The Netherlands has a long history as an open trading nation with household-name institutions ING Bank, cooperatively owned Rabobank and ABN AMRO operating worldwide. The Dutch banking sector is highly concentrated, with this same small group of systemically important banks accounting for the bulk of domestic lending to households and businesses. The lion’s share of Dutch savings is held in accounts with these banks, which also handle most payment processing. Measured against the size of the Dutch economy, the Dutch banking sector is large. In 2016, the size of its assets relative to the GDP of the Netherlands amounted to nearly 400 per cent.2
Despite a stronger recovery of the Dutch economy and housing market after a number of slow years, and also despite solid profits and balance sheets, Dutch banks (and others) continue to operate in a challenging environment caused by the need for banks to adjust their business models to market conditions characterised by, inter alia, low or negative interest rates and the increasing importance of financial technology. Moreover, banks face substantial uncertainties, resulting in particular from increased political and economic risks and from a regulatory landscape that continues to change in various respects, mainly due to the entry into force of various new measures at the European level.3
II THE REGULATORY REGIME APPLICABLE TO BANKS
i Basic structure of banking regulation
The Netherlands has a ‘twin peaks’ supervision model. This model focuses on system and prudential supervision on the one hand, and conduct-of-business supervision on the other. The European Central Bank (ECB) and the Dutch Central Bank (DCB) are the system and prudential supervisors. For its part, the Netherlands Authority for the Financial Markets (AFM) is responsible for conduct-of-business supervision, which is aimed at fostering orderly and transparent market processes, maintaining integrity in the relationship between market parties and overseeing due care in the provision of services to customers. This cross-sectoral functional approach is reflected in the Dutch Financial Markets Supervision Act (FMSA), which has been in force since 1 January 2007. The FMSA and the various decrees and regulations deriving from it include the majority of regulatory rules that apply to the financial markets. Many of the rules contained in the FMSA follow on from the implementation of European directives.4 However, with the aim of further integrating the single market, more and more regulatory requirements are adopted in the form of European regulations.5 In view of the increasing complexity of the FMSA and difficulties in its compatibility with the sectoral approach of European legislation, in 2016 the first tentative steps were taken towards a thorough review of the design of the FMSA, although this is not expected to affect the substantive rules.
ii Regulation of banks with a registered office in the Netherlands
Banks established in the Netherlands are required to obtain a banking licence from the ECB. The DCB is responsible for the processing of licence applications. To obtain a banking licence, banks must, inter alia, comply with the following requirements:
- a the day-to-day policymakers of a bank and its management team members must be suitable for the banking business;6 in addition, the members of the supervisory board (or comparable body) should also be suitable for the performance of their supervisory tasks;
- b the integrity of the persons determining or co-determining the day-to-day policy, the management team members and the members of the supervisory board (or comparable body) of the bank must be beyond doubt;
- c the bank must have sound and prudent business operations, including procedures and measures for adequate risk management and client acceptance;
- d at least two natural persons should determine the day-to-day policy of the bank and perform their activities from within the Netherlands;
- e the supervisory board (or comparable body) should consist of at least three persons;
- f the bank must have a transparent control structure safeguarding adequate supervision; and
- g the bank must comply with certain financial safeguards, such as minimum own funds, solvency and liquidity requirements.
Once a licence has been granted, these requirements must be complied with on an ongoing basis. Dispensation may be granted from certain specific requirements for obtaining a banking licence provided the applicant demonstrates that he or she cannot reasonably comply with the requirements, and that the objectives the requirements seek to protect can be achieved through alternative means. To stimulate innovation in the financial sector, the DCB announced that, as of 2017, it would be open, where appropriate, to more tailor-made solutions, including by granting ‘partial licences’ or ‘opt-in licences’, the latter for entities that only receive and hold repayable funds from the public or grant credit for their own account, but not both.7
If a bank wishes to render investment services or perform investment activities in the Netherlands, it must apply for a wider banking and investment firm licence. In this case, additional licence requirements apply. These relate to the conduct-of-business requirements that investment firms need to comply with. A licensed bank does not need a separate licence for the provision of payment services or certain other financial services also regulated under the FMSA, such as the offering of (consumer) credit, providing advice about financial products (other than financial instruments) and acting as an intermediary with respect to such products. The services involved, however, need to be covered by the banking licence, and the bank involved is subject to additional conduct-of-business rules when offering such services (see Section IV, infra).
As of 1 January 2016, the FMSA contains a separate regime for credit unions, defined as cooperatives of members sharing a certain profession or business that take repayable funds from their members and grant credits for their own account to their members for the purposes of their profession or business. For this reason, Dutch credit unions will be formally exempted from the regular rules of banking regulation following the expected amendment of CRD IV and the CRR.
iii Regulation of foreign banks and activities
In general, branches of foreign banks established to carry out regulated banking activities in the Netherlands are subject to the same licence requirements and ongoing obligations as banks with a registered office in the Netherlands. This means that these branches usually require a banking licence. However, foreign banks with their registered office in another EU or EEA Member State may conduct banking activities through a branch office or on a cross-border basis in the Netherlands using a ‘European passport’. On this basis, banks from other eurozone countries may conduct banking activities in the Netherlands under their ECB banking licence, provided the ECB has been notified thereof. Similarly, banks with their registered office in an EU or EEA Member State that is not a eurozone country may conduct banking activities in the Netherlands under their home Member State banking licence following a notification procedure in their home Member State. Those non-eurozone banks holding a European passport in the Netherlands are directly supervised by the ECB under Article 4(2) of the SSM Regulation. The DCB remains responsible for the supervision of non-EEA banks that have established a branch or provide cross-border services in the Netherlands.
III PRUDENTIAL REGULATION
i Relationship with the prudential regulator
As the prudential supervisor of the most significant Dutch banks,8 the ECB has far-reaching investigatory and supervisory powers under the SSM Regulation.9 In addition, the ECB has at its disposal the supervisory powers granted to the DCB under the FMSA. To the extent necessary to carry out the tasks conferred on it by the SSM Regulation, the ECB may require the DCB to use these powers.10 The DCB will in principle exercise its enforcement powers under the FMSA regarding the banks that are identified as ‘less significant’. Under the FMSA, the DCB is entitled to enter any place for inspection and may request information from any party. The DCB is also entitled to request business data and documents for inspection and to make copies of these. Everyone is obliged to fully cooperate with the DCB. If the DCB concludes that a bank has violated a rule under the FMSA or, if applicable, a European regulation, it may take enforcement action. The DCB can choose from various enforcement measures and sanctions, including but not limited to:
- a imposing a certain course of action to comply with the FMSA (instruction order);
- b appointing one or more persons as trustee over all or certain bodies or representatives of a bank;
- c imposing a particular duty, backed by a judicial penalty for non-compliance;
- d imposing an administrative fine;
- e publishing an imposed duty or fine on the DCB’s website and by press release;
- f imposing a suspension of voting rights of shareholders or partners responsible for a breach of a bank’s licence or declaration of no objection requirement (see Section VI, infra);
- g imposing a temporary ban against a natural person who is held responsible for non-compliance with the CRR provisions from exercising his or her functions;
- h imposing certain measures including, but not limited to, higher solvency or liquidity requirements and the termination of banking business activities with a high risk to the solidity of the bank;
- i requesting the Amsterdam District Court to declare the emergency regulation applicable; and
- j withdrawing the banking licence: the ECB will be exclusively responsible for the withdrawal of a banking licence of both significant and ‘less significant’ Dutch banks.
The liability of the DCB (and the AFM) under the FMSA is limited to wilful misconduct and gross negligence.
ii Management of banks
Most Dutch banks are limited liability companies. Although a statutory basis exists for the creation of a one-tier board structure, limited liability companies in the Netherlands traditionally have a two-tier board structure composed of a managing board and a supervisory board. The managing board is responsible for carrying out the company’s day-to-day affairs. As such, a bank’s managing board is responsible for compliance with the FMSA. Rules on managing and supervisory boards and their members are set out in great detail in various EU, ECB and DCB guidelines, a number of which are currently being revised.11 These guidelines contain guidance as regards, inter alia, integrity and suitability, sufficient time commitment, independence, and supervisory board committees and their composition, and on the maximum amount of executive and non-executive positions a board member may hold.
The managing and supervisory boards are jointly responsible for compliance (on a comply-or-explain basis) with the Dutch Corporate Governance Code (if applicable) and the Dutch Banking Code. Adherence to the Dutch Corporate Governance Code is mandatory for listed Dutch banks.12 The Code includes principles that are held to be generally accepted, as well as detailed best practice provisions relating to both managing and supervisory boards, general meetings, the auditing process and the external auditor.13 The Dutch Banking Code contains principles that are based on the Dutch Corporate Governance Code, but focuses on the managing and supervisory boards, risk management, auditing and remuneration policy of banks.14 The Dutch Banking Code applies to all banks with a banking licence under the FMSA, and compliance is monitored by a special monitoring commission. The Dutch Banking Association recommends that the Dutch Banking Code be applied by all entities that operate in the Netherlands (irrespective of their country of incorporation), including banks operating in the Netherlands under a European passport.
Restrictions on remuneration
A far-reaching Act on financial sector remuneration has been in force since 7 February 2015. One of the most important changes is that the variable remuneration of all persons working under the responsibility of banks with their registered office in the Netherlands, and Dutch branches of banks outside the EEA, may not exceed 20 per cent of the fixed component. Several exceptions apply, including for persons working predominantly in another country, or persons working for the EEA top holding of a group whose staff works predominantly in anuther country, and, subject to approval by the DCB or the ECB, for retention bonuses. In such cases, the maximum variable remuneration is as set out in CRD IV: 100 per cent of the fixed component or, depending on the exception, 200 per cent subject to shareholder approval. Proposals are currently under discussion to narrow the current exception for managers of investment funds in 2018 to 100 or 200 per cent of the fixed component for those managers belonging to banking or insurance groups.15
The Act also restricts severance payments. Moreover, the supervisory board may (and under certain circumstances must), inter alia, claw back bonuses where payment was based on incorrect information or the non-achievement of underlying objectives, and revise bonus payments if these were unacceptable according to standards of reasonableness and fairness. The rules also provide for a statutory ban on bonuses for management (and certain others) of state-aided banks.
iii Regulatory capital and liquidity
Rules of prudential supervision are provided for in the CRR and its various technical regulatory and implementing standards on a European level, the FMSA, the Decree on Prudential Supervision FMSA and regulations issued by the DCB on a national level. These rules relate to, inter alia, solvency (regulatory capital), liquidity and additional supervision with respect to financial conglomerates.
Licensed banks are required to be sufficiently solvent. The Decree on Prudential Rules FMSA provides that a bank’s solvency is sufficient if the bank complies with the requirements set out in Part 3 of the CRR. These requirements include both quantitative requirements (i.e., a common equity Tier 1 (CET 1) capital ratio of 4.5 per cent of the bank’s risk-weighted assets (RWA), a Tier 1 capital ratio of 6 per cent of a bank’s RWA and a total capital ratio of 8 per cent of a bank’s RWA) and qualitative requirements (conditions that own fund items and subordinated liabilities must meet to qualify as CET 1 capital, additional Tier 1 capital or Tier 2 capital). The DCB or the ECB may also impose an additional ‘Pillar 2’ buffer on a specific bank following the supervisory review and evaluation process when they identify risks not adequately covered by the standard capital requirements. In addition, since 2016 the DCB and the ECB also communicate their expectations for banks to hold additional own funds in the form of ‘capital guidance’. This practice will be given a formal basis in the pending amendments to CRD IV and the CRR.
The DCB has issued a regulation on the specific provisions set out in CRD IV and the CRR (DCB CRD IV and CRR regulation). The DCB CRD IV and CRR regulation sets out how the DCB uses certain options and discretions that the CRR grants to competent national authorities, including a number of (transitional) provisions set out in the CRR, and implements the method for calculating the maximum distributable amount. In 2016, the ECB set out how it will use these options and discretions in relation to significant banks, and issued guidance on the exercise of such options and discretions by competent national authorities in relation to less significant banks.16
CRD IV prescribes four capital buffers:
- a a capital conservation buffer equal to 2.5 per cent CET 1 capital;
- b an institution-specific countercyclical capital buffer of a percentage, in principle, between zero and 2.5 per cent CET 1 capital;
- c a global systemically important institutions (G-SII) buffer of a percentage, in principle, of between 1 and 3.5 per cent CET 1 capital; or another systemically important institutions (O-SII) buffer of a percentage, in principle, of between zero and 2 per cent CET 1 capital; and
- d as a Member State option, a systemic risk buffer of a percentage, in principle, between 1 and 3 per cent CET 1 capital.
With regard to the G-SII, O-SII and systemic risk buffers, in principle only the highest of the three applies. In the Netherlands, the G-SII buffer only applies to ING Bank (1 per cent), and the O-SII buffer applies to ING Bank, Rabobank, ABN AMRO (each 2 per cent) and SNS Bank and BNG (both 1 per cent). The government has chosen to apply a systemic risk buffer of 3 per cent to ING Bank, Rabobank and ABN AMRO. In December 2015, the DCB set the countercyclical capital buffer at zero per cent. The necessity of increasing this percentage will be reviewed on a quarterly basis. The capital buffers are being phased in in line with the transitional regime of CRD IV. However, in November 2016, an exception was made for the countercyclical capital buffer: as of 1 January 2017, any such buffer as set by the DCB will be immediately applicable in full.17
Banks can be subject to a combination of buffers, referred to as the combined buffer requirement. When banks fail to meet the combined buffer requirement, specific restrictions apply and certain measures may be imposed, such as a limitation to make distributions or payments in connection with their CET 1 and additional Tier 1 instruments, and the required production of a capital conservation plan including at least an estimate of income and expenditure and a forecast balance sheet, measures to increase the capital ratios, and a plan and time frame for increasing own funds with the objective of meeting the combined buffer requirement.
Banks must hold sufficiently liquid assets.18 The Decree on Prudential Rules FMSA provides that the liquidity of a bank is sufficient if the existing liquidity at least equals the required liquidity. At present, due to the phase-in of the liquidity framework of the CRR, three parallel liquidity requirements are applicable. First, banks must comply with the two liquidity requirements of the CRR: the liquidity coverage ratio (LCR) and stable funding requirements. The LCR, as further specified in the LCR delegated regulation, has a binding minimum of 80 per cent in 2017, and 100 per cent from 2018 onwards.19 For the stable funding requirement, only a general rule currently exists requiring institutions to ensure that their long-term obligations are adequately met with a diversity of stable funding instruments under normal and stress conditions. A binding minimum standard for a net stable funding ratio (NSFR), as agreed upon by the Basel Committee, is expected to be introduced in 2019 at the earliest, following the amendment of CRD IV and the CRR.
Second, in addition to the phase in of the LCR, the DCB requires Dutch banks and Dutch branches of non-EEA banks to comply with a national LCR (NLCR) of 100 per cent as of 1 October 2015.20 The difference between the LCR and NLCR is solely that, subject to conditions, the latter allows the netting of liquidity outflows and inflows for cash pooling products. The NLCR will only apply until the LCR is fully phased in or until the DCB so decides at an earlier date, at which point the LCR of 100 per cent will start to apply.
In terms of reporting, Dutch liquidity reporting requirements have, since 2017, been fully replaced by the reporting requirements as set out in the European implementing technical standards.21 The requirement on Dutch banks to continue to report to the DCB on the basis of the previous Dutch liquidity requirements lapsed at the end of 2016.22
Banks are required to calculate their leverage ratios in accordance with the methodology set out in Part 7 of the CRR, report such to the relevant supervising authority and disclose them. In January 2016, the Basel Committee agreed upon a binding minimum leverage ratio of 3 per cent. The EBA and the European Commission have proposed the introduction of this minimum requirement in the EU. This is expected to be introduced in 2019 at the earliest, following the amendment of CRD IV and the CRR. An additional buffer for systemically important banks is still under discussion on both Basel and EU levels. The Dutch Minister of Finance still intends to pursue the introduction of a harmonised minimum leverage ratio requirement of 4 per cent for all systemically important banks in the Netherlands (as well as in the EU as a whole).
Consolidated application of regulatory capital and liquidity requirements
The above-mentioned capital, liquidity and leverage requirements apply to banks on both an individual and consolidated basis. The DCB or ECB may, when certain criteria are met, waive the requirement to comply on an individual basis. The capital and leverage requirements apply on the basis of the consolidated situation of a bank’s highest holding entity in each Member State and in the EU as a whole. The liquidity requirements must be met on the basis of the consolidated situation of the highest holding entity in the EU. In addition, the application of the capital requirements on a sub-consolidated basis applies in the case of subsidiary banks, investment firms and financial institutions in a third country.
Supplementary supervision of banks in a financial conglomerate
The FICO Directive was implemented in the FMSA and the Decree on Prudential Supervision of Financial Groups FMSA.23 The FICO Directive introduces the supplementary supervision of banking (insurance and investment) activities carried out in a financial conglomerate. The rules relate, inter alia, to supplementary capital adequacy requirements, risk concentration, intragroup transactions, internal control mechanisms and risk management processes. The holding company of a financial conglomerate must calculate the supplementary capital adequacy in accordance with certain methods described under the FMSA.
DCB policy rule in respect of EBA guidelines
In the Netherlands, most guidelines issued by the EBA in accordance with Article 16 of the EBA Regulation are applied by the DCB.24 To indicate which guidelines the DCB applies, it has issued a policy rule listing the EBA guidelines it applies. This includes practically all guidelines issued by the EBA, including the Guidelines on internal governance, the Guidelines for the joint assessment of the elements covered by the supervisory review and evaluation process and the Guidelines on sound remuneration policies.25
iv Recovery and resolution
BRRD and SRM
The Dutch Act implementing the BRRD entered into force on 26 November 2015, and the SRM Regulation became fully applicable on 1 January 2016. These two legal acts, together with the international agreement on the transfer and mutualisation of contributions to the Single Resolution Fund, provide a comprehensive European framework for the recovery and resolution of banks. The rules aim to ensure that:
- a banks and authorities make adequate preparation for crises;
- b supervisory authorities are equipped with the necessary tools to intervene at an early stage when a bank is in trouble;
- c resolution authorities have the necessary tools to take effective action when bank failure cannot be avoided, including the power to ‘bail-in’ creditors; and
- d banks contribute to an ex ante funded resolution fund.
The DCB has been designated as the national resolution authority for the Netherlands. However, on the basis of the single resolution mechanism (SRM), for significant banks and other cross-border groups in the eurozone, the Single Resolution Board (SRB) is the competent resolution authority in cooperation with the national resolution authorities. During the course of 2016, the SRB and the DCB implemented liability data reporting requirements and are in the process of drafting resolution plans for the major Dutch banks. These include first informative targets, but not yet binding decisions, on the bank-specific minimum requirement for own funds and eligible liabilities (MREL) on the group level.
Rules for the calibration and method of calculation of the MREL and on the transitional period of implementation were finalised in May 2016.26 However, the requirements are already subject to review, with both the EBA and the European Commission publishing proposals for a sweeping revision of the MREL requirements, in particular by aligning them with the international standard for total loss-absorbing capacity (TLAC), which was finalised by the Financial Stability Board in November 2015.27
The Decree implementing the (third) Deposit Guarantee Scheme Directive into Dutch law entered into force on 26 November 2015.28 The new rules introduce an ex ante funded guarantee scheme with wider coverage and shorter pay-out periods. The fund should in principle reach a target level of 0.8 per cent of insured deposits. However, in view of the highly concentrated Dutch banking sector, which makes use of resolution proceedings as opposed to liquidation, and use of the deposit guarantee fund in cases of failure very likely, the Netherlands has requested the European Commission to approve a lower target level of 0.5 per cent. No decision has yet been taken by the Commission.
A European Deposit Insurance Scheme was proposed by the Commission in 2015 with a view to reinforce deposit protection through a sophisticated approach to mutualise national deposit guarantee funds in the eurozone. However, progress on the proposal is slow, with a number of Member States, including the Netherlands, considering that further risk reduction must precede further risk sharing.29
Dutch Intervention Act
Ahead of the BRRD and the SRM Regulation, Dutch rules for bank recovery and resolution were introduced by the Dutch Intervention Act in 2012. Pursuant to this Act, the DCB had the power to take various measures in respect of banks if it perceived signs of dangerous developments regarding a bank’s solvency or liquidity. These powers have largely been replaced by those following from the implementation of the BRRD. The powers granted by the Act to the Minister of Finance to take immediate measures if he or she is of the view that the situation of a bank causes a serious and immediate danger to the stability of the financial system continue to apply. These include the temporary suspension of shareholder voting rights, the suspension of management or supervisory board members, and the expropriation of assets or liabilities of a bank or its parent companies with a corporate seat in the Netherlands.
IV CONDUCT OF BUSINESS
i Conduct-of-business rules
Conduct-of-business rules for banks are for the most part set forth in the FMSA. Compliance with many of these rules is supervised primarily by the DCB or the ECB when relating to governance, risk management, solvency and liquidity. Compliance with the remaining conduct-of-business rules, including those set out in the Decree on conduct-of-business supervision FMSA, is supervised by the AFM. These rules mostly relate to the activities of a bank as a financial services provider, a payment services provider or an investment firm (providing investment services or investment activities). This means that a bank will in practice be subject to conduct-of-business rules that are supervised by the AFM if it:
- a provides investment services or performs investment activities (rules relating to, inter alia, client classification, the provision of information, know-your-customer requirements, conflicts of interest, best execution, inducements and customer-order handling rules);
- b offers or advises on mortgage or consumer credit or offers electronic money to consumers (requirements as to, inter alia, adequate measures to protect clients’ rights, outsourcing and the availability of an internal complaints regulation); or
- c provides payment services (requirements as to, inter alia, information obligations of the payment service provider towards its (potential) clients and the availability of an internal complaints regulation).
ii Consumer and mortgage credit
Under the FMSA, banks must comply with certain conduct-of-business rules when offering credit to consumers. Irrespective of the credit amount, additional requirements may apply to banks (and other entities) pursuant to both the Dutch Civil Code and the Act on Consumer Credit.30 The additional rules stem mainly from the implementation of the Consumer Credit Directive.31 These rules relate to the civil law relationship between the bank and the consumer or borrower, and include requirements with respect to pre-contractual information, the form and contents of the credit agreement, and the consumer’s right to rescind a credit agreement up to 14 calendar days after entering the agreement. Violation of the rules may lead to civil liability. When offering consumer credit, banks must also take into account the 2012 Code of Conduct for Consumer Credit as drawn up by the Dutch Banking Association. In addition, on 14 July 2016 the Dutch Act implementing the MCD entered into force. The MCD resulted in amendments to the FMSA and the Dutch Civil Code relating, inter alia, to new rules on creditworthiness assessments, information obligations and consumer rights in cases of early repayment and arrears and foreclosures.32
iii Payment services
Due to the implementation of the PSD, payment service providers are subject to certain conduct-of-business requirements under both the FMSA and the Dutch Civil Code.33 The rules in the Dutch Civil Code relate to the civil law relationship between a payment service provider and client, including:
- a the payment service contract governing the execution of payment transactions;
- b the amendment and termination of such contract;
- c the required consent of the payer regarding the execution of a payment transaction, the right of withdrawal;
- d the maximum period to execute payment transactions; and
- e costs and liability.
The AFM supervises compliance with all conduct-of-business rules, including those under the Dutch Civil Code. The Dutch Competition Authority (ACM) supervises competition issues relating to access to payment systems.
On 11 November 2016, the Act implementing the Payment Accounts Directive entered into force, providing rules for banks and payment service providers on transparency and comparability of fees, and on the facilitation of access to, and switching between, payment accounts.34 On 17 November 2016, a draft act for the implementation of the PSD II was published for public consultation. The PSD II modernises the current rules on payment services by opening the EU payment market to payment initiation service providers, introducing new security requirements and enhancing consumer rights.35 The new rules should enter into force on 13 January 2018.
iv Anti-money laundering and terrorist financing
Pursuant to the Dutch Prevention of Money Laundering and Terrorist Financing Act, licensed banks (and other financial institutions) are subject to a number of obligations so as to prevent money laundering and terrorist funding. Adequate client identification forms an important part of these obligations. Banks must identify clients with whom they intend to establish a continuing business relationship in or from within the Netherlands, or with whom they enter into an incidental transaction, or a series of related transactions, worth €15,000 or more. If a bank suspects that a transaction is related to money laundering or terrorist financing, the Financial Intelligence Unit of Netherlands (FIU) must be notified. The FIU is designated to receive information relating to suspicious transactions, investigate and, if necessary, report the transactions to the public prosecutor to initiate criminal proceedings. The Third Anti-Money Laundering Directive, on which the Dutch Act is currently based, will be replaced by the Fourth Anti-Money Laundering Directive and accompanying regulation, which were adopted in 2015.36 The new rules facilitate the work of financial intelligence units to identify and follow suspicious transfers, facilitate the exchange of information between financial intelligence units and establish a coherent policy towards non-EU countries with deficient anti-money laundering regimes. It also introduces a centralised register with information on all ultimate beneficiary owners. An implementing act was published for public consultation on 5 July 2016 and is expected to be submitted to Parliament shortly.
v Bankers’ oath, code of conduct and disciplinary measures
Dutch banks must ensure that all persons with an employment contract with a bank, or that otherwise carry out activities that are part of the operation of the banking business or its essential supporting business processes, take the bankers’ oath. The bankers’ oath is linked to the bankers’ code of conduct and a set of disciplinary measures. A newly established foundation supervises compliance with the code of conduct, and can impose disciplinary measures including reprimands, fines and a temporary ban from carrying out a function in the banking sector. In 2016, the foundation’s disciplinary commission heard its first cases and handed out its first disciplinary measure: a ban from working in the banking sector for six months imposed on an employee who reviewed and noted down details of wealthy customers without any justifiable business cause.
vi Banking secrecy
There is no specific legal provision on banking secrecy in the Netherlands. As a general principle, Dutch law requires banks to keep all client data confidential. This requirement has various sources of origin, including custom, general principles of contract law (i.e., reasonableness and fairness) and the obligation of due care, which stems in turn from the general banking conditions used by most banks in the Netherlands. Several exceptions to the ‘banking secrecy’ requirement apply. The more general exception provides that a bank is authorised to disclose client data to third parties, including regulatory authorities or supervisors, if it is under a statutory obligation to do so (see Section III.i, supra). Violation of banking secrecy may result in civil liability as a result of a breach of contract or, as the case may be, tort law. Obviously, and perhaps more importantly, violating bank secrecy may also lead to reputational damage.
Dutch banks raise funds from different sources, including deposits (corporate and non-corporate), interbank transactions (including ECB transactions) and capital markets funding. In general, Dutch banks are more dependent on financing through the financial markets than other European banks. This is because Dutch banks lend more than banks in other countries, which is mainly due, inter alia, to above-average high mortgage loans. The relatively large financing deficit, in combination with a relatively large financial sector in the Netherlands, causes Dutch banks to be vulnerable to problems in the capital markets.37 The gradual reduction of the loan-to-value limit and increasing competition on the mortgage market from non-banks is expected to reduce this vulnerability.38
The increased capital requirements are largely being met by deleveraging and de-risking the balance sheet and by retention of profits. However, after a turbulent start to the year for bank debt securities following initial concerns of investors about their regulatory treatment, several large Dutch banks launched successful issues of additional Tier 1 and Tier 2 instruments in 2016. Further issues of debt instruments are to be expected as more certainty is obtained on the calibration of the leverage ratio and on the MREL and TLAC standards (see Section III.iv supra).
VI CONTROL OF BANKS AND TRANSFERS OF BANKING BUSINESS
i Supervision of participations in banks
The Acquisitions Directive has been implemented in the FMSA.39 Each person who holds, acquires or increases a qualifying holding in a bank with a corporate seat in the Netherlands requires a declaration of no objection (DNO) from the ECB.40 The DCB is responsible for
processing the DNO application. A ‘qualifying holding’ is a direct or indirect holding of 10 per cent or more of the issued share capital of the bank, direct or indirect voting power, or a right to exercise equivalent control of 10 per cent or more within the bank. This definition is subject to certain aggregation principles: for instance, voting rights held through subsidiary companies or voting agreements are to be included.41 Provided the integrity of the person holding the qualifying holding is beyond doubt, the DNO will be granted unless another ground for refusal applies. A DNO will be refused if:
- a the integrity of the proposed acquirer or the persons who as a result of their qualifying holding can determine the day-to-day policy of the bank is not beyond doubt;
- b the persons who as a result of their qualifying holding will determine the day-to-day policy of the bank are not fit;
- c the financial soundness of the proposed acquirer, in particular in relation to the business activities of the bank, is not beyond doubt;
- d the qualifying holding would constitute an impediment for the bank to comply with the prudential requirements it is subject to;
- e there are reasonable grounds to suspect that, in connection with the acquisition of the qualifying holding, money laundering or terrorist financing is being or has been committed or attempted, or that the proposed acquisition could increase the risk thereof; or
- f the information provided by the proposed acquirer is incorrect or incomplete (e.g., in the event of a proposed participation of more than 50 per cent, the applicant must submit a detailed business plan with its application for a DNO).
Where the applicant for a DNO is a legal entity, the integrity of all of its directors and other persons, if any, who can determine or co-determine the day-to-day policy of the applicant is tested. An additional DNO must be obtained for every subsequent increase as a result of which a threshold of 20, 33, 50 or 100 per cent is reached or passed. In December 2016, the European supervisory authorities jointly issued guidelines with detailed further rules for assessing qualifying holdings in banks, including as regards the concepts of acting in concert and indirect acquisitions.
On the basis of Dutch law, the applicant can request a ‘bandwidth’ DNO. As long as the qualifying holding remains within the range granted, no additional DNO needs to be obtained for any subsequent increase as a result of which a threshold is reached or passed, but only a notification must be made. The applicant can also request a ‘group’ DNO. If a group DNO is obtained, the scope of applicability of the DNO is extended to all companies within a group collectively, and no additional DNOs are required for transfers of qualifying holdings within a group. Recent experiences of the DNO application process with the ECB give reason to doubt whether the ECB applies the Dutch regime for a ‘bandwidth’ and ‘group’ DNO. If any control relating to a qualifying holding is exercised without having been granted a DNO or in violation of any conditions attached to a DNO, the resolution adopted will be liable for nullification.
ii Supervision of holdings by and restructuring of banks
In addition to the rules regarding holdings in banks, a bank with a corporate seat in the Netherlands must also obtain a DNO from the DCB for:42
- a acquiring or increasing a qualifying holding in another bank, investment firm, insurance company or financial institution with a corporate seat outside the EU or the EEA, unless the balance sheet total of the bank or insurance company involved does not exceed 1 per cent of the consolidated balance sheet total of the acquiring or increasing bank;
- b if the target is not a bank, investment firm, insurance company or financial institution, a DNO will be necessary if the total price paid for the holding amounts to 1 per cent or more of the consolidated balance sheet total of the bank;
- c acquiring the whole, or a substantial part, of the assets and liabilities of another enterprise or institution, unless the total amount of the assets or liabilities to be taken over does not exceed 1 per cent of the existing consolidated own funds of the bank; or
- d undertaking a financial or corporate restructuring of its own business.
iii Transfers of banking business
Apart from the rules as set out under the FMSA (see Section VI.i and ii, supra) and the competition rules,43 there are no legal provisions in the Netherlands specifically aimed at prohibiting or limiting the transfer of a banking business either by Dutch or by foreign entities. The transfer of a banking business is subject to the general rules of Dutch civil and corporate law, including rules on legal mergers and divisions and on transfers of assets and liabilities. Although cooperation and cross-participation are permitted in the Netherlands, a merger into a single legal entity of a bank and an insurance company is prohibited.44
VII THE YEAR IN REVIEW
In the Dutch banking sector, 2016 was, rather paradoxically, characterised both by solid profits and significant cost-cutting. Profitability in the banking sector was solid, with the low interest rate environment so far not having the adverse impact that was anticipated, thanks in particular to the low costs of funding and the ability of banks to maintain profitable interest rates on mortgage loans. Nonetheless, the low interest rate environment as well as the impact of financial technology exerted significant pressure on the viability of banks’ business models, which led banks to continue to reduce costs and to focus on further digitisation. Uncertainties created by economic, regulatory and (increasingly) political risks also persisted (see Section VIII, infra). This resulted in a significant number of redundancies across all the main Dutch banks. Meanwhile, Deutsche Bank scaled down its activities in the Netherlands, following a similar earlier move by Royal Bank of Scotland, continuing a trend of retreat by foreign banks from the Dutch market. Both have, or will, hand in their Dutch banking licence and continue their activities as a Dutch branch.
In terms of transactions, consolidation took place in the private banking sector, with Van Lanschot purchasing Staal Bankiers from insurance group Achmea, and KBL merging its subsidiary Theodoor Gilissen with Insinger de Beaufort (to form InsingerGilissen), having acquired the latter from BNP Paribas. The state sold a first additional batch of shares in ABN AMRO after having successfully listed it on Euronext Amsterdam in 2015, and fended off overtures by Scandinavian competitor Nordea regarding a merger. The state decided that SNS Bank, currently the only other state-owned Dutch bank, which renamed itself the Volksbank following a strategic reorientation, would remain in the hands of the state for several more years, as it needs more time to acquire a stronger position on the Dutch market. The Volksbank also further profiled itself as a consumer retail bank by selling its investment banking activities to NIBC. Meanwhile, the state sold Propertize, SNS Bank’s former real estate subsidiary, to Lone Star and JP Morgan. For its part, Rabobank improved its balance sheet by selling its car lease subsidiary Athlon to Mercedes Benz. Both Rabobank and the Volksbank simplified their corporate and regulatory structures by merging their various bank-licensed entities (in the case of Rabobank, 106) into one.
In regulatory terms, the year did not see the introduction of major pieces of new regulation, but rather the further implementation and elaboration of regulatory frameworks introduced in earlier years. On the European level, this included most importantly the further implementation of recovery and resolution planning under the BRRD and the SRM, the further development of supervision by the ECB under the single supervisory mechanism (SSM), and the continuing phase-in of the CRD IV and CRR capital and liquidity requirements. On a national level, the year was also relatively quiet in terms of new bank-specific regulation. Following criticism of the existing process of suitability and integrity testing, the DCB and the AFM took steps to improve the process, including by increasing transparency and efficiency, and by taking into account the recommendations of an external evaluation conducted in 2016 by the Ottow Commission. Both supervisors were also active in the field of financial technology and innovation, publishing a number of papers and discussion documents, starting an ‘InnovationHub’ and announcing, in December 2016, their approach to provide ‘tailor-made’ regulation as of 1 January 2017.45
VIII OUTLOOK and CONCLUSIONS
Despite the improved economic outlook and the strengthening by banks of their balance sheets over recent years, the sentiment on the financial markets, and in relation to banking sector securities in particular, is cautious. This is ascribed to the low or negative interest rate environment, the impact of financial technology, and uncertainty caused by international political developments and new regulatory burdens. The pressure on Dutch banks is expected to increase as their ability to sustain net interest margins will continue to be tested. With interest income contributing over 75 per cent of their total income, Dutch banks are strongly dependent on interest income, and their ability to compensate with other sources of income appears limited.46
The European Banking Union, with the full operationalisation of the SSM and the SRM, contributes to creating a more stable environment for Dutch (and other eurozone) banks. That said, the new supervisory approach of the ECB under the SSM requires some familiarisation, and is consequently still causing some uncertainty, and resolution planning by the SRB under the SRM is still a work in progress.
Although the main elements are in place, reform of the banking sector is still ongoing. In particular, the Basel Committee’s ongoing ‘Basel IV’ revisions are resulting in a high degree of uncertainty in the sector. Where some proposals have been finalised over the course of the past year, a number of controversial proposals, in particular relating to credit risk and the introduction of new capital floors, remain under discussion. These proposals are expected to have a significant impact on Dutch banks, in particular for their mortgage business. Other ongoing uncertainties include a number of elements of the BRRD that are still subject to further development and implementation, in particular the setting of the MREL, and the finalisation under Basel III and CRD IV and the CRR of the calibration of the minimum leverage ratio and NSFR, proposals for which were published by the European Commission in November 2016.
Notwithstanding the above, the post-crisis regulatory reform agenda for the banking sector is slowly nearing completion. Indeed, the focus of banking regulation has now shifted from further reform to review of the framework as established in the years following the financial crisis. This means that the regulatory pendulum has started swinging again, as can most clearly be ascertained from the proposals made in the context of the Capital Markets Union agenda and the European Commission’s recent Banking Reform Package, which, inter alia, aims to introduce more proportionality into CRD IV and the CRR.
1 Mariken van Loopik is a partner and Maurits ter Haar is a senior associate at De Brauw Blackstone Westbroek.
2 DCB, Financial Stability Report Autumn 2016, October 2016.
3 Most important among these measures are the proposed revisions to the Capital Requirements Directive IV (2013/36/EU) (CRD IV) and the Capital Requirements Regulation (575/2013) (CRR), the recent implementation and application of the Regulation regarding the Single Supervisory Mechanism (1024/2013) (SSM Regulation), the Deposit Guarantee Scheme Directive (2014/49/EU), the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD), and the Regulation regarding the Single Resolution Mechanism (806/2014) (SRM Regulation) and the expected entry into force of the Markets in Financial Instruments Directive II (2014/65/EU) (MiFID II), the Regulation on Markets in Financial Instruments (600/2014) (MiFIR) and the Payment Services Directive II (2015/2366) (PSD II).
4 Including CRD IV, the Markets in Financial Instruments Directive (2004/39/EC) (MiFID), the Payment Services Directive (2007/64/EC) (PSD), the Acquisitions Directive (2007/44/EC), the Consumer Credit Directive (2008/48/EC), the Electronic Money Directive (2009/110/EC) and the Mortgage Credit Directive (2014/17/EU) (MCD).
5 Including the CRR, MiFIR, the SSM Regulation, the SRM Regulation, the European Market Infrastructure Regulation (648/2012), the Securities Financing Transactions Regulation (2015/2365), and various delegated acts and regulatory and implementing technical standards.
6 Since 1 April 2015, a bank’s management team members (i.e., the bank’s senior officers who work directly below the level of the day-to-day policymakers and who are responsible for those persons whose activities may have a material impact on the bank’s risk profile) also need to be tested on their suitability and integrity. These tests are performed by the bank itself, with supplementary testing or checks, or both, by the DCB.
7 DCB and AFM, More room for innovation in the financial sector, market access, authorisations and supervision, December 2016.
8 ING Bank, ABN AMRO, Rabobank, the Volksbank (formerly SNS Bank), Nederlandse Waterschapsbank (NWB) and Bank Nederlandse Gemeenten (BNG) are currently identified as such.
9 The ECB may request information, conduct general investigations and carry out on-site inspections (see Articles 10 to 13 SSM Regulation); specific supervisory powers include substantial powers of early intervention, and the right to impose fines and other administrative sanctions (see Articles 14 to 16 SSM Regulation).
10 Article 22 SSM Framework Regulation (ECB Regulation (EU) 468/2014).
11 This includes the DCB’s policy rule ‘suitability 2012’, the Draft ECB Guide to fit and proper assessments, the Draft Joint ESMA and EBA Guidelines on the assessment of the suitability of members of the management body and key function holders under CRD IV and MiFID II, and the Draft EBA Guidelines on internal governance.
12 Non-listed banks often apply the Dutch Corporate Governance Code on a voluntary basis.
13 The previous Corporate Governance Code was applicable as of 1 January 2008. A revised Corporate Governance Code entered into force on 1 January 2017.
14 The original Banking Code was applicable as of 1 January 2010. A revised Banking Code entered into force on 1 January 2015.
15 Draft Amendment Act Financial Markets 2018.
16 ECB Regulation (EU) 2016/445, ECB Guide on options and discretions available in Union law, November 2016, ECB recommendation on common specifications for the exercise of some options and discretions available in Union law by NCAs in relation to LSIs and ECB guideline on the exercise of options and discretions in Union law by NCAs in relation to LSIs, November 2016.
17 Decree of 15 November 2016 amending the Decree on Prudential Rules FMSA to shorten the transitional period of the countercyclical capital buffer.
18 Section 3:63 et seq. of the FMSA.
19 Regulation (EU) 2015/61.
20 DCB regulation on phase-in and reporting of the LCR for banks, October 2015.
21 Regulation (EU) 680/2014.
22 On the basis of the DCB regulation on liquidity FMSA 2011.
23 Directive 2002/87/EC as amended by Directive 2011/89/EU.
24 Regulation (EU) 1093/2010.
25 DCB policy rule application guidelines European supervisory authorities FMSA 2016.
26 Regulation (EU) 2016/1450.
27 EBA Final Report on MREL, 14 December 2016, and European Commission Banking Reform Package, 23 November 2016.
28 Directive 2014/49/EU.
29 Proposal for a Regulation amending Regulation (EU) 806/2014 in order to establish a European Deposit Insurance Scheme, 24 November 2015.
30 The Netherlands has chosen to apply the provisions implementing the Consumer Credit Directive (2008/48/EC) to all credit agreements, including those with a value of less than €200 and more than €75,000.
31 Directive 2008/48/EC.
32 Directive 2014/17/EU.
33 Directive 2007/64/EC.
34 Directive 2014/92/EU.
35 Directive (EU) 2015/2366.
36 Directive (EU) 2015/849 and Regulation (EU) 2015/847.
37 The financing deficit or deposit funding gap is the gap between loans and deposits.
38 DCB, Financial Stability Report Autumn 2016, October 2016 and EBA Risk Assessment of the European Banking System, December 2016.
39 Directive 2007/44/EC.
40 Section 3:95 et seq. of the FMSA.
41 Section 1:1 juncto, Section 5:45 of the FMSA, pursuant to which the Dutch rules implementing the Transparency Directive (2004/109/EC) apply.
42 If it concerns an application by a significant Dutch bank, the DCB will consult the ECB before granting the DNO.
43 These rules include that a proposed acquisition or merger of a bank that qualifies as a concentration under the Dutch Competition Act or EU competition rules should be notified to and approved by the ACM or the European Commission prior to completion.
44 Section 3:36 of the FMSA.
45 DCB and AFM, More room for innovation in the financial sector, options for market access, authorisations and supervision, December 2016.
46 DCB, Financial Stability Report Autumn 2016, October 2016, DCB Supervisory Outlook 2017, November 2016 and EBA Risk Assessment of the European Banking System, December 2016.