Representative offices of banks established outside the Netherlands

There appears to be uncertainty in the market about the activities that may and may not be performed by a representative office of a bank that is established outside the Netherlands. The aim of this information pack is to provide information for representative offices of banks that are established outside the Netherlands. The statutory framework is first explained in broad outline, after which answers are given to FAQs about practical situations. For the sake of completeness, the relevant primary and secondary legislation to which reference is made in parts B and C is set out in part D.

Contact

This information pack deals in outline with the activities that may and may not be performed by a representative office. It follows that not all activities are dealt with below. If you have any questions about this information pack, please contact DNB by sending an e-mail to info@dnb.nl or by contacting DNB on telephone number 00 31 20 524 91 11 on weekdays between 9 a.m. and 5 p.m.

Legal Framework

A representative office as such does not come under the supervision of DNB because the supervision legislation does not impose requirements on access to the Dutch market by a representative office or on the activities carried out by a representative office in the Netherlands. However, as soon as a representative office undertakes activities that do come within the scope of the supervision legislation, DNB will check and, where necessary, enforce compliance with the Act within the scope of its powers as supervisory authority. This will be the case where a representative office in the Netherlands performs
activities reserved to a bank or branch of a bank. In this respect DNB applies the criterion that the public in the Netherlands should not wrongly be given the impression that the representative office is a licensed bank (or admitted branch of a licensed bank) in the Netherlands which is subject to supervision in the Netherlands. Confusion among the Dutch public about the status of a representative office must be avoided.

The Financial Supervision Act (Wet op het financieel toezicht/ Wft) are of relevance to representative offices. The relevant primary and secondary legislation is set out in part D of this information pack.

Financial supervision act(AFS or Wft)

In order to perform activities in the Netherlands that are reserved to a bank or branch of the bank, the organisation concerned is obliged by law either to have a licence to operate in the Netherlands or to arrange for notification in the Netherlands. Branches of banks established in another member state of the European Economic Area (EEA) are obliged to arrange for notification on the basis of sections 2:14 and 2:15 Wft.¹ The duty of branches of banks established in a country that is not an EEA member state to obtain a licence is laid down in section 2:20 Wft. As a representative office does not have a licence to operate in the Netherlands and has also not fulfilled the duty of notification in the Netherlands, it is prohibited from erforming reserved activities of this kind. See also the parliamentary history of sections 2:15 and 2:20 Wft.²

An example of an activity that is reserved to a licensed bank (or admitted branch of a licensed bank) in the Netherlands and may not therefore be performed by a representative office is inviting, receiving or having redeemable funds in the operation of a business outside a restricted circle from parties other than professional market parties in the Netherlands. This ‘prohibition on inviting funds’ is contained in section 3:5 (1) Wft. Other examples of activities that may not be performed without a licence or notification in the Netherlands are those carried out in the course of a profession or business as a middleman with a view to acquiring or receiving, outside a closed circle, redeemable funds from parties other than professional market parties (the ‘prohibition on broking’ of section 4:3 (1) Wft). Compliance with the latter prohibition is supervised by the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten / AFM).

Special mention should also be made of the prohibition on the use of the word ‘bank’ (or translations or forms of it) in their name or in the course of their business as referred to in section 3:7 (1) Wft. Under section 3:7 (4) Wft, application may be made to DNB for an exemption from the prohibition in subsection 1. Conditions or limitations may be attached by DNB to the granting of an exemption. The prohibition on the use of the word ‘bank’ does not apply to representative offices of banks established in another EEA member state which has obtained a banking licence from the supervisory authority of that other EEA member state. ³

In addition, various other prohibitions and duties to obtain licences are included in the Wft relating to activities in the banking field, the provision of investment services or the performance of investment activities or to activities in the insurance field which may be relevant to representative offices. DNB and AFM monitor compliance with these provisions in so far as they have such duties under the Wft. These include the provisions prohibiting working as a financial services provider or as investment firm.

Enforcement by DNB

If a representative office is found to be performing activities for which a licence or notification is required under the Wft or for which an entry in the Wgt register is prescribed, DNB may take enforcement measures. Examples include the issuing of a direction⁴ and the imposition of a cease and desist order⁵ or an administrative fine.⁶

¹These sections relate to a bank that has a licence to carry on its business in another member state where this licence has been granted by the supervisory authority in that other member state.
²See part D of this information pack for the relevant passages from the legislative history Wft.
³Under section 3:7 Financial Supervision Act.
⁴Under section 3:7 Financial Supervision Act.
⁵See section 1:79 Wft.
⁶See section 1:80 Wft.