Financial Markets Newsletter - January 2012 

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 The Netherlands – laws and regulations

Law and regulation changes as of 1 January 2012

Changes to the Financial Markets Supervision Act (FMSA)

The following legislation came into force on 1 January 2012:

• A number of sections of the Financial Markets Amendment Act 2012 (see below)
• Act and decree implementing Directive 2009/111/EC (CRD II), which amends Directives 2006/48/EC, 2006/49/EC and 2007/64/EC as regards banks affiliated to central institutions, certain own funds items, large exposures, supervisory framework arrangements and crisis management
• Act and Decree implementing the E-money Directive
• Amendment of the FMSA in connection with the introduction of notification requirements for certain cash-settled instruments. The Netherlands Authority for the Financial Markets (AFM) has published guidelines about the method of calculating underlying shares and notification of indices and baskets. The AFM has also published Guidelines for Shareholders, which explains the notification rules as amended and discusses the obligations of shareholders and the AFM's tasks, powers and enforcement tools.
• Decree implementing the Omnibus I Directive as regards the cooperation between the Dutch Central Bank (DNB) and the AFM on the one hand, and the European supervisors and European Systemic Risk Board on the other

Two bills amending the FMSA have been published in the Official Gazette but have yet to come into effect:

• Bill amending the FMSA, the BES Financial Markets Act BES and the Trust Offices Supervision Act in connection with the introduction of the suitability test, and closer cooperation between supervisors with regard to the suitability and integrity tests – this bill is expected to come into force on 1 July 2012
• Bill strengthening the governance of DNB and the AFM – this bill is expected to come into force at the end of January or early in February 2012

Other changes to financial markets legislation

Also in force as from 1 January are two Acts relating to the supervision of the financial markets on the islands of Bonaire, St Eustatius and Saba:

• BES Financial Markets Act
• BES Prevention of Money Laundering and Financing of Terrorism Act

The June 2011 issue of our Financial Markets Newsletter contains summaries of the above changes.

Changes to exemptions:

The entry into force of a number of sections of the Financial Markets Amendment Act 2010 has led to changes in the following exemptions:

• Licence requirements for investment objects, securities and participation rights: the threshold for exemption from the licence requirement for investment objects and participation rights in investment institutions and for exemption from the prospectus requirements for offering securities has been raised from EUR 50,000 to EUR 100,000 per investment object, participation right or security.
  Investment objects and participation rights in investment institutions offered after 1 January 2012 for less than EUR 100,000 will immediately be subject to supervision, but transitional provisions apply. In a letter to parliament the Minister of Finance has explained these provisions.
  The transitional provisions for offerors of investment objects relates to investment objects offered before 1 January 2012 under the EUR 50,000 exemption. The deadline by which these offers have to comply with all supervisory requirements is extended to 31 August 2012. Even so, they have to notify the AFM in January. A further regulation specifies the information they have to provide as part of this notification.
  Under the transitional provisions for offerors of participation rights in investment institutions, parties are exempted from the licence requirement until the implementation deadline for the European Directive on managers of alternative investment firms (22 July 2013). Here too, the exemption only applies if the offerors made use of the 50,000 exemption before 1 January 2012.
• Wild West sign: since 1 January 2012, there is a mandatory exemption notice for exempt offers of securities. The mandatory texts and symbols are set out in a further regulation. Offers to qualified investors do not have to include the exemption notice. Offerors of investment objects and participation rights in investment institutions wishing to use an exemption from the licence requirement or from continuous supervision are currently required to notify customers about their exemption. They, too, will now have to include the texts and symbols as prescribed by the AFM.
• Professional market parties. As a result of the Amending Decree Financial Markets 2012, the threshold for qualifying as a professional market party has been raised from EUR 50,000 to EUR 100,000.

 

 The Netherlands - other

Bill submitted on Bank Levy

In December 2011, the Minister of Finance submitted a Bill introducing a bank levy. In the explanatory notes to the Bill, the Minister explained that the bank levy should lead to a healthier financial system and better risk control at banks. The bank levy thus complements the proposed ex ante financing of the deposit guarantee system, and the tightening of banks' capital requirements.

The bank levy will be imposed on entities authorised to operate a banking business in the Netherlands. These include not only entities with a banking licence from the Dutch Central Bank, but also EU and EEA entities operating a banking business through a branch office in the Netherlands. The bank levy will be based either on the unconsolidated balance sheet total, or the unconsolidated balance sheet total attributable to the branch office, or the consolidated balance sheet total.

The government's intention is for the Bill to take effect mid 2012.

 

Proposed ban on bonuses extended to apply to state-aided groups

The Minister of Finance has published an amendment to the bill introducing a ban on bonuses at state-aided financial institutions. Under the bill, directors of these institutions may not receive variable remuneration and their fixed remuneration may not be changed while the institution is receiving state aid. Under the new amendment this ban also applies where the aid is provided to a group which itself cannot be qualified as a financial enterprise. It makes no difference whether the aid is provided to the group as a whole or to one or more specific parts of the group. If the group company heading the group has its seat abroad, the ban will be directed at the group company heading the Dutch activities of the group.

 

Ban on commissions for complex products

The Minister of Finance wants to ban commissions for complex and high-impact products from 1 January 2013. The Minister's aim is to put an end to all payment streams between the offeror of the product and the adviser or intermediary. The Minister emphasises that the ban will also apply to funeral insurance and private income insurance. The ban is expected to enter into force on 1 January 2013, with an exception made for contracts entered into before 1 January 2013.

 

AFM publishes budget and plans for 2012

The AFM has published its 2012 budget, which also highlights topics that the AFM wants to pay special attention to this year. They include:

• improving the quality of financial services
• improving the quality of wealth creation products and advice
• improving the quality of information on capital markets
• dealing with breaches of integrity in a fast and targeted manner

In addition, the budget contains a risk statement in which the AFM lists the market risks that it cannot adequately prevent or control due to a lack of statutory instruments. The AFM refers to the European debt and banking crisis, and states that its contribution to the resolution of the crisis is limited. The AFM also states that it has insufficient powers to detect fraud, and would like more scope to settle criminal market abuse cases. It also advocates publication of all fines agreed upon between the Public Prosecution Services and suspects as part of settlement.

 

AFM repeals guidelines

The AFM has repealed the following policy guidelines:

• Internet guideline
• Churning guideline
• Guidelines concerning two-member day-to-day management of investment firms
• Teak projects guideline
• Guidelines concerning reimbursement of copying costs

 

AFM publishes rules for key investor information

The simplified prospectus for investment institutions has been replaced by the key investor information. In that regard, the AFM has amended the Further Regulation on the Supervision of the Conduct of Financial Enterprises. As the rules for format and content of the key investor information arise directly from EU Regulation 583/2010, they do not have to be implemented. However, the rules for advertising texts in the Further Regulation have been amended as the risk indicator in advertising texts has to match the risk indicator in the key investor information. The AFM has also imposed further rules on the calculation of the risk of a UCIT. The amendments came into force on 4 December 2011.

 

AFM starts pilot on fast-track fines for acting as an intermediary without a licence

The pilot concerns cases involving violations of section 2:80.1 FMSA (acting as an intermediary without a licence) where the offender does not dispute the facts and legal assessment of the facts and cooperates with a fast-track processing of the case. The fine will be reduced and the AFM will report the offender's cooperation when publishing details of the fine. If the offender objects to the fine at a later stage and disputes the facts established during the fast-track procedure or the legal assessment of the facts, the offender will cease to meet the conditions of the fast-track procedure and may lose the right to a fine reduction.

 

Europe

Consultation on Directive regarding holdings in the financial sector (2007/44/EC)

The European Commission is holding a consultation on the application of this Directive in the various member states and on its effect on cross-border mergers and acquisitions in the financial sector. The Commission would like to receive feedback, among other things, about any problems in the notification procedure. The consultation period ends on 10 February.

The aim of the Directive, adopted in 2007, was to make the process of authorising a proposed acquisition or increase of a holding in a financial institution more transparent, faster and more consistent. The Directive requires that national supervisors confirm within 60 days whether a merger or acquisition is allowed. The Directive sets out five criteria for testing whether the merger or acquisition fits within the sound and prudent operation of the institution. Member states are not allowed to impose stricter criteria. The Netherlands implemented the Directive in 2011.

 

ESMA publications

Consultation on delegated acts concerning the Prospectus Directive

ESMA has held a consultation seeking comments on the technical advice it proposes to give to the European Commission on delegated acts concerning the amended Prospectus Directive. ESMA's proposed advice addresses:

• Rules for retail cascades, whereby financial intermediaries sell securities to small investors after the initial issue
• Revision of a number of provisions in the Prospectus Regulation, including:
  • the information to be included on taxes on income from securities withheld at source
  • the information to be provided when the underlying value is an index
  • the report independent accountants prepare on a profit forecast or estimate
  • the audited historical financial information to be included

In September 2011, ESMA published its first advice on delegated acts. That advice covered:

• the format of the final terms of the offer in the base prospectus, the format of the summary of the prospectus, and the detailed content and specific form of the key information to be included in the summary
• ways of preventing the same information from being provided repeatedly when a prospectus consists of separate documents

The implementation deadline for the Prospectus Directive is 1 July. Delegated regulation will enter into force on the same date.

Questions and Answers regarding Market Abuse Directive

To promote consistent implementation of the Market Abuse Directive, ESMA will publish and regularly update Questions and Answers. The first question answered by ESMA concerns disclosure of inside- information relating to dividend payments.

ESMA programme and priorities

ESMA has published its 2012 work programme. Its key priorities are:

• finalisation and implementation of new legislation, including the Directive on Short Selling, the MiFIR and AIFMD, as well as the revision of existing rules
• supervision of credit-rating agencies
• ESMA's coordination of responses to, and measures arising from, the situation in the European financial markets
• cooperation with third country regulators

Other ESMA publications

• Guidelines on certain aspects of the MiFID compliance function requirements (consultation)
  ESMA has drawn up draft guidelines aimed at assisting investment firms in implementing an effective and independent compliance function. ESMA mentions a number of subjects to be covered in the annual compliance report and addresses training of compliance officers. The consultation ends on 24 February.
• Guidelines on certain aspects of the MiFID suitability requirements (consultation)
  When providing investment advice or portfolio management, investment firms are required to gather information about the client's or potential client's investment knowledge and experience. This should enable the investment firm to offer the most suitable investment services and financial instruments to the client. ESMA is consulting market parties about draft guidelines aimed at helping investment firms to understand the information they have to obtain from their clients, and the characteristics of the financial instruments that they recommend. The consultation runs until 24 February.
• Waivers from pre-trade transparency
  The MiFID's implementing regulation lists a number of situations in which competent authorities can waive pre-trade transparency requirements. ESMA's updated opinion is aimed at providing national supervisors with guidelines for the assessment of waiver requests.
• Annual report on application of the Regulation on credit rating agencies (report)
  ESMA has to report annually on the application of the CRA Regulation. This first report sets out the number of registered rating agencies and describes the registration procedure. ESMA also announces in the report that it will make a databank available on its website containing information on registered rating agencies.
• Regulatory Technical Standards on the presentation of the information that credit rating agencies shall disclose. This report deals with the information to be provided by rating agencies about past performance data, ratings given in the past and changes to those ratings. The information is published in ESMA's central databank. See also the Draft Regulatory Technical Standards on the content and format of ratings data periodic reporting to be requested from credit ratings agencies for the purpose of ongoing supervision by ESMA.

 

European Banking Authority publications

• Work Programme for 2012
• Recommendation on the creation and supervisory oversight of temporary capital buffers to restore market confidence
• Recommendation and final results of bank recapitalisation plan as part of coordinated measures to restore confidence in the banking sector
• Draft Implementing Technical Standards (ITS) on supervisory reporting requirements for institutions. The consultation runs until 20 March.
• Guidelines on AMA extensions and changes

 

Basel Committee on Banking Supervision publications

• Basel III definition of capital (update of FAQ's published in October 2011)
• High cost credit protection (statement)
• Principles for the supervision of financial conglomerates (consultation)
• Core principles for effective banking supervision (consultation)
• Definition of capital disclosure requirements (consultation)

 

International publications

Journal of International Banking Law and Regulation Regulatory Challenges with Respect to High- Frequency- Trading / Brian Goldsmith – J.I.B.L.R 2012, volume 27, Issue I, p. 19 e.v. Credit Rating Agencies – Too Big to Fall? Corinna Coors – J.I.B.L.R. 2012, volume 27, Issue I, p. 27 e.v. Letters of Credit in Syndicated Credit Facilities / George A. Hisert – J.I.B.L.R. 2012, volume 27, Issue I, p. 33 e.v.