News Update Financial Regulatory
1 December 2020
In this News Update, we discuss the reporting requirement on outsourcing, the new requirement that certain investment firms apply for a banking licence, the Dutch supervisors' updated Enforcement Policy, and we take a look at the Capital Markets Recovery Package. Finally, we highlight some other important financial regulatory publications.If you wish to stay informed, you can subscribe to the News Update Financial Regulatory.
AFM – Reporting intended outsourcingThe Dutch Authority for the Financial Markets ("AFM") has recently focused its attention on the reporting requirement on outsourcing for investment firms, investment fund managers and UCITS managers. According to the AFM, outsourcing of activities by these financial undertakings requires adequate risk management, especially when it concerns their primary processes. Outsourcing of material activities that relate to the financial undertaking's primary process needs to be reported to the AFM in advance, whether activities are outsourced to an internal or external service provider, including a group company service provider. The undertaking must assess which contracts this concerns using a materiality assessment (materialiteitsassessment). The AFM has designed a standardised notification form and a manual (only in Dutch) that financial undertakings can use to report outsourcing of activities (e.g. IT and cloud services).
A similar obligation and form exist in the Digital Supervision Portal (Digitaal Loket Toezicht, "DLT") of the Dutch Central Bank (De Nederlandsche Bank, "DNB") for most financial undertakings licensed by DNB.
If you have any questions about outsourcing, or if you need assistance with fulfilling the reporting obligations, please do not hesitate to contact us.
DNB – Application for authorisation by investment firms that qualify as a bankIn the November 2020 Newsletter for asset managers (only in Dutch), DNB draws attention to the obligation on investment firms that qualify as a bank to hold a banking licence under the Investment Firm Directive ("IFD") and the Investment Firm Regulation ("IFR").
Because of the enactment of the IFD and IFR, certain investment firms that provide the investment activity 'dealing for own account' (handel voor eigen rekening) or the investment service 'underwriting or placing financial instruments on a firm commitment basis' (overnemen of plaatsen van financiële instrumenten met plaatsingsgarantie) may qualify as a bank if they consistently exceed certain thresholds. If so, these firms must apply for a banking licence after qualifying.
DNB offers firms that already met the criteria set out in the updated Capital Requirements Regulation ("CRR") on 24 December 2019, or firms that expect to do so on 26 June 2021, the possibility to already submit an application for a banking licence. Those that already qualify under the law must do so by 27 December 2020 at the latest. The application must be submitted through the DLT. Additional information, such as the application form and documents to be submitted, will be published on DNB's website shortly.
Investment firms that do not qualify, but who want to expand their activities e.g. to deposit taking, can also apply for a banking licence. Even non-deposit taking investment firms can apply for a voluntary banking licence (or for permission to continue applying the CRR calculation methodologies).
If you have any questions about applying for authorisation or if you need assistance with it, feel free to contact Berry van Wijk, Oscar van Angeren, Roel Theissen and Daan Horsthuis.
AFM and DNB - Updated Enforcement PolicyOn 2 November 2020, the AFM and DNB's Updated Enforcement Policy was published in the Government Gazette (Staatscourant). It entered into force on 3 November 2020.
The main amendments to the previous version from 2008 concern: (i) extending the description of regular supervision, including making it cohesive with European supervision; (ii) a clarified distinction between the principles of the supervisors and the contributing factors for using enforcement tools in a specific case; (iii) some remarks on the choice between informal and formal measures and fining undertakings and de facto managers; (iv) the addition of a paragraph about publication because of the extension of the publication regime in various supervisory acts.
Capital Markets Recovery Package amending MiFID II, Prospectus Regulation, Securitisation Regulation and CRRThe European Commission ("Commission") has proposed a recovery package for the capital markets as part of its COVID-19 recovery strategy. On 2 October 2020, the proposals were sent to the Dutch House of Representatives (Tweede Kamer). On 16 October 2020, the standing committee for the Ministry of Finance submitted some questions and remarks (only in Dutch) on the Capital Markets Recovery Package to the Minister of Finance.
The package contains a series of very pragmatic amendments to the Prospectus Regulation, MiFID II and securitisation rules, abandoning previous caution e.g. on synthetic securitisations to stimulate the recovery:
- The Commission has proposed creating a temporarily applicable 'EU Recovery Prospectus' (a type of short-form prospectus) for companies that have a track record in the public market. This temporary prospectus would be easy for companies to produce, easy for investors to read and easy for competent national authorities to scrutinise. It would cut down the length of prospectuses from hundreds of pages to just 30 pages. This will help companies to raise capital – such as by issuing shares - instead of going deeper into debt. A second set of targeted amendments to the Prospectus Regulation aims at facilitating fundraising by banks that play an essential role in financing the recovery of the real economy.
- In addition, the Commission has proposed making some targeted amendments to MiFID II requirements, to reduce some of the administrative burdens that experienced investors face in their business-to-business relationships. Less-experienced investors (such as households investing their savings for retirement) will remain as protected as before. These amendments affect several requirements that were already identified (during the MiFID/MiFIR public consultation) as being overly burdensome or hindering the development of European markets.
- Finally, the Commission has proposed a package of measures amending the Securitisation Regulation and the CRR to facilitate the use of securitisation in Europe's recovery. It lets banks transfer some of the risk of small and medium-sized enterprise ("SME") loans to the markets so that they can keep lending to SMEs. In particular, the Commission has proposed creating an additional specific framework for simple, transparent and standardised on-balance sheet securitisation (i.e. 'simple' versions of synthetic securitisation via derivatives) that would benefit from a lightened prudential treatment. The already envisaged review of the 'simple transparent securitisations' regime in 2022 will include this ad hoc insertion. In addition, the Commission has proposed removing existing regulatory obstacles to the securitisation of non-performing exposures.
Other financial regulatory publicationsWe have highlighted a selection of other publications by legislatures and regulators for the financial markets and financial supervision in November 2020 below:
- The European Banking Authority ("EBA") launched a consultation to incorporate environmental, social and governance risks into the governance, risk management and supervision of credit institutions and investment firms. The EBA also published an Opinion setting out how prudential supervisors should consider money laundering and terrorist financing risks in the context of the Supervisory Review and Evaluation Process. Finally, the EBA reminded financial institutions of the need for readiness in view of the Brexit transition period ending on 31 December 2020.
- The European Insurance and Occupational Pensions Authority launched a survey on the application of the Insurance Distribution Directive that entered into force on 23 February 2016.
- The European Securities and Markets Authority ("ESMA") published a Consultation Paper with its draft advice to the Commission, specifying the content, methodology and presentation of the key performance indicator that non-financial undertakings and asset managers must disclose under the Taxonomy Regulation. The ESMA also launched a Consultation Paper seeking input from market participants in relation to its draft guidelines on the MiFID II/MiFIR obligations on market data.
- The Basel Committee on Banking Supervision ("BCBS") published a report with an update on the implementation of Basel III regulatory reforms and the Basel Framework-related measures taken by BCBS members in response to COVID-19.
- The AFM and DNB published the report 'The transition to alternative benchmark rates', analysing a joint request to transition to alternative interest rate benchmarks.
- DNB updated its 'Supervisory Strategy 2021-2024' by fleshing out the priorities it had identified in 2018 in the areas of technological innovation, sustainability and financial crime.