. 237 e.v.
- Clearing, Settlement and Legal Infrastructure: Ways Forward / Dr Matthias Haentjens – J.I.B.L.R. issue 5, 2011, p. 243 e.v.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
