financial services

News Update Financial Regulatory

Fitness, propriety and reputation assessments
2 March 2021
2 March 2021

In this News Update, we discuss some recent developments in fitness, propriety and reputation assessments by DNB. We also discuss the ECB's supervisory priorities for 2021. Further, we highlight some other important financial regulatory publications.

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DNB – UBO reputation test

In its Trust Offices Newsletter (Nieuwsbrief Trustkantoren) of 1 February 2021, the Dutch Central Bank (De Nederlandsche Bank, "DNB") drew attention to the enactment on 15 October 2020 of the Financial Markets Recovery Act 2020 (Herstelwet financiële markten 2020, "Recovery Act"). The Recovery Act stipulates, among other things, that the ultimate beneficial owner ("UBO") of a trust office "must be fit in view of his reputation and his propriety must be beyond doubt." This applies not only to UBOs of trust offices, but also to UBOs of virtual currency providers and fiduciary exchange services (crypto exchange), custodian wallet providers for virtual currency, and exchange institutions. The UBO reputation test will apply to new UBOs from 1 May 2021. Incumbent UBOs are deemed to meet the reputation test under the transitional law.

For implementing the UBO reputation test, the definition of a UBO in Article 10a, paragraph 1 of the Prevention of Money Laundering and Terrorist Financing Act (Wet ter voorkoming van witwassen en financieren van terrorisme, "Wwft") applies: "the natural person who ultimately owns or controls a company or other legal entity". This primarily targets natural persons who ultimately own or control the institution by directly or indirectly holding more than 25% of the shares, voting rights or ownership interest in the institution.

The UBO reputation test is, in principle, conducted once and contains two elements: 1) fitness and 2) propriety. The assessment of a UBO's propriety is in line with the current propriety requirements as they apply to policymakers and co-policymakers. To assess fitness, in view of his or her reputation, the UBO must be sufficiently competent as a UBO. He or she must also be competent in the field of the intended activities of the institution concerned.

A request for a reputation test for a new UBO can be submitted by filling an application form, uploading the required data and submitting it via DNB's Digital Supervision Portal (Digitaal Loket Toezicht).

DNB - Amended suitability matrix: explanation of knowledge and experience of climate risks

DNB has announced that in 2021, climate and environment-related risks will be a standard part of the assessments of individuals at banks, insurers and pension funds. DNB expects candidates who are assessed this year to share their knowledge and experience on these topics. To this end, DNB has published an amended suitability matrix for pension funds. This document offers sufficient room to describe the knowledge and experience of candidates with climate and environment-related risks. If desired, the explanation may also be given in the document 'Decision-making and Considerations' (Besluitvorming en overwegingen). This is in addition to the joint policy with the Dutch Authority for the Financial Markets ("AFM") on suitability assessments (Beleidsregel geschiktheid). It is not yet known whether the AFM will follow DNB's example.

If you have any questions about fitness and propriety or reputation assessments or if you need any assistance in this area, please contact us.

ECB – Supervisory priorities for 2021

The European Central Bank ("ECB") published its supervisory priorities for 2021. The ECB will be focusing its upcoming supervisory efforts on four priority areas that have been materially affected by the current crisis:
  • credit risk management;
  • capital strength;
  • business model sustainability; and
  • governance.
The ECB will also carry out further supervisory activities related to other medium and longer-term structural risks to European banks, beyond the impact of the COVID-19 pandemic, in 2021. Supervisors will also focus on banks alignment with expectations set out in the ECB's Guide to climate-related and environmental risks, prudential risks emanating from money laundering, cyber and digitalisation risks and banks preparedness for the final stages of implementing Basel III. Depending on how the crisis develops, specific supervisory activities may be adjusted and tailored according to banks specific risk profiles.

Other financial regulatory publications

We have highlighted a selection of other publications by legislatures and regulators for the financial markets and financial supervision in February 2021:
  • The European Banking Authority ("EBA") launched a public consultation on the draft technical standards on supervisory disclosure under the Investment Firms Directive and a public consultation on draft technical standards to improve supervisory cooperation for investment firms.
  • The European Insurance and Occupational Pensions Authority ("EIOPA") published its 2021 Supervisory Convergence Plan and identified business model sustainability and adequate product design as two EU-wide strategic supervisory priorities.
  • The European Securities and Markets Authority ("ESMA") updated its Q&As on market structures issues under MiFID II and MiFIR and launched a consultation on guidelines on applying certain aspects of the appropriateness and execution-only requirements under MiFID II.
  • EBA, EIOPA and ESMA ("ESAs") delivered the Final Report to the European Commission ("Commission"), including the draft Regulatory Technical Standards, on the content, methodologies and presentation of disclosures under the EU Regulation on sustainability-related disclosures in the financial services sector. The ESAs also submitted the draft Regulatory Technical Standards to the Commission on amendments to the key information document for packaged retail and insurance-based investment products.
  • The Dutch Authority for the Financial Markets ("AFM") has issued a letter to investment firms clarifying which services are not covered by the definition of individual asset management.

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

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