financial services

News Update Financial Regulatory

Recent developments in financial supervision
07 July 2020
7 July 2020

The Houthoff Financial Regulatory team closely monitors the developments on the financial markets and within financial supervision. Since we published our last News Update, legislatures and the regulators for the financial markets and financial supervision have issued a number of measures, reports and news alerts. We have selected some discussion and position papers, a report and a method issued by European and national authorities and take a closer look at these below.

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EBA - Discussion paper on further enhancing supervisory powers of competent authorities

On 26 June 2020, the European Banking Authority ("EBA") published a discussion paper exploring ways to enhance the Bank Recovery and Resolution Directive ("BRRD") framework on early intervention measures. This seeks to further enhance the crisis management tools available for competent authorities in addition to the supervisory powers laid down in the Capital Requirements Directive ("CRD") and in the Single Supervisory Mechanism Regulation ("SSMR").

The BRRD introduced early intervention measures ("EIMs") to expand the existing set of powers available to supervisors towards institutions in difficulties. The EBA observed a limited use of EIMs across the European Union in 2015–2018 and that competent authorities prefer to apply other pre-BRRD supervisory powers available to them.

While recognising that EIMs could be successfully implemented under the existing regulatory framework, the EBA identified some challenges in applying them, and is now opening the discussion on potential solutions to enhance the framework. Comments on the consultation can be submitted until 25 September 2020.

This may subsequently impact on the viability of banks' crisis recovery planning (as well as insurers in the Netherlands). The main issues are likely to be:
  • the formality of the process surrounding the measures;
  • the – perhaps desirable – range of other available instruments that supervisors are free to choose from (without the need to sequence); and
  • the responsibility of the supervisors vis-à-vis the decisions that should be taken by the board of the supervised entity, e.g. mandating specific changes in business models.

European Commission and AFM – Review of application and scope of AIFMD

On 10 June 2020, the European Commission ("Commission") reported to the European Parliament and the Council on the assessment of the application and the scope of the Alternative Investment Fund Managers Directive ("AIFMD"). The AIFMD entered into force on 22 July 2013. It introduced harmonised rules for management companies of alternative investment funds ("AIFs") in Europe and a passport system.

Article 69 of the AIFMD requires the Commission to review the application and the scope of the AIFMD with an emphasis on the experience acquired in applying the directive. The Commission notes that the AIFMD played an important role in creating an internal market for AIFs and reinforcing the regulatory and supervisory framework for AIFMs in the EU. AIFMs are now operating with greater transparency for investors and supervisors. The report then focuses on four aspects:
  • Impact on AIFs and AIFMs
  • Impact on investors
  • Impact on monitoring and assessing systemic risk
  • Impact of rules on investments in private companies and/or for the benefit of developing countries

A consultation on these issues is expected to begin in September 2020 and third country issues will no doubt be impacted by the status of ongoing Brexit discussions.

Following the Commission's report, the Dutch Authority for the Financial Markets ("AFM") published its position paper ‘Views on the review of the Alternative Investment Fund Directive (AIFMD)’ on 17 June 2020. This recommends revising the AIFMD. The main recommendations are:
  • Introducing a properly functioning third-country passport. For an efficiently functioning and transparent European asset management market, it is essential that non-EU management companies can offer their services in Europe. The AFM proposes a phased approach, in which the various National Private Placement Regimes ("NPPR") of Member States would continue until the third-country passport has proved to be a viable option in practice.
  • An independent third party collecting AIFMD data with national supervisory authorities having access to this central data source. According to the AFM, this will contribute to the timely availability of data and will increase data quality.
If you have questions about this topic, you can contact Daan Horsthuis (+31 20 605 6996).

DNB – Method for viewing and copying of digital data

On 23 June 2020, a new method for viewing and copying digital data from De Nederlandsche Bank, the Dutch Central Bank ("DNB") began. The method is outlined in a document ("Digitale werkwijze") which explains how DNB's supervisors will proceed when exercising the powers to demand inspection of business information and documents, make copies and require information, as far as the provision of digital information is required. The Digitale werkwijze describes the procedure for eDiscovery from the moment the digital data, which according to its nature and/or content may reasonably fall within the purpose and subject matter of the examination in question, has been selected by the supervisors.

A relatively large amount of documents are collected during eDiscovery. This may include documents which are subject to legal privilege and so cannot be viewed by the supervisor. Therefore DNB has appointed a legal privilege officer ("Functionaris Verschoningsrecht") who, at the institution's request, will check whether the documents collected include privileged documents and have them removed from the examination material.

Please note that it is generally better to maintain control of the screening process, both during a dawn raid and in discussions with the DNB or AFM legal privilege officer if privileged information has inadvertently been disclosed.

DNB's Digitale werkwijze corresponds to that of the AFM.
If you have questions about this topic, you can contact Jan Pieter Uittenbroek (+31 10 217 2527).
Written by:
Berry van Wijk

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Roel Theissen

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