News Update Financial Regulatory
6 November 2023
In this News Update we discuss some noteworthy proposals in the Financial Markets Amendment Act 2024, and EIOPA's Opinion on the supervision of captives of insurers and reinsurers.
We further highlight some other financial regulatory publications issued since our last News Update.
Financial Markets Amendment Act 2024
In early September 2023 the Minister of Finance filed the draft bill to amend various financial markets acts (the Bill) (Wijzigingswet financiële markten 2024) (in Dutch only). Although the majority of the proposed amendments are of a technical nature, the Bill also contains a couple of noteworthy proposals:
- Currently, a financial institution that receives state aid is prohibited from providing variable remuneration to certain persons working under its responsibility. The Bill proposes expanding the prohibition to include all other supranational public financial support which, if provided at national level, would qualify as state aid. Examples of this supranational support include support by the European Single Resolution Fund or the European Stability Mechanism;
- A requirement to obtain a prior declaration of no objection for Dutch-based insurers who consider listing their shares or other participation rights with rights of control. According to the explanatory memorandum this also includes non-voting rights;
- A requirement for Dutch-based insurers and risk-acceptance entities to conduct an investment policy in accordance with the prudent person principle;
- A clarification that a benefit-dependent fine can also be imposed if the turnover-dependent fine ceiling applies;
- An amendment of the definition of provision of trust services to clarify that the scope of the definition is not delimited by the nature of the agreement for the provision of these services but by the fact that the services are provided for an entity on behalf of a client and, as mentioned in the explanatory memorandum, that this occurs outside the own group;
- A prompt notification requirement to replace the obligation for a trust office to obtain prior approval from De Nederlandsche Bank (DNB) for a change in the formal and de facto control structure of the group to which the trust office belongs;
- The combination of the provision of trust services and tax advice by the same trust office was already prohibited for trust offices with registered offices in the Netherlands. The Bill proposes imposing an obligation to include any tax advice in the service file, with a statement saying whether the advice was given by the trust office or a person or company belonging to the same group.
EIOPA's Opinion on the supervision of captives of insurers and reinsurers
The European Insurance and Occupational Pensions Authority (EIOPA) has launched a public consultation on its Opinion regarding the supervision of captive insurance and reinsurance undertakings. Captives are wholly-owned subsidiaries created to provide insurance to their parent companies. This Opinion covers two topics: (1) Cash pooling arrangements, and (2) Administrative, Management or Supervisory Body (AMSB) composition and the outsourcing of key functions.
Cash poolingEIOPA describes cash pooling as an intra-group arrangement, with the intention of sharing liquidity among entities of this group with the purpose of achieving an efficient cash management. The arrangement usually involves a treasury management company or an in-house/external entity or bank that manages the cash pooling. The disadvantages of cash pooling, according to EIOPA, include receiving a non-arm's length interest rate and running concentration, default and liquidity risks. The Opinion contains guidance on matters such as (i) the calculation and treatment of the Solvency Capital Requirement (SCR), including a simple decision tree to assess the SCR treatment; (ii) the assessment of all risks and benefits from intra-group transactions, and (iii) aspects to be considered in order to comply with the prudent person principle.
AMSB composition and outsourcing of key functionsOn the composition of the AMSB, EIOPA is rather short: the AMSB as a whole must have the necessary seniority, qualifications, competency, skills and professional experience, with no exception for captives. As regards requirements for the outsourcing of key functions, EIOPA goes into more detail. The captive must designate a person within the captive who has overall responsibility for the outsourced function. That person must be fit and proper and must have sufficient knowledge and experience in respect of the outsourced function. The designated person must be either (i) employed by the captive; (ii) a person under supervision having a link to the captive via its membership of a dedicated and specifically set up committee that only deals with the matters of that captive; or (iii) an employee of a company in the same group as the captive with a properly documented role in the outsourcing process and the fitness and propriety process. The outsourcing arrangements must contain adequate safeguards to mitigate any conflicts of interest or operational risks as a result of the outsourcing. Where multiple services are provided by the same service provider or captive manager, the segregation of duties must be clearly agreed and documented. The captive must also ensure that initial and ongoing due diligence on the service provider is embedded in strong processes and procedures, to be made available to the National Competent Authority the upon request.
Other financial regulatory publicationsWe have highlighted a selection of other publications by legislatures and regulators for the financial markets and financial supervision since our October 2023 News Update.
- On 3 October 2023 the Dutch Authority for the Financial Markets (AFM) alerted investment firms to the entry into force of ESMA's updated Guidelines on MiFID II product governance requirements;
- On 4 October 2023 the AFM published its Guidelines on Sustainability Claims both in English and Dutch. The Guidelines are addressed to financial institutions and pension providers;
- In late September 2023 the AFM imposed an order subject to a penalty (last onder dwangsom) (in Dutch only) on Vast & Verzeker, a financial services provider, for not providing the information requested on its professional indemnity insurance, employee qualifications and remuneration policy;
- In its 24 October 2023 news item on the Markets in Crypto-Assets Regulation (MiCA) (in Dutch only), the AFM called upon crypto service providers that are considering applying for a licence to notify the AFM accordingly.
- On 30 October 2023 DNB published a summary (in Dutch only) of a sector-wide analysis on information security among Dutch insurers. DNB concludes that the quality of operational cyber resilience with insurers, although improving, is still insufficient;
- In its 31 October 2023 news item (in Dutch only) DNB encouraged financial institutions to start their preparation for the implementation of the Digital Operational Resilience Act, which will apply with effect from 17 January 2025;
- On 16 October 2023 DNB published a draft Q&A (in Dutch only) on the requirement for payment institutions and electronic money institutions to install a Supervisory Board. The consultation period ends on 27 November 2023;
- In its 10 October 2023 news item (in Dutch only) DNB pointed out that bureaus supporting industry associations, quality mark foundations or charitable funds might be providing services that fall within the scope of the Act on the Supervision of Trust Offices (Wet toezicht trustkantoren 2018);
- DNB's new approach to anti-money laundering was launched on 17 October 2023 with the publication of its consultation on Q&As and Good Practices on the Act on the Prevention of Money Laundering and Terrorism Financing (Wet ter voorkoming van witwassen en financieren van terrorisme (Wwft). The consultation period ends on 30 November 2023. These Q&As and Good Practices will replace the current guidance, the Leidraad Wwft en Sanctiewetgeving. As the new document will only cover the Wwft, the new guidance on sanctions legislation will be published in a separate document.
- The European Central Bank (ECB) published a report on Sound practices in counterparty credit risk governance and management.
- The European Supervisory Authorities (ESAs) and the National Competent Authorities are to launch a common supervisory action (CSA) on MiFID II sustainability requirements in 2024;
- The ESAs published their Joint criteria on the independence of supervisory authorities.
- On 20 October 2023 the European Banking Authority (EBA) published two draft Regulatory Technical Standards (RTS) under MiCA for consultation. The first RTS covers the approval process for white papers for asset-referenced tokens (ARTs) issued by credit institutions. The second RTS contains the minimum content of the governance arrangements on the remuneration policy under MiCA. Both consultation periods end on 22 January 2024;
- The EBA is also engaged in consultation on its draft Guidelines on internal governance arrangements for issuers of ARTs under MiCA. This consultation period also ends on 22 January 2024;
- The EBA and the European Securities and Markets Authority (ESMA) started a consultation on two draft Joint Guidelines under MiCA. The first Joint Guideline relates to the suitability assessment of members of the management body of issuers of ARTs and of crypto-asset service providers (CASPs). The second Joint Guideline covers the suitability assessment of shareholders or members, whether direct or indirect, with qualifying holdings in issuers of ARTs or CASPs. The consultation period ends on 22 January 2024.
- In early October 2023, ESMA announced a common supervisory action on MiFID II sustainability requirements;
- On 5 October 2023 ESMA published its second set of consultation documents on MiCA. The consultation relates to sustainability indicators for distributed ledgers, disclosures of inside information, technical requirements for white papers, trade transparency measures and record-keeping and business continuity requirements for crypto-asset service providers. The consultation period ends on 14 December 2023. ESMA envisages publishing a final report no later than 30 June 2024;
- ESMA's Securities and Markets Stakeholder Group published its advice on ESMA's first consultation paper on MiCA;
- In its 17 October 2023 letter to the Economic and Financial Affairs Council, ESMA asked Member States to swiftly designate the competent authority for MiCA and to consider reducing the grandfathering period, a Member State option, to 12 months.
- In a statement published on 17 October 2023 ESMA clarified the timeline for MiCA and encouraged market participants to start preparing for the transition and to make clients aware of their 'grandfathered' crypto-assets offerings.
Ministry of Finance
- The Act on Implementation of the Sixth Directive on Insurance Against Civil Liability in Respect of the Use of Motor Vehicles (Implementatiewet zesde richtlijn motorrijtuigenverzekering) was published (in Dutch only). The entry into force date will be published by separate Decree;
- The amendment to the Recovery and Resolution Insurers Act (Wijzigingswet herstel en afwikkeling van verzekeraars) was published on 25 September 2023 (in Dutch only). The entry into force date will be published by separate Decree;
- The annual amendment of the temporary regulation on mortgage credit (the Regulation) (Wijzigingsregeling hypothecair krediet 2024) was published on 25 October 2023 (in Dutch only). The Regulation will apply with effect from 1 January 2024.
- On 17 October 2023 the Basel Committee launched a consultation on the disclosure of banks' crypto-asset exposures. The consultation period ends on 31 January 2024.