From a regulatory perspective, 2016 was a relatively quiet year for the Belgian banking sector. The most noteworthy event was the decision by the National Bank of Belgium (NBB) on 8 June 2016 to freeze all accounts held with the Belgian credit institution Optima Bank. This decision was taken to ensure the equal treatment of all depositors in the context of Optima Bank’s winding-up of its banking activities. Optima Bank was declared bankrupt on 15 June 2016 by the Ghent Commercial Court. The Belgian Guarantee Fund is currently responsible for reimbursing Optima Bank’s clients’ deposits, up to €100,000, in accordance with the relevant provisions of the Act of 25 April 2014 on the status and supervision of credit institutions (Banking Act).
The Banking Act aims to integrate into Belgian law the three pillars of the EU Banking Union: the single supervisory mechanism (SSM), the single resolution mechanism and the common deposit guarantee schemes.
To this end, the Banking Act transposes into Belgian law several EU directives and regulations, including the Capital Requirements Directive of 26 June 2013 (CRD IV),2 the Financial Conglomerates Directive,3 the Bank Recovery and Resolution Directive (BRRD),4 the proposal for a Regulation on Banking Structural Reform of 29 January 20145 and the Directive of 16 April 2014 on Deposit Guarantee Schemes (DGSD).6
Other developments in the area of banking regulation in Belgium in 2016 included the implementation of specific provisions of the BRRD by means of the Act of 27 June 2016, the implementation of the DGSD by the Act of 22 April 2016, and the publication of several communications and circulars by the NBB on, inter alia, recovery plans, remuneration rules, and due diligence measures applicable to certain asylum seekers from higher-risk third countries or territories.
II THE REGULATORY REGIME APPLICABLE TO BANKS
Pursuant to the Banking Act, only the following types of entities may collect deposits of cash or other repayable funds from the public or offer such services to the public in Belgium: Belgian credit institutions (i.e., Belgian entities registered as credit institutions with the NBB), including Belgian subsidiaries of foreign credit institutions; credit institutions established in the EEA and holding an EEA passport (i.e., EEA credit institutions operating in Belgium either through a branch or pursuant to the principle of freedom to provide services); and branches of non-EEA credit institutions established in Belgium that are registered with the NBB.
An institution will be deemed to take deposits from the public in Belgium or to offer to do so if, to collect cash deposits or other repayable funds, it engages in any type of marketing activity (newspaper, radio or television advertising, standard documents addressed to potential clients, telephone or internet contact, etc.) targeting more than 50 people; makes direct or indirect use of one or more intermediaries; or directly solicits or has solicited on its behalf more than 50 people.
Only the above-mentioned types of institutions can refer to themselves as a ‘credit institution’ or ‘bank’ in their corporate name and purpose, their securities and other instruments or documents they issue, and in any marketing materials. Furthermore, such institutions may provide investment services (as defined in the Markets in Financial Instruments Directive (MiFID)) in Belgium without having to obtain a separate licence.
With the exception of certain types of loans for which separate registration is required (mainly consumer credit and mortgages), lending is not a regulated activity in Belgium and may therefore be conducted without a licence.
III PRUDENTIAL REGULATION
i Relationship with the prudential regulator
Supervision of the Belgian banking and financial sector is based on the ‘twin peaks’ model. Since 1 April 2011, the NBB has been responsible for the prudential supervision of Belgian credit institutions. The Financial Services and Markets Authority (FSMA) (which replaced the former prudential bank regulator, the CBFA) is in charge of supervising the financial markets (including listed companies as well as financial products, services and intermediaries), and has heightened powers as regards consumer protection and financial information.
As regards the prudential supervision of credit institutions, the Banking Act must now be read in conjunction with the SSM Regulation of 15 October 2013,7 which provides for the allocation of supervisory powers between the ECB and the NBB. For more information on the applicable rules, see the European Union chapter.
In practice, the ECB is responsible for the prudential supervision of ‘significant’ credit institutions (i.e., those that meet one of the criteria set out in Article 6 of the SSM Regulation). In addition, the ECB has the power to grant and withdraw the licence of any credit institution, regardless of its size, and to assess the transfer or acquisition of qualifying holdings in a credit institution. In carrying out its supervisory duties, the ECB may apply not only European directives and regulations but also the Belgian legislation applicable to credit institutions, including the Banking Act. In principle, the NBB remains responsible for the supervision of ‘less significant’ institutions. Practical arrangements for the implementation of SSM cooperation between the ECB and the national authorities (such as the NBB) are specified in the SSM Framework Regulation of 16 April 2104.8
At the macroprudential level, the NBB is, without prejudice to the powers of the ECB, responsible for ensuring the stability of the financial system as a whole. To achieve this objective, the NBB has been entrusted with the following tasks: the detection and monitoring of various factors and developments that may affect the stability and robustness of the financial system (e.g., an accumulation of systemic risks); and the issuance of recommendations on measures to be implemented by the competent national authorities, the ECB or other EU authorities to contribute to the stability of the financial system.
In addition, in carrying out its macroprudential duties, the NBB may use any of the following (non-exhaustive) measures: imposing additional or stricter own funds or liquidity requirements; imposing additional or stricter limits on the total level of activity of the institutions as a percentage of their own funds (leverage ratio); or imposing asset valuation rules different from those normally imposed under the applicable accounting rules.
Before taking any of these measures, the NBB must inform the European Systemic Risk Board, the European Commission and the ECB.
At the microprudential level, the supervisory authority (i.e., the ECB or the NBB, depending on whether the credit institution is considered ‘significant’ under the SSM Regulation) is responsible for ensuring that credit institutions comply with all provisions of the Banking Act, its implementing decrees and regulations, and directly applicable EU regulations. To fulfil its role, the supervisory authority may request any information concerning the institution’s organisation, functioning, situation or transactions; carry out inspections at the institution’s premises (including branches in another EEA Member State, provided the competent authority in the host state is informed beforehand) and make copies of all relevant information; and ask an expert to conduct investigations on its behalf at the institution’s expense.
In addition, credit institutions must notify the supervisory authority in advance of any strategic decision they intend to take. The supervisory authority then has two months to object, which it may do if it considers the decision to violate any provision of the Banking Act or to be incompatible with sound and prudent management, or if it feels that the decision could have a significant impact on the stability of the financial system.
The supervisory authority may send a formal notice to a credit institution – whether systemically important or not – asking it to remedy a situation if it considers that the credit institution is not acting in accordance with the provisions of the Banking Act, its implementing decrees and regulations, the Capital Requirements Regulation (CRR),9 CRD IV, Title II of MiFID II10 or MiFIR,11 or if it considers that the credit institution could fail to comply with these instruments in the next 12 months. The supervisory authority may set a deadline by which the credit institution must remedy the situation.
If the credit institution has not remedied its situation, the supervisory authority may:
- a impose additional or stricter own funds and liquidity requirements;
- b require that all or some distributable profits be booked as reserves;
- c order that variable remuneration be capped at a percentage of the institution’s profits; or
- d require the credit institution to reduce the risks related to certain types of activities or products or to its organisation, if necessary by imposing the sale of all or part of its business.
In addition, the supervisory authority may, at any time, request the credit institution to implement all or part of a recovery plan.
If the institution fails to remedy the situation, the supervisory authority may take any of the following (non-exhaustive) measures:
- a appoint a special commissioner to approve some or all of the institution’s decisions;
- b require the replacement of some or all of the institution’s directors or managers, or appoint interim directors or managers;
- c suspend or prohibit some or all of the institution’s activities for a certain period of time (including the total or partial suspension of existing contracts);
- d order the disposal of shareholdings held by the institution; or
- e revoke the institution’s licence.
If the supervisory authority takes any of the above-mentioned actions against a credit institution with a branch in another EEA Member State or that provides cross-border banking services in the EEA, it must inform without delay the host country’s competent authority of the measures taken.
If the supervisory authority finds that an EEA credit institution providing banking services in Belgium, either through a branch or on a cross-border basis, does not comply with its obligations in Belgium, it must notify the competent authority in the home country. If the credit institution continues to act in a way that is clearly prejudicial to the interests of Belgian investors or to the proper functioning of the markets, the supervisory authority may take any of the measures listed under points (a), (b) or (c) above if the institution acts through a Belgian branch, or under (c) if the institution acts on a cross-border basis. With regard to the supervision of Belgian branches of non-EEA credit institutions, the NBB can exercise the same powers and tools as it does for Belgian credit institutions.
If a credit institution has ceased providing banking services for more than six months or has been declared bankrupt, the ECB will revoke the institution’s licence.
ii Management of banks
To ensure the efficient and prudent management of their activities, credit institutions must have a solid and adequate business organisation. In particular, they must have:
- a an appropriate management structure based on a clear and transparent allocation of functions, powers and responsibilities within the institution;
- b an adequate administrative and accounting organisation, and appropriate internal controls;
- c efficient procedures for the identification, assessment, management, monitoring and internal reporting of risks to which the institution is likely to be exposed, including the prevention of conflicts of interest; and
- d adequate independent internal audit, risk management and compliance functions.
Each financial institution must prepare and update a corporate governance memorandum containing information about its internal organisation.
In addition, credit institutions must establish four specialised committees within the board: audit, risk, remuneration and nomination committees. They are also required to establish a management committee. All members of the management committee must also be members of the institution’s board of directors, which is responsible in this case for supervising the management committee’s activities, determining the bank’s general policy and strategy, and performing all other duties reserved to it by law. In particular, the board plays a key role regarding the implementation and control of the bank’s risk appetite, assessment of its internal control mechanisms and verification of compliance by the institution with various regulations.
All members of the board of directors as well as managers must be natural persons. They are required to devote sufficient time to the exercise of their functions within the credit institution, and the external offices or functions they may hold or perform are subject to limitations. In addition, directors, managers and heads of independent control functions must be deemed ‘fit and proper’ to carry out their duties at all times. An NBB circular of 17 June 2013 on the standards of expertise and professional integrity provides additional insight into how the NBB interprets and assesses this requirement.
In December 2015, the NBB published a manual on the governance of credit institutions, describing the main governance requirements applicable to credit institutions with reference to all relevant policy documents (i.e., the Banking Act and its legislative history, Belgian regulations and circulars, European legislation, and international standards). The NBB manual replaces the CBFA circular of 30 March 2007 on the CBFA’s prudential expectations in terms of the sound governance of financial institutions.
With respect to the remuneration of bank managers and employees, the Banking Act implements the requirements of CRD IV. As a general rule, credit institutions must have a remuneration policy that ensures sound and prudent risk management and prevents excessive risk-taking. The remuneration policy should apply to all ‘risk takers’ (i.e., those whose professional activities have a material impact on the institution’s risk profile (e.g., directors, managers, heads of independent control functions)).
Annex II to the Banking Act provides that the variable remuneration of risk takers must be capped at 50 per cent of their fixed remuneration when the latter exceeds €100,000. In addition, the Banking Act provides for penalties and clawback mechanisms in the event of considerable losses, non-compliance with the fit and proper standards, or participation in fraud. As regards golden parachutes, any compensation exceeding 12 months’ remuneration must in principle be approved by the general meeting of shareholders. Furthermore, golden parachutes must reflect the actual performance of the beneficiary in the long term, and should not be granted in the event of shortcomings or irregular behaviour.
iii Regulatory capital and liquidity
On 17 July 2013, CRD IV and the CRR, which transpose the Basel III standards into EU law, entered into effect. The Banking Act implements these regulations into Belgian law.
As a general rule, a credit institution must have a liquidity and capital requirements policy that is appropriate to its activities. To this end, the board of directors must define a prospective management policy that identifies the current and future liquidity and capital requirements of the institution. The policy must take into account the nature, volume and characteristics of the institution’s activities and the associated risks. It should be regularly assessed and updated when necessary. If the supervisory authority learns that an institution’s policy is not in line with its risk profile, it may impose additional solvency, liquidity, risk concentration or risk position requirements.
The equity structure of credit institutions is currently divided into Tier 1 (common equity Tier 1 and additional Tier 1) and Tier 2 items. Tier 1 capital is considered to be going concern capital and is intended to allow the institution to conduct its activities and prevent insolvency. Tier 2 capital is known as gone concern capital and consists of hybrid instruments, undisclosed reserves and subordinated debt. Its purpose is to absorb losses and repay depositors and creditors if the institution fails.
On 1 January 2016, the Royal Decree of 25 November 2015 approving the NBB’s regulation of 24 November 2015 determining the rate of the countercyclical Tier 1 capital conservation buffer entered into force. The countercyclical capital buffer is defined by the NBB as a macroprudential instrument designed to mitigate cyclical systemic risk and counter pro-cyclicality in lending. On 24 November 2015, the NBB set the countercyclical capital buffer at zero per cent. This decision is reassessed on a quarterly basis. On 1 October 2016, the countercyclical capital buffer was still set at zero per cent.
The main consequence of the implementation of CRD IV and the CRR for liquidity supervision of Belgian financial institutions is the transition from the NBB’s liquidity ratios to the European liquidity coverage ratio (LCR). The LCR aims to ensure, on the basis of a stress test, that financial institutions have sufficient liquid reserves to cope with outflows for a period of 30 days. The CRR provides for implementation of the LCR in phases, from 2015 until 2018. Given the possibility to impose stricter requirements, the NBB has decided to apply the LCR in full to all Belgian credit institutions (on a stand-alone and consolidated basis) and financial holding companies (on a consolidated basis) as from October 2015. This requirement will also apply, on a consolidated basis, to the Belgian subsidiaries of foreign credit institutions or financial holding companies, and the Belgian branches of non-EEA credit institutions. In October 2014, the Basel Committee published a revised version of the second liquidity ratio (Net Stable Funding Ratio (NSFR)). The NSFR is a structural liquidity ratio that requires credit institutions to finance their illiquid assets with stable sources of funding such as equity, deposits by individuals or SMEs, and long-term liabilities. The NSFR will be implemented as from 2018.
iv Recovery and resolution
On 15 April 2014, the European Parliament adopted the BRRD, which provides common tools for addressing a banking crisis proactively and managing failures of credit institutions in an orderly way. The Banking Act, several royal decrees and the Act of 27 June 2016 amending the Banking Act transpose the provisions of the BRRD into Belgian law.
The Banking Act requires all credit institutions to implement and update a recovery plan. The plan must be analysed and approved by the institution’s legal and administrative bodies, and should consider different scenarios (such as a serious financial or macroeconomic crisis) and provide for various measures – other than a state guarantee – to be implemented in the event of significant deterioration of the institution’s financial situation. These measures should enable the institution to recover its financial position quickly and without negative effects. The recovery plan must be established within six months following accreditation of the company as a credit institution, and must cover the credit institution as well as its Belgian and foreign subsidiaries. Its adequacy will be assessed by the competent supervisory authority, which may take specific measures if it finds that the plan does not meet the applicable statutory requirements (e.g., it may order the credit institution to adjust its risk profile or review its strategy and structure).
The Act of 25 April 2014 on various provisions, which was adopted on the same day as the Banking Act, created a Resolution Authority within the NBB. The Resolution Authority is responsible for preparing the resolution plan provided for by the Banking Act. Rules on the functioning and organisation of the Resolution Authority are set out in the Royal Decree of 22 February 2015.
Pursuant to the Banking Act, the resolution plan defines the measures – other than a state guarantee – that may be implemented by the Resolution Authority in the following circumstances: failure of the credit institution is confirmed or expected; when it is unreasonable to believe that prudential action could prevent the failure of the credit institution within a reasonable period of time; and if a resolution measure is necessary in the public interest to ensure the continuity of the institution’s critical functions, avoid disruption of the Belgian and international financial systems, and protect insured deposits.
The resolution plan must cover the credit institution as well as its Belgian and foreign subsidiaries.
Pursuant to the BRRD, as from January 2016, bank failures are in principle resolved by contributions from shareholders and creditors of the failing institution (bail-in), and no longer by public intervention (bail-out). This measure is intended to minimise the cost of resolution for taxpayers, and to give bank shareholders and creditors a greater incentive to efficiently monitor the institution’s financial situation. Further provisions on bail-in obligations were inserted in the Banking Act by the Royal Decree of 18 December 2015.
Rules on the transfer and mutualisation of ex ante contributions to be made by credit institutions to the Single Resolution Fund are provided for in a separate intergovernmental agreement entered into between 26 Member States of the Banking Union, including Belgium, on 21 May 2014. The Single Resolution Fund is the resolution financing arrangement for the single resolution mechanism. It can only be used to the extent necessary to ensure effective application of the resolution tools and for specific purposes (e.g., to guarantee the assets or liabilities of, or make loans to, the institution under resolution).
In Belgium, this intergovernmental agreement was approved on 27 November 2015.
IV CONDUCT OF BUSINESS
i Conduct of business rules
There is no consolidated set of conduct of business rules applicable to institutions providing banking services in Belgium. However, such rules may be found in various pieces of legislation. Moreover, a number of professional associations have drawn up their own codes of conduct.
The legislation with which Belgian credit institutions, Belgian branches of foreign credit institutions and, in some cases, EEA credit institutions providing banking services in Belgium on a cross-border basis must comply when providing banking services in Belgium is listed on the NBB’s website12 and includes:
- a the Act of 21 December 2013 on financing for SMEs, which creates a legal framework for credit facilities granted to SMEs. The purpose of this Act is to ensure easier access to credit for SMEs by imposing specific obligations on both lenders and borrowers (e.g., a duty of care and a duty to inform) and by ensuring greater transparency;
- b Book VI of the Belgian Code of Economic Law (Market Practices and Consumer Protection) sets out specific rules applicable to contracts for the provision of financial services entered into with consumers by remote means;
- c Book VII of the Belgian Code of Economic Law (Payment and Credit Services), which contains specific provisions on payment services, consumer credit and mortgages;
- d the Act of 22 March 2006 on intermediation in banking and investment services and the distribution of securities, pursuant to which a regulated entity, such as a credit institution, which is considering using an intermediary in Belgium must ensure that its intermediary is registered with the FSMA, and all employees or representatives of a regulated financial entity who come into contact with the public, must meet certain professional knowledge requirements;
- e the Act of 2 August 2002 on the supervision of the financial sector and on financial services, which, inter alia, implements into Belgian law the MiFID conduct of business rules (know your customer, best execution obligation, management of conflicts of interest, etc.);
- f the Act of 16 June 2006 on public offers of investment instruments and the admission of investment instruments to trading on regulated markets, which generally requires the publication of a prospectus before a public offering of investment instruments;
- g the Act of 14 December 2005 abolishing bearer securities and prohibiting the issuance or delivery of bearer securities in Belgium; and
- h the Royal Decree of 25 April 2014, which imposes certain information obligations upon the distribution of financial products to retail clients.
ii Prohibition on proprietary trading
Since 1 January 2015, it is in principle prohibited for any credit institution to engage in proprietary trading activities, either directly or via a Belgian or foreign subsidiary. This prohibition covers, inter alia, positions in financial instruments held by the institution with the intent to generate short-term profits (e.g., through speculation on price fluctuations) or high-risk trading strategies that are likely to result in substantial losses. This prohibition is based on the principle that a credit institution may not use its clients’ deposits for speculative purposes that make a limited contribution to the real economy.
The prohibition on proprietary trading does not apply to certain trading activities such as the provision of investment services to clients, market-making activities, hedging, treasury management and long-term investments. However, these authorised activities are capped, and must comply with specific quantitative and qualitative requirements.
An NBB regulation of 1 April 2014, approved by a royal decree of 25 April 2014, establishes specific rules on permitted proprietary trading activities. On 30 March 2015, the NBB published a circular on periodic quantitative and qualitative reporting requirements with respect to proprietary trading. This circular applies to Belgian credit institutions whose deposits or issued debt instruments are covered by the Belgian deposit guarantee scheme, and contains specific instructions and templates for the quarterly quantitative and annual qualitative reporting obligations applicable to such institutions.
iii Bankers’ liability
Belgian law does not contain specific rules on the liability of bankers. The liability of a banker is therefore determined pursuant to the general liability rules that clearly distinguish between contractual liability (contract claims) and extra-contractual liability (tort claims):
- a contractual liability: a bank may be held liable for breach of any of the provisions of the contract entered into with its customer. The bank’s liability is assessed in light of the nature and scope of its contractual (i.e., professional) obligations. A bank may also be held liable for abuse of right or breach of the duty to perform the contract in good faith; and
- b extra-contractual liability: a bank may also be held liable for a tortious act that causes damage to a customer or even a third party if there is a causal link between the act and the damage (Article 1382 of the Civil Code). The act can be a violation of either a specific statutory rule or the banker’s general duty of care, which is measured against the behaviour expected of a reasonably prudent professional.
As a general rule, an injured party cannot cite both contractual and extra-contractual liability to claim damages for the same harm or loss; however, as an exception to this rule, an injured party may base a claim on both contractual and extra-contractual liability under the following circumstances: during performance of the contract, the breaching party commits a wrongdoing that constitutes a breach of its general duty of care but not of a contractual obligation, and thereby causes damage that is different from that which would have resulted from improper performance of the contract. In any case, a banker’s liability is assessed on a case-by-case basis, taking into account the banker’s and the customer’s level of expertise, the nature of the transaction, the specific circumstances, etc.
Under certain circumstances, a bank may limit or exclude its liability (both contractual liability and liability in tort) through an ad hoc contractual provision.
Based on the above-mentioned rules, and without prejudice to any conduct of business rules contained in specific legislation, banks have the following main duties to their customers under Belgian law:
- a compliance with all applicable rules and regulations;
- b compliance with the duties of skill and care expected of a banker (expertise, foresight, diligence, vigilance, prudence, etc.);
- c the provision of adequate information to customers about the nature and characteristics of the transaction, having regard to the customer’s expertise;
- d provision of proper advice to customers without interfering with their business;
- e verification of customers’ financial situations, since a banker may be held liable for creating an impression of solvency by extending (or maintaining) credit to a customer that is in financial difficulties; and
- f prudent action when terminating a contract with a customer. In particular, a bank should only terminate such a contract in accordance with the applicable contractual provisions, and should be careful not to act abusively in doing so.
iv Banking confidentiality
There is no formal bank secrecy in Belgium; however, under Belgian law, a banker has a general duty of confidentiality to the bank’s clients. This duty is contractual and customary in nature, and is deemed to be an implied contractual term. Violation of this duty of confidentiality may give rise to breach-of-contract claims.
It is generally accepted, however, that this duty does not prevent a bank from disclosing information about its clients further to an official request by a Belgian court or if the client authorises the bank to do so. The duty of confidentiality is also not applicable, to a certain extent, in dealings with the tax authorities, which may request a bank to disclose any information that could be useful to determine the taxable income of a client of the bank, if the authorities have indications of tax fraud or if the client’s taxable income is to be determined on the basis of signs and indications of greater wealth.
Belgian banks fund their activities mainly through customer deposits, and Belgium is characterised by high savings rates. This business model was confirmed by a sharp increase in deposits by households and non-financial corporations in 2016. According to the NBB:
[...] this type of funding has generally increased as a proportion of the sector’s balance sheet total since 2007 and chipped in 48% by the end of September 2016. Outstanding household deposits expanded by €19 billion in the first nine months of the year to €359 billion and mainly involved sight accounts, as savings deposits remained virtually stable.13
Other sources of funding include interbank and capital markets transactions, central bank funds and, under certain circumstances, state guarantees.
VI CONTROL OF BANKS AND TRANSFERS OF BANKING BUSINESS
i Control regime
The Acquisitions Directive14 was transposed into Belgian law by the Act of 31 July 2009. The relevant provisions have now been implemented in the Banking Act.
If the acquisition or disposal of a shareholding in a Belgian credit institution would result in any of the following thresholds being crossed, the person, acting alone or in concert, wishing to acquire or dispose of the shareholding must notify the NBB of its intention to do so. Belgium has not opted to set a notification threshold of one-third rather than the standard 30 per cent. The notification thresholds applicable in Belgium are thus 10, 20, 30 and 50 per cent. Upon receipt of a notification, the NBB must inform the ECB, which, under the SMM Regulation, has the power to assess the transfer or acquisition of qualifying holdings in a credit institution. For more information on the applicable rules and procedures, see the chapter on the European Union.
The following two documents supplement the Banking Act:
- a an NBB communication to parties that propose acquiring or increasing a qualifying shareholding containing all information necessary to ensure the smooth functioning of the assessment procedure and the various forms to be used; and
- b a circular addressed to regulated financial undertakings covered by the Act of 31 July 2009 concerning their obligation to notify the NBB upon learning that a stake in their capital has been or will be acquired, increased, decreased or disposed of, thereby causing the 10, 20, 30 or 50 per cent thresholds to be crossed (upwards or downwards); such undertakings must also notify the NBB annually of the identity of any parties holding such a qualifying stake in their capital.
ii Transfers of banking business
Pursuant to the Banking Act, any merger between credit institutions or between a credit institution and another financial institution, as well as any transfer between such entities of all or part of their business, must be approved by the competent supervisory authority, which has two months from notification of the proposed transaction to object. It may do so if it considers the decision to violate any provision of the Banking Act or to be incompatible with sound and prudent management, or if it feels that the decision could have a significant impact on the stability of the financial system.
The supervisory authority’s authorisation must be published in the Belgian State Gazette. The Banking Act provides that a transfer of all rights and obligations arising from the business of a financial institution involved in a merger or other transaction (e.g., rights and obligations arising from deposits or loan arrangements) is enforceable against third parties as from publication of the supervisory authority’s authorisation, without the need to obtain the clients’ consent.
VII THE YEAR IN REVIEW
i Further implementation of the BRRD
The Act of 27 June 2016 inserted various provisions of the BRRD in the Banking Act and ratified the Royal Decrees of 18 and 26 December 2015.
The Royal Decree of 18 December 2015 incorporated provisions of the BRRD on bail-in obligations into the Banking Act, while the Royal Decree of 26 December 2015 implements the provisions of the BRRD on the recovery and resolution of a group (of credit institutions) with cross-border activity.
The Act of 27 June 2016 also implements various provisions regarding the functioning and powers of the resolution authority.
ii Deposit guarantee schemes
The Act of 22 April 2016 incorporated the DGSD into the Banking Act. Deposit guarantee schemes aim to protect depositors by guaranteeing that if a credit institution fails, their deposits will be protected and, if necessary, reimbursed up to €100,000. One purpose of such protection is to prevent depositors from making panic withdrawals (bank runs) and thereby avoid more serious economic consequences. In 2016, the Belgian Guarantee Fund reimbursed approximately €44 million to 2,439 clients of Optima Bank following the bank’s bankruptcy (see Section I, supra).
In addition, the Royal Decree of 21 November 2016 on information that must be provided to depositors with respect to deposit guarantees provides that Belgian credit institutions must draw up a deposit protection information sheet that must be provided free of charge to each depositor before the conclusion of any deposit contract.
For more information on deposit guarantee schemes, please refer to the European Union chapter.
iii Recovery plan
On 21 December 2016, the NBB issued a document setting out its expectations for and providing additional guidance to credit institutions regarding the content and establishment of a recovery plan.15 This document is intended to be a user-friendly tool for credit institutions, and includes specific templates they can use to draft a plan.
On 10 November 2016, the NBB issued a circular on the application of the European Banking Authority (EBA) guidelines of 27 June 2016 on sound remuneration policies within the Belgian prudential framework.16 Credit institutions are required to implement and comply with these guidelines in addition to the Banking Act’s provisions on sound remuneration policies. The new circular replaces the previous CBFA circular of 14 February 2011 on sound remuneration policies and clarifies the EBA guidelines on a number of points, including the importance of transparency, the role of the risk committee and the rules applicable in a group context.
v Asylum seekers
On 12 July 2016, the NBB issued a new circular implementing the EBA’s Opinion of 12 April 2016 on the application of customer due diligence measures to asylum seekers from higher-risk third countries or territories. The Opinion sets out how EU credit institutions can strike the right balance between, on the one hand, providing asylum seekers from such countries and territories with access to financial services and, on the other, complying with EU anti-money laundering and counterterrorist financing requirements. For the purposes of the circular, a ‘higher-risk third country or territory’ is defined as any country or territory that is associated with significant money-laundering or terrorist financing risk as a result of the prevalence of groups committing terrorist offences, terrorist finance and predicate offences to money laundering.
VIII OUTLOOK and CONCLUSIONS
Nearly three years after the entry into force of the Banking Act, the structural reform of the Belgian banking sector is almost complete. Most of the European directives and regulations adopted in the aftermath of the worldwide financial crisis have now been implemented into Belgian law.
This reform aims to improve the stability of the Belgian banking and financial sector, restore the confidence of savers and investors, and improve the ability of banks to face future financial turbulence.
At the macroeconomic level, the Belgian banking sector achieved strong results in 2016, with total profits of €4.8 billion in the first nine months of 2016, compared to €4.4 billion for the same period the preceding year. One-third of the net profits of Belgian financial institutions are generated abroad, with a significant presence in strategic foreign markets such as the Netherlands, Luxembourg, Ireland, Switzerland, and eastern and southeast Europe.17
In 2016, the EBA conducted a stress test on 51 large EU credit institutions, two of which, Belfius Bank and KBC Group, are based in Belgium. The purpose of the test was to provide supervisory authorities, credit institutions and market players with a common analytical framework to facilitate comparison and assess the capacity of EU banks to resist adverse economic shocks. The Belgian credit institutions tested demonstrated adequate resilience to shocks and had generally better results than in 2014.
1 Anne Fontaine is a partner and Pierre De Pauw an associate with NautaDutilh in Brussels.
2 Directive 2013/36/EU.
3 Directive 2002/87/EC.
4 Directive 2014/59/EU.
5 Proposal COM/2014/043.
6 Directive 2014/49/EU.
7 Regulation (EC) No. 1024/2013.
8 Regulation (EC) No. 1024/2013.
9 Regulation (EC) No. 575/2013.
10 Directive 2014/65/EU.
11 Regulation (EU) No 600/2014.
12 This list is somewhat outdated.
13 NBB, Annual Report 2016, 125.
14 Directive 2007/44.
17 NBB Annual Report 2016, 125.