## cr1791 ## Source details **Canonical URL:** [cr1791](https://www.imf.org/-/media/files/publications/cr/2017/cr1791.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2017/cr1791.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2017/cr1791.pdf.json) --- ### EXECUTIVE SUMMARY — Regulator structure and independence - Legal regime and day-to-day supervision by the Autoriteit Financiële Markten (AFM) and De Nederlandsche Bank N.V. (DNB) are extensive and consistent with international expectations, but supervisors’ operational independence could be strengthened. - Perception of independence may be impaired owing to the extensive authority of the Ministry of Finance (MoF) to intervene. - Supervisors have key powers necessary to carry out responsibilities, but: - additional powers and transparency (e.g., clarifying causes for removal of governing boards) would assist flexibility and investor confidence; - enhancing autonomy over budget and staffing matters and more transparency on circumstances when the MoF may act is recommended (Table 1 — Recommendation 1, Timeframe: I). - Functional (“twin peaks”) approach under the Act on Financial Supervision (Wft): - DNB: prudential supervision (soundness of financial enterprises and financial stability); - AFM: conduct supervision (orderly and transparent markets, integrity, due care; since 2014 business conduct mandate also supports financial stability). - AFM specific responsibilities include licensing/supervision of audit firms (Wta), supervision of financial reporting (Wtfv), consumer protection for exempted issuers, and responsibilities under various EU regulations. ### EXECUTIVE SUMMARY — Market-based finance (crowd-funding and securitization) - Balance between innovation and investor protection for crowd-funding; recommendation to amend legislation to broaden AFM authority re loan-based crowd-funding (Table 1 — Timeframe: NT). - AFM should be able to develop regulatory regime for loan-based crowd-funding as needed. - Asset-backed securities/securitizations reviewed; tables and data referenced provide detailed sectoral information as of September 30, 2016. ### EXECUTIVE SUMMARY — Auditor oversight - Dutch audit and auditor oversight regime consistent with IOSCO expectations; audits use Dutch standards largely following IAASB. - Independence rules exceed EU minimums in several areas (strict separation of audit and non-audit services). - AFM oversight of statutory audits performed directly and through arrangements with two professional associations. - Areas for improvement: - devote more resources to routine on-site reviews of PIE and non-PIE audit firms (Table 1 — Timeframe: NT); - ensure AFM controls scope and key details of reviews by professional associations; - enhance transparency by requiring prompt public disclosure of auditor/audit firm changes or resignations (Table 1 — Timeframe: NT). ### EXECUTIVE SUMMARY — Fund management, CIS supervision, and systemic risk monitoring - CIS supervisory regime comprehensive; much set at EU level (UCITS Directive and AIFMD). - Use of related-party depositaries permitted subject to directive requirements; use raises risks and should be studied (Table 1 — Timeframe: NT). - Recommendations (selected): - ensure significant shareholders of AIFMs subject to same assessment as MiFID firms and UCITS managers (Timeframe: MT); - enhance liquidity risk management requirements for UCITS; consider routine reporting of liquidity data and stress testing results (Timeframe: NT); - develop practical approach to measuring fund leverage and contribute to international harmonization (Timeframe: MT); - conduct more on-site examinations and some comprehensive examinations (Timeframe: NT); - ensure timely availability of data for supervision and systemic risk monitoring and enhance international exchange (Timeframe: NT). ### KEY RECOMMENDATIONS (selected, Table 1) - Regulator: - Reduce perceived threats to independence by providing additional autonomy over budget and staffing and more transparency when MoF may act. Timeframe: I - Enhance supervisors’ flexibility via legal reform to expand AFM and DNB rule-making authority; allow AFM to obtain information from telecom providers and freeze assets; allow both supervisors to use external experts. Timeframe: NT - Market-based finance: - Amend legislation to broaden AFM supervisory authority regarding loan-based crowd-funding. Timeframe: NT - Auditor oversight: - Require prompt public disclosure of auditor/audit firm changes or resignations. Timeframe: NT - Devote more resources to routine on-site reviews of PIE and non-PIE audit firms. Timeframe: NT - Fund management: - Subject significant shareholders of AIFMs to same suitability and financial soundness assessments as MiFID firms and UCITS managers. Timeframe: MT - Enhance liquidity risk management and consider routine liquidity/stress reporting for UCITS. Timeframe: NT - Develop harmonized leverage measurement for investment funds. Timeframe: MT - Assess risks from related depositaries and consider additional safeguards. Timeframe: NT - Conduct more on-site examinations and consider comprehensive examinations. Timeframe: NT - Ensure timely data availability and strive for enhanced international information exchange. Timeframe: NT - Timeframe legend: I (immediate): within one year; NT (near term): one–three years; MT (medium term): three–five years. --- ### INDEPENDENCE — Funding, staffing, and accountability - Funding framework: - Financial Supervision (Funding) Act (Wbft) governs funding and budget process with Advisory Panel consultation. - Proposed AFM and DNB budgets discussed with Supervisory Boards, then sent to Minister of Finance and Minister of Social Affairs and Employment for approval; ministers may withhold approval if budget is “contrary to the law or public interest.” - Budgets published in the Government Gazette; supervisors may reallocate resources during year; budget overruns require Minister approval at annual financial statements. - New four-year framework includes a flexible component that grows over the term. - Funding sources: - Supervisors fully funded by industry via levies, fees (tariffs set by MoF), and fines. - Budget pressures: - Supervisors view budgets as sufficient for current priorities but face increasing demands and pressure for cost reductions. - MoF indicated reduction targets: reduction in 2017 expected to be 1.75 percent; in 2020 the target is 7 percent. - Supervisors have routinely had money left over at end of each budget period. - Fines revenue treatment: - First €2.5 million generated from fines and penalties in any year are rebated to the industry the following year; revenue above transferred to government. - Staffing and remuneration: - Present compensation sufficient for most positions but specialized roles becoming harder to attract/retain. - New salary cap (WNT) caps governing board compensation at a maximum of 100 percent of a government minister’s salary effective January 1, 2017; exemptions possible case-by-case. - A proposal (WNT-3) to extend cap to all staff is under consultation and likely to affect staff salaries and hiring ability. - Recommendation: grant supervisors high autonomy for deciding on exceptions to WNT. ### INDEPENDENCE — Due process, appointment, dismissal, and legal protection - Executive board appointment terms: - AFM Executive Board Members: appointed by royal decree on basis of nonbinding Supervisory Board proposal; four-year renewable terms; full-time appointments. - DNB Executive Board: President and Executive Directors appointed by royal decree for seven-year terms; reappointment possible once. - DNB Supervisory Board members appointed by shareholders (MoF acts for government) for four-year terms. - Dismissal scope: - Governing board members can be dismissed by royal decree for failing requirements or serious misconduct; legal language is principles-based creating discretion. - Recommendation: amend Bank Act and Wft so board members may be removed only for specified, objective causes. - Statutory protection: - Broad statutory protection from liability for supervisors and staff unless damage results from deliberate improper performance, improper exercise of powers, or gross negligence; employer liability under Dutch Civil Code also applies. --- ### SUPERVISORY POWERS, RULE-MAKING, AND INFORMATION-GATHERING - Current powers include: - Entering premises (except personal residences) possibly with criminal authorities and force; - Compelling statements (AFM cannot take testimony under oath); - Accessing business data/documents and making copies. - Rule-making authority: - Supervisors may issue guidance and technical regulations where statutorily authorized; broad legally binding rule-making authority is limited and typically belongs to the legislature or MoF. - Supervisors may be authorized to impose temporary binding regulations only in special circumstances (AFM for market orderliness; DNB for financial stability). - Recommendation: pursue legal reform to expand AFM and DNB rule-making authority to act flexibly and promptly where gaps exist. - Ministerial revocation power: - MoF may revoke supervisor-issued regulations if they contravene law/treaty or “impose an unreasonable burden on financial markets”; no binding guidance defines “unreasonable burden.” - Recommendation: MoF should clarify conditions for setting aside supervisors’ rules and make circumstances transparent. - Other recommended authorities: - Extend AFM powers to obtain telecom/data exchange records and freeze securities/bank accounts (currently only public prosecutor has these powers) to meet Enhanced MMoU expectations. - Give supervisors authority to engage outside experts for inspections/investigations and recover costs from supervised firms. --- ### MARKET-BASED FINANCE — Crowd-funding (data as of September 30, 2016) - Three regimes apply by business model: AFM/DNB exemptions for public solicitation of loans for SMEs; financial services provider license (Wft) for consumer loans; MiFID investment firm license for specified investment services. - Number of Platforms by Type of Supervision Regime: - Exemption 36 - Financial services providers 4 - Investment firms 5 - Total 45 - Value of Transactions Carried Out (In millions of euros): - Loans 98.9 - Equity 4.5 - Total 103.4 - Recommendation: introduce general provisions regarding loan-based crowd-funding into legislation to enable more detailed regulatory responses. Timeframe: NT ### MARKET-BASED FINANCE — Asset-backed securities / Securitizations (selected statistics) - Dutch originators (mainly Dutch underlying assets) — Value of Issues and Outstanding Amounts (In millions of euros), selected year 2015: - 2015: Number of issues — Placed 6, Retained 5, Total 11 - 2015: Value of Issues (In millions of euros) — Placed 5,540; Retained 14,754; Total 20,294 - 2015: Outstanding Amounts (In millions of euros) — Placed 56,885; Retained 166,539; Total 223,424 - Foreign originators using Dutch SPVs (mainly foreign underlying assets), selected year 2015: - 2015: Number of Issues 14; Value of Issuance (In millions of euros) 9,322; Outstanding Amounts (In millions of euros) 61,034 - Investor composition of securitizations (values in millions of euros), selected totals: - Dutch securitizations Total — 2015 Total 223,426 (Dutch Banks 155,775; Dutch Institutional Investors 4,441; Dutch other Financial Institutions 7,181; Dutch Households 2; Non-residents 56,027) - Foreign securitizations Total — 2015 Total 61,034 (Dutch Banks 381; Dutch Institutional Investors 1,463; Dutch other Financial Institutions 109; Dutch Households 3; Non-residents 59,078) --- ### AUDITOR OVERSIGHT — Scope, licensing, inspections, enforcement, and statistics - Statutory audits required for approximately 21,000 entities. - PIEs constitute about 5 percent of entities subject to statutory audit. - Number of statutory audits (Table 6): - Number of statutory audits 2013 2014 - Number of statutory audits at PIEs 1,049 979 - Non-PIE statutory audits 20,704 19,875 - Total number of statutory audits 21,753 20,854 - Licensing as of July 2016: - 9 licensed PIE audit firms - 342 licensed non-PIE audit firms - 704 auditors employed by or affiliated with PIE-audit firms - 1070 auditors employed by or affiliated with non-PIE-audit firms - A tenth firm licensed to perform PIE audits but not currently auditing - 13 registered third-country audit firms with 25 employed or affiliated auditors - Independence and rotation: - Dutch rotation: responsible auditor may perform statutory audit of a PIE for a maximum of five consecutive years (Dutch law) with a three-year cooling-off period; EU Regulation 537/2014 equivalent period: seven years. - Inspections and resources: - AFM Audit Quality and Reporting Division: 49 FTEs; 38 FTEs available for audit oversight activities; approximately 25 senior inspectors. - Legal inspection frequency: inspect each audit firm at least once every six years, or every three years for PIE audit firms. - Inspection activity (regular inspections start-date basis): - 2011: Total 2; PIE-Audit Firms 2; Non-PIE Audit Firms 0 - 2012: Total 39; PIE-Audit Firms 8; Non-PIE Audit Firms 30 - 2013: Total 25; PIE-Audit Firms 5; Non-PIE Audit Firms 20 - 2014: Total 5; PIE-Audit Firms 5; Non-PIE Audit Firms 0 - 2015: Total 4; PIE-Audit Firms 4; Non-PIE Audit Firms 0 - Thematic inspections 2011–2015: 2011: 15; 2012: 4; 2013: 4; 2014: 4; 2015: 8 - Investigations and enforcement (2011–2016): - AFM carried out 27 investigations from 2011 to 2015 (19 at PIE-audit firms; 8 at non-PIE audit firms). - AFM imposed 10 administrative fines against audit firms in 2011–2016; nine of these on PIE-audit firms. - Total fines imposed by AFM in 2011–2016 amount to €7.12 million. - In March 2016, AFM imposed administrative fines on all Big 4 firms totaling €6.13 million; individual fines varied from €845,000 to €2.23 million. - Disciplinary actions: - AFM pursued disciplinary cases against six auditors in 2011–2016; all six cases resulted in sanctions by the Disciplinary Court (sanctions ranged from warning to six-month exclusion from accountants’ register). ### AUDITOR OVERSIGHT — Disclosure and recommended reforms - Current regime does not include a general obligation for prompt public disclosure of auditor resignations or changes for unlisted public issuers; AFM does not publish notices it receives. - Recommendation: amend legislation to require immediate public disclosure of a change of auditor and reasons; at least for all public issuers and consideration for all PIEs. --- ### FUND MANAGEMENT, CIS SIZE, STRUCTURE, AND DATA - Netherlands domiciled CIS net assets under management (AUM) at end-2015: €733 billion. - €733 billion equals approximately 7 percent of total net CIS assets for the Euro area and under 6 percent of total CIS assets in the EU. - UCITS funds domiciled in Netherlands AUM: €34.6 billion (0.4 percent of the European UCITS industry assets of €8 trillion). - AUM of equity funds: €16.75 billion. - AUM of bond funds: €15.42 billion. - AUM of mixed assets funds: €770 million. - AUM of real estate funds: €1.37 billion. - AUM of other funds: €270 million. - Alternative investment sector: - Total AIF assets managed by Netherlands collective investment managers around end-2015: just under €700 billion. - 749 non-Netherlands EEA AIFs approved to be marketed in the Netherlands by end of Q2 2016 (no AUM available). - Netherlands domiciled CIS as of September 2016 (by type and closed-end/open-end): - Equity Fund: Closed-End 36 — Open-End 484 — Total 520 - Mixed Funds: Closed-End 2 — Open-End 119 — Total 121 - Hedge Funds: Closed-End 0 — Open-End 88 — Total 88 - Bond Funds: Closed-End 4 — Open-End 290 — Total 294 - Real Estate Funds: Closed-End 498 — Open-End 151 — Total 649 - Other Funds: Closed-End 364 — Open-End 155 — Total 519 - Total: Closed-End 904 — Open-End 1,287 — Total 2,191 - Money market funds (MMFs): - Approximately 25 MMFs domiciled in the Netherlands with AUM estimated to be €9.9 billion. - €9.9 billion is less than 1 percent of the Euro area total of €1.096 trillion. - MMF sector AUM grew from €2 billion in 2012 to €9.9 billion. - Ownership of securities issued by Dutch CIS: - Dutch retail investors hold less than 5 percent of value of securities issued by domestic funds. - Over 90 percent of securities issued by Dutch CIS are owned by pension funds (80.3 percent) and insurance companies (9.8 percent). ### FUND MANAGEMENT — Authorization, supervision split, and reporting - Authorized domestic fund managers (as of June 1, 2016): - 16 fund managers authorized to manage and offer units in a UCITS fund in the Netherlands. - 42 UCITS funds established in the Netherlands and managed by Dutch fund managers. - 902 UCITS funds managed by non-Dutch fund managers established in the Netherlands. - 103 licensed AIFMs, of which 87 held a license to manage CIS prior to AIFMD effective date. - Twin-peaks supervision: - AFM: conduct supervision of CIS and managers; - DNB: prudential supervision of UCITS management companies, AIF managers and internally managed investment companies. - Reporting timelines: - Each AIFM must provide annual financial and management statements for manager and each AIF within six months of fund year-end. - Interim reports must be filed within nine weeks of end of first six months of fund fiscal year. - UCITS funds/managers must file annual financial statements with AFM and DNB within four months of fund year-end and interim semi-annual statements on same timing as AIFs. - Prudential statements to DNB annually or semi-annually depending on manager’s business and license; DNB can require higher frequency reporting in case of events. - Data issues and limitations: - DNB statistics follow international standards and include supervised and unsupervised CIS, report assets/liabilities (not NAV), and count by sub-fund; AFM reports at umbrella-fund level. - AIF holdings not yet fully reported to ESMA; ESMA aggregation/analysis system not fully operational. - AIFMD reporting template interpretation varies; supervisors working to improve data quality and guidance. ### FUND MANAGEMENT — Valuation, liquidity, leverage, depositaries, and tools - Valuation and NAV: - IOSCO Principle 27 expectations reiterated; UCITS valuation rules are national; Dutch practice: market values where possible, NAV published regularly, prospectus must state valuation frequency and methodology. - For illiquid investments, an independent expert must perform valuation at least once a year. - Liquidity risk management: - UCITS: required risk management processes; AFM checks liquidity-investment/redemption match at new fund review; recommendation to require liquidity stress tests under both normal and stressed scenarios and consider routine reporting. - AIFM: must regularly conduct stress tests under normal and exceptional liquidity conditions and disclose liquidity risk management to investors. - Special liquidity management tools: - Tools (exit charges, limited redemptions, gates, dilution levies, in specie transfers, side pockets, suspension) should be disclosed and used only if fair to investors. - AFM has banned side pockets except when a separate sub-fund is created; since 2010 AFM has not permitted new open-end funds intending to invest in illiquid securities. - Swing pricing permitted and Euronext Amsterdam trading system effectively uses swing pricing. - Leverage: - UCITS: global exposure using commitment approach or VaR; borrowing up to 10 percent of NAV; global exposure from derivatives limited to 100 percent of total net value. - AIFMD: defines leverage broadly; no maximum leverage limits set by Directive; must calculate leverage using gross and commitment methods. - DNB projects to improve leverage data quality and develop a conceptual framework; results expected at end of 2016. - Recommendation: develop a common method for calculating investment fund leverage; contribute to international harmonization. - Depositaries and safekeeping: - UCITS V and AIFMD depositary rules applied; depositary must be suitable and perform safekeeping, segregation, and record-keeping; UCITS V strict liability regime for loss of financial instruments; AIFMD allows transfer of liability to delegate under specified circumstances. - Netherlands framework has no additional mandatory depositary independence requirements beyond EU legislation; AFM expects extensive procedures for related-party depositaries and has denied use when independence insufficient. - Recommendation: AFM to assess risks from related-party depositaries and consider additional safeguards and publish guidance on expectations. --- ### SUPERVISION — AFM and DNB practices, resources, and enforcement - AFM Asset Management Division: - New Asset Management Division combining authorization and ongoing supervision; 26 FTEs in 2016 (12 FTEs licensing; 9 FTEs supervision and enforcement). - Risk-oriented supervision; nursery visits within a year after license; thematic reviews on securities lending, “index-huggers,” low volatility products, sustainable investing, and real estate funds. - DNB Supervision Investment Firms and CIS: - Department consists of 12 staff (9 supervisors and 3 analysts) supported by other DNB units. - Risk-based supervision using FOCUS! T-score categories; ICAAP expectations for T1–T3 categories; thematic projects (RIPs/RMPs). - On-site inspections: - Recommendation: increase resources for on-site supervision of CIS and managers; current on-site resources limited and inspections not frequent. - Enforcement powers and usage: - Supervisors may appoint conservator, give instructions (e.g., suspend redemption), impose administrative fines, order interim penalty payments, withdraw licenses, and bar persons from executive roles. - AFM enforcement actions 2014–15: 2015 — Administrative Fine €750.000 (Asset Manager); 2014 — Administrative Fine €100.000 (Administrator). - DNB enforcement 2011–16: examples include orders for interim penalty payments, instructions for failure to comply with prudential capital requirements. - AFM enforcement policy considers voluntary disclosure, corrective measures, cooperation, management involvement and investor risk. ### SYSTEMIC RISK MONITORING, DATA PROJECTS, AND COOPERATION - Mandates: - DNB: prudential mandate including system-wide monitoring; - AFM: conduct mandate that includes recognition and addressing potential systemic risk; - AIFMD: express responsibility on supervisors to monitor systemic risks of AIFs. - Joint AFM–DNB work: - Joint analyses discussed in Dutch Financial Stability Committee (FSC); focus on liquidity and leverage risks. - AFM and DNB exploring data-driven supervision, AIFMD data use, joint projects (real estate funds liquidity mismatch review). - Data enhancement and reporting: - AFM formed data team to improve AIFMD data quality via combination with market sources (EMIR, MiFID, DNB statistics). - Supervisors encouraged to improve reporting templates, guidance and industry engagement to improve AIFMD reporting consistency. - International engagement: - Participation in ESRB, FSB and IOSCO working groups on asset management stability. --- ### CROSS-BORDER OFFERING OF FUNDS AND FUND MANAGEMENT SERVICES (Appendix II — key points) - Dutch cross-border rules based on AIFMD and UCITS Directive; ministerial regulation requires DNB and AFM to confirm AIFMD provisions on cooperation and information sharing. - Dutch AIFM offering non-EU AIF units in Netherlands must ensure (1) jurisdiction not on FATF noncooperative list and (2) cooperation agreement between AFM and supervisor of non-EU AIF state; AFM has MoUs with 44 regulators. - EU AIFMs may use passport to offer EU-AIFs to professional investors; to offer to retail investors in Netherlands must follow “top-up retail regime” (passport procedure, retail distribution notice to AFM, signed declaration to meet top-up requirements). - Non-EU fund managers may offer units in Netherlands only to professional investors unless cooperation agreements and safeguards are in place. - Three jurisdictions designated as having adequate supervision for distribution to both retail and professional investors: United States (funds registered with the U.S. SEC), Guernsey, and Jersey (notification process and prospectus/reporting requirements apply). --- *Source: International Monetary Fund — EXECUTIVE SUMMARY and extracted sections from cr1791 (Netherlands).* ### EXECUTIVE SUMMARY ___________________________________________________________________________ 6 ### EXECUTIVE SUMMARY ### Regulator structure and independence - The legal regime and day-to-day supervision activities conducted by the Autoriteit Financiële Markten (AFM) and De Nederlandsche Bank N.V. (DNB) are extensive and consistent with international expectations, but the supervisors’ operational independence could be strengthened. - While the AFM and the DNB may carry on their day-to-day activities independently from political and industry intervention, the perception of their independence may be impaired owing to the extensive authority to the Ministry of Finance (MoF) to intervene. - The supervisors have the key powers necessary to carry out their responsibilities, but: - additional powers and transparency (such as clarifying the causes for the removal of the governing boards of the supervisors) would assist in ensuring they have the flexibility to meet fast-developing issues and foster greater investor confidence in the system. - enhancing autonomy over budget and staffing matters and more transparency on the circumstances when the MoF may act is recommended (see Table 1 — Recommendation 1, Timeframe: I). - The Netherlands follows a functional (“twin peaks”) approach embedded in the Act on Financial Supervision (Wet op het financieel toezicht, Wft): - DNB: prudential supervision focused on soundness of financial enterprises and contribution to financial stability. - AFM: conduct supervision focused on orderly and transparent market processes, integrity, and due care in client services; since 2014 AFM’s business conduct mandate also should support financial stability. - AFM specific responsibilities include: - licensing, registration and supervision of audit firms and statutory auditors under the Audit Firm Supervision Act (Wet toezicht accountantsorganisaties (Wta)); - supervision of financial reporting by issuers under the Act on Supervision of Financial Reporting (Wet toezicht financiële verslaggeving (Wtfv)); - consumer protection related to exempted issuers under the Consumer Protection Enforcement Act; - responsibilities under various EU regulations, including market abuse and market infrastructure. - The mandate to hear individual customer complaints belongs to the Financial Services Complaint Tribunal and the Financial Ombudsman. ### Market-based finance (crowd-funding and securitization) - The approach to supervision of the small but growing crowd-funding sector strikes a fair balance between enhancing innovation and protecting investors. - Recommendation: Amend the legislation to broaden the supervisory authority of the AFM with regard to loan-based crowd-funding. (Table 1 — Timeframe: NT) - To ensure supervisors have sufficient authority to monitor developments and take action where needed, it would be helpful to broaden the supervisory authority of the AFM to ensure it may develop the regulatory regime for loan-based crowd-funding as needed. - Asset-backed securities/securitizations and related topics were reviewed; tables and data referenced in the source (Tables 2–5) provide detailed sectoral information as of September 30, 2016 and other breakdowns. ### Auditor oversight - The Dutch regime for audits and auditor oversight is consistent with the International Organization of Securities Commissions’ (IOSCO) expectations and appears to work well in practice. - Audits are conducted by qualified auditors using Dutch auditing standards that largely follow those set by the International Auditing and Assurance Standards Board (IAASB). - Independence rules for audit firms and auditors are extensive and exceed the minimums set under European Union (EU) law in several key areas, including a strict separation between providing audit and non-audit services to audit clients. - The AFM is responsible for oversight of the audit profession performing statutory audits and carries out responsibilities directly and through arrangements with two professional associations. - Areas for improvement: - devote more resources to routine on-site reviews of PIE and non-PIE audit firms (Table 1 — Timeframe: NT); - ensure the AFM controls the scope and other key details of reviews conducted by the professional associations; - enhance transparency by requiring prompt public disclosure of auditor/audit firm changes or resignations (Table 1 — Timeframe: NT). - Relevant statutory and regulatory instruments referenced include the Wta, Wtfv, Bta, VAO, ViO, and NV COS. ### Fund management, CIS supervision, and systemic risk monitoring - The overall collective investment scheme (CIS) supervisory regime is comprehensive; much of the regime is set at the EU level under the UCITS Directive and AIFMD. - The Dutch authorities generally do not impose many additional requirements beyond EU rules, other than where an AIF is sold to retail investors. - Independent depositaries are key to protecting CIS assets from failure of managers or other parties, but related-party depositaries are permitted subject to directive requirements. - The use of related-party depositaries raises risks; these should be studied to determine if additional safeguards (such as stricter rules on cross-ownership or management) should be imposed (Table 1 — Timeframe: NT). - Recommendations to enhance supervision and protection of fund assets: - ensure significant shareholders of AIFMs are subject to the same assessment of suitability and financial soundness as apply to MiFID firms and UCITS fund managers (Table 1 — Timeframe: MT); - enhance liquidity risk management requirements for UCITS fund managers; consider requiring routine reporting of liquidity data and stress testing results by UCITS managers (Table 1 — Timeframe: NT); - develop a practical approach to measuring investment fund leverage and continue to contribute to international work to harmonize the leverage calculation method (Table 1 — Timeframe: MT); - conduct more on-site examinations of firms and consider conducting some comprehensive examinations (Table 1 — Timeframe: NT); - ensure that all data needed for supervision and systemic risk monitoring is available on a timely basis and strive for enhanced international exchange of information (Table 1 — Timeframe: NT). - Supervisors should work to improve information provided to ESMA on positions of AIFs and ensure the scope of reporting obligations under AIFMD is complete; enhanced international exchange of information is important for monitoring systemic risk from cross-border activities and exposures to Dutch counterparties. - Supervisors are engaged in early-stage work on identifying and monitoring potential systemic risk in fund management, particularly relating to liquidity and leverage; this work should be pursued actively and coordinated with European and IOSCO efforts. - The ability to assess risks of AIFs and other investment funds would be enhanced by adopting a globally harmonized method for calculating fund leverage. ### Key recommendations (Table 1, Netherlands: Key Recommendations) - Regulator - Reduce the perceived threats to the independence of the supervisors by providing additional autonomy over budget and staffing matters and more transparency on the circumstances when the MoF may act. Timeframe: I - Enhance the flexibility of the supervisors to act via legal reform to expand the rule-making authority of the AFM and the DNB; allow the AFM to obtain information from telecom providers and freeze assets; and both supervisors to use external experts to conduct investigations. Timeframe: NT - Market-based finance - Amend the legislation to broaden the supervisory authority of the AFM with regard to loan-based crowd-funding. Timeframe: NT - Auditor oversight - Enhance transparency by requiring prompt public disclosure of auditor/audit firm changes or resignations. Timeframe: NT - Devote more resources to routine on-site reviews of PIE and non-PIE audit firms. Timeframe: NT - Fund management - Work to ensure the significant shareholders of AIFMs are subject to the same assessment of their suitability and financial soundness as apply to MiFID firms and UCITS fund managers. Timeframe: MT - Enhance liquidity risk management requirements for UCITS fund managers; consider requiring routine reporting of liquidity data and stress testing results by UCITS managers. Timeframe: NT - Develop a practical approach to measuring investment fund leverage and continue to contribute to international work to harmonize the leverage calculation method. Timeframe: MT - Assess the risks from the use of related depositaries and consider requiring additional safeguards to address these risks. Timeframe: NT - Conduct more on-site examinations of firms and consider conducting some comprehensive examinations. Timeframe: NT - Ensure that all data needed for supervision and systemic risk monitoring is available on a timely basis and strive for enhanced international exchange of information. Timeframe: NT - Timeframe legend: I (immediate): within one year; NT (near term): one–three years; MT (medium term): three–five years. ### Introductory mission context and scope - This note reviews implementation of a subset of the IOSCO Objectives and Principles of Securities Regulation focusing on: - auditors and auditor oversight; - regulation and supervision of collective investment schemes (CIS), fund managers and systemic risk monitoring; - follow-up on Regulator Principles issues relating to regulatory resources, authority and independence from the 2011 Assessment. - The review also covered market-based financing, including crowd-funding and asset securitization. - The main author of this note is Tanis MacLaren, an external expert to the Monetary and Capital Markets Department of the IMF. - On-site work supporting the findings and conclusions was conducted during the period September 20–October 4, 2016. - The information in this note is current as of October 1, 2016 unless stated otherwise. *Source: EXECUTIVE SUMMARY, cr1791 (Netherlands), International Monetary Fund.* ### 6. The DNB is responsible for the prudential supervision of firms providing services and ### 6. The DNB is responsible for the prudential supervision of firms providing services and carrying out activities in the capital markets. ### Scope of supervision and operational interaction - The DNB’s remit includes prudential supervision of UCITS management companies, AIF managers, investment firms licensed under the MiFID, insurance companies, pension funds, and banks. - Banks licensed by the DNB can provide investment services and activities directly without a separate license from the AFM, but the bank must get express permission from the DNB to carry out investment services and activities. The AFM is involved in the decision to permit broadening of the bank’s license. - Both the AFM and the DNB undertake supervision through inspection, enforcement, education and other activities, and gather information from public market reports and reports prepared by their inspection and investigation teams. - In cases of noncompliant behavior, measures available include issuing mandatory instructions, imposing orders for interim penalty payments or administrative fines, withdrawing or limiting a license, or filing a report with the Public Prosecution Office (Openbaar Ministerie). ### IOSCO principles and regulatory responsibilities - IOSCO Principles 2 and 3 require securities regulators to have (a) adequate powers, proper resources and capacity; and (b) be operationally independent and accountable. - Key supporting aspects listed: - full authority to license, inspect, enforce, and regulate participants in the capital markets; - a stable source of sufficient funding to hire and retain skilled staff; - operational independence from political or commercial intervention; - legal protections for staff and governing body personnel from dismissal or lawsuits; - adequate transparency of operations and use of funds; - due process in carrying out tasks. - The text emphasizes the need to balance independence with accountability and cautions that accountability mechanisms should not impair independence or create perceptions of lack of independence. ### A. Independence — Sufficiency of funding - Funding framework: - The Financial Supervision (Funding) Act (Wet bekostiging financieel toezicht, Wbft) governs funding and contains a detailed process for setting a regulatory budget. - An Advisory Panel, consisting of representatives of supervised entities, is consulted but has no formal decision-making powers. - Proposed budgets of the AFM and the DNB are discussed with their Supervisory Boards and then sent to the Minister of Finance and the Minister of Social Affairs and Employment for approval. - Ministers may withhold approval if the budget is “contrary to the law or public interest,” after prior consultation with the authorities; there is no black-line law or jurisprudence on what constitutes “contrary to the public interest.” - After approval, each budget is published in the Government Gazette. Ministers must be notified if substantial differences arise between actual outcome and the budget. Supervisors may reallocate resources during the year; budget overruns require Minister approval at the time of annual financial statements. - If unforeseen events substantially impact required funds, authorities may request additional funds from the MoF. - An agreement on the overall framework for funding the two supervisors for the next four years was recently reached with the government; the new framework expressly includes a flexible component that grows over the term of the framework. - Funding sources and allocation: - The supervisors are fully funded by the industry via annual contributions (levies), fees for registrations and permits (the tariffs are set by the MoF), and fines. - The AFM and the DNB allocate costs to industry segments based on supervisory duty characteristics and perceived risks of supervised firms. - Budget sufficiency and pressures: - The budgets are viewed by the supervisors as sufficient to meet current risk-based priorities, but face increasing regulatory demands and pressure for reduced costs. - Both supervisors have routinely had money left over at the end of each budget period. - The MoF indicated in July 2016 that supervisors were expected to reduce supervision costs over the next four years: reduction in 2017 is expected to be 1.75 percent, while in 2020 the target is 7 percent. - These reductions will put additional pressure on the ability of supervisors to carry out the full scope of duties in appropriate depth. - Specific revenue treatment for fines: - The supervisors do not retain the actual proceeds of administrative fines and other penalties. The first €2.5 million generated from fines and penalties levied by the AFM and the DNB in any year are rebated to the industry the following year (reducing overall fees to each industry segment). Any revenues above this amount are transferred to the government. - Data-driven supervision and resource needs: - The AFM is exploring data-driven supervision; the new Asset Management division is participating in a pilot to explore data use for supervision of CIS. - Becoming more data-driven will require additional investments in technology and skills, increasing pressures on the supervisory budget. - Staffing and remuneration pressures: - Present compensation levels are sufficient to attract and retain necessary expert staff for most positions, having been benchmarked to industry and governmental salaries. - For certain specialized roles, it is becoming more difficult to find and retain appropriate staff; attractiveness of employment terms is increasingly a concern. - New salary rules: - Members of governing boards of AFM and the DNB are subject to the Act on Standards for Remuneration for Senior Officials in the Public and Semi-Public Sector (Wet normering topinkomens, WNT). - This Remuneration Act caps these persons’ compensation at a maximum of 100 percent of a government minister’s salary and the cap is effective for current board members as of January 1, 2017. Salaries above this limit are to be rolled back. The MoF may give exceptions on a case-by-case basis but has ruled out blanket exemptions. - Two current AFM Board members and all members of the DNB Board have exemptions and can keep current remuneration during their terms. - A proposal to extend the WNT cap to all staff (WNT-3) is out for consultation and is expected to affect current staff salaries. - WNT-3 is likely to have an adverse effect on AFM’s and the DNB’s ability to attract and retain staff, especially at middle- and higher-management levels and staff with very specialized expertise. - The MoF believes the draft amendment offers enough flexibility through maximum remuneration levels and case-by-case exemptions. - The salary cap and necessity for individual approval from the MoF for hiring decisions will make finding the right people for key tasks more difficult and raise independence issues. - Recommendation: the two supervisors should be granted a high level of autonomy for deciding on exceptions to the WNT. ### A. Independence — Accountability - Budget and reporting accountability: - The budget identifies objectives of financial supervision for the upcoming year based on government-wide outcome-oriented budgeting. - At year-end, AFM and DNB must prepare accounting reports relating to duties under the Wbft, accompanied by an auditor’s statement regarding fair presentation and a report on whether collection and deployment of resources are in accordance with the Wbft. - To avoid conflict of interest, the AFM is subject to review by a registered auditor of the Audit Department (Auditdienst Rijk, ADR) within the MoF; the DNB is audited by a public audit firm. - Approval of accounting reports is given by the MoF and the Ministry of Social Affairs and Employment and may only be withheld if the report is contrary to law or public interest. - Each supervisor publishes its budget and annual report on its website. - Additional oversight of DNB: - DNB’s supervision of pension providers may be reviewed by the Inspection Service for Work and Income on behalf of the Minister of Social Affairs and Employment, involving spot checks and information exchange. - The Netherlands Court of Audit may conduct performance audits of the DNB with respect to “national tasks” performed by the DNB and may demand confidential information obtained by the DNB if necessary for the Court’s public tasks. ### Transparency and due process - Transparency practices: - AFM and DNB aim to be as transparent as possible within statutory confidentiality constraints. - Supervisors have a duty to maintain confidentiality of information obtained in performance of duties, but also have broad transparency obligations. - Supervisors publish plans, activities and effects of activities; both publish results of thematic inspections without identifying individual firms. - The AFM has wider power to publish principal findings and conclusions from inspections at audit firms and may identify those firms provided no identifying information regarding audit clients or third parties appears. - Where fines and other significant penalties have been imposed, these matters are published after five working days. If preliminary relief is sought, publication of the decision is delayed pending the hearing judge rendering judgment. - All rules and regulations must be made public, including amendments and reasons. - Due-process requirements: - AFM and DNB, as administrative authorities, must comply with the General Administrative Law Act (Algemene wet bestuursrecht, Awb). - Parties negatively affected by proposed administrative actions (e.g., license denial or fines) are entitled to a hearing prior to action. Administrative decisions must be based on sound reasons, and principles of subsidiarity and proportionality apply. - Reasons for a decision must be delivered to the concerned party before the decision becomes effective (usually within one week after the decision). - The affected person may file a notice of objection; the Executive Board of the AFM will reconsider. Its decision may subsequently be appealed in administrative court. Objections to non-administrative decisions or other conduct can be brought before the District Court. ### B. Legal protection of governing body and staff - Appointment and terms: - Executive board members of the AFM and the DNB are appointed for fixed, renewable terms by royal decree. - AFM Supervisory Board Chair and other members are appointed by the Minister of Finance for four years, renewable; AFM Executive Board Members are appointed by royal decree on basis of a nonbinding proposal of the Supervisory Board. All AFM Executive Board Members have full-time appointments; duration is four years, renewable. - Appointment of DNB Executive Board members is laid down in the Bank Act 1998: the President and Executive Directors are appointed by royal decree for a term of seven years. Executive Board members may be reappointed once to the same position. - Members of the Supervisory Board of the DNB are appointed by the shareholders of the Bank (in practice, the MoF acting for the government, the sole shareholder) for a term of four years. - Dismissal and scope for discretion: - All governing board members can be dismissed. Executive Board members of the AFM, and Executive Directors and members of the Supervisory Board of the DNB can be dismissed by royal decree if they fail to meet requirements for duties or are guilty of serious misconduct. - The MoF may suspend or dismiss the Chair and other members of the AFM’s Supervisory Board if they are unsuitable, incompetent or for other important reasons relating to the person involved. - The law uses principles-based reasons for dismissal (e.g., “no longer fulfilling the conditions required for the performance of their duties,” “serious misconduct,” “other important reasons relating to the person”), leaving leeway for government discretion and potential perception of lack of independence. - Recommendation: to be consistent with IOSCO (Principle 2, Key Question 5), amend the Bank Act and the Wft so that a board member may only be removed for specified, objective causes (examples given: bankruptcy, persistent failure to attend meetings, acting in conflict of interest, etc.). - Statutory protection from liability: - There are clear statutory provisions protecting supervisors, members of Executive and Supervisory Boards, and employees from legal responsibility for damages resulting from actions taken in course of supervisory activities, unless the damage is largely the result of deliberate improper performance, improper exercise of powers, or gross negligence. - The statutory protection is buttressed by the Dutch Civil Code provision that makes the employer liable for actions of its employees. - These provisions provide broad protection from being found liable to pay damages for actions taken while carrying out duties; they do not completely eliminate the possibility of being sued, but legal support has been provided when staff are called to court. *Source: cr1791 - 6. The DNB is responsible for the prudential supervision of firms providing services and carrying out activities in the capital markets.* ### 23. The supervisors have the key powers necessary to carry out their responsibilities, but ### cr1791 - 23. The supervisors have the key powers necessary to carry out their responsibilities, but ### Supervisory authorities and information-gathering powers - The AFM and the DNB have full authority to license, inspect, enforce, and regulate participants in the securities markets; the AFM has necessary powers to carry out its audit oversight responsibilities. - The regime depends largely on authority set out in government-made statutes and regulations (or those made at the EU level) and is not particularly nimble. - Current powers to request and obtain information: - Enter all places without permission of the owner, with the exception of personal residences, if necessary in collaboration with the criminal law authorities and by the use of force. - Claim any information that is reasonably necessary for the due fulfillment of its responsibilities and exercise of its powers, including by taking or compelling a person’s statement. When using this power, the consequences for the person(s) concerned may not be disproportionate to the purposes served by the request for information. The AFM does not have authority to take a testimony under oath. - Access business data and documents and make copies. - Failure of any person to cooperate in providing the requested information is subject to sanctions. - Recommendation implied: expand powers where needed to address increasing market complexity, including ability to make legally binding rules (see Rule-making authority). ### Rule-making authority - Financial supervisors do not have broad authority to make legally binding instruments; they may issue supporting guidelines and interpretations, but legally binding instruments require explicit statutory grant and typically address technical aspects only. - All other rule-making authority belongs to the legislature or the MoF. - Where AFM and DNB have rule-making authority, they are required to consult an eligible representative delegation from the institutions under their supervision. - Regulatory powers can only be vested in the DNB when they concern organizational or technical matters. - Supervisors may be authorized to impose temporary binding regulations without a specific delegating provision only in special circumstances: - AFM may act to improve orderly and transparent financial market processes. - DNB may act in the interest of financial stability (e.g., large and uncontrolled market movements causing severe unrest). - IOSCO does not expressly require rule-making authority but requires ability to act promptly when needed; supervisors need tools to act flexibly, quickly and in a way that is legally enforceable to fill gaps where no EU or national requirements exist. - Recommendation: pursue legal reform to expand the rule-making authority of the AFM and the DNB. ### Ministerial oversight and transparency concerns - The MoF does not need to be consulted before legally binding instruments are made, but MoF has discretionary power to revoke them. - When a supervisor issues legally binding regulations, there is no obligation to consult the MoF, but the supervisor must notify the MoF without delay. - The Minister may revoke a regulation if, in the Minister’s opinion, it contravenes a law, treaty or binding decision of an international organization, or if it imposes an unreasonable burden on financial markets. The supervisor must be consulted first and be given an opportunity to amend the regulation to eliminate the problem. - The Minister has never used these powers of revocation. - Concern: no binding guidance defines criteria for “imposes an unreasonable burden on financial markets”; discretionary revocation power may raise questions about supervisors’ independence. - Recommendation: the MoF should consider further clarifying the conditions under which powers to set aside supervisors’ rules would be exercised and ensure those circumstances are transparent to the public. ### Other gaps and recommended authorities - Annual process: each supervisor prepares an annual Legislation Letter identifying desirable reforms; MoF forwards these to the House of Representatives. The 2016 AFM Legislation Letter requests: - Extend AFM powers to (i) obtain records kept by providers of telecommunication and data exchange; and (ii) freeze securities/bank accounts. Currently only the public prosecutor has these powers. - IOSCO’s Enhanced Multilateral Memorandum of Understanding (Enhanced MMoU) would require the securities regulator to be able to obtain and share telephone and internet service provider records and to advise on freezing assets or freeze assets on behalf of another regulator. - Recommendation: expand AFM authority to obtain information and freeze assets as requested and make necessary legislative changes. - Recommendation: give supervisors authority to engage outside experts to conduct inspections/investigations on supervisors’ behalf; supervisors have requested this authority in legislative letters. Many supervisors require the supervised firm to pay the cost of the expert’s examination. Supervisors should be able to use outside experts across all sectors, not just securities. ### Summary on independence, powers and accountability - Supervisors have operational independence, sufficient powers and are suitably accountable for day-to-day tasks, but concerns exist regarding the line between independence and accountability. - Features that may raise concerns or perceptions of impaired independence: - Ministerial control over the budget. - Authority of the MoF to set aside rules enacted by supervisors. - Proposed cap on staff salaries which may limit ability to hire and retain specialized expertise. - Risk mitigation: implement recommendations such as greater autonomy over the budget and addition of clear and objective criteria for exercising power to dismiss governing board members or overrule supervisory regulation. - Overall recommendation: expand supervisors’ authority in targeted ways to improve ability to fully and effectively supervise markets and act where problems are identified. ### MARKET-BASED FINANCE — A. Crowd Funding - Debt and equity-based crowd-funding is regulated under general capital-raising rules rather than a separate framework; no specific regulatory framework exists in the Netherlands, but crowd-funding sites offering loans or equity fall within supervisors’ regulatory scope. - Three regimes applied to crowd-funding depending on business model: - Platforms operating using an exemption granted by the DNB or the AFM that allows public solicitation of loans for SMEs. Exemptions may be granted when authorities are satisfied prudential or investor protection concerns are met. AFM exemption conditions are extensive and include requirements on fit-and-proper operators, reporting, investor limits and protections (see detailed list in source). - Platforms licensed as financial services providers under the Wft. This applies to platforms intermediating loans to consumers (mortgage loans and consumer credit); these platforms also need an AFM exemption as above. - Platforms licensed as investment firms under MiFID, permitting specified investment services in debt and equity. The MiFID investment firm license is applicable in other EEA member states. - Crowd-funding Data, as of September 30, 2016: - Number of Platforms by Type of Supervision Regime - Exemption 36 - Financial services providers 4 - Investment firms 5 - Total 45 - Value of Transactions Carried Out (In millions of euros) - Loans 98.9 - Equity 4.5 - Total 103.4 - Source: AFM. - Regulatory considerations: - AFM seeks balance between facilitating innovation/growth and providing investor protection. - AFM views current measures as broadly consistent with IOSCO investor protection expectations. - No international consensus on minimum standards; IOSCO and the European Commission have studied crowd-funding and recommended monitoring, convergence and sharing of best practices rather than EU-wide regulation at this time. - Recommendation: implement AFM’s request to introduce general provisions regarding loan-based crowd-funding into legislation to enable more detailed regulatory responses in regulations when needed; supported and recommended for near-term implementation. ### MARKET-BASED FINANCE — B. Asset-Backed Securities/Securitizations - Dutch disclosure regime for asset-backed securities and structured products is largely determined at the EU level; Prospectus and Transparency Directives transposed into the Wft. - Dutch authorities added a requirement to the Prospectus Directive that prospectus information must be consistent with other related information available within the AFM (e.g., risk factors related to mortgage-backed underlying assets must be consistent with identified risk of decreased cash flows to the issuer). - AFM prospectus review process: - All prospectuses are reviewed; review process serves an important gate-keeping function. - Risk-based approach: focus on specific information elements (Key Points of Review, KPRs) and less effort on less critical elements. - Uses a structured approach with internal and external information to perform risk assessment and identify KPRs (general, issuer or transaction specific). - For asset-backed securities, focus is on quality of the pool of underlying assets as expressed in stratification tables and the description of risk factors required by relevant annexes of the Prospectus Regulation; these are reviewed in detail for every prospectus. - Review takes into account expected purchasers (e.g., retail offering should present required information in an understandable way using simpler language and clear examples). *Source: cr1791 - 23. The supervisors have the key powers necessary to carry out their responsibilities, but* ### 38. The prospectus will only be approved when it fulfills the requirements from the ### 38. The prospectus will only be approved when it fulfills the requirements from the ### Prospectus approval and marketing review - The prospectus will only be approved when it fulfills the requirements from the Prospectus Directive, the Prospectus Regulation and the recommendations of ESMA. - If the prospectus is not approved, the securities cannot be listed on the market. - Failure to have an approved prospectus where required is an offense, and it gives rise to administrative and general criminal penalties. - In addition to the prospectus review, the AFM also reviews marketing material (including roadshow information) for retail offerings. ### Dutch securitization market (structure and distribution) - The Dutch market for securitization of Dutch assets is largely domestic and the investors are institutions. - An infinitesimal percentage of securitizations (0.001 percent) are sold to Dutch retail investors. - The majority of the value of issues by Dutch originators is retained by those issuers for liquidity purposes. - Five domestic banks are issuers. - Unlike many countries where the bulk of securitization transactions take place in the exempt market, all issues are listed on a regulated market to facilitate sales to investors. - Where foreign originators have securitized foreign assets using a Dutch special purpose vehicle (SPV), virtually all of those securities are sold outside the Netherlands. - Most institutional investors and many CIS have investment restrictions mandating the purchase of instruments listed on a regulated market, and they have a very limited ability to purchase or hold unlisted securities. ### Key securitization statistics (Netherlands: Dutch originators; mainly Dutch underlying assets) - Table 3: Netherlands: Securitizations by Dutch Originators (Mainly Dutch underlying assets) - 2010: Number of issues — Placed 17, Retained 9, Total 26; Value of Issues (In millions of euros) — Placed 22,807; Retained 114,839; Total 137,646; Outstanding Amounts (In millions of euros) — Placed 107,735; Retained 225,571; Total 333,306 - 2011: Number of issues — Placed 14, Retained 17, Total 31; Value of Issues (In millions of euros) — Placed 12,256; Retained 74,457; Total 86,713; Outstanding Amounts (In millions of euros) — Placed 99,067; Retained 219,905; Total 318,972 - 2012: Number of issues — Placed 16, Retained 7, Total 23; Value of Issues (In millions of euros) — Placed 13,061; Retained 41,019; Total 54,080; Outstanding Amounts (In millions of euros) — Placed 83,816; Retained 209,839; Total 293,655 - 2013: Number of issues — Placed 14, Retained 7, Total 21; Value of Issues (In millions of euros) — Placed 15,243; Retained 23,985; Total 39,228; Outstanding Amounts (In millions of euros) — Placed 81,280; Retained 184,855; Total 266,135 - 2014: Number of issues — Placed 13, Retained 4, Total 17; Value of Issues (In millions of euros) — Placed 10,292; Retained 15,267; Total 25,559; Outstanding Amounts (In millions of euros) — Placed 75,143; Retained 180,896; Total 256,038 - 2015: Number of issues — Placed 6, Retained 5, Total 11; Value of Issues (In millions of euros) — Placed 5,540; Retained 14,754; Total 20,294; Outstanding Amounts (In millions of euros) — Placed 56,885; Retained 166,539; Total 223,424 - Source for Table 3: DNB. Note: Placed means sold to third-party investors; retained means held by the originator, mainly for liquidity purposes, such as for repos with central banks. ### Key securitization statistics (Netherlands: foreign originators using Dutch SPVs; mainly foreign underlying assets) - Table 4: Netherlands: Foreign Securitizations by Foreign Originators Using Dutch SPVs (Mainly foreign underlying assets) - 2010: Value of Issuance (In millions of euros) 8,522; Outstanding Amounts (In millions of euros) 105,306 - 2011: Value of Issuance (In millions of euros) 7,845; Outstanding Amounts (In millions of euros) 94,310 - 2012: Value of Issuance (In millions of euros) 9,112; Outstanding Amounts (In millions of euros) 88,284 - 2013: Number of Issues 30; Value of Issuance (In millions of euros) 9,150; Outstanding Amounts (In millions of euros) 74,742 - 2014: Number of Issues 18; Value of Issuance (In millions of euros) 9,412; Outstanding Amounts (In millions of euros) 66,365 - 2015: Number of Issues 14; Value of Issuance (In millions of euros) 9,322; Outstanding Amounts (In millions of euros) 61,034 - Source for Table 4: DNB. ### Investor composition of securitizations (values in millions of euros) - Table 5: Netherlands: Dutch Securitizations by Type of Investor (Value of investments in millions of euros) - Dutch securitizations (Total) - 2013: Dutch Banks 173,807; Dutch Institutional Investors 4,694; Dutch other Financial Institutions 9,255; Dutch Households 7; Non-residents 78,378; Total 266,141 - 2014: Dutch Banks 167,970; Dutch Institutional Investors 5,752; Dutch other Financial Institutions 7,903; Dutch Households -; Non-residents 74,414; Total 256,038 - 2015: Dutch Banks 155,775; Dutch Institutional Investors 4,441; Dutch other Financial Institutions 7,181; Dutch Households 2; Non-residents 56,027; Total 223,426 - Foreign securitizations by type of investor (Value of investments in millions of euros) - 2013: Dutch Banks 346; Dutch Institutional Investors 1,154; Dutch other Financial Institutions 198; Dutch Households 5; Non-residents 73,039; Total 74,742 - 2014: Dutch Banks 361; Dutch Institutional Investors 1,216; Dutch other Financial Institutions 163; Dutch Households 5; Non-residents 64,621; Total 66,365 - 2015: Dutch Banks 381; Dutch Institutional Investors 1,463; Dutch other Financial Institutions 109; Dutch Households 3; Non-residents 59,078; Total 61,034 - Source for Table 5: DNB. Note: Includes retained securitizations. ### Auditor oversight: role and IOSCO expectations - A complete framework for audit and auditor oversight is necessary for an effective securities regulatory regime. - The IOSCO principles expect three aspects to be fulfilled by the audit framework: - Independent, qualified auditors operate, and are seen to operate, in an environment that supports objective decision-making on key issues having a material effect on financial statements (Principle 20). - Audits are performed using high-quality auditing standards (Principle 21). - The reliability and integrity of the financial reporting process is supported by effective oversight of those performing audit services by a body independent of the auditing profession and acting in the public interest (Principle 19). ### Audit and auditor requirements (scope, licensing, registration, and qualifications) - Dutch law requires approximately 21,000 entities to be audited by approved auditors (statutory audit requirements), ranging from governmental bodies to private companies. - The Wta distinguishes between PIEs and other entities. PIEs include listed companies, banks, and insurance companies. - PIEs make up about 5 percent of all entities subject to the statutory audit requirement. - Table 6: Netherlands: Number of Statutory Audits - Number of statutory audits 2013 2014 - Number of statutory audits at PIEs 1,049 979 - Non-PIE statutory audits 20,704 19,875 - Total number of statutory audits 21,753 20,854 - Source for Table 6: AFM Monitor. - Main obligations for Dutch audit firms and auditors derive from EU Regulation 537/2014, the Wta, the Audit Firms Supervision Decree (Besluit toezicht accountantsorganisaties (Bta)) and professional audit standards issued by the Nederlandse Beroepsorganisatie van Accountants (NBA). Stricter legal requirements apply to statutory audits of PIEs. - Only audit firms licensed by the AFM may conduct statutory audits. Two license types: PIE audit and non-PIE audit. - As of July 2016: - 9 licensed PIE audit firms - 342 licensed non-PIE audit firms - 704 auditors employed by or affiliated with PIE-audit firms - 1070 auditors employed by or affiliated with non-PIE-audit firms - A tenth firm is licensed to perform PIE audits but does not currently engage in auditing activities. - With implementation of EU Directive 2014/56/EU, the AFM will register audit firms approved in other EU member states and these registered firms will be allowed to carry out statutory audits in the Netherlands. - Licensing process: comprehensive off-site review; first statutory audit by newly licensed firms is included in AFM’s regular inspection program once completed. - Registration regime for audit firms from outside the EU: third-country audit entities must register with the AFM to issue audit reports for companies incorporated outside the EU and EEA whose securities are admitted to trading on a regulated market in the Netherlands. Registration is less extensive than licensing. As of July 2016, there are 13 registered third-country audit firms with 25 employed or affiliated auditors. - Individual auditors must be registered accountants with the NBA. Requirements include practical experience, passing a detailed examination, and continuous education requirements (on average, 120 hours every 3 years). - The AFM maintains a public register for all licensed audit firms, auditors employed by or affiliated with audit firms and of all third-country audit entities and third-country auditors registered with it. ### Independence requirements and safeguards - Independence requirements are set out in EU Regulation 537/2014, the Wta, the Bta, and Regulations issued by the NBA: Audit Firms Regulation (VAO) and Independence Regulation (ViO). - The Netherlands uses a threats and safeguards system to address potential independence issues. Audit firms and auditors must assess and document independence, implement safeguards where threats exist, and withdraw where sufficient safeguards cannot be implemented. - Additional requirements include annual confirmation by all auditors that they comply with independence rules and report any perceived threats. - The VAO obliges audit firms to appoint an officer to supervise compliance with independence requirements; the NBA ViO imposes independence obligations on all professional accountants involved in assurance engagements. - Dutch auditor rotation rules are stricter than EU Regulation 537/2014: - Dutch law: responsible auditor may only perform the statutory audit of a PIE for a maximum of five consecutive years. - EU Regulation 537/2014 equivalent period: seven years. - Cooling-off period: three years before the auditor may again be responsible for the statutory audit for that PIE. - Extensive rules limit relationships between audit firms and audit clients, including limitations or prohibitions on providing non-audit services and taking employment as a director or senior officer with the audit client. The Netherlands has implemented additional requirements beyond the EU list of prohibited non-audit services for PIE-audit firms. - Audit firms performing statutory audits of PIEs must publish a transparency report that includes a statement concerning independence practices and confirmation that an internal review of independence compliance has been conducted. ### Appointment, notification, and disclosure of auditor changes - The Dutch Civil Code regulates appointment of the auditor: the General Meeting of members or shareholders has the power to appoint the auditor. If it does not, the Supervisory Board, or if absent or failing, the management board is empowered to do so. - The ability of the management board to appoint the auditor and/or audit firm will likely be removed with implementation of new legislation in 2017. - With the entry into force of EU Regulation 537/2014, the audit committee is responsible for the selection procedure for auditors and audit firms by PIEs and must make a recommendation for the appointment of a statutory auditor of the PIE. - Material changes regarding auditors must be notified to the AFM; if the audit client withdraws the audit assignment or the auditor ends the assignment before completion, both must give prompt written notice to the AFM and provide an adequate statement of reasons. - The Netherlands regime does not include a general obligation on unlisted public issuers or on auditors to make prompt public disclosure of auditor resignations or changes; the AFM does not publish the notices it receives. - Recommendation in the text: Relevant legislation should be amended to require immediate public disclosure of a change of auditor and the reasons therefore. This should apply (at least) to all public issuers and consideration should be given to extending the obligation to all PIEs and their auditors. Reporting obligations can be drafted to allow confidential filing in appropriate circumstances. ### Audit standards and governance of the NBA - The NBA sets auditing standards largely following the International Standards on Auditing (ISAs). The NBA issues Further Regulations (e.g., NV COS) and is committed to adopt ISAs established by the IAASB unless national laws or regulations require different treatment. - Adherence to these auditing standards is required and the NBA interprets the standards for the industry. - Proposed auditing standards and regulations are subject to prior public consultation and require approval of the MoF with the advice of the AFM. - The NBA must provide the MoF with requested information concerning the organization, including an annual report regarding activities and yearly budget, to enable public oversight. *Source: cr1791 - 38. The prospectus will only be approved when it fulfills the requirements from the* ### 60. The AFM is the responsible regulator for audit and auditors and is independent of the ### The AFM is the responsible regulator for audit and auditors and is independent of the auditing profession ### Role, independence, and statutory powers - The AFM licenses and supervises audit firms, supervises auditors employed by or affiliated with these audit firms, and registers third-country audit entities. - With the implementation of the new EU Directive, the AFM will also be responsible for the registration of audit firms that are approved in other EU member states to carry out statutory audits. - The AFM has authority to take enforcement action in cases of noncompliance. - The Wta sets out criteria that the majority of the Executive Board members of the AFM must meet to ensure the board is independent from the auditing profession; essentially, they must have had no professional relationship with an auditing firm in the past three years. In practice, all members meet these requirements. - One member of the Executive Board has a background in audit to ensure necessary expertise. ### Organization, staffing, and resourcing - Audit Quality and Reporting Division combines audit oversight pursuant to the Wta and supervision of financial reporting by publicly listed companies. - The Division has staff equivalent to 49 full-time employees (full-time equivalents or FTEs). - The division devotes considerable resources to audit oversight: a total of 38 FTEs are available for audit oversight activities. - Approximately 25 senior inspectors carry out the supervision. - Other staff include persons carrying out international activities, policy officers and administrative support staff. - All inspectors are non-practitioners; most are experienced professionals from audit firms (mainly Big 4 firms). - Inspector expertise is reinforced by further training, including the AFM general education program on supervision, “on the job” training, and continuous education for auditors. ### Transparency and public reporting - Public reporting includes: - Information in the annual reports and periodic supervision agenda of the AFM; - Information about regular and thematic inspections through inspection reports on the AFM’s website; and - To the extent the law permits, the publication of enforcement decisions. - Since 2014, the AFM has the power to publish its principal findings and conclusions from its inspections at named audit firms provided findings cannot be traced to anyone other than the audit firm; audit clients cannot be named. - In practice, all AFM’s enforcement decisions regarding auditors have been made public on its website. ### Inspection and investigation powers and processes - Dutch administrative law does not formally distinguish between inspections and investigations; the AFM has the same supervisory powers for both activities. - Powers include the ability to: - Enter premises; - Demand the provision of information; - Demand to see a person’s identity card; and - Inspect business information and documents, to make copies or to take the information and documents. - Every natural or legal person is obliged to fully cooperate with a supervisory authority. - Staff from the Audit and Reporting Quality Division carry out both inspections and investigations; in practice different staff carry out inspections and investigations. - On-site visits may take place without notice, although most routine inspection visits are scheduled. ### Inspection types, selection criteria, and methodology - Inspection strategy includes: - Regular and thematic inspections at audit firms reviewing audit engagements and elements of the firms’ internal quality-control systems using a risk-based supervisory approach; and - Inspections regarding the monitoring of the design and implementation of measures audit firms are putting in place to raise the quality of their statutory audits (focusing on audit firms’ governance and culture). - Legal inspection frequency: - The AFM must inspect each audit firm at least once every six years, or every three years for PIE audit firms. - Resource focus: - The AFM spends most of its resources on PIE audit firms and most of that attention is devoted to the Big 4 audit firms. - The Big 4 audit firms conduct approximately 95 percent of all statutory audits on listed companies in the Netherlands. - File selection is risk-based. Factors considered include: - Division between PIE audit clients and non-PIE audit clients; - Range of market segments served; - Audit engagement files of various auditors; - Distribution of audits across organizational elements of the audit firm; - Audit engagement files which have undergone EQCR and which have not; - Audit engagement files which have undergone internal quality reviews and which have not; and - Audit file engagements with average or higher-risk profiles. - Methodologies: - The AFM uses the Common Audit Inspection Methodology (CAIM) for review of internal quality-control systems. ### Recent inspection program activity and counts - In the most recent Big 4 inspection cycle, the AFM reviewed 10 audit engagement files for each Big 4 firm. - These audit engagement files included four PIE audit engagement files, including one health insurer and three other types of PIEs. - The inspections at each firm also reviewed six non-PIE audit engagements, including at least one pension fund, one public or semi-public organization and one large undertaking. - The AFM reviewed the design and implementation of improvement measures at nine active PIE-audit firms in 2015. - Table of regular inspections carried out in the years 2011–15 (start date basis): - 2011: Total 2; PIE-Audit Firms 2; Non-PIE Audit Firms 0 - 2012: Total 39; PIE-Audit Firms 8; Non-PIE Audit Firms 30 - 2013: Total 25; PIE-Audit Firms 5; Non-PIE Audit Firms 20 - 2014: Total 5; PIE-Audit Firms 5; Non-PIE Audit Firms 0 - 2015: Total 4; PIE-Audit Firms 4; Non-PIE Audit Firms 0 - Thematic inspections carried out in the years 2011–15 (sector and firm level combined): - 2011: Total 15 - 2012: Total 4 - 2013: Total 4 - 2014: Total 4 - 2015: Total 8 ### Thematic work, remediation, and enforcement posture - Post-crisis inspection reports identified extensive weaknesses in the conduct of statutory audits, particularly those of PIEs. - The AFM called on PIE audit firms to carry out root-cause analyses and implement improvements. - Since 2015, the AFM has conducted inspections to assess the design and implementation of improvement measures. - 2015 inspections at nine active PIE-audit firms considered governance, whether public interest is the leading consideration in firm culture and conduct, transparency to stakeholders, and network influence on quality. - A first public report on the monitoring activity appeared in 2015. - In 2016, the AFM conducted follow-up inspections to consider implementation of improvement measures. - If a PIE audit firm’s design or progress in implementation is inadequate, the AFM will consider imposing formal enforcement measures. ### Role of professional accountancy associations and AFM oversight of non-PIE inspections - The AFM signed supervisory arrangements with two professional associations: the NBA and the Samenwerkende Registeraccountants en Accountants Administratieconsulenten (SRA), relying on their quality-control assessments of non-PIE audit firms. - The associations have performed approximately 340 reviews and use a review program that parallels that used by the AFM. - The associations must inform the AFM immediately when they see serious violations of the auditor’s legal duties. - The AFM can request the associations include a specific audit firm in the review cycle or include particular focal points; associations generally comply but have no legal obligation to do so. - The AFM has the authority to review the quality of the assessments carried out by the associations; those reviews have recently been instituted. - The AFM retains the right to carry out its own inspections at non-PIE audit firms. - Suggested consideration: the AFM should consider renegotiating the agreements to give the AFM express control over key issues such as scope of reviews, access to working papers and other information, and follow up of review outcomes. ### Monitoring, signals, investigations, and enforcement decision-making - Audit firms and audit clients must inform the AFM without delay if the audit client withdraws the assignment, or the auditor/audit firms end the assignment before the statutory audit has been completed (Dutch Civil Code). - The Audit Firms Supervision Decree (Besluit toezicht accountantorganisaties, (Bta)) obliges audit firms to establish procedures and rules recording and dealing with incidents that have serious consequences for the integrity of their operations and to notify the AFM immediately. - Signals and incidents also come from audit clients, whistleblowers, investors, other regulators in the Netherlands (such as the DNB), foreign regulators and audit oversight bodies, the media, or any member from the public. - All incidents are followed up while all signals are analyzed and a risk-based approach selects matters for follow-up. - Follow-up actions include cross-checking other AFM information, requiring more information from the audit firm, or inviting the firm’s management board to the AFM. - If further investigation is needed, the management team of the Audit Quality and Reporting Division can decide to formally start an investigation. Findings are presented to the audit firm. - The decision to take formal enforcement action against the audit firm is made by the Executive Board of the AFM. - Recent investigations have focused, inter alia, on the role of audit firms and/or auditors with respect to signals of fraud and corruption. *INTERNATIONAL MONETARY FUND — chapter content.* ### 80. The AFM carried out 27 investigations from 2011 to 2015. Of the 27 investigations, 19 ### 80. The AFM carried out 27 investigations from 2011 to 2015 ### Investigations carried out (2011–15) - The AFM carried out 27 investigations from 2011 to 2015. - Of the 27 investigations, 19 were carried out at PIE-audit firms and 8 at non-PIE audit firms. - Breakdown by start year (investigations usually extend across more than one year): - 2011: Total 3 — PIE-Audit Firms 2 — Non-PIE Audit Firms 1 - 2012: Total 13 — PIE-Audit Firms 9 — Non-PIE Audit Firms 4 - 2013: Total 4 — PIE-Audit Firms 3 — Non-PIE Audit Firms 1 - 2014: Total 6 — PIE-Audit Firms 4 — Non-PIE Audit Firms 2 - 2015: Total 1 — PIE-Audit Firms 1 — Non-PIE Audit Firms 0 - Source: AFM. ### Enforcement powers and policy - Statutory powers under the Audit Firms Supervision Act include the power to: - Issue an instruction; - Impose an order for an interim penalty payment; - Impose an administrative fine; - Issue a public warning; and - Withdraw an audit firm’s license. - Statutory language limits the application of the instruction, order for interim penalty payment, and withdrawal of a license to audit firms. - Administrative fines can be imposed on audit firms and on those individuals who are de facto in control. - The AFM cannot exercise instruction/interim payment/license-withdrawal powers against other individual auditors, but can refer matters to the Disciplinary Court. - Public enforcement policy: AFM has a policy framework for deciding sanctions; important drivers include severity of the violation and whether the firm has taken appropriate measures to end the violation. Other considerations include management involvement and potential distortion of public confidence due to an inappropriate auditor’s report. ### Use of enforcement powers and outcomes (2011–2016) - The AFM imposed 10 administrative fines against audit firms in the years 2011–2016. - Nine of these fines were imposed on PIE-audit firms. - Most fines were imposed for violation of the duty of care (breach of statutory obligation to ensure auditors comply with professional standards). - Other fines were for: insufficient quality assurance policies; incorrect internal procedures with respect to the EQCR; inadequate execution of the compliance officer function. - Total fines imposed by the AFM in the years 2011–2016 amount to €7.12 million. - In March 2016, the AFM imposed administrative fines on all Big 4 firms for violating the duty of care: - Total amounts of these administrative fines totaled €6.13 million - Individual fines varied from €845,000 to €2.23 million. - All AFM enforcement decisions in relation to fines are made public on the website. ### Disciplinary and criminal proceedings against individual auditors - Individual statutory auditors are subject to disciplinary proceedings conducted by a separate body (Disciplinary Court for Auditors). - If the AFM believes an individual auditor should be sanctioned, the AFM can file a complaint at the Disciplinary Court for Auditors. - Disciplinary Court sanctions under the Accountants Disciplinary Law Act include: - Warning; - Reprimand; - Disciplinary fine; - Temporary exclusion from the accountants’ register for a maximum period of one year; and - Exclusion from the accountants’ register. - A decision of the Disciplinary Court may be appealed to the Trade and Industry Appeals Tribunal. - The Public Prosecutions Office may pursue criminal action for serious auditor malfeasance; the AFM may file a criminal complaint at the Public Prosecution Office. - In the period 2011–2016, the AFM pursued disciplinary cases against six auditors: - Five cases were against auditors employed by or affiliated with PIE-audit firms; one was against an auditor employed by or affiliated with a non-PIE audit firm. - In all six cases, the Disciplinary Court imposed a sanction. - Sanctions varied from a warning to an exclusion of the auditor from the accountants’ register for six months. - Sanctions are entered into the accountants’ register (public; on the website of the NBA). ### Fund management — market size and structure (end-2015 / Q2 2016 where stated) - Net assets under management (AUM) of Netherlands domiciled CIS (including AIFs and UCITS funds), at the end of 2015 were €733 billion. - This €733 billion is approximately 7 percent of the total net CIS assets for the Euro area and under 6 percent of the total CIS assets in the EU. - UCITS funds made up €34.6 billion of the Netherlands domiciled funds AUM (equal to 0.4 percent of the total assets of the European UCITS industry of €8 trillion). - AUM of equity funds: €16.75 billion. - AUM of bond funds: €15.42 billion. - AUM of mixed assets funds: €770 million. - AUM of real estate funds: €1.37 billion. - AUM of other funds: €270 million. - The alternative investment management sector is largely domestic; the vast majority of Netherlands AIFs are managed by domestic AIFMs. - According to 2015 year-end reporting, total AIF assets managed by the Netherlands collective investment managers were just under €700 billion. - Seven hundred forty nine non-Netherlands EEA AIFs had been approved to be marketed in the Netherlands by the end of Q2 2016; no AUM available for these funds due to data limitations. - Table of Netherlands domiciled CIS as of September 2016 (by type and closed-end/open-end): - Equity Fund: Closed-End 36 — Open-End 484 — Total 520 - Mixed Funds: Closed-End 2 — Open-End 119 — Total 121 - Hedge Funds: Closed-End 0 — Open-End 88 — Total 88 - Bond Funds: Closed-End 4 — Open-End 290 — Total 294 - Real Estate Funds: Closed-End 498 — Open-End 151 — Total 649 - Other Funds: Closed-End 364 — Open-End 155 — Total 519 - Total: Closed-End 904 — Open-End 1,287 — Total 2,191 - Money market funds (MMFs): - Approximately 25 MMFs domiciled in the Netherlands with AUM estimated to be €9.9 billion. - This €9.9 billion is less than 1 percent of the Euro area total of €1.096 trillion. - MMF sector AUM grew from €2 billion in 2012 to €9.9 billion (institutional investors are the main investors). - Ownership of securities issued by Dutch CIS: - Dutch retail investors hold less than 5 percent of the value of securities issued by domestic funds. - Over 90 percent of securities issued by Dutch CIS are owned by pension funds (80.3 percent) and insurance companies (9.8 percent). ### Data issues and reporting limitations - Challenges reconciling and interpreting CIS data: - DNB statistics follow international statistical standards and include both supervised and unsupervised CIS, which does not map directly to UCITS/AIF assets or assets managed by authorized firms. - DNB reports assets and liabilities (not NAV); counts CIS by sub-fund. - AFM reports at the umbrella-fund level (resulting in a much smaller number). - AIF holdings are not yet reported to ESMA as required under the AIFMD; ESMA aggregation/analysis system not fully operational. - Interpretation of the AIFMD reporting template varies, producing different reporting of fund strategies and other information (such as leverage). - AFM and DNB recognize data shortcomings and are working to clean up information using other sources, including ESMA under MiFID. ### Fund management authorization and supervisory responsibilities - Number of authorized domestic fund managers (as of June 1, 2016): - 16 fund managers authorized to manage and offer units in a UCITS fund in the Netherlands. - 42 UCITS funds established in the Netherlands and managed by Dutch fund managers. - 902 UCITS funds managed by non-Dutch fund managers are also established in the Netherlands. - 103 licensed AIFMs, of which 87 held a license to manage CIS (other than UCITS) prior to the AIFMD effective date (these domestic licenses were automatically converted to AIFM licenses). - Two types of CIS recognized by the Dutch regime: UCITS funds and AIFs (any CIS not qualifying as UCITS is an AIF). - UCITS: collective investment vehicle raising capital from the public, invests in compliance with UCITS investment restrictions (diversification, liquidity assumptions). - AIFMD de minimis thresholds (as stated in the source): - Manager manages assets worth less than €100 million for leveraged or open-end AIFs, or less than €500 million for unleveraged AIFs that are not redeemable for at least five years after acquisition. - Light/registered AIFMs ("light managers"): - May not be authorized under AIFMD if meeting de minimis/exempt criteria; registration regime applies domestically. - Conditions include only offering AIFs to professional investors; offers to retail investors must be to fewer than 150 persons, minimum purchase greater than €100,000 per person, or units have a minimum denomination of €100,000. - Light managers are unregulated save for reporting obligations to the AFM and the DNB. - Light managers cannot use the EU passport system; may sell cross-border to professional investors via national private placement regimes. - Supervision split: - AFM: responsible for market conduct of CIS and their managers. - DNB: responsible for prudential supervision of UCITS management companies, AIF managers and internally managed investment companies. - Persons with a ‘qualifying holding’ (10 percent or more) in a UCITS management company domiciled in the Netherlands must apply for a declaration of no objection (DNO) from the DNB. - DNB reviews proposed qualifying holdings for fit and financial soundness for UCITS management companies; DNB has no equivalent authority to review holders of qualifying holdings in AIFMs — that authority belongs to the AFM. - Identified supervisory anomaly and recommendation: - Supervisory anomalies (different authorities and toolkits for qualifying holdings across entity types) should be eliminated; suitable amendments (national level or to AIFMD) are recommended so supervisors have equivalent toolkits. - Example recommendation: significant shareholders of any investment management firm (UCITS, individual portfolios or AIFs) should be subject to the same assessments. *Source: IMF staff summary of material in the provided content unit.* ### 103. IOSCO expects that there be a proper and disclosed basis for asset valuation and for ### IOSCO expects that there be a proper and disclosed basis for asset valuation and for ### Valuation basis and NAV calculation - IOSCO expects a proper and disclosed basis for asset valuation and for determining the price of units of a CIS (see IOSCO Principle 27). - Specific requirements should govern the regular valuation of CIS assets using high quality accepted accounting standards applied consistently to produce fair and reliable valuations. - Supervisors should periodically evaluate whether CIS operators have systems and controls to ensure valuations are fair and the calculation of NAVs are correct. - The NAV of the CIS’s securities should be published regularly. - Pricing errors should be governed by enforceable requirements. ### UCITS: national determination and Netherlands practice - The UCITS Directive leaves determination of valuation requirements to the home member state; it requires rules for valuing assets and calculating the price of UCITS units to be laid down in applicable national law, in the fund rules, or in the instruments of incorporation of the investment company. - A management company managing a UCITS fund domiciled in another EEA state must comply with the valuation, accounting and pricing rules of the fund’s domicile. - Fund managers are responsible for calculating the NAV and determining subscription and redemption prices; they must have procedures to ensure proper and accurate valuation of assets and liabilities in accordance with the fund rules and prospectus. - Netherlands specifics: - Specific requirements for valuation of UCITS assets are incorporated in the Dutch Civil Code and recommendations from the Dutch Accounting Standards Board. - The Decree on Conduct of Business Supervision Financial Institutions (Besluit Gedragstoezicht financiële ondernemingen Wft, BGfo) states valuation of assets and liabilities should be performed according to generally accepted standards. - AFM has general authority to make rules to guide valuation of UCITS assets; no current guidance is in place. - Dutch GAAP rules on valuation of CIS assets would require market values to be used and are largely consistent with IFRS (per authorities’ information). - Operational and governance expectations: - UCITS fund’s business operations must ensure determination of a reliable, correct and consistent NAV. - No specific rules if market prices are not available, but AFM expects procedures to determine valuations in these circumstances. - For illiquid investments, an independent expert must perform a valuation at least once a year. - All valuation activities must be separate from other manager activities. - The depositary must ensure unit value is calculated in accordance with applicable national law and/or fund rules. - External auditor and AFM regularly test processes used to determine NAV and assess valuation methodology. - Valuation frequency: - UCITS Directive specifies at least two valuation points in a month that are at least two weeks apart. - In the Netherlands, the Wft requires the manager determines the NAV whenever a UCITS fund offers, sells, repurchases, or redeems units. - The valuation must be published on the manager’s website without delay. - Prospectus must state how NAV is determined, how often, and the currency of NAV. ### AIF valuation and valuation function independence - AIF valuation requirements are based on the AIFMD: - AIF assets must be valued and NAV per unit calculated at least once a year. - For open-ended AIFs, frequency must be appropriate to assets held and issuance/redemption frequency. - Financial instruments must be valued every time the NAV per unit is calculated; other assets at least once a year and whenever evidence shows last value is no longer fair or proper. - For closed-ended AIFs, valuations and calculations must also be carried out in case of an increase or decrease of the AIF’s capital. - Implementing measures include detailed requirements on content, consistency of application and periodic review of valuation policies and procedures, use of models, and review of individual asset values. - These requirements do not specify valuation methods; valuations must follow rules laid down in law of country where AIF is established and/or in the fund’s rules (Commission Delegated Regulation (EU) No 231/2013, Article 2, paragraph 1(b)). - Dutch AIFs generally subject to same rules as UCITS (valuation at market value as far as possible), but funds established elsewhere may not be subject to same requirement. - Responsibilities and liabilities: - Fund managers are responsible for proper valuation of AIF assets, calculation and publication of NAV; liability to AIF and investors not affected by appointment of external assessor. - External assessor liable to fund manager for losses from negligence or intentional failure and cannot contract out of this responsibility (part of Dutch civil law). - Depositaries and auditors have similar verification obligations as for UCITS. - Independence requirements: - If AIFM performs valuation, those responsible must be functionally independent from portfolio management and remuneration policy; other measures to mitigate conflicts of interest required. - Any external valuer must be independent from the AIF, the AIFM, and any other person with close links to the AIF or AIFM. - AIF’s depositary cannot be appointed as external valuer unless functionally and hierarchically separated valuation tasks and depositary functions and conflicts of interest are properly identified, managed, monitored, and disclosed. - External valuer prohibited from delegating the valuation function. - AIFM must notify competent authority of appointment of external valuer. - If valuation not performed by independent external valuer, competent authority may require verification of valuation procedures and/or valuations by an external valuer or auditor; AFM has not yet ordered such a verification. ### Forward pricing; trading system; spreads - Dutch CIS regulatory framework requires forward pricing for all types of funds; all AIFs and UCITS funds must be priced using forward pricing, consistent with IOSCO Principle 9. - Trading system in the Netherlands facilitates purchase and redemption of open-ended CIS funds: - Euronext Amsterdam developed Euronext Fund Service to facilitate this trading system. - Trading system and associated attribution-of-costs system applies to all open-end CIS listed at Euronext Amsterdam and all non-listed open-end CIS offering participations in the Netherlands. - Price of executed orders consists of the NAV plus or minus a (limited) spread. - Spread may only cover costs needed to facilitate participants entering or exiting the CIS (e.g., transaction costs of underlying assets and costs from ‘market impact’ for illiquid assets). - Spread charged as a percentage of the NAV and needs to be published in the prospectus. - Difference between real costs and calculated spread are settled within the CIS. - CIS managers expected to periodically assess if the size of the spread is adequate; spread is not supposed to be a source of return nor a structural loss. - Historical pricing is not permitted. ### Money Market Funds (MMFs) - MMFs pose no present risk in the Netherlands. - EU discussion on MMF Regulation may permit constant NAV MMFs subject to safeguards; Recommendation 10 of IOSCO Policy Recommendations for MMFs strongly recommends against allowing constant NAV funds due to risks of “breaking the buck” and runs. - Given small aggregate AUM of Dutch MMFs and most being variable NAV funds, risks of runs are small; however, AUM at MMFs are growing fast and supervisors should monitor closely. - Pending EU rules finalization, supervisors should ensure any new constant NAV funds comply with IOSCO Policy Recommendations for MMFs safeguards. ### Treatment of pricing errors - UCITS Directive and AIFMD include general references to treatment of pricing errors: - UCITS Directive: UCITS home member state rules apply to NAV calculation errors and related investor compensation. - AIFMD implementing measures require AIFM to ensure remedial procedures are in place for incorrect NAV calculation. - Dutch requirements: - Fund prospectuses must contain disclosure relating to pricing errors and investor compensation for errors. - According to BGfo, UCITS prospectus must state circumstances and manner in which unit holders are compensated for an incorrectly calculated NAV, and in particular any maximum percentage of divergence from the correctly calculated NAV that applies to compensation. - Under the “top-up retail regime,” open-ended AIFs offered to retail investors must also include this information in their prospectuses. - Compensation for errors not specifically required by law, but AFM expects administrative organization and internal controls to incorporate extensive procedure to compensate investors for NAV calculation errors. ### Managing redemption risk and liquidity risk management - IOSCO principles expect CIS managers/operators be required to have a risk management framework supported by appropriate documented policies and procedures and an independent risk management function proportionate to size, complexity and risk profile of the CIS (Principle 24, Key Questions 2(e) and (f)). - UCITS requirements: - UCITS funds are subject to investment limits and managers must manage and measure risk continuously. - UCITS Directive requires a risk management process to monitor and measure risk of positions and contribution to overall risk profile at any time. - UCITS Implementing Directive includes additional requirements on due diligence in selection of investments and on risk management and measurement. - Risk management policies/procedures must allow assessment of exposure to full range of risks, including liquidity risks. - Competent authority must review risk management policy when authorizing manager and on an ongoing basis; material changes must be notified. - UCITS managers must implement internal risk limits including for liquidity risk, employ an appropriate liquidity risk management process to ensure compliance with redemption obligations, and where appropriate conduct stress tests about UCITS liquidity risk under exceptional circumstances. - Liquidity profile of UCITS must be appropriate to disclosed redemption policy; AFM checks liquidity-investment/redemption match as part of new fund review. - Dutch system does not impose additional requirements or provide additional guidance on risk management at UCITS funds; supervisors may request but do not routinely require reports on risk management process or stress testing outputs. - Enhancement recommendations: - Current rules require liquidity stress tests only for exceptional circumstances; IOSCO Principle 14 requires liquidity risk assessments for normal scenarios as well. - Framework would be enhanced by requiring UCITS fund managers to conduct liquidity stress tests under both normal and stressed scenarios; authorities encouraged to seek enhancements either through UCITS Directive changes or their own measures. - Routine reporting of liquidity data and stress testing results by UCITS managers might be pursued. - AIF requirements: - AIFM risk management requirements include functional and hierarchical separation of risk management from operating units; adequate systems to identify, measure, manage and monitor all risks; annual review of risk management systems. - AIFM must ensure investment strategy, liquidity profile and redemption policy of each AIF are consistent. - AIFM required to employ appropriate liquidity management system and procedures to monitor liquidity risk and ensure liquidity profile of investments complies with obligations. - AIFM must regularly conduct stress tests under normal and exceptional liquidity conditions to assess and monitor liquidity risk. - AIFM must disclose to investors AIF’s liquidity risk management description, redemption rights in normal and exceptional circumstances, and existing redemption arrangements. - AIFMs must identify, manage and monitor conflicts of interest between redeeming and remaining investors and between AIFM’s incentive to invest in illiquid assets and its redemption policy. - Dutch system does not impose additional requirements or provide additional guidance on risk management for AIFs. ### Special tools and exceptional measures for liquidity management - IOSCO Principles for Liquidity Risk Management contemplate specific tools/measures to manage liquidity: exit charges, limited redemption restrictions, gates, dilution levies, in specie transfers, side pockets or suspension of redemptions. - Conditions for use: - Tools and measures should be fully disclosed to investors. - Only used where fair treatment of investors is not compromised and where permitted by applicable CIS laws. - Netherlands practice: - AFM has banned side pockets, except where a separate sub-fund is created for liquidating the assets; side pockets are banned because they create an incompatible closed-end part within an open-end fund. - Since 2010, AFM has not permitted new open-end funds intending to invest in illiquid securities. - Pricing tools to address first mover advantage: - Pricing tools may be used if disclosed in prospectus and pass costs onto exiting investors rather than remaining investors. - Swing pricing (unit price determined by NAV before subscriptions/redemptions then adjusted by a pre-determined amount, the swing) has been permitted and available on short notice only if clearly explained in prospectus. - Euronext Amsterdam trading system for listed open-ended funds effectively uses swing pricing. - Prospectus must provide information on how entry and exit costs are calculated; imposing an exit charge that differs from prospectus is considered a change in terms and conditions and would need publication on fund manager website and likely a notice period before enforceability. - Other pricing tools, such as dilution levies, might be permitted but subject to same prior disclosure requirements. *Source: content unit "cr1791 - 103. IOSCO expects that there be a proper and disclosed basis for asset valuation and for" (PDF chapter/section).* ### 122. There are no specific requirements on the suspension of redemptions in the UCITS ### cr1791 - 122. There are no specific requirements on the suspension of redemptions in the UCITS ### Suspension of redemptions — UCITS - UCITS Directive: a UCITS fund may, in accordance with the applicable national law and the fund rules, temporarily suspend the redemption of its units if the suspension is in the interest of unit holders. - The competent authority and investors must be informed about any suspension. - The suspension may only continue for as long as is justified in the interest of the unit holders, with a formal review of the suspension to be held at least every 28 days. - Dutch regime: the prospectus must describe scenarios in which a suspension of pricing and redemption may take place. - AFM policy: permits suspension only in exceptional circumstances (examples given: political, economic, military, or monetary situations that hinder correct valuation or repurchase). - AFM may intervene, on a case-by-case basis, if it views the suspension of repurchase/issue as not in the interest of the investors. ### AIFMD and limited/redemption arrangements - AIFMD permits use of limited redemption arrangements to manage liquidity risk from less liquid portfolio assets. - Fund rules may contain restrictions on the right to redeem units. - Investors must be provided with a description of the AIF’s liquidity risk management, including redemption rights both in normal and in exceptional circumstances, and the existing redemption arrangements with investors. - Under AIFMD, the competent authority must have the power to require the suspension of the issue, repurchase or redemption of AIF units in the interest of the unit holders or of the public. ### AFM and DNB authority in suspension or market-wide stress - UCITS Directive does not expressly require the competent authority to have suspension powers; in practice AFM expects to agree with fund managers on a proper course of action should suspension be needed. - If problems are market-wide, the AFM may make temporary orders to improve orderly and transparent financial market processes. - DNB is vested with the power to act in the interest of financial stability, for example when large and uncontrolled market movements result in severe unrest in the financial sector. ### Use of leverage — regulatory differences - UCITS: - Global exposure calculated using either the commitment approach or the Value-at-Risk (VaR) method. - Borrowing is not taken into account when determining the leverage of a UCITS fund, but UCITS funds are permitted to borrow only up to 10 percent of their NAV. - UCITS Directive limits a UCITS fund’s global exposure from derivative instruments to 100 percent of the total net value of the UCITS portfolio. - AIFMD: - Defines leverage as any method by which the AIFM increases the exposure of an AIF, whether through borrowing of cash or securities, leverage embedded in derivative positions or by any other means. - AIFMD does not set maximum leverage limits; it requires AIFMs to set leverage limits for each AIF they manage and disclose these to investors. - Dutch supervisors do not impose any specific leverage limits on AIFs. - Leverage must be calculated using two methods: the gross method and the commitment method. - The overall leverage of an AIF is expressed as a ratio of the AIF exposure to its NAV. ### Reporting and supervisory work on leverage - AIFMD requires AIFs’ leverage to be reported to competent authorities on a regular basis. - Reporting requirements on UCITS funds’ leverage are much more limited: UCITS fund managers must only report annually on the types of derivative instruments used for each managed UCITS, the underlying risks, the quantitative limits, and the methods chosen to estimate the risks associated with the derivative transactions. - DNB projects: (a) improve data quality of leverage information; (b) develop a conceptual framework to assess need for further measures (in cooperation with the ECB). Results expected at the end of 2016. - International work: IOSCO and other groups are addressing leverage definition and measurement; AFM contributes via IOSCO Committee on Investment Management. ### Leverage calculation methods (Box 1) - UCITS Directive — commitment approach (standard methodology): - Global exposure takes into account financial derivatives and securities financing transactions (SFTs) that generate leverage. - UCITS funds can apply netting and hedging arrangements to reduce global exposure. - Under the commitment approach, leverage is calculated as the sum of: - Derivatives: sum of the equivalent positions in the underlying assets after netting and hedging arrangements; and - SFT: market value of the collateral received (including cash) when reinvested. - VaR method (used when commitment approach inadequate, or complex strategies/exotic derivatives exposure): - Relative VaR: VaR of the UCITS fund’s current portfolio compared to VaR of an unleveraged reference portfolio; portfolio VaR limit is twice the VaR of the unleveraged reference portfolio. - Absolute VaR: risk limited to maximum of 20 percent of NAV; specific requirements on confidence interval, holding period and effective observation period of risk factors. - AIFMD: - AIFMs must calculate exposures using two methods: commitment method and gross method. - Commitment method (similar to UCITS commitment approach but includes all positions): - Leverage under commitment method is calculated as the sum of: - Direct positions: at accounting value; - Derivatives: sum of market value of equivalent position in the underlying asset (after netting and hedging); - SFT: market value of the collateral received (including cash) when reinvested; and - Reuse of cash borrowing: the higher of the market value of the investment realized or the total amount of the cash borrowed. - Gross method: - Calculation based on absolute values of the assets of the AIF added up without netting and hedging. - Financial derivatives converted into equivalent position in the underlying asset using conversion methodologies set out in the AIFMD Regulation. - Cash and cash equivalents are excluded for the purpose of the calculation. - Leverage under the gross method is calculated as the sum of direct positions at absolute value minus cash equivalents. ### Regulatory gap and recommendations on leverage - The absence of an internationally agreed standard for determining an investment fund’s leverage is identified as a major regulatory gap. - Market participants are concerned about potentially misleading leverage information produced by current calculation methods. - Lack of an agreed definition complicates regional compliance and supervisory oversight. - Recommendation: development of a common method for calculation of investment fund leverage to give authorities a clearer overview of leverage use. - DNB projects are praised as excellent initiatives; supervisors encouraged to contribute to international work to harmonize leverage calculation methods. ### Depositaries and safekeeping of client assets — principles and EU rules - IOSCO principles require adequate segregation of an investment fund’s assets from assets of the fund manager, custodian and other custody clients; safekeeping best entrusted to a completely independent depositary or, if not possible, subject to special legal/regulatory safeguards. - Assets should be identified to the depositary and any sub-custodian and segregated from: (i) assets of the fund manager and its related entities; (ii) assets of the custodian/sub-custodian throughout the custody chain; and (iii) assets of other investment funds and other clients of the custodian throughout the custody chain (unless held in a permissible omnibus account). - Safeguards for related-party custodians may include additional disclosure or audit requirements. ### Depositary appointment, contract and suitability - UCITS Directive and AIFMD require appointment of a depositary for each UCITS fund and AIF. - General rule: a depositary must have its registered office or a branch in the same country where the fund is domiciled. - Exception: a non-EEA AIF’s depositary may be established in the AIFM’s home state. - Competent authority of UCITS home state must approve the depositary to act for a fund domiciled in that EEA state; AIFMD does not impose this approval requirement, but Dutch supervisors approve all depositaries used by Netherlands-domiciled funds. - AIFMD and UCITS V require a detailed written contract between the fund manager and depositary governing flow of information. - Depositary must be suitable: assessment of executives’ fitness and propriety and the depositary’s capacity to carry out duties for the type of assets and transactions. ### Prudential requirements for depositaries (Netherlands context) - Dutch prudential requirements for UCITS depositaries are the same as those of the UCITS V Directive. - UCITS V: depositary to be a national central bank or an authorized credit institution, or another authorized entity subject to minimum capital adequacy and business-conduct/operational requirements as permitted under national law. - Under Dutch rules, a bank may be a depositary without an AFM license. - A MiFID investment firm subject to the €730,000 capital requirement that meets the “own funds” requirement of the Capital Requirements Regulation can be authorized to act as a depositary of a UCITS fund or an AIF, provided it is allowed under its license to provide ancillary services such as safekeeping and administration of financial instruments for the account of clients. ### Safekeeping, segregation, and record-keeping requirements - AIFMD and UCITS V contain segregation and safekeeping/record keeping requirements applicable to all AIF and UCITS assets; duties are largely aligned. - Financial instruments held in custody must be registered in segregated accounts and clearly identified as belonging to the fund at all times. - Legal title to a safe custody asset may be registered in the name of another party or the depositary if required by foreign law or market practice, provided the depositary has notified the client in writing. - Financial instruments that cannot be physically delivered to the depositary must be registered in a segregated financial instruments account opened in the name of the fund or the manager acting on behalf of the fund. - AFM stricter rule: requires that a financial instruments account may be opened only in the name of the fund or the legal owner of the fund, to properly guarantee asset segregation. - Up-to-date records must be kept of other assets. ### Re-use (re-hypothecation) of fund assets - UCITS: a depositary (or its delegate) is prohibited from re-using the assets it holds in custody for its own account. - Re-use of assets for the account of the UCITS is subject to conditions: re-use must be for the benefit of the UCITS and in the interests of unit holders; transaction must be covered by high quality, liquid collateral at least equal to market value of reused assets plus a premium. - AIFMD: re-use arrangements can be entered into with the consent of the fund. ### Delegation of safekeeping tasks and sub-custodian requirements - Only safekeeping tasks may be delegated by a UCITS or AIF depositary; depositary must demonstrate objective reason and exercise due diligence in appointing sub-custodian. - Sub-custodian must be subject to effective prudential regulation and supervision and to external periodic audit; must segregate depositary clients’ assets from its own and from depositary assets throughout the custody chain. - Delegate must keep records enabling immediate distinction of assets of depositary’s fund clients from its own assets, assets of its other clients, and other client assets. - Under UCITS, sub-custodian must take all necessary steps to ensure that, in event of its insolvency, assets of a UCITS fund held in custody will be unavailable for distribution to the sub-custodian’s creditors (bankruptcy remote). AFM confirmed this treatment applies on bankruptcy of a Dutch depositary. - Under AIFMD, depositary agreement must obligate depositary to notify the AIFM if segregation of assets is not, or no longer, sufficient to ensure protection from insolvency of a sub-custodian. ### Netherlands compliance and EU-level interpretation issues - Netherlands requirements for safekeeping match EU rules and IOSCO expectations. - Interpretation of some segregation requirements under AIFMD has been subject to debate; with UCITS V implementation the need for a common approach has increased. - ESMA activities: published a consultation paper on December 1, 2014 on guidelines on asset segregation under the AIFMD; industry strongly objected; on July 16, 2016 ESMA issued a further call for evidence broadening scope to cover asset segregation under UCITS V. - Given cross-border nature of investment funds, Dutch authorities should contribute to EU discussions to develop a common approach; differing interpretations would lead to operational challenges and facilitate regulatory arbitrage. ### Depositary independence - AIFMD and UCITS V include detailed rules on depositary independence but do not require depositary to be at arm’s length from fund or manager. - Directives prohibit depositary from carrying out activities with regard to a fund or its manager unless it has functionally and hierarchically separated depositary tasks from other potentially conflicting tasks and potential conflicts of interest are properly identified, managed, monitored and disclosed. - AIFMD specifically prohibits an AIF’s prime broker from acting as the AIF’s depositary unless prime brokerage and depositary functions are separated and conflicts of interest properly identified, managed, monitored, and disclosed. - AFM has extended this prohibition to apply to a UCITS fund’s prime broker. - Neither directive requires the depositary to be an unrelated legal entity. *International Monetary Fund — cr1791, selected section on suspension of redemptions, leverage, and depositary/safekeeping requirements* ### 137. The Netherlands framework has no additional mandatory requirements on depositary ### The Netherlands framework has no additional mandatory requirements on depositary ### Depositary independence - The Netherlands framework has no additional mandatory requirements on depositary independence beyond those set out in EU legislation. - If the depositary is a related party of the fund manager, the AFM expects that extensive procedures will be in place to ensure the depositary is able to exercise its duty as a depositary independently. - These procedures are investigated in detail at the time the AFM receives notice of the appointment of the depositary. - The AFM has denied the use of a related-party depositary when it is of the view that insufficient independence structures were in place. - No guidance on the AFM’s expectations in this regard has been published. - Further enhancements would be beneficial to the depositary independence requirements: - The segregation and safekeeping requirements comply with IOSCO principles and standards. - The depositary independence requirements of UCITS V Directive are less stringent than IOSCO would expect and many member states already require enhanced independence from their local depositaries. - The AFM is encouraged to assess the risks from the use of related-party depositaries and consider requiring additional safeguards along the lines proposed by IOSCO. - In the meantime, providing transparent guidance to the marketplace on what is expected to be in place would be helpful. ### Depositary liability - UCITS V and the AIFMD provide for a strict liability regime governing the loss of financial instruments held in custody. - In the event of a loss by a depositary (or its delegate) an obligation is imposed on the depositary to replace the financial instrument or pay the value to the fund without undue delay. - A depositary can only avoid this strict liability standard where it can prove that the loss was as a result of an external event, beyond its reasonable control, the consequences of which would have been unavoidable despite all reasonable efforts to the contrary. - Under UCITS V a depositary cannot contractually discharge its liability in the case of the loss of assets by its delegate; the loss must be borne by the depositary rather than by the delegate. - The AIFMD allows the depositary to contract out of liability if, with the AIF’s agreement, the written contract between the depositary and the delegate expressly transfers the liability to the delegate and makes it possible for the AIF to make a claim against the delegate for the loss. - The depositary will also be liable to the UCITS and the investors of a UCITS if a loss is suffered as a result of the depositary’s negligence or intentional failure to properly fulfill its obligations under UCITS V. - Similar depositary liability for losses is imposed under the AIFMD. - All UCITS investors may invoke the liability of the depositary directly or indirectly through the management company, irrespective of the legal structure of the fund. - Under the AIFMD the right to invoke claims depends on the legal nature of the relationship between the depositary, the management company and the investors. ### Authorization — Managers and depositaries - The AFM puts significant effort into the authorization process to reduce the risk of insufficient governance. - UCITS fund managers must be authorized and AIFMs must be either authorized or registered. - In licensing and other processes the AFM emphasizes governance matters, including: - functional and hierarchical separation of portfolio and risk management functions; - checks and balances within managers; - reporting lines of directors and high-ranking officers (such as the heads of risk, control, audit, legal, and compliance functions); - relationships with third parties (such as depositaries and custodians); - conflicts of interest. - The authorization and ongoing supervision process for AIFMs has been challenging: - Eighty seven domestic fund managers that were licensed before July 22, 2013 automatically had their licenses converted to AIFM licenses on the implementation of the AIFMD. - Many of these managers were unprepared for the requirements under the AIFMD and the enhanced level of supervision they would face. - Special risk-based attention has been given to AIFMs with converted licenses, with particular attention to depositary arrangements and the segregation of client assets. - An enhanced compliance review is done when one of these managers applies to manage a new fund or gives notice of a material change. - Approximately 50 percent of these converted managers have been subject to such an enhanced review. - The AFM is intending to review the remaining managers in 2017 via thematic and risk-based reviews. - There is a comprehensive review process by a dedicated AIFM team for license or registration applications: - Any applicant for authorization as an AIF manager that applied after July 22, 2013 has been subject to a comprehensive review. - A substantial number of new applications have been refused or withdrawn. - The AFM has received a total of 24 depository notifications since 2015 to the end of July 2016. - Two hundred ninety three AIFs were registered since 2014. - Tabled licensing and registration activity (as reported by AFM): - 2014: AIFM Licenses Granted: 13; Registrations of “Light Managers”: 108; AIF Registrations: 150* - 2015: AIFM Licenses Granted: 12; Registrations of “Light Managers”: 82; AIF Registrations: 100 - 2016: AIFM Licenses Granted: 4; Registrations of “Light Managers”: 39; AIF Registrations: 43 - Footnotes in source: 1/ Does not include the managers (and their AIFs) that were “pre-AIFMD” domestically licensed and whose licenses were automatically converted into AIFM licenses on July 22, 2014. 2/ The numbers for 2016 reflect only the first half of the year. ### Authorization — Funds - The pool of fund managers in the jurisdiction is small: - As of June 1, 2016, 16 fund managers are authorized to manage and offer units in a UCITS fund in the Netherlands. - Of the 944 UCITS funds established in the Netherlands, 42 are managed by Dutch fund managers and 902 by non-Dutch fund managers. - During the last 3 years the AFM has granted 6 UCITS fund manager licenses and 17 requests for registration of UCITS funds. - The authorization process is largely based on reviewing documents submitted online and/or on paper, with additional contacts as needed. - The application process for new AIF or UCITS manager licenses requires submission of extensive information, including: - fitness and propriety of the policy makers; - policies and procedures for the sound conduct of business; - control structure; - conflict of interest policies and disclosure; - depositary and safekeeping of assets; - capital adequacy and solvency. - The application package is filed with the AFM and automatically provided to the DNB. - The AFM is lead supervisor on the licensing process and licenses are granted when all requirements are fulfilled. - The DNB carries out its prudential assessments independently and provides the AFM with its “prudential advice” once completed. - The AFM’s review of an application is risk-based, with particular attention to: - matches between types of invested assets, redemption frequencies, restrictions on redemptions, and target investor type and investment horizon; - policies that impact risk profiles and risk-taking behavior, e.g., remuneration, conduct of business, risk management, and conflicts of interest policies; - governance, such as a functionally independent risk function and fit and proper day-to-day management; - the role of the depositary. - For depositaries, the AFM focuses on the content of the depositary agreement: - Every depositary agreement submitted for registration is fully reviewed for compliance with the directives and implementing regulations. - The AFM reviews operating memoranda, service or operating level agreements and all other documents provided. - Persons who effectively conduct the business of the depositary must be fit-and-proper (of sufficiently good repute and sufficiently experienced). - If new instruments are to be held by the depositary, its capacities are reassessed. ### Delegation requirements - Under the UCITS Directive: - Member states have discretion to determine whether, and subject to which conditions, delegation of investment management is permitted. - The fund manager may delegate one or more functions, but outsourcing of the investment policy is not permitted. - The UCITS Directive prevents delegating investment management to the depositary or to any other person with potential conflicts of interest and requires the delegate to be authorized for asset management, prudentially supervised, and, in the case of a non-EEA person, there must be cooperation arrangements in place between the relevant authorities. - Delegation must not prevent effective supervision or the fund manager from giving further instructions to the delegate or from withdrawing the mandate. - Under the AIFMD: - An AIFM must provide a detailed description of its entire delegation structure to its competent authority. - Subject to approval of the competent authority of its home state, an AIFM can delegate portfolio management or risk management, subject to conditions (objective reasons for delegation; delegate must have sufficient resources; delegates for portfolio and risk management must be authorized and supervised; delegation must not prevent effective supervision). - Sub-delegation requires consent of the fund manager and notification to the competent authority. - The AIFMD specifically prohibits delegation and sub-delegation of portfolio management or risk management to a delegate of the depositary that is not functionally and hierarchically separated. - The AFM does not apply any requirements in addition to those set out in the AIFMD. - Common requirements under both Directives: - Notice of delegation to the competent authority; - Liability and limits to delegation consistent with IOSCO expectations; - A fund manager must inform the AFM of its intention to delegate any function and the prospectus must contain information about the delegates; - The liability of the fund manager is not affected by delegation; the manager remains responsible for the proper operation of the fund; - A fund manager must not delegate its functions to the extent that it becomes an empty shell (or “letter box entity”). - AIFMD additional requirements on delegation to non-EEA persons: - A written agreement must exist between the relevant competent authorities covering at least access to information and documents, the ability to carry out on-site inspections and enforcement cooperation. - The non-EEA country also must not be on the Financial Action Task Force’s (FATF) list of noncooperative countries. - As of September 2015, the AFM had entered into the AIFMD Memorandum of Understanding (MoU) with 44 foreign regulators. ### Authorization — Funds (prospectus review and registration) - The AFM follows the same overall process for registration of new UCITS funds and when notified of new AIFs. - All UCITS funds and AIFs sold by authorized AIFMDs are subject to prospectus requirements (less extensive for AIFs offered to professional investors). - All prospectuses are reviewed; attention is focused on specific information elements and KPRs (key points of review). - For AIFs the information on the depositary and on the manager is a particular focus. - If the AFM is not satisfied with information or disclosures, it challenges the proposal, often resulting in amendments or withdrawal of the application. - Notifications of new AIFs from automatically licensed AIFMs are reviewed particularly carefully and prospectuses have been rejected where not in compliance with the law. - AFM uses prospectus reviews to ensure wider compliance with AIFMD requirements. ### Foreign funds and managers - The UCITS and AIFM Directives on cross-border offering or management of funds apply with few, if any, additional requirements imposed by the Netherlands authorities. - One material exception: licensed fund managers established in a member state other than the Netherlands who wish to offer their EU AIFs to Dutch retail investors must meet the specific Netherlands requirements for offering units to nonprofessional investors (the “top-up retail regime”): - This necessitates more extensive disclosure to align the AIF prospectus with information provided in a UCITS prospectus. - To use this regime, European fund managers must complete the passport procedure, send a retail distribution notice form to the AFM, and provide a signed declaration explicitly stating that they will meet the top-up requirements in the Netherlands when offering units in an AIF to nonprofessional investors. ### Supervision — Organization and resources - IOSCO principles require the regulator to apply proper supervision throughout the life of a particular CIS and CIS operator, with clear responsibilities and powers for inspections, investigations and remedial action. - The AFM devotes significant resources to supervision of funds and fund managers. - Responsibility for supervision of funds and managers is divided between two divisions: Asset Management and Retail Investors. - Activities regarding authorization and ongoing supervision of CIS, fund managers, depositaries and investment companies are brought together in a newly formed Asset Management Division. - This division is also responsible for supervising distribution of funds to institutional investors. - The division has 26 FTEs (including support staff) with 12 FTEs dedicated to licensing and 9 to supervision and enforcement in 2016. - Ongoing supervision of distribution and investment services to retail investors is carried out in a separate Retail Investor Division, which focuses on suitability risks and monitoring and enforcement of transparency requirements for offerings to these investors. - Both divisions work closely together to optimize results. *Source: IMF staff compilation from the Netherlands section of the IMF report (cr1791).* ### 156. The department at the DNB primarily responsible for supervision of fund managers is ### cr1791 - 156. The department at the DNB primarily responsible for supervision of fund managers is ### Organizational responsibilities and capacity - The department at the DNB primarily responsible for supervision of fund managers is the Supervision Investment Firms and CIS. - The department consists of 12 staff: 9 supervisors and 3 analysts. - Its activities are supported by Supervision Policy, Statistics, Intervention, Financial Stability, and On-Site Supervision. ### Powers - Supervisors have extensive powers for examinations and investigations at the fund manager, CIS and the depositary. - Under Dutch administrative law, there is no formal distinction between inspections and investigations; the same legal basis and broad supervisory powers apply to both. ### Supervisory approach — AFM (conduct supervision) - The AFM’s supervision is risk-oriented; risk analysis is based on signals from consumers, investors and other stakeholders, interviews, investigations, and regular/ad hoc reports. - Risk analysis output influences prioritization of thematic inspections and inspections/investigations of individual companies depending on risk type or signal nature. - Fund managers with large potential market impact are under more intensive AFM supervision. - A dedicated account management team monitors these significant entities and may request additional reports (e.g., compliance and audit reports) or send questionnaires. - Large UCITS fund managers and other fund managers under increased supervision are visited at least once a year by AFM supervision teams. - On-Site examinations focus on specific areas: outsourcing policies, risk management and separation of functions, investment policy and liquidity, and NAV calculations. - Smaller fund managers are supervised by another supervision team using risk indicators such as: general signals, Total Expense Ratio, Portfolio Turnover Rate, other signals of “churning,” and auditors’ reports. - The AFM conducts “nursery visits” within a year after granting the license to assess Operational and Control Procedures and Processes in practice. - Ongoing supervision emphasizes compliance with the duty of care. - Day-to-day supervision of AIFMs focused on ensuring compliance with AIFMD; resource intensity has limited regular on-site and thematic inspections under AIFMD, though such inspections are planned to start in the near future. - The AFM engages in thematic reviews formed by risk analysis. Thematic investigations in the last three years include: - Risks of securities lending across the majority of the UCITS fund managers; - “Index-huggers” (closet index tracking funds): investigation in 2015; findings published in 2016; - Low volatility products: May 2015 AFM study noting major differences in volatility measurement and effectiveness; - Sustainable investing (AIFs and UCITS): interviews and assessments of investment policies/processes; many differences in interpretation across fund houses; - Real estate funds (2013): investigation into financial, contamination, and security risks; focus on cost adjustment, financing, information to fund participants, and active rental management. ### Supervisory approach — DNB (prudential supervision) - DNB supervision is risk-based using T-score categorization in the FOCUS! methodology. Fund managers placed in category T1, T2 or T3 (with T5 being the highest risk category). - Initial categorization determined by size of AUM, type of client and reputation. - Supervisory plans set and updated yearly per T-category: - T1 and T2: regular prudential off-site monitoring; on-site examinations and formal measures on a case-by-case basis; action plans designed with DNB intervention and enforcement department. - T3: account supervision including off-site prudential monitoring, regular institution visits, and interviews with board, risk, compliance and other parties. - T4 and T5: (context provided that all three T categories of firms are expected to prepare a yearly ICAAP—see below). - Internal Capital Adequacy Assessment Program (ICAAP) expectations: - All three T categories expected to prepare a yearly ICAAP assessment. - All T3 institutions must file yearly; one or two T1 and T2 institutions selected ad hoc. - ICAAPs are reviewed, benchmarked and discussed/challenged by panels composed of DNB management, supervisors of other sectors and the AFM; outcomes discussed with boards. - DNB lacks CRR authority to impose additional capital requirements based on ICAAP outcomes; informal means used to encourage increased capital levels. - For 2017 onsite visits will also take the form of onsite investigations regarding institution-specific and sector-wide concerns (IT, outsourcing). - Scoring and monitoring: - Every six months, T3 institutions are scored on selected risks according to FOCUS! in Riskwise. - T2 and T1 institutions are scored in groups according to their specifications. - Scores are challenged by a panel and approved by management. - DNB conducts thematic investigations called Risk Identification Projects (RIPs) and Risk Mitigation Projects (RMPs), selected bi-annually after risk scoring. Thematic investigations on fund managers have included: - Operational risks for a selected population of fund managers; - The impact of FINTECH on fund management business models; - Compliance with international best practices on remuneration policies for fund managers; - Assessment of adequacy of professional indemnity insurance held by fund managers. - Additional thematic investigations planned: on-site inspections regarding ICAAP modeling; fund managers’ exit plans for wind-down scenarios. ### Supervision resources and recommendations on on-site inspections - Recommendation: Increase resources devoted to on-site supervision of CIS and their managers, particularly routine on-site inspections. - Rationale: - Effective supervision requires both on-site and off-site work; risk-based supervision alone may miss developments not yet in the risk analysis. - Business practices may slip if entities do not expect on-site regulator presence. - Conducting effective supervision of business conduct is extremely difficult without on-site examinations. - IOSCO generally expects on-site supervision to be part of CIS supervision. - Current state: Both supervisors have on-site programs, but resources devoted to CIS are not extensive and inspections are not frequent. - Suggested action: Conduct more examinations of firms and consider comprehensive examinations to obtain a fuller view of managers’ actual practices. ### Reporting and data collection - Supervisory powers to obtain information: - AFM and DNB may request any information reasonably necessary for their responsibilities; may request additional information on managers, AIFs/UCITS, depositaries and other relevant entities. - DNB can prescribe higher frequency or shorter-period e-line reports if an event seriously affects or may seriously affect a financial undertaking’s financial position. - Neither supervisor can require more frequent reporting on a routine basis (e.g., quarterly instead of annually) for all funds of a certain type. - Reporting obligations and timelines: - Each AIFM licensed by the AFM must provide annual financial and management statements for the manager and each AIF it offers in the Netherlands and each EEA fund it manages within six months of the fund year-end. - Additional disclosure requirements apply to funds offered to retail investors. - Managers must file interim reports within nine weeks of the end of the first six months of the fund’s fiscal year. - These statements must be published on the manager’s website. - UCITS funds and managers must file annual financial statements with the AFM and the DNB within four months of the funds’ year-end and interim (semi-annual) statements on the same timing as for AIFs. - Fund managers must file prudential statements with the DNB annually or semi-annually, not later than the last working day of the month following the reporting period, depending on the manager’s business and license. - A Dutch AIFM must file AIFMD-specified information on AIFs regarding risk-management, use of leverage and stress testing results. - Equivalent UCITS information on stress testing or risk management is not required routinely but can be requested case-by-case. - AIFMD reporting to DNB and ESMA: - DNB receives ESMA-designed regular reports on AIFs managed by Dutch fund managers; frequency depends on size and risk, with the largest or leveraged funds reporting quarterly. - Under the twin peaks structure, these reports are sent to the DNB; DNB and AFM are developing infrastructure to provide data to the AFM for ESMA forwarding. - The reporting template is described as complicated, not well understood by managers, lacking user-friendly guidance, and definitions are subject to varying interpretations. - DNB has two thematic projects on leverage: (a) improve data quality of leverage information; and (b) develop a framework to assess AIF leverage, done in cooperation with the ECB. The results were expected at the end of 2016. - Cross-border information limitations: - Information about cross-border fund transactions not involving a Dutch manager or Netherlands-domiciled fund is not easily available to supervisors. - Nationally collected information is to be forwarded to ESMA; domestic supervisory information may be requested ad hoc from other competent authorities. - DNB published a notice that non-EU managers were not required to file the 2015 reports. - Data quality and supervisory recommendations: - To improve AIFMD reporting consistency and information quality, supervisors should: - Work with ESMA and fellow supervisors to improve the reporting template and related guidance, particularly clarification of definitions; - Continue industry engagement through workshops and additional “how to” guidance to enhance industry understanding of requirements. - Supervisors should ensure, as far as possible, data from all managers and funds sold in the EEA (whether managed within the EU or from outside) are captured where relevant for systemic risk monitoring. - Authorities should ensure the full ESMA database (when operational) is available to supervisors for complete national supervision information. - Dutch authorities should ensure active cooperation with home country authorities of non-Dutch managers of Dutch-domiciled funds (bulk of Dutch UCITS funds are managed from outside the country). - Prudential statements need to be timely enough to give early warning; authorities should consider whether prudential reporting by fund managers should be more frequent than semi-annual. Quarterly reporting, as required for investment firms, may be preferable. *International Monetary Fund — cr1791 (excerpts 156–173)* ### 174. The supervisors have a wide range of formal enforcement measures at their disposal. ### cr1791 - 174. The supervisors have a wide range of formal enforcement measures at their disposal. ### Formal enforcement powers - The supervisors can: - Appoint a conservator; - Give an instruction, such as to suspend the redemption of units; - Impose an administrative fine; - Impose an order for interim penalty payments; and - Withdraw the license. - Supervisors can bar an executive director, a policy maker or a person in charge of the day-to-day policy if such a person no longer complies with suitability rules. - The DNB may give a direction to a manager to adopt a certain course of conduct on specific points if an institution fails to comply with the law or if the DNB identifies signs of a development that may endanger the entity’s own funds, solvency or liquidity. ### Enforcement policy and decision factors - A joint enforcement policy sets out: - Circumstances for deciding whether a violation has taken place and whether to proceed with enforcement; - How compliance with financial laws and regulations is supervised; - Principles underlying enforcement policy, factors in applying enforcement tools, and supervisor accountability. - Practical factors affecting enforcement decisions include: - Voluntary disclosure of the violation to the supervisor; - The violator's initiative to terminate the violation; - Attitude towards the supervisor (cooperative or not); - Adequate follow-up to measures suggested by the supervisor; - Management involvement with the violation. ### Informal instruments and escalation - Informal measures used to change noncompliant behavior include: - Sending a letter requesting a change of behavior; - Having a constructive conversation on compliance and necessary change. - If a CIS or firm does not implement required changes, AFM and DNB usually move to formal measures. - Choice between informal and formal measures depends on severity, including: - Risk for investors; - Repercussions for prudential position; - Previous history of the CIS or firm. ### AFM use of formal enforcement (selected 2014–15 actions) - AFM enforcement activity in the investment management sector: - In 2015, the AFM issued a public warning with respect to two AIFs. - In 2015, 40 informal enforcement measures were imposed on AIFs. - Table 12. Netherlands: Formal Enforcement Actions of the AFM in the Period 2014–15 - 2015 — Administrative Fine: €750.000 — Type of Entity: Asset Manager — Violation: Breach of the obligation to organize its operations so as to safeguard controlled and sound business operations. - 2014 — Administrative Fine: €100.000 — Type of Entity: Administrator — Violation: Offering rights of participation in a unit trust, not holding the required license. - Source: AFM. ### DNB use of formal enforcement (selected 2011–16 actions) - DNB enforcement framework: - Published enforcement policies for actions when prudential requirements are not met or filings are late/flawed. - Formal process for breaches of capital requirements sets monetary penalties for the first breach in 25 months and for subsequent breaches. - Less formal processes apply to non-monetary sanctions (e.g., orders for interim penalty payments). - If a firm is unable to comply with prudential requirements on an ongoing basis, DNB asks the AFM to revoke the firm’s license (the AFM then hears and decides the matter). - Table 13. Netherlands: Formal Enforcement Actions of the DNB in the Period 2011–15 - 2016 — Supervisory measure: Order for interim penalty payments — Type of Entity: Asset Manager — Violation: Failure to comply with the prudential capital requirements. - 2014/2015 — Supervisory measure: No measures - 2013 — Supervisory measure: Instruction — Type of Entity: Fund Manager — Violation: Failure to comply with the prudential capital requirements and controlled operations. - 2012 — Supervisory measure: Instruction — Type of Entity: Fund Manager — Violation: Failure to comply with the prudential capital requirements. - 2012 — Supervisory measure: Instruction — Type of Entity: Fund Manager — Violation: Failure to comply with the prudential capital requirements. - 2011 — Supervisory measure: Instruction — Type of Entity: Investment Company — Violation: Failure to comply with the prudential capital requirements and requirements on controlled operations. - Source: DNB. ### Systemic risk monitoring — mandates and cooperation - Statutory responsibilities: - DNB: prudential supervision mandate to support stability of the Dutch financial system at institution and system-wide levels, including explicit monitoring of potential systemic risks and assessments of financial stability. - AFM: conduct supervision mandate requiring recognition and addressing of potential systemic risk and stability issues. - AIFMD: places an express responsibility on supervisors to monitor systemic risks of AIFs. - AFM and DNB cooperation: - Joint work on analyzing systemic risk elements of the investment management industry and contributing to international policy discussions. - Joint analyses discussed in Dutch Financial Stability Committee (FSC) meetings. - Specific focus on systemic risks attributable to liquidity and leverage. - Aim to investigate prospects and limitations of applying existing microprudential tools to mitigate these risks and contribute to macroprudential objectives. - AFM exploring license requirements at the micro level to mitigate macro-level systemic risks. - DNB working to operationalize leverage limits for AIFs and translate macro-level risks into regular microprudential supervision. ### Data, analysis, and supervisory projects - Leverage and liquidity analysis: - Leverage assessed using macroeconomic statistics and AIFMD data, and market liquidity assessed with EMIR and MiFID data provided by AFM. - Information is institution-specific, confidential, and analyzed to identify macro-level and institution-specific risks. - AFM uses AIFMD data to analyze investment fund liquidity by comparing liquidity of underlying assets and the redemption period stated by the fund. - DNB has begun a RIP on liquidity risks at investment funds using supervisory data, including stress test results; project includes reviewing manager-level practices. - Early challenges: agreeing on common definitions and improving information quality and accuracy, especially at aggregate level; DNB and AFM are working to improve the data. - International engagement: - Supervisors participate in ESRB, Financial Stability Board and IOSCO working groups on asset management stability. - ESRB information sharing includes aggregate fund-sector data in shadow banking work and some institution-specific data for market liquidity analyses. ### FSC and internal supervisory groups - Financial Stability Committee (FSC): - Brings together MoF, DNB and AFM to identify risks to financial stability and make recommendations. - Formed after a post-crisis parliamentary enquiry. - Chaired by the president of the DNB; Netherlands Bureau for Economic Policy Analysis attends as external expert. - Meets at least twice a year; principal focus has been real estate mortgage financing, though shadow banking and asset management issues discussed. - Internal supervisory groups: - AFM: Financial Stability Forum chaired by Head of Asset Management Division; meets every one to two months; small team for financial stability analysis conducts targeted analyses and prepares AFM input for FSC. - DNB: Committee on Financial Stability chaired by Director of Financial Stability Division; prepares DNB positions for FSC. ### Asset Management Division initiatives and recent analyses - New Asset Management Division exploring more quantitative analysis for routine supervision and financial stability; early stages. - A data team formed to analyze potential of AIFMD-generated data with three project aspects: - Improving quality of AIFMD data by combining with other sources (markets, DNB macroeconomic statistics, EMIR, MiFID, fund documents, self-assessments, financial reports, ongoing supervision information, other national/international data). - Assessing scope and limits of available data to understand potential use for monitoring trends and systemic risk implications. - Exploring whether AIFMD fund-level data provides valuable input for broader conduct of business supervision of fund managers. - The first analysis on the domestic AIF market has recently been delivered using AIFMD reporting and other supervisory information (e.g., prospectus disclosure). - Joint AFM–DNB project investigating Dutch real estate funds for liquidity mismatches and the “high risk” combination of open-ended real estate funds investing in illiquid assets with frequent redemption rights and investor types likely to exercise those rights; assessing potential for “fire sales,” adequacy of liquidity management tools, investor disclosure, and sufficiency of supervisors’ authority to require use of liquidity management tools. - Recommendation recorded: pursue assessment of supervisors’ powers with respect to use of liquidity management tools at CIS even if risks prove not material. *International Monetary Fund.* ### Appendix II. Cross-Border Offering of Funds and Fund ### Appendix II. Cross-Border Offering of Funds and Fund Management Services ### Overview - Dutch rules governing cross-border offering of funds and fund management services are based on the AIFMD and UCITS Directive. - The ministerial Regulation “on the performance of duties and cross-border cooperation by financial regulators” requires DNB and AFM, in carrying out their duties under the Wft, to confirm AIFMD provisions on cooperation and information sharing; information on risks (control systems, leverage, systemic risk); compliance by fund managers (including ones located in and outside the EEA); and on-site inspection. ### Dutch fund managers with non-EU AIFs - A licensed Dutch AIFM may only offer units in a non-EU AIF in the Netherlands if: - the state where the AIF is located is not listed on the FATF’s list of noncooperative countries; and - the AFM and the supervisory authority of the state where the non-EU-AIF is established have concluded a cooperation agreement that (at least) ensures an efficient exchange of information and enables the AFM to perform its statutory supervisory functions. - The AFM has MoUs with 44 regulators and countries in this regard. - Effectively, the AIFM must comply with all requirements in the Directive; in general the same supervisory functions and requirements are applicable as with EU-funds, including in relation to their depositary. ### EU managers with non-EU AIFs (national private placement regime) - An EU AIFM of a non-EU AIF can use its EU AIFMD license to offer units of a non-EU AIF which it manages to professional investors in the Netherlands using the national private placement regime. - Article 36 AIFMD allows member states to impose any additional national requirements on a licensed EU fund manager that intends to offer units of a non-EU AIF to professional investors. The Netherlands does not impose any additional requirements. - The regime is only applicable to third countries where the non-EU AIF is established, provided: - The relevant third country is not on FATF’s list of Noncooperative Countries and Territories; - Appropriate cooperation arrangements are in place between the competent authorities of the relevant third country and the relevant member state to facilitate efficient information exchange between those competent authorities; and - The relevant third country must have signed an agreement complying with OECD Model Tax Convention and ensure effective exchange of information in tax matters. - The AFM requires an attestation by the home regulator of the non-EU AIF that the fund falls under the supervisory scope of the competent authority of that third country. ### EU fund manager offering units of an EU-AIF - Offered to Professional Investors: - EU fund managers may offer units of an EU-AIF in the Netherlands to professional investors using the passport regime. - Offered to Retail Investors: - Licensed fund managers established in a member state other than the Netherlands may offer EU AIFs to Dutch retail investors under the “top-up retail regime”. - To use this regime EU fund managers need to complete the passport procedure, send a retail distribution notice form to the AFM; and provide a signed declaration wherein the fund manager explicitly states that it will meet the top up requirements in the Netherlands when it offers units in an AIF to nonprofessional investors. ### Non-EU Fund managers - An AIFM with its registered office in a non-EU state may offer units of an AIF in the Netherlands or manage a Dutch AIF if: - the units of the AIF may only be offered to professional investors; - the manager is not located in a noncooperative jurisdiction; - the AFM has a cooperation agreement with the supervisor of the non-EU country where the manager (or if applicable, the AIF) is established; and - the fund manager (and, where applicable, the AIF) has provided a confirmation from their relevant supervisory authority that they are a “covered entity” under the cooperation agreement. ### Adequate Supervision Funds - Current Dutch supervisory law allows participations in an investment fund established in a country designated by the MoF as having adequate supervision to be distributed in the Netherlands to both retail and professional investors without the manager having to be licensed in the Netherlands. - The three designated jurisdictions are the United States (but only funds registered with the U.S. Securities and Exchange Commission), Guernsey, and Jersey. - The funds are usually listed at Euronext Amsterdam. - The ASF must complete a notification process and are subject to requirements with respect to the contents of their prospectus, reporting to investors, advertising and the preparation of annual accounts. Otherwise, the AFM relies on the supervision of these funds by their home supervisor. ### Regulatory cooperation and ESMA arrangements - On May 30, 2015, ESMA issued a press release where it approved cooperation arrangements between EU securities regulators and 34 of their global counterparties with responsibility for the supervision of AIFs (including hedge funds, private equity and real estate funds). - ESMA has negotiated the agreements on behalf of all securities regulators in the 27 EU member states, as well as the authorities from Iceland, Liechtenstein and Norway. - These cooperation arrangements are key elements in allowing EU securities regulators to supervise the way non-EU AIF managers comply with the rules of the AIFMD. - These arrangements form a pre-condition in allowing non-EU fund manager access to EU markets or to perform fund management activities on behalf of EU fund managers. - The arrangements will apply to non-EU fund managers that manage or market AIFs in the EU and to EU fund managers that manage or market AIFs in third countries. The arrangements also cover cooperation in the cross-border supervision of depositaries and fund managers’ delegates. ### UCITS - UCITS funds domiciled and/or managed in the EEA can be sold to Dutch investors (retail or professional) using the passport system contemplated by the UCITS Directive. - No separate licensing or authorization of the fund or manager in the Netherlands is required. *Appendix II. Cross-Border Offering of Funds and Fund Management Services (cr1791).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2017/cr1791.pdf_