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13 August 2015 Supervision Supervision label Q&A

Question:

Does the prohibition under Section 3:5 of the Financial Supervision Act (Wet op het financieel toezicht – Wft) apply to securities accounts?

Answer:

What is a securities account?

Investment firms are required to separate various types of assets. This prevents their customers' financial instruments from becoming part of the estate in the event of bankruptcy. They may do so by setting up a securities account, which is a separate legal entity that administers funds and financial instruments on behalf of the investment firm's customers as its only activity. The conditions that a securities account must meet are listed in Section 6:17 of the Further Regulation on Conduct of Business Supervision of Financial Undertakings (Nadere regeling gedragstoezicht financiële ondernemingen Wft).

Does a securities account involve repayable funds?

Put briefly, repayable funds are defined as deposits or other funds that must be repaid at a certain point in time, for any reason whatsoever, and of which it is clear in advance which nominal sum must be repaid. Under certain circumstances, securities accounts might hold repayable funds, meaning that the prohibition under Section 3:5 of the Wft applies.

Exceptions: advance payments and onward payment

Legislative history shows that some situations do not involve repayable funds. For example, advance payments on specific purchase transactions and specific orders for onward payment do not involve repayable funds, as long as the link to the specific transaction or order exists. More information about onward payments can be found on this page.

Dispensation from the prohibition

DNB may, in individual cases, grant dispensation from the prohibition on attracting repayable funds under Section 3:5(4) of the Wft. The applicant must demonstrate that the interests which the part of the Wft on prudential supervision seeks to protect are sufficiently protected in other ways.

DNB does not grant dispensation to securities accounts, since it does not deem it desirable from a prudential perspective for securities accounts to hold repayable funds. Its viewpoint has been the subject of legal proceedings. The Appeals Board for Trade and Industry, which is the highest administrative court, ruled that DNB reached its opinion on reasonable grounds. The Dutch text of the ruling is available at www.rechtspraak.nl. Its reference number is ECLI:NL:CBB:2015:15.

As a consequence, securities accounts may not hold any repayable funds, given that the prohibition under Section 3:5 of the Wft applies.

Relevant to:

  • Banks