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Power to issue a direction
We have various instruments at our disposal to enforce compliance with the Financial Supervision Act (Wet op het financieel toezicht — Wft). One such instrument is issuing a direction.
What is an instruction?
DNB and the Dutch Authority for the Financial Markets (AFM) monitor compliance with the Wft or subsidiary legislation. We have several tools at our disposal to ensure we can exercise effective supervision. For example, we have the power to request information, issue an instruction and appoint a caretaker.
The European Central Bank (ECB) also has the power to issue an instruction as referred to in Section 1:75 of the Wft, but only to the extent that it is authorised to exercise supervision under Articles 4 and 6 of the Banking Supervision Regulation. These articles thus determine whether DNB or the ECB is authorised to issue an instruction. For the sake of brevity, we only refer to DNB as the competent authority below.
What is the purpose of an instruction?
When we issue an instruction, we order a financial institution to perform one or more prescribed actions aimed at terminating or undoing its non-compliance. We issue instructions to ensure that institutions comply with the relevant rules. We may, for example, order a financial institution to dismiss a board member or discontinue specific activities. In most cases, we will first issue a warning before issuing an instruction.
To whom can DNB issue an instruction?
We may issue an instruction to institutions that fail to comply with obligations they have under the Wft. These include financial institutions, representatives of insurers and holders of a declaration of no-objection.
When can DNB issue an instruction?
We may issue an instruction if an institution fails to comply with the Wft or subsidiary legislation. In addition, we may issue an instruction to a financial undertaking (but not to other firms) if we see signs of a development that may jeopardise the financial institution’s own funds, solvency or liquidity or its technical provisions (see Section 1:75(2) of the Wft).
We must ask the AFM for its opinion if we want to instruct an institution to dismiss a policymaker or co-policymaker, or a person who is part of the body responsible for supervising the institution's policy and general course of business (see Section 1:47(1) and (2) of the Wft). The DNB-AFM Covenant contains further agreements about the consultations between DNB and the AFM.
We are obliged to issue an instruction if a particular financial institution based in the Netherlands provides services directly from the Netherlands to another Member State or through a branch in that Member State while failing to comply with the rules of that Member State and if the supervisory authority of that Member State has requested us to do so (see Section 1:59 of the Wft).
Effects on third parties
An instruction does not affect a financial institution's third-party agreements, as an instruction may not contain any order to amend agreements with third parties (see Section 1:75(4) of the Wft).
This restriction does not apply to the head of a group as referred to in Section 1:114 of the Wft. We may, however, issue an instruction with regard to an institution's agreements with persons working under its responsibility, provided that such agreements relate to Chapter 1.7 of the Wft (see Section 1:74(5) — incorrectly numbered as (4) — of the Wft). This chapter addresses the remuneration policies of financial institutions.
What happens if an institution does not act on the instruction?
Among other things, the Wft lists the following options that are available if an instruction is not, or not fully, acted on before the set deadline:
- Appointing a caretaker (Section 1:76 of the Wft)
- Prohibiting the institution to enter into new agreements in the Netherlands (transaction ban) if it is based in another Member State and with a branch in the Netherlands or providing services to the Netherlands (Section 1:58 of the Wft), if it is a life or non-life insurer based in a non-Member State providing services to the Netherlands (Section 1:66 of the Wft) or if it is a clearing institution or a funeral or benefits in kind insurer not based in the Netherlands providing services to the Netherlands (Section 1:67 of the Wft).
- We must request the AFM’s opinion before imposing a transaction ban.
- Transaction bans are published in the Government Gazette.
- Alternatively, we may impose an order subject to penalty or an administrative fine.
- Prohibiting the institution to enter into new agreements in another Member State if it is a financial institution based in another Member State and with a branch in the Netherlands or if it provides services to the Netherlands (Section 1:59 of the Wft).
- prohibiting an institution to engage in business through a branch office or provide services in another Member State if it holds a European passport to operate in other Member States (Section 1:77(1) of the Wft) or if it is an insurer that has received an instruction regarding the propriety and fitness of its representative or of a person who determines the day-to-day policy of that insurer and if the insurer has failed to act, or act adequately, on the instruction (Section 1:77(2) of the Wft).
Publication of the instruction
We must publish our decision to impose an instruction in response to non-compliance as soon as it has become irrevocable, i.e. after completion of any objection or appeal procedure. Where applicable, we must also publish the outcome of a previous objection or appeal procedure.
The basic idea is that we publish the instruction in full, but there are some exceptions:
- An instruction must not be published if publication would be disproportionate in view of the minor gravity of the non-compliance or if it were to jeopardise the stability of the financial system.
- We sometimes defer publication or anonymise the instruction, so that it cannot be traced to individual persons or institutions. We do so when it can be determined in advance that full publication meets one or more of the following conditions:
- The data would be traceable to a natural person, and disclosure of their personal data would be disproportionate.
- The parties involved would suffer disproportionate loss or damage.
- Publication would undermine an ongoing criminal or supervisory investigation.
- Publication could jeopardise the stability of the financial system.
We do not publish an instruction before five business days have elapsed after we have notified the financial institutions of the decision to impose or publish the instruction. If the institution files a petition for interim relief during this period, we suspend publication until the court has ruled in interim relief proceedings. In urgent cases, we may decide to publish the instruction immediately without observing the five business days' waiting period.
- Clearing institutions
- Collective investment schemes