On 13 September 2012, the Dutch Ministry of Finance published a document (the Amendment Letter) in which the Ministry describes which amendments will be made to the consultation version of the Amendment Decree financial markets 2013 (Wijzigingsbesluit financiële markten 2013). The consultation version was published in May 2012 and received a large number of responses. Below we will discuss the main topics in the Amendment Decree and the amendments announced by the Dutch Ministry. The Amendment Decree will likely enter into effect on 1 January 2013. A final version of the Amendment Decree is expected to be published no earlier than November 2012.
1. Product approval process
The Banking Code (Code Banken) and the Governance Principles Insurance Companies (Governance Principes Verzekeraars) include an obligation to have an adequate product approval process. The Amendment Decree provides for a legislative basis for the obligation to have an adequate product approval process:
- The obligation to have an adequate product approval process entails that financial enterprises must have procedures that procure that the interests of the client are considered in the development of products. This obligation is worked out in more detail in the Amendment Decree.
- The obligation to have an adequate product approval process will not only apply to banks and insurance companies, but also to other offerors of financial products and parties that combine products to form a new product.
- The obligation does not apply to investment institutions that only offer their participations to professional investors nor does it apply to investment firms. The Amendment Letter states that this obligation will also not apply to undertakings for collective investment in transferable securities (UCITS).
- The obligation to have an adequate product approval process applies to (i) financial products that will be offered from the moment the Amendment Decree enters into effect and (ii) to financial products that were offered prior to the entry into effect and are still offered actively to new clients after the entry into effect of the Amendment Decree. With respect to the latter category, the Amendment Letter provides that these financial products are not required to meet all the latest insights at any given time. However, the enterprise must give account to the developments and workings of the financial products it offers or combines and makes available in the market.
2. Oath / solemn affirmation for the financial sector
The Amendment Letter states that no amendments will be made in respect of the proposals as set out in the consultation version for the declaration of moral and ethical conduct (originating from the Banking Code), also known as the banker's oath:
- The banker's oath will not only apply to employees of banks, but also to employees of other financial enterprises, including insurance companies, investment firms and financial service providers.
- The banker's oath must be taken by all employees of financial enterprises in the form of an oath or solemn affirmation as of the entry into effect of the Amendment Decree.
- This obligation also applies to persons that are engaged by the enterprise, such as secondees.
- Day-to-day policymakers of financial enterprises must take the banker's oath before a person with a higher position and in the presence of another representative of the enterprise.
- Other employees must take the banker's oath before a day-to-day policymaker and another representative of the enterprise.
- Persons in supporting functions that are unrelated to the core activities (such as catering) are not required to take the banker's oath.
3. Inducements: prohibition and transparency obligations
As of the entry into effect of the Amendment Decree third party inducements will be prohibited:
- The prohibition on third party inducement entails that financial service providers are no longer allowed to pay or receive inducements for acting as an intermediary or adviser. Only inducements paid by the consumer or client are permitted.
- The prohibition does not apply to MiFID investment firms (but does apply to financial service providers that fall within the National Regime MiFID).
- The inducement prohibition applies to the following products: payment protection insurance, complex products, mortgage loans, life insurance products, funeral insurance products or products set out in a further regulation. The Amendment Letter states that the prohibition - contrary to what was stated in the consultation version - will not apply to income insurance products, but will apply to individual disability insurance products.
- The prohibition will not apply to the following forms of
- Inducements that are paid by the consumer or client, unless the amount is evidently unreasonable;
- Necessary inducements;
- Inducements from an advisor/intermediary to another advisor/intermediary (provided that the inducement is paid upward in the chain from the perspective of the consumer or client);
- Non-monetary inducements below EUR 100 per annum.
- The AFM can grant a dispensation in respect of the third party inducement prohibition.
- The inducement prohibition will only apply to contracts that have been concluded on or after the entry into effect of the Amendment Decree.
- The Amendment Letter states that an exception from the consumer credit rules will be incorporated in the Dutch Financial Supervision Act (Wet op het financieel toezicht) for deferred payment of advisory and distribution costs.
In addition, the Amendment Letter provides that the new obligation to make available an information provision document (dienstverleningsdocument) which is tailored to the service requested by the consumer or client, will not enter into effect on 1 January 2013, but on 1 July 2013. The AFM will make available an on-line generator to prepare the information provision document.
4. Financial driver's license
Under the current rules, MiFID investment firms must request information on the knowledge and experience of their clients when providing execution-only services. In addition, investment firms must warn the client if the product is not appropriate for the client. Once the Amendment Decree enters into effect, this obligation will also apply to execution-only services with respect to payment protection insurance products, complex products, mortgage loans, income insurance products or products set out in a further regulation. The Amendment Letter provides that - contrary to what was stated in the consultation version - this obligation will not apply to life insurance products and funeral insurance products.
The AFM will have the authority to implement further rules with respect to the manner and the contents of the questions to be posed to the client in respect of his or her knowledge and experience, as well as the formulation of the warning.
5. Obligations for offerors of mortgage loans
The Amendment Decree includes several requirements for offerors of mortgage loans to consumers:
- Offerors of mortgage loans are required to make a new offer to consumers three months before the interest-fixed term will expire. Such new offer must include several fixed-interest periods and also inform the consumer of the possibilities to switch to a different offeror.
- The Ministry of Finance states in the Amendment Letter that this requirement will apply to all consumer mortgage loans of which the fixed-interest term expires after 1 April 2013.
- The Amendment Decree furthermore provides for disclosure requirements for offerors of mortgage loans with a floating interest rate.
- An offeror of mortgage loans must offer new clients the same interest rate for the same interest-fixed term as it offers to clients with a comparable risk profile for a renewed interest-fixed term. In the Amendment Letter it is indicated, however, that different interest rates may be used for different channels of distribution.
- The Ministry of Finance indicates in the Amendment Letter that it will set out which income criteria must be taken into account for mortgage loan applications in a further decree.
- Lastly, it is stated in the Amendment Letter that starting 1 January 2013 the maximum loan-to-value rate will be decreased annually over the next 6 years to 100%.
6. New requirements with respect to professional competences
The Amendment Decree provides for amendments to the requirements in relation to professional competences. It is, for instance, currently not required for employees of financial enterprises that advise clients to be able to substantiate their professional competences with diplomas. Pursuant to the Amendment Decree, however, employees that advise clients will have to substantiate their professional competences with diplomas. The Amendment Decree provides for a transitional period up and until 30 June 2015.
7. Prohibition on cluster munition
The Amendment Decree introduces a provision on cluster munition. This new provision prohibits financial enterprises to grant loans to, or acquire a participating interest in a domestic or foreign enterprise that produces, sells or distributes cluster munition or essential parts of cluster munition. This prohibition applies to all enterprises and establishments located in the Netherlands of banks, investment institutions or their managers, investment firms, financial institutions that have a declaration of supervision, pension funds, premium pension institutions and insurance companies.
It is stated in the Amendment Letter that the application of this prohibition will be broader than initially indicated in the consultation version. Financial enterprises will also be prohibited from investing in enterprises that hold more than 50% of the shares in another enterprise that produces, sells or distributes cluster munition or essential parts of cluster munition. The prohibition will furthermore not only apply to enterprises located in the Netherlands, but will also apply to branches of Netherlands enterprises abroad.
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.