News Update Financial Regulatory

A formal declaration of no objection is needed to hold a stake in a range of financial institutions. Especially for investment firms and UCITS managers, the Dutch Central Bank (De Nederlandsche Bank, DNB) observes that many entities hold qualifying holdings without an appropriate declaration of no objection. DNB reminds (only in Dutch) both such stakeholders and the investment firms and UCITS managers involved of this obligation. In doing so, DNB also points out that investment firms and UCITS managers have a reporting obligation in the context of qualifying holdings.

In this Special News Update, we take a closer look at these obligations and DNB's coverage of them.

Qualifying holding | declaration of no objection

Under Section 3:95 of the Financial Supervision Act (Wet op het financieel toezicht, FSA), it is prohibited to acquire or increase a qualifying holding in (amongst others) an investment firm or UCITS manager without a declaration of no objection (DNO) from DNB. A qualifying holding is deemed to exist when the (indirect) shareholding is at least 10 per cent or when the stakeholder has a similar level of control through different means. Violation of this FSA provision is also an economic offence within the meaning of the Economic Offences Act (Wet op de economische delicten), and if done deliberately, a crime.

Recently, it has apparently become increasingly common for a party (legal entity or natural person) to have a qualifying holding in an investment firm or in a UCITS manager without having obtained the necessary declaration of the supervisor for this purpose. Though the Dutch Authority for the Financial Markets (AFM) is the licensing supervisor for investment firms and UCITS managers and is front and centre for the firms and their shareholders, DNB has the power to grant (or not grant or revoke, or attach conditions) DNO's also for these firms. DNB has indicated that, where there is a qualifying holding without an appropriate DNO, it will enforce this statutory provision.

DNB calls on all (indirect) shareholders of investment firms and UCITS managers to check whether a DNO is present for each and every (indirect) shareholding, whether the DNO for the appropriate bandwidth has been obtained and, if this turns out not to be the case, to report this immediately.

Disclosure obligation regarding holders of qualifying holdings

In addition, pursuant to Section 3:103(3) FSA, investment firms and UCITS managers have the obligation to report to DNB annually in the month of July the holders of qualifying holdings to the extent known. Under Section 3:103(2) FSA, investment firms and managers of UCITS also have the obligation under circumstances to report to DNB when a holder of a qualifying holding increases or reduces its holding.

Consequences of non-compliance with obligations

In case of non-compliance with these obligations, DNB may proceed to enforcement, through the imposition of enforcement measures, such as a cease-and-desist order or an administrative fine, or requesting the annulment of corporate decisions that depend on the vote of the relevant stakeholder. Such enforcement is expected by us to be in line with its enforcement policy, in the sense that it will escalate if e.g. the offender does not take the obligation seriously, is non-responsive, or offends deliberately with malicious intent. Moreover, it is good to consider whether the breach may constitute an incident (a conduct or event that seriously jeopardises the integrity of the business; there is also a legal obligation for licensed entities to report incidents to the regulator). Apart from this, it is important to be FSA compliant, especially when expanding interests in the Dutch financial sector.

Subsequent changes in policymakers at DNO-holders

As mentioned in our November 2020 News Update, at the time DNB already observed that some day-to-day policymakers of DNO-holders (and members of a supervisory body of a so-called financial holding company) were not notified for an assessment by DNB. A timely submission of new policymakers at approved shareholders may not always get the necessary attention, especially in large international groups with a smaller Dutch licensed subsidiary. It should.

AIFMD

For qualifying holdings in AIFMD managers there is no DNO obligation. However, boardmembers of e.g. majority shareholders can also qualify as 'co-policymakers' and may thus fall under the purview of an assessment by AFM when they are appointed.

Questions?

If you have any financial regulatory questions, please do not hesitate to contact Berry van Wijk, Roel Theissen and Lisanne Haarman. For questions related to investment management, you can also contact our colleagues Oscar van Angeren and Marthe Bollen.