The Netherlands has a long history as an open trading nation with household-name institutions such as 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 banking sector is large. Although down from pre-crisis years, in 2017, the size of its assets relative to the gross domestic product of the Netherlands still amounted to nearly 400 per cent.2
On the back of a strong performance of the Dutch economy and a booming housing market, Dutch banks’ profits during 2017 were decent, and both risk-weighted and unweighted capital ratios continued to improve. Cost-cutting and digitalisation strategies set in earlier years also starting paying off. In regulatory terms, banks put considerable effort into the implementation of a number of important EU rules and regulations due to enter into force in early 2018.3 With the finalisation of the Basel III reform package (also known as Basel IV) in December 2017, regulatory risks also decreased considerably. Although the new Basel rules will affect Dutch banks disproportionately, the impact appears manageable. However, other risks to the business models and operations of Dutch banks remain, including low interest rates, technological disruption and cybercrime.
II THE REGULATORY REGIME APPLICABLE TO BANKS
i Basic structure of banking regulation
The Netherlands has a ‘twin peaks’ supervision model, which 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. The responsibility for conduct-of-business supervision lies with the Netherlands Authority for the Financial Markets (AFM), the aim being to foster orderly and transparent market processes, maintain 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 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 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. During 2017, the review remained a work in progress at the Ministry of Finance. A second consultation paper is expected in the first half of 2018.
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:
- 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;
- 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;
- the bank must have sound and prudent business operations, including procedures and measures for adequate risk management and client acceptance;
- at least two natural persons should determine the day-to-day policy of the bank and perform their activities from within the Netherlands;
- the supervisory board (or comparable body) should consist of at least three persons;
- the bank must have a transparent control structure safeguarding adequate supervision; and
- the bank must comply with certain financial safeguards, such as minimum own funds, solvency and liquidity requirements.
Once a licence has been granted, a bank must continue to comply with these requirements. 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, since 2017, is also 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
The formal application period for a banking licence is 13 weeks although, in practice, it is much longer. In a draft act submitted to Parliament in December 2017, the Minister of Finance proposed to change the maximum duration of a licence application to 26 weeks.8 This will allow the DCB and the ECB to rely less on ‘stop-the-clock’ information requests and will give applicants a more realistic view of the required decision-making time. Other recent changes to the application process include the obligation to prepare an ‘exit plan’, which should identify how the applicant could cease its banking operations in an orderly manner when so required.
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, there are additional requirements that relate to the conduct-of-business requirements with which investment firms need to comply. 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).
Since 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.9
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. 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,10 the ECB has far-reaching investigatory and supervisory powers under the SSM Regulation.11 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.12 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:
- imposing a certain course of action to comply with the FMSA (instruction order);
- appointing one or more persons as trustee over all or certain bodies or representatives of a bank;
- imposing a particular duty, backed by a judicial penalty for non-compliance;
- imposing an administrative fine;
- publishing an imposed duty or fine on the DCB’s website and by press release;
- 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);
- 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;
- 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;
- requesting the Amsterdam District Court to declare the emergency regulation applicable; and
- 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. A proposal is currently pending in Parliament to make financial sector supervision by the DCB (and the AFM) more transparent. To that end, the regulators will be given greater powers to publish warnings and decisions in the event of infringements of the FMSA and to periodically publish overviews of key data of individual banks.13
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 have recently been revised.14 They contain guidance as regards, inter alia, integrity and suitability, sufficient time commitment, independence, supervisory board committees and their composition, and on the maximum number 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 former is mandatory for listed Dutch banks.15 It 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.16 The Banking Code contains principles that are based on the Corporate Governance Code, but focuses on the managing and supervisory boards, risk management, auditing and remuneration policy of banks.17 The 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 Banking Code be applied by all entities that operate in the Netherlands (irrespective of their country of incorporation), including banks operating under a European passport.
Restrictions on remuneration
A far-reaching Act on financial sector remuneration has been in force since 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 work predominantly in another 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.
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.
In March 2017, the DCB announced a tweak to the bonus cap in that the ‘international holding exemption’ would be available not only to Dutch global top holdings of financial groups but also to EEA top holdings, thus making the Netherlands more attractive for EEA top holdings of non-EEA financial groups. An evaluation of the remuneration rules is expected to be published during the course of 2018. This may lead to further changes, including, most likely, a narrowing of the current full exemption for managers of investment funds to a bonus cap at 100 or 200 per cent of the fixed component for those managers belonging to banking or insurance groups so as to bring the rules in line with the EBA guidelines.18
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 (CET1) 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 CET1 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 those options and discretions by competent national authorities in relation to less significant banks.19
In November 2017, following pressure from the EBA, the DCB decided to discontinue the existing national prudential regime for ‘local firms’. These firms, in many instances large proprietary trading investment firms, were given until 31 March 2018 to comply with the CRR capital requirements.
CRD IV prescribes four capital buffers:
- a capital conservation buffer equal to 2.5 per cent CET1 capital;
- an institution-specific countercyclical capital buffer of, in principle, between zero and 2.5 per cent CET1 capital;
- a global systemically important institutions (G-SII) buffer of, in principle, between 1 and 3.5 per cent CET1 capital; or another systemically important institutions (O-SII) buffer of a percentage, in principle, of between zero and 2 per cent CET1 capital; and
- as a Member State option, a systemic risk buffer of, in principle, between 1 and 3 per cent CET1 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 the Volksbank 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. The DCB has kept the countercyclical capital buffer at zero per cent since its introduction in 2016. It continues to review the necessity of increasing this percentage on a quarterly basis. The capital buffers are being phased in, in line with the transitional regime of CRD IV. However, an exception was made for the countercyclical capital buffer: since 2017, any such buffer as set by the DCB will be immediately applicable in full.20
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 CET1 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.21 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. As of 1 January 2018, the previous Dutch liquidity requirements and reporting rules have been fully replaced by 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 100 per cent from 2018 onwards.22 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. In addition to these requirements, the DCB normally also imposes bank-specific liquidity requirements as part of a bank’s Pillar 2 requirement, such as regarding specific liquidity survival periods and diversification of sources of funding and liquidity.
Banks are required to calculate their leverage ratios in accordance with the methodology set out in Part 7 of the CRR, report them 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 European Union. 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 was agreed by Basel but has yet to be discussed on an EU level. For the past few years, the Dutch Minister of Finance has been pursing the introduction of a minimum leverage ratio requirement of 4 per cent for all systemically important banks in the Netherlands (as well as in the European Union as a whole). However, the new government priority is to ensure that the percentage is in line with other EU countries.
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 European Union as a whole. The liquidity requirements must be met on the basis of the consolidated situation of the highest holding entity in the European Union. 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 financial conglomerates (FICO) Directive was implemented in the FMSA and the Decree on Prudential Supervision of Financial Groups FMSA.23 The FICO Directive introduced 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 December 2017, the DCB issued an updated policy rule that lists which of the European supervisory authorities’ 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.24
iv Recovery and resolution
Bank recovery and resolution directive and single resolution mechanism regulation
The Dutch Act implementing the bank recovery and resolution directive (BRRD)25 entered into force in 2015, and the single resolution mechanism regulation26 became fully applicable in 2016. These two legal acts, 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:
- banks and authorities make adequate preparation for crises;
- supervisory authorities are equipped with the necessary tools to intervene at an early stage when a bank is in trouble;
- resolution authorities have the necessary tools to take effective action when bank failure cannot be avoided, including the power to ‘bail-in’ creditors; and
- 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 2017, the SRB and the DCB continued the process of drafting resolution plans for the major Dutch banks. Most notably, the SRB and the DCB are moving from informative targets on the bank-specific minimum requirement for own funds and eligible liabilities (MREL) to binding targets, and including requirements on subordination and eligibility of liabilities. The first binding decisions are expected in early 2018 but will be accompanied by a multi-year time frame for implementation.27
Meanwhile, the rules for the calibration and method of calculation of the MREL are already subject to review. The European Commission’s Banking Reform Package contains 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 2015.28 Once these new rules are finalised, the SRB and the DCB will adapt their policy accordingly.
The Decree implementing the (third) Deposit Guarantee Scheme (DGS) Directive has been in force since 2015.29 These new rules introduced an ex ante funded guarantee scheme to which banks must contribute on a quarterly basis. The fund should reach a target level of 0.8 per cent of insured deposits. The guarantee covers natural persons and businesses, with the exception of financial undertakings and governments, for an amount up to €100,000. In July 2017, the DCB adopted a number of more detailed rules in relation to the Dutch DGS. Most importantly, the DCB introduced a new pay-out system in which banks must compile and deliver a uniform single customer view, containing an overview of customers’ deposits and other relevant data. The new system will enable the DCB to meet the requirement of the DGS Directive that, by 2024, pay-out of insured deposits must be made within seven business days of a bank’s failure.30 Progress on the European Commission’s proposal for a European Deposit Insurance Scheme (EDIS), first circulated in 2015 to reinforce deposit protection through a sophisticated approach to mutualise national deposit guarantee funds in the eurozone, continued to be slow. A number of Member States, including the Netherlands, insist that further risk reduction must precede further risk sharing. In response to this resistance, the Commission proposed a revised version of EDIS in October 2017, with a view to come to an agreement in 2018.31
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 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, in practice, a bank will be subject to conduct-of-business rules that are supervised by the AFM if it:
- 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);
- 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
- 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.32 The additional rules stem mainly from the implementation of the Consumer Credit Directive.33 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.
The Dutch Act implementing the MCD entered into force in 2016. 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.34 In 2017, the AFM provided further guidance on costs that may be imposed in the case of early repayment, requiring banks also to revisit calculations of mortgages provided since 2016.35 The Minister of Finance now also proposes to limit the costs banks can charge when customers want to change their interest rate during the fixed-interest period.36
iii Payment services
As a result of the implementation of the first Payment Services Directive (PSD1), payment service providers are subject to certain conduct-of-business requirements under both the FMSA and the Dutch Civil Code.37 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 a contract;
- c the required consent of the payer regarding the execution of a payment transaction;
- d the right of withdrawal;
- e the maximum period to execute payment transactions; and
- f costs and liability.
The AFM supervises compliance with all conduct-of-business rules, including those under the Dutch Civil Code. The Dutch Authority for Consumers and Markets (ACM) supervises competition issues relating to access to payment systems.
The Act implementing the Payment Accounts Directive entered into force in November 2016, 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.38 In October 2017, the draft act for the implementation of PSD2 was submitted to Parliament. PSD2 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.39 The new rules should have entered into force on 13 January 2018. However, as indicated by the EBA, any late transposition and transitional period until entry into force of all regulatory standards should not prevent a number of important provisions of PSD2 starting to apply.40
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 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 (FIU) of the Netherlands must be notified. The FIU is designated to receive information relating to suspicious transactions, to investigate and, if necessary, to 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 2015.41 The new rules facilitate the work of FIUs in identifying and following suspicious transfers, facilitating the exchange of information between FIUs and establishing 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. Although the new rules should have entered into force in June 2017, the implementing act is still pending in Parliament.
Meanwhile, in December 2017, the European Parliament and the Council achieved political agreement on the Fifth Anti-Money Laundering Directive.42 The new rules will extend the scope of the rules to virtual currencies and pre-paid cards, enhance the role and powers of the national FIUs, and provide clearer rules on the nature of and access to beneficial ownership information.
v Bankers’ oath, code of conduct and disciplinary measures
Dutch banks must ensure that all persons with an employment contract with a bank, or who 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 2017, the foundation’s disciplinary commission heard about a dozen cases and handed out a number of disciplinary measures, in many cases a ban from working in the banking sector for six months.
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). 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 they lend more than banks in other countries, which is 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.43 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.44
The increased capital requirements are largely being met by de-leveraging and de-risking the balance sheet and by retention of profits. However, as in previous years, several Dutch banks, including ABN AMRO and NIBC, launched successful issues of Additional Tier 1 instruments in 2017. 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).
In December 2017, the Dutch Minister of Finance published for consultation a draft act amending the Dutch Bankruptcy Act to implement the recently adopted EU Directive regarding the ranking of unsecured debt instruments in the insolvency hierarchy.45 This change, welcomed by most banks, will allow banks to issue ‘senior non-preferred’ or ‘Tier 3’ debt, ranking junior to senior debt but senior to subordinate debt and capital instruments, to fulfil their MREL or TLAC requirement.
VI CONTROL OF BANKS AND TRANSFERS OF BANKING BUSINESS
i Control regime
Supervision of participations in banks
The Acquisitions Directive has been implemented in the FMSA.46 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.47 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.48 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:
- 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;
- the persons who as a result of their qualifying holding will determine the day-to-day policy of the bank are not fit;
- the financial soundness of the proposed acquirer, in particular in relation to the business activities of the bank, is not beyond doubt;
- the qualifying holding would constitute an impediment for the bank to comply with the prudential requirements to which it is subject;
- 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
- 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 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 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; only a notification needs to 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.
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 for:
- acquiring or increasing a qualifying holding in another bank, investment firm, insurance company or financial institution with a corporate seat outside the European Union 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;
- acquiring or increasing a qualifying holding where the target is not a bank, investment firm, insurance company or financial institution, if the total price paid for the holding amounts to 1 per cent or more of the consolidated balance sheet total of the bank;
- 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
- undertaking a financial or corporate restructuring of its own business.
In March 2017, the ECB further clarified the delineation of competences between the ECB and the national competent authorities, including the DCB, as regards the exercising of certain supervisory powers granted under national law.49 The ECB concluded, inter alia, that for significant banks it is competent in relation to all the above-mentioned DNOs. For non-significant banks, the DCB remains competent.
ii Transfers of banking business
Apart from the rules as set out under the FMSA (see Section VI, subsections i and ii) and the competition rules,50 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.51
VII THE YEAR IN REVIEW
The year 2017 was a good one for the Dutch banking sector. Banks profited from the strong economic upturn, a booming housing market and improving cost-to-income ratios. Driven by solid profits and strengthening balance sheets, the sentiment for bank securities on the financial markets also improved. Meanwhile, Dutch banks continued to focus on reducing costs and on further digitisation. That said, some legacy issues linger, in particular the finalisation of the settlement for mis-selling of derivatives by banks to small businesses. Several risks to the sector also persist (see Section VIII).
In terms of transactions, 2017 was a rather quiet year in the banking sector. The state sold a second and third batch of shares in ABN AMRO in June and September following the successful listing on Euronext Amsterdam in 2015 and the sale of a first batch in 2016. The state continues to hold approximately 56 per cent. Payment services provider Adyen obtained a banking licence in April so that it no longer has to rely on other banks to settle funds. In July 2017, Brand New Day acquired the banking licence of Allianz, launching a ‘tech-driven’ bank specialising in pension products.
Brexit planning led the Royal Bank of Scotland to hold on to the banking licence of its much-reduced Dutch operations and Japanese bank MUFG to expand its Dutch subsidiary. Owing to the stringent Dutch bonus cap, few other banks opted for the Netherlands in their Brexit strategies, although Amsterdam did attract a number of prominent trading venues.
It also emerged during 2017 that several Dutch banks would be seeking a listing in 2018. Mid-size merchant bank NIBC confirmed last summer that it is considering an initial public offering (IPO), which would mean an exit, after more than 12 years, for investment fund JC Flowers. The consortium of shareholders of LeasePlan, led by private equity firm TDR Capital, intends to float the car lease company and a savings bank it had purchased in early 2016. Rumour has it that Adyen is also considering a listing.
The year 2017 was not marked by the introduction of any major new pieces of regulation but rather by the further implementation and elaboration of regulatory frameworks introduced in earlier years, in particular the BRRD, CRD IV and the DGS. Banks also prepared for new EU rules entering into force in early 2018, most importantly MiFID II and MiFIR, PRIIPs, the BMR and PSD2. On a national level, no noteworthy rules were introduced, and the Minister of Finance took that opportunity to fine-tune and ‘repair’ existing provisions of the FMSA.
VIII OUTLOOK and CONCLUSIONS
The solid performance by banks during 2017 is expected to continue in 2018, which should again be a year of decent economic growth. Nonetheless, a number of risks to banks’ profitability and business models remain. According to the International Monetary Fund, the low interest rate environment, the high level of Dutch household debt and banks’ dependence on market funding continue to be risks to financial stability in the Netherlands.52 From the DCB’s perspective, the main risks and focus areas in supervision are in responding to technological innovation, including the prevention of cybercrime, sustainability and climate-related risks, and financial and economic crime.53
Regulatory risks, however, decreased considerably compared to earlier years as the overall shape of remaining incoming reforms became clearer. This is thanks, in particular, to the finalisation of the Basel IV capital standards in November 2017, which include revisions to the credit and operational risk frameworks and the introduction of new capital floors. Although these rules have yet to be transposed into EU and Dutch law and will affect Dutch banks disproportionately, the impact appears manageable, in part thanks to the long phase-in periods. Negotiations on the European Commission’s Banking Reform Package, which include earlier Basel standards as well as other changes, are also progressing.
In the short term, the implementation of obligations under various acts, including the BRRD, MiFID II and MiFIR, PSD2 and the BMR, will continue to require banks’ close attention. The Banking Reform Package and new Basel standard will also still require a considerable implementation effort in the coming years. However, the remaining outstanding elements of the post-crisis banking sector regulatory reform agenda have now largely been finalised. Focus is already increasingly moving from the implementation of these rules to their review and recalibration, as legislators and regulators take stock of the rules that have fully overhauled banking regulation during the past decade.
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 2017’, October 2017.
3 Most importantly, the Markets in Financial Instruments Directive II (2014/65/EU) (MiFID II), the Regulation on Markets in Financial Instruments (600/2014) (MiFIR), the second Payment Services Directive (2015/2366) (PSD2), the Benchmarks Regulation (2016/1011) (BMR) and the Regulation on Packaged Retail Investment and Insurance-based Products (1286/2014) (PRIIPs).
4 Including CRD IV, MiFID II, PSD2, 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 BMR, the PRIIPs, 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 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 Draft Financial Markets Amendment Act 2018.
9 Directive 2013/36/EU and Regulation (EU) No. 575/2013, together also referred to as CRD IV.
10 ING Bank, ABN AMRO, Rabobank, Volksbank (formerly SNS Bank), Nederlandse Waterschapsbank (NWB) and Bank Nederlandse Gemeenten (BNG) are currently identified as such.
11 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).
12 Article 22 SSM Framework Regulation (ECB Regulation (EU) 468/2014).
13 Draft Act on Transparent Supervision Financial Markets.
14 This includes the DCB’s ‘policy rule suitability 2012’, the ECB Guide to fit and proper assessments, the 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 EBA Guidelines on internal governance.
15 Non-listed banks often voluntarily apply the Dutch Corporate Governance Code.
16 The previous Corporate Governance Code was applicable as of 1 January 2008. A revised Corporate Governance Code entered into force on 1 January 2017.
17 The original Banking Code was applicable as of 1 January 2010. A revised Banking Code entered into force on 1 January 2015.
18 EBA guidelines on sound remuneration policies.
19 ECB Regulation (EU) 2016/445 on the exercise of 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.
20 Decree of 15 November 2016 amending the Decree on Prudential Rules FMSA to shorten the transitional period of the countercyclical capital buffer.
21 Section 3:63 et seq. of the FMSA.
22 Regulation (EU) 2015/61.
23 Directive 2002/87/EC as amended by Directive 2011/89/EU.
24 DCB policy rule application guidelines, European supervisory authorities FMSA 2017.
25 Directive 2014/59/EU.
26 Regulation (EU) No. 806/2014.
27 SRB, ‘MREL Policy for 2017 and Next Steps’, December 2017.
28 See e.g., Council Presidency Progress report of 29 November 2017.
29 Directive 2014/49/EU.
30 DCB Policy Rule on the Single Customer View.
31 EC communication on completing the Banking Union, October 2017.
32 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 below €200 and above €75,000.
33 Directive 2008/48/EC.
34 Directive 2014/17/EU.
35 AFM, ‘Guidance for the calculation of costs in case of early mortgage repayment’, March 2017.
36 Draft Amendment Decree Financial Markets 2018.
37 Directive 2007/64/EC.
38 Directive 2014/92/EU.
39 Directive (EU) 2015/2366.
40 The EBA’s ‘Opinion on the transition from PSD1 to PSD2’, 19 December 2017.
41 Directive (EU) 2015/849 and Regulation (EU) 2015/847.
42 COM(2016) 450 final.
43 The financing deficit or deposit funding gap is the gap between loans and deposits.
44 DCB, ‘Financial Stability Report Autumn 2016’, October 2016, and IMF, ‘Netherlands Financial Sector Assessment Program’, April 2017.
45 Directive (EU) 2017/2399.
46 Directive 2007/44/EC.
47 Section 3:95 et seq. of the FMSA.
48 Section 1:1 juncto, Section 5:45 of the FMSA, pursuant to which the Dutch rules implementing the Transparency Directive (2004/109/EC) apply.
49 ECB letter SSM/2017/0140 of 31 March 2017.
50 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 Dutch Authority for Consumers and Markets (ACM) or the European Commission prior to completion.
51 Section 3:36 of the FMSA.
52 IMF, ‘Netherlands Financial Sector Assessment Program’, April 2017.
53 DCB, ‘Supervision Outlook 2018’, November 2017.