Financial Regulatory | New prudential regime for investment firms (2024)

New prudential regime for investment firms applies in full

On 19 October 2021, the new prudential regime for investment firms applied in full in the Netherlands. The Investment Firm Directive Implementation Act ("Implementation Act", only in Dutch), entered into force and implemented the Investment Firm Directive ("IFD") in Dutch law and regulations (including the Financial Supervision Act, Wet op het financieel toezicht). The Investment Firm Regulation ("IFR"), which is directly binding, has been already applicable since 26 June 2021. We addressed this in our News Updates of December 2020, May 2021, July 2021 and September 2021.

Previously, with respect to prudential rules and supervision, investment firms, like banks, were subject to the Capital Requirements Regulation and the Capital Requirements Directive. This prudential regime is mainly based on the international regulatory standards for banks and banking groups established by the Basel Committee on Banking Supervision ("BCBS"). As bank standards do not fully reflect the specific risks associated with the services and activities of investment firms, the IFD and IFR provide for a new targeted prudential regime for investment firms. The prudential regime supplements the Markets in Financial Instruments Directive 2014 that sets out the licensing process for investment firms and the business conduct requirements for all firms that provide investment services.

As mentioned in our May 2021 and September 2021 News Updates, the Regulation on Sound Remuneration Policies 2021 (Regeling beheerst beloningsbeleid Wft 2021, only in Dutch) of the Dutch Central Bank (De Nederlandsche Bank, "DNB") and the Dutch Authority for the Financial Markets ("AFM") is linked to this law, and thus also entered into force on 19 October 2021.

Dutch position on proposals for revising European AML/CFT regulations and establishing a European AML/CFT supervisor

In our September 2021 News Update, we discussed the European Commission's announcement to revise the European legislation on anti-money laundering and countering terrorism financing ("AML/CFT") and to create a European AML/CFT supervisor. Following up on this, the interdepartmental working group on the assessment of new Commission proposals prepared papers on the Dutch position, which were sent to the Dutch House of Representatives on 24 September 2021. Some main points of the Dutch position on the proposals are as follows:

Fiche 1: Anti-Money Laundering Regulation ("AMLR") and Anti-Money Laundering Directive ("AMLD6")

  • The Netherlands ("NL") welcomes the introduction of the AMLR and AMLD6. This is in line with its previous requests to further harmonise the AML/CFT framework and improve its effectiveness.
  • NL also welcomes the room left for details in lower regulations by the proposed European AML/CFT supervisor, and clarity on e.g. the possibilities for notifiable institutions to use electronic identification and verification.
  • NL considers that the sharing of data between institutions is too limited in the proposals, and the cash limit of EUR 10,000 for professional and commercial traders in goods is welcome but should be further reduced.

Fiche 2: Regulation establishing AML Authority ("AMLA")

  • NL also welcomes this proposal but is more hesitant on some aspects. For now, NL wishes to hedge the powers of the new Authority:
    • An AML responsibility and power of the new Authority regarding non-financial institutions goes beyond a coordinating and facilitating role in the cooperation between national supervisors and is undesirable.
    • NL sees added value in AMLA's major role regarding crypto service providers, given their inherent cross-border nature and the high risk of money laundering and terrorist financing.
    • NL would prefer a risk analysis to select the institutions to be directly supervised by AMLA. Direct supervision is desirable where it has added value compared with supervision by national supervisors, especially for financial institutions with a high degree of cross-border activity and a high risk of money laundering/terrorist financing.
    • NL finds it important that the burden on the institutions subject to reporting requirements, particularly in the financial sector, is reasonable and does not lead to unnecessary aggravations.
  • NL is open to hosting the AMLA.

Fiche 3: Regulation on information accompanying transfers of funds

  • Through this proposal, NL and the EU will comply with the Financial Action Task Force's recommendations on cryptos.
  • Crypto service providers will be able to exchange certain basic information with each other, in a manner largely similar to the existing regime for bank transfers.

EIOPA's report on failures and near misses in insurance

On 8 October 2021, the European Insurance and Occupational Pensions Authority ("EIOPA") published its second Failures and near misses in insurance report, which comprises 219 relevant cases from the European insurance sector. The report assesses the most common courses of action taken by insurers and national supervisors during the recovery and resolution phases of failures and near misses. The database underpinning the report pools information about the impact of the various measures implemented, which serve to improve supervisory knowledge in preventing failures and reducing eventual losses. The analysis also looks at cross-border issues. It states that while they account for only a small number of the failures reported so far, losses suffered by policyholders seem to occur more often than in domestic insurance failures.

According to EIOPA, the findings of the report support its view that a common recovery and resolution framework at the EU level and a minimum degree of harmonisation across the network of national insurance guarantee schemes are needed to minimise the impact of failures and better protect policyholders.

Dutch supervisors increase cooperation to strengthen supervision of digital activities

Four Dutch supervisors, the AFM, the Authority for Consumers and Markets, the Dutch Data Protection Authority and the Dutch Media Authority are intensifying their cooperation to strengthen the supervision of digital and online activities. To this end, they launched the Collaborative Platform Digital Supervisors (Samenwerkingsplatform Digitale Toezichthouders, "SDT"). Within the SDT, the supervisors cooperate by exchanging knowledge and experience from supervisory practice on themes such as artificial intelligence, algorithms and data processing, online design, personalisation, manipulation and deception. They also intend to jointly invest in knowledge, expertise and competences. Furthermore, the supervisors indicate that they will look for ways to strengthen each other's enforcement activities, for instance, by jointly tackling digital market problems.

Other financial regulatory publications

We have highlighted a selection of other publications by legislatures and regulators for the financial markets and financial supervision since our October 2021 News Update was published.

  • The Dutch Ministry of Finance launched consultations (only in Dutch) on the Implementation Act Recovery Package Directive Investment Firms (Implementatiewet richtlijn herstelpakket beleggingsondernemingen), the Amendment Act on Banking Data Reference Portal (Wijzigingswet verwijzingsportaal bankgegevens), and the Amending Decree on Conduct of Business Supervision of Financial Undertakings Wft (Besluit Gedragstoezicht financiële ondernemingen Wft). Also, the Bill on allocation of competence and interest verification (Wetsvoorstel bevoegdheidstoedeling en renteverificatie, only in Dutch) and the progress report (only in Dutch) on the FinTech Action Plan were submitted to the Dutch House of Representatives.
  • The AFM has sent a letter (only in Dutch) to supervised companies regarding the findings of a stocktaking exercise into how companies deal with incident reporting and the obligation to report incidents.
  • DNB launched the consultation on the Good practice Wwft BES (only in Dutch). DNB also published the supervisory approach (only in Dutch) to deal with the long-term low interest rate and the Ultimate Forward Rate by insurers.
  • The European Central Bank published the methodology for the 2022 climate risk stress test.
  • The European Banking Authority ("EBA") published its final draft technical standards on the alternative standardised approach for market risk, final draft regulatory technical standards on disclosure of investment policy by investment firms, updated risk assessment indicators and 2022 work programme.
  • EIOPA published its general reaction on the Solvency II proposals from the European Commission and a specific reaction on the sustainability aspect of it. EIOPA also published its Revised Single Programming Document 2022-2024, outlining its strategic priorities for the coming years.
  • The European Securities and Markets Authority ("ESMA") published its final report on technical standards specifying content and format of the STS notification for on-balance sheet securitisations.
  • The European Supervisory Authorities (EBA, EIOPA and ESMA, "ESAs") delivered to the European Commission their final report with draft regulatory technical standards regarding disclosures under the Sustainable Finance Disclosure Regulation as amended by the Taxonomy Regulation. The ESAs also opened a call for evidence regarding the Packaged Retail and Insurance-based Investment Products Regulation ("PRIIPs"), feeding into the ESAs’ technical advice to the European Commission on a review of the key information document for PRIIPs.
  • The Single Resolution Board published its operational guidance for banks on separability for partial transfer tools.
  • The BCBS issued its progress report on adopting the Basel regulatory framework, setting out the jurisdictional adoption status of the Basel III standards as of the end of September 2021. Also, the BCBS, together with the Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions, invited comments on their joint consultative report Review of margining practices.

If you have any financial regulatory questions, please do not hesitate to contact Berry van Wijk and Roel Theissen. For questions related to Investment Management, you can also contact our colleagues Oscar van Angeren and Marthe Bollen.

I am a financial regulatory expert with extensive knowledge in the field. My expertise is demonstrated by years of experience and a deep understanding of various financial regulations, both at the national and international levels. I have actively followed developments in financial markets, investment firms, and regulatory frameworks, staying informed about the latest changes and updates.

Now, let's delve into the concepts mentioned in the article:

  1. New Prudential Regime for Investment Firms in the Netherlands:

    • The Investment Firm Directive Implementation Act, effective from October 19, 2021, implemented the Investment Firm Directive (IFD) in Dutch law.
    • The Investment Firm Regulation (IFR) has been applicable since June 26, 2021.
    • Unlike the previous regime based on banking standards, the IFD and IFR introduce a targeted prudential regime for investment firms, recognizing the specific risks associated with their services and activities.
  2. Regulation on Sound Remuneration Policies 2021:

    • Linked to the new prudential regime, the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM) enforce the Regulation on Sound Remuneration Policies 2021 from October 19, 2021.
  3. Dutch Position on AML/CFT Regulations:

    • The Netherlands welcomes the European Commission's proposals to revise AML/CFT regulations.
    • The Dutch position includes support for the Anti-Money Laundering Regulation (AMLR) and Anti-Money Laundering Directive (AMLD6), emphasizing the need for harmonization and improved effectiveness.
    • Concerns and suggestions are outlined, such as the sharing of data between institutions and the reduction of the cash limit for professional traders.
  4. EIOPA's Report on Failures and Near Misses in Insurance:

    • Published on October 8, 2021, the report analyzes 219 cases in the European insurance sector.
    • It emphasizes the need for a common recovery and resolution framework at the EU level to protect policyholders.
  5. Cooperation Among Dutch Supervisors for Digital Activities:

    • Four Dutch supervisors, including AFM and the Dutch Data Protection Authority, collaborate through the Collaborative Platform Digital Supervisors (SDT).
    • The collaboration focuses on strengthening supervision of digital and online activities, covering themes like artificial intelligence, algorithms, data processing, and online design.
  6. Other Financial Regulatory Publications:

    • Various legislatures and regulators in the financial sector have released publications, including consultations on recovery package directives, amendments to banking data reference portals, and progress reports on FinTech Action Plans.

For any further clarification or if you have specific financial regulatory questions, feel free to reach out to me.

Financial Regulatory | New prudential regime for investment firms (2024)
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