Prudential assessment conducted within the context of granting investment firms authorisation
Published: 01 January 2007
DNB assesses applications for authorisation as an investment firm within the meaning of Section 2:99 of the Financial Supervision Act (Wet op het financieel toezicht – Wft) in terms of adherence to prudential standards.
The Netherlands Authority for the Financial Markets (AFM) is the authorising body. As part of the application process, the AFM requests DNB for advice on the applicant's adherence to prudential standards, pursuant to Section 1:48(2) of the Wft. DNB's advice forms part of the AFM's decision on the application for authorisation. Its assessment covers the following aspects.
Minimum own funds
Under Section 3:53(1) of the Wft, an investment firm with registered office in the Netherlands providing investment services in the Netherlands must hold a minimum amount in own funds. Based on a balance sheet of the investment firm, certified by an external auditor, DNB considers whether the firm meets the minimum own funds requirement laid down in Section 48(1)(f)-(j) of the Decree on Prudential Rules for Financial Undertakings (Besluit prudentiële regels Wft - Bpr). The certified balance sheet submitted by the firm may not date back more than 6 months.
In addition, DNB assesses whether the firm will be able to continue meeting the minimum own funds requirement, based on the firm's business plan and three-year forecast. The amount in own funds that is required as a minimum is based on the activities that the firm undertakes or plans to undertake. More detailed information about the minimum own funds requirement (Dutch only) can be found on this web page.
Under Section 3:57(1) of the Wft, an investment firm with registered office in the Netherlands providing investment services in the Netherlands must have sufficient solvency. Based on a balance sheet of the investment firm, certified by an external auditor, DNB considers whether the firm meets the solvency requirement. This requirement is laid down in Articles 92, 95 and 96 of the EU Capital Requirements Regulation No 575/2013 (CRR) [pm link naar CRR]. Again, DNB also assesses whether the firm will be able to continue meeting the solvency requirement, based on the firm's business plan and three-year forecast. The solvency requirement, as is the amount of the minimum own funds requirement, is based on the activities which the firm undertakes or plans to undertake. More detailed information about the solvency requirement (Dutch only) can be found on this website page.
As part of its market conduct supervision, the AFM assesses, based on Section 4:14(1) of the Wft, whether the applicant firm has set up its internal operations in such a manner that sound and ethical business operations are safeguarded.
In addition, DNB assesses, as part of its prudential supervision, based on Section 3:17(2)(c) and (3) of the Wft, whether the applicant firm's operational management is sound and financially solid. To do so, DNB examines whether financial and other risks that could erode the applicant firm's solidity are adequately controlled and whether the description of its operational management includes procedures aimed at safeguarding the ongoing satisfaction of prudential capital requirements. Paragraph 4.2 of the Bpr, entitled "Risk Management", sets out further rules implementing Section 3:17(2)(c) of the Wft.
Sound remuneration policies
Sections 3:17a and 1:111-129 of the Wft provide that investment firms must design their remuneration policies in accordance with the requirements laid down in the Wft. These include a maximum of 20% in variable remuneration as referred to in Section 1:121 of the Wft to be granted to natural persons employed by the investment firm.
Prudential requirements under the IFR/IFD
Effective from 26 June 2021, investment firms within the meaning of the Investment Firms Directive (IFD) must comply with the prudential requirements of the Investment Firms Regulation (IFR) and the IFD. Investment firms that are classified as banks from 26 June 2021 and investment firms that are subject to the Capital Requirements Regulation (CRR) because of their activities and size must continue to apply the requirements of the CRR.
As part of applications for a licence as an investment firm we will assess, based on projections submitted by the applicant, whether the applicant is able to meet the minimum capital requirement and the solvency requirement on a permanent basis, i.e. at least for the next three years. As the IFR/IFD are applicable from 26 June 2021, we will, in addition to the applicable capital requirements under the CRR/CRD IV, take the capital requirements from the IFR/IFD into account when assessing the prudential aspects of an application for a licence from September 2020 and advise the AFM accordingly. The applicant must therefore provide both a projection relating to the capital requirements under the CRR/CRD IV and a projection relating to the capital requirements under the IFR/IFD.
The applicant must be able to demonstrate, based on these projections, that it meets the capital and liquidity requirements under the IFR/IFD. If applicable, the applicant may make use of transitional provisions applicable under the IFR/IFD when determining capital and liquidity requirements. The assessment of prudential aspects of an application for a licence submitted on or after 26 June 2021 will take place solely on the basis of IFR/IFD.
Capital and liquidity requirements under IFR/IFD
In addition to meeting the minimum own funds requirement (initial capital requirement) and the solvency requirement, investment firms within the meaning of the IFD must also meet a liquidity requirement. Therefore, in addition to a projection of the capital requirements, the applicant must also provide a projection of the liquidity requirements on the basis of which we will assess whether the applicant is able to meet the capital and liquidity requirements in the next three years.
For more information on the IFR/IFD see:
- The Open Book on Supervision pages on the IFR/IFD
- The website of the European Banking Authority (EBA)
Please contact us at IFRIFD@dnb.nl if your have any questions about the IFR and the IFD.