News Update Financial Regulatory
Screening of board members at shareholders of financial institutions and other developments
3 november 2020
3 November 2020
In this News Update, we examine the fit and proper testing of certain management and supervisory board members, we update you on the draft bill which would ban non-EEA insurers from providing services in the Netherlands and we take a look at the ethical framework for data-driven decision making by insurers. Finally, we highlight some other important financial regulatory publications.If you wish to stay informed, you can subscribe to the News Update Financial Regulatory.
Fit and proper testing of management and supervisory board members of holding companies holding a participation in an investment firmIn the October 2020 newsletter for asset managers (Nieuwsbrief Vermogensbeheerders), DNB states that it has observed that some day-to-day policymakers and members of a supervisory body of a financial holding company are not currently notified for an assessment by DNB.
Day-to-day policymakers and supervisory board members of financial holdings must meet the requirements of fitness and propriety. Day-to-day policymakers of a qualifying holding in an investment firm must meet the requirement of propriety or reputation. Anyone involved in daily policymaking or co-policy making, including at a minimum an institution’s management board members, qualifies as a day-to-day policymaker. All these persons, who are appointed e.g. after the Declaration of No Objection ("DNO") has been obtained, must be submitted for a DNB assessment, before obtaining the associated influence in the Dutch licensed entity.
DNB must make an initial fit and proper assessment when there is a proposed appointment or if incumbent management or supervisory board members change their position or remit within the same institution. In the case of applications for new authorisations or declarations of no-objection, policymakers and co-policymakers are also assessed on fitness and/or propriety or reputation. Candidates can only start in their new positions at the licensed entity or its parent company after receiving a positive decision on their fitness and/or propriety from DNB, regardless of whether these parent companies are based in the Netherlands or abroad.
We are aware that a timely submission of new (co-)policymakers at approved shareholders may not always get the necessary attention, especially in large international groups with a smaller Dutch licensed subsidiary. DNB is mainly highlighting holders of a DNO in investment firms. But this problem may also apply to co-policymakers who qualify as such because they are board members at the top holding company that owns an AFM licensed entity.
If you have questions about fit and proper testing or if you need assistance with a check up on your compliance with this obligation, feel free to contact us, or our colleagues Oscar van Angeren and Daan Horsthuis.
Update on proposed ban on non-EEA insurers providing services in the NetherlandsIn our Special News Update of 4 June 2020, we reported on a public consultation by the Dutch Ministry of Finance on a draft bill which would ban life insurers and non-life insurers from outside the European Economic Area ("EEA") from providing services in the Netherlands. This would include current insurers from outside the EEA and insurers from the UK post-Brexit. The draft bill, together with the explanatory memorandum (memorie van toelichting), was sent to the House of Representatives (Tweede Kamer) on 9 October 2020.
Compared to the consultation version of the draft bill, the transitional provisions have been completed and clarified. The draft bill currently regulates a situation where an insurer sets up a legal entity or branch in the Netherlands. It also regulates insurers who wish to continue to offer reinsurance by exclusively providing services to the Netherlands. The deadline for submitting a plan to the Dutch Central Bank (De Nederlandsche Bank, "DNB") to cease providing services to the Netherlands has been extended from three to six months. The bill specifies that insurers who have not applied for a licence may not take out any new insurance in this situation.
Non-EEA life or non-life insurance companies wishing to set up an insurer or branch in the Netherlands to continue their insurance business must submit a full application for authorisation within six months of the draft bill entering into force. The insurer may continue to pursue the insurance business while the application procedure is ongoing.
Any insurer who does not wish to apply for authorisation has a settlement period of two years. DNB may extend the settlement period by up to one year when reasonably necessary to safeguard the interests of Dutch policyholders.
If you have any questions about the draft bill, or if you need assistance with the follow-up, please do not hesitate to contact us.
Ethical framework for data-driven decision-making by insurersThe Association of Insurers (Verbond van Verzekeraars) has developed an ethical framework for data-driven decision-making, which applies as self-regulation to all of its members (insurers) as from 1 January 2021. The framework forms a supra-statutory starting point for using modern techniques. If a particular technique is legal, but contravenes these principles, insurers will not use it. The framework is based on the recommendations of the High-Level Expert Group on Artificial Intelligence (an advisory body to the European Commission). These recommendations require AI systems to comply with seven requirements in order to be considered ethical and trustworthy: human agency and oversight; technical robustness and safety; privacy and data governance; transparency; diversity, non-discrimination and fairness; societal and environmental well-being; and accountability.
The explanation of the ethical framework provides a manual on how the process can be set up and offers the insurer scope for interpretation. Two recommendations are given. The first is to internally appoint a person (e.g. the compliance officer or a director) who will be responsible for implementing the framework. The second is to organise an internal kick-off, in which the framework is discussed with important internal stakeholders. The kick-off should clarify the scope of the ethical framework, the baseline measurement and the plan of action.
If you have any questions about the ethical framework or its implementation, or if you need assistance with it, please do not hesitate to contact us.
Other financial regulatory publicationsWe have highlighted a selection of other publications by legislatures and regulators for the financial markets and financial supervision in October 2020:
- The European Central Bank published its supervisory banking statistics for the second quarter of 2020.
- The European Banking Authority published a set of guidelines on the appropriate subsets of sectoral exposures to which a competent or designated authority may apply a systemic risk buffer. It also published its final draft Regulatory Technical Standards specifying the prudential treatment of software assets and launched a public consultation to propose revising the Guidelines on major incident reporting under the Payment Service Directive (PSD2).
- The European Insurance and Occupational Pensions Authority finalised its guidelines on Information and Communication Technology Security and Governance. It also published its third annual European Insurance Overview and called on the insurance sector to complete preparations for the end of the UK transition period.
- The European Securities and Markets Authority updated its statements on Brexit's impact on MiFID II/MiFIR and the Benchmark Regulation. It also responded to the European Commission's consultation on establishing the EU green bond standard.
- The European Systemic Risk Board published its EU Non-bank Financial Intermediation Risk Monitor 2020.
- The Dutch Authority for the Financial Markets published an updated version (only in Dutch) of its guidance on the Prevention of Money Laundering and Terrorist Financing Act (Wet ter voorkoming van witwassen en financiering van terrorisme) and the Sanctions Act (Sanctiewet).
- DNB launched a consultation on the modification of the Regeling beheerst beloningsbeleid 2017 (Regulation on Controlled Remuneration Policy 2017).