Financial Regulatory | Corona News Update

19 March 2020

The coronavirus (COVID-19) is causing great concern around the world and having a major impact on businesses. The Netherlands is in a semi-lockdown state. These extraordinary circumstances may have severe consequences for financial institutions and their ability to provide services.

The Houthoff Financial Regulatory Team is closely monitoring developments within the financial markets and the financial regulatory sphere. In this News Update, we will provide you with an update on the most important financial regulatory developments in the Netherlands.

Consultation between De Nederlandsche Bank, the financial sector and the Dutch Ministry of Finance

De Nederlandsche Bank (the Dutch Central Bank) ("DNB"), met with representatives of the financial sector and the Dutch Ministry of Finance on 17 March 2020 to discuss the consequences of the coronavirus outbreak. The goal of the meeting was to assess the impact of the coronavirus on the financial sector and discuss the latest developments. Further consultations about the coronavirus between DNB, banks, insurers and pension funds will be held regularly.

DNB lowers buffer requirements

In light of current developments, DNB announced on 17 March 2020 that it is taking the following measures:

• The systemic buffers will be lowered, from the current 3% of global risk-weighted exposures to 2.5% for ING, 2% for Rabobank and 1.5% for ABN AMRO.
• The introduction of a floor for mortgage loan risk weighting will be postponed.

These measures will remain in force as long as necessary.

DNB – business continuity plans ("BCPs")

Business continuity plans and preparations that normally suffice to deal with brief isolated events may prove insufficient if the pandemic continues. DNB expects financial institutions to have recognised this risk, analysed its impact and – where necessary – to have taken additional measures. DNB specifically expects that supervised entities address the following subjects with regards to business continuity management:

1. Proactive monitoring: Financial institutions should proactively monitor the developments and consequences of a possible pandemic. DNB recommends installing a multidisciplinary team comprising representatives from IT, HR, business and business-continuity planning.
2. Identifying consequences: Financial institutions should identify and analyse both the impact of a global pandemic on their institution and possible countermeasures via an explicit impact analysis.
3. Assessing current BCPs: Financial institutions should assess if their BCPs are adequate. This assessment should take the possible operational consequences of a pandemic (including an absence of 30% or more staff) into account.
4. Test strategy: The test strategy of BCPs should explicitly include a pandemic scenario.
5. Changing behaviour: Institutions should take changing behaviour and preferences of both staff and customers into account.
6. Verifying continuity of service by external service providers: If institutions use external service providers, they are expected to verify if these providers have taken adequate measures and are sufficiently prepared for a pandemic. Institutions must have clear insight into their dependency on third parties.

ECB measures

The European Central Bank ("ECB") has taken – and continues to take – measures to ensure that its directly supervised banks can continue to fulfil their role in funding the real economy as the economic effects of the coronavirus become apparent. These measures include temporary authorisation to operate below capital and liquidity requirements.

EBA announcement

The European Banking Authority ("EBA") has announced the following measures to mitigate the impact of the coronavirus on the European banking sector as much as possible:

• EU-wide stress test postponed to 2021 to allow banks to prioritise operational continuity;
• Competent authorities should make full use, where appropriate, of flexibility embedded in existing regulation.

ESMA recommendations for financial market participants

The European Securities and Markets Authority ("ESMA"), together with the National Competent Authorities ("NCAs"), is closely monitoring the continuing impact of the coronavirus outbreak on EU financial markets. ESMA has the following recommendations for financial market participants:

• Business Continuity Planning: All financial market participants, including those responsible for infrastructure, should be ready to apply their contingency plans, including deploying business continuity measures, to ensure operational continuity in line with regulatory obligations;
• Market disclosure: Issuers should disclose any relevant significant information concerning the impacts of coronavirus on their fundamentals, prospects or financial situation as soon as possible in accordance with their transparency obligations under the Market Abuse Regulation;
• Financial Reporting: Issuers should provide transparency on the actual and potential impacts of coronavirus to the extent possible based on both a qualitative and quantitative assessment of their business activities, financial situation and economic performance in their 2019 year-end financial report if these have not yet been finalised or otherwise in their interim financial reporting disclosures; and
• Fund Management: Asset managers should continue to apply the requirements on risk management, and react accordingly.

ESMA has lowered reporting threshold for net short positions

ESMA issued a decision to lower the reporting threshold for any holder of a net short position from 0.2% to 0.1% for the duration of three months. Holders of net short positions are now required to notify the relevant national competent authority if the position reaches or exceeds 0.1%.

Dutch Association of Insurers is answering coronavirus-related insurance questions

The Dutch Association of Insurers, in cooperation with the Dutch Association for Financial Advisers "Adfiz", is maintaining an up-to-date website where frequently asked insurance-related questions surrounding the coronavirus outbreak are answered.

EIOPA releases statement

The European Insurance and Occupational Pensions Authority ("EIOPA") has released a statement on actions to mitigate the impact of coronavirus on the EU insurance sector:

• Solvency and capital positions: Recent stress tests have shown that the sector is well capitalised and able to withhold severe but plausible shocks to the system. EIOPA and the national competent authorities ("NCAs") stand ready to implement these tools, if and when necessary, in a coordinated manner, to ensure that policyholders remain protected and financial stability is safeguarded. The Solvency II framework includes a ladder of supervisory intervention that allows for flexibility in extreme situations, including measures to extend the recovery period of affected insurers. Nevertheless, insurance companies should take measures to preserve their capital position in balance with protecting the insured, following prudent dividend and other distribution policies, including variable remuneration.
• Business continuity: Insurers should be ready to implement the necessary measures to ensure business continuity, so that they are able to maintain services to their clients. In order to offer operational relief in reaction to coronavirus, NCAs should be flexible about the timing of supervisory reporting and public disclosure regarding year-end 2019. EIOPA will coordinate the specifics of the approach. Furthermore, EIOPA:
  
  1. will limit its requests for information and the consultations to the industry to essential elements needed to assess and monitor the impact of the current situation in the market; and
  2. is extending the deadline for the Holistic Impact Assessment for the 2020 Solvency II Review by two months, to 1 June 2020.