## EXECUTIVE SUMMARY

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### INTRODUCTION AND CONTEXT
- Regulation and supervision of securities and derivatives markets in the Netherlands is carried out within the broader context of the EU environment; regulation is increasingly, though not yet exclusively, at EU level.
- Major EU reforms affecting securities and derivatives:
  - MiFID II implemented in 2018; revisions agreed in 2023 that will bring further changes including plans to support greater consolidation of transaction data.
  - AIFMD review is incorporating enhanced provisions on liquidity management.
  - For UCITS, a new regulatory regime for depositories was put in place.
- Market and standard developments shaping the mission’s focus:
  - Market turmoil of March 2020 and related FSB/IOSCO work on liquidity mismatch in open-ended funds.
  - MiFID II (2018) broadened scope of regulated trading venues and imposed more stringent operating requirements.
  - International focus on operational resilience of trading venues given wider consequences of outages on funds and derivatives.
- Mission focus:
  - Areas where Dutch authorities have national responsibilities and discretion, concentrating on supervision and national-level enhancements to address risks.

### TRADING VENUE MARKET STRUCTURE AND SUPERVISION
- Post-Brexit market shift and Netherlands’ role:
  - Before Brexit the UK was the main trading hub for the EU in every instrument class considered.
  - Cboe NL reported average daily notional value (ADNV) increased from €0.03 billion in December 2020 to €4.9 billion in January 2021.
  - The Netherlands became of EU-wide significance for trading of securities, particularly equities, and the largest location for MTF share trading in the EU in 2021.
- Market-share and venue statistics (selected 2022 and comparative figures):
  - 57 percent of MTF trading was taking place in the Netherlands (compared to 29 percent in France and 9 percent in Germany).
  - 12 percent of trading on regulated markets (RM) took place in the Netherlands (compare 24 percent in Germany, 20 percent in France and 11 percent in Italy).
  - 42 percent of total share trading took place on RMs and 32 percent on MTFs (compared to 29 percent and 27 percent respectively in 2020).
- Venue concentration and applications (2017–May 2023, AFM data):
  - Regulated Market (RM): 2
  - Multilateral Trading Facility (MTF): 15 11 4
  - Organized Trading Facility (OTF): 6 1 4 1
  - Systematic Internalisers (SI): 10 10
  - Approved Publication Arrangement (APA): 6 6
  - Approved Reporting Mechanism (ARM): 6 6
  - Note: many operators seek multiple authorizations; supervision of some DRSPs transferred to ESMA.
- Derivatives, SIs, and substitutability:
  - Global open interest largest in interest rate swap contracts; in 2022 the UK remained the largest venue globally for turnover of interest rate swaps, but the Netherlands joined the top 10.
  - Twelve SIs in the Netherlands at the time of the mission; Dutch SIs are more often part of proprietary trading firms.
  - ISDA notes average transaction size of trades executed by SIs is significantly larger than those executed on trading venues — implying importance beyond transaction volumes and potential lower substitutability.
- Market structure risks: closing auctions and outages:
  - Liquidity highly concentrated in closing auctions of primary listing venues; closing prices used in CIS valuations, portfolio rebalancing, derivatives and benchmarks.
  - If a main market closing auction fails, other venues generally take a ‘reference price’ from the main market and trading on such venues effectively ceases for affected instruments.
  - Supervisory focus needed on closing auction arrangements, recovery and contingency planning; ESMA has articulated expectations.
- AFM performance and supervisory priorities:
  - AFM has increased and upskilled staff, undertaken firm-specific and thematic work (including algorithmic trading), and embedded centers of expertise in data management and analytics, IT and operational risk.
  - Remaining priorities: re-set a risk-based strategy, reinforce resources including enhanced data analytics infrastructure, be ready to use full range of supervisory tools (including more formal and intrusive tools), and carry out periodic substitutability assessments.

### LICENSING, POWERS, AND SUPERVISORY ARRANGEMENTS
- Licensing and supervision of trading venues:
  - Authorization to operate a regulated market must be formally granted by the Minister of Finance; no formal AFM opinion required though generally given.
  - Banks applying under WfT Article 3:33 for permission to operate an MTF must comply with certain provisions but not all provisions relating to market surveillance (WfT 4:91ab and 4:91b).
  - AFM’s substantive assessment of license applications considers MiFID II requirements, including fitness and propriety, internal systems and market surveillance plans.
  - DRSP supervision for five Dutch DRSPs has transferred to ESMA; coherent split-supervisory arrangements needed where DRSPs and venues are operated by same entities.
- AFM legal powers and constraints:
  - AFM lacks two powers under Article 69(2): Article 69(2)(e) (request freezing/attachment of assets) and Article 69(2)(r) (require overviews of data traffic from telecom providers). These powers can be exercised in the Netherlands but only by investigators and the public prosecutor.
  - This arrangement can make market abuse investigations more difficult and time-consuming and may risk loss of client assets before a freeze can be obtained.
  - Recommendation: reconsider arrangements for exercise of Article 69(2)(e) and 69(2)(r) to enable AFM to use them more directly and efficiently.
- Corporate governance and supervisory levers:
  - AFM would benefit from explicit legal power to require appointment of independent non-executive directors and strengthened governance arrangements for venues.
  - Many venues had low maturity in governance of IT change and incident recovery; several completed or undergoing large IT migrations.

### COLLECTIVE INVESTMENT SCHEMES (CIS), LIQUIDITY AND FUNDS SUPERVISION
- CIS structure and sizing (selected statistics):
  - Pension schemes/funds account for 69 percent of AUM in the Netherlands.
  - Under 4 percent of AUM is invested directly by households.
  - 4 percent of AUM is invested by other financial institutions and 3 percent by non-financial corporates.
  - In the European market as a whole, around €7 trillion AUM in AIFs compared with €12 trillion in UCITS (EFAMA Quarterly Statistical Release Q2 2023).
- May 2023 Netherlands-specific figures:
  - around 20 UCITS managers and 168 UCITS funds authorized in the Netherlands;
  - 126 UCITS funds managed by a Dutch FMC, having total AUM in the region of €39bn;
  - 42 UCITS funds managed by non-Dutch FMCs, having total AUM of around €14bn;
  - 103 authorized AIFMs in the Netherlands, with around €877bn AUM in 953 EEA AIFs and around €4bn in seven non-EEA AIFs;
  - 688 AIFMs subject to the de minimis exemption, with 533 of those AIFMs for whom data is available having around €23.9bn AUM.
- CIS AUM by asset class, end Q2 2023 (millions of euro):
  - Equity: 247,996
  - Bond: 104,613
  - Multi-asset: 59,566
  - Real Estate: 117,969
  - Other: 276,511
- MMFs and regulatory regime:
  - All MMFs operating in the Netherlands at the time of the mission had been licensed under the new EU MMF regime.
  - As of May 2023 there are six MMFs from three fund managers registered with a total AuM of EUR 623 million.
- Liquidity mismatch, real estate funds and LMTs:
  - AFM assessed liquidity mismatch risks, particularly in real estate funds, and found investor type, asset composition and CIS redemption terms have moderated liquidity mismatch in currently available real estate CIS.
  - Mitigations observed: some property funds closed-ended; some funds invest in equities in the sector rather than physical real estate; some funds have a few pension fund investors; many funds have redemption terms with significant notice periods and caps.
  - All LMTs other than mandatory liquidity buffers are legally available in the Netherlands and incorporated in many funds.
  - AFM and DNB contributed to EU and international policy responses; AFM published supervisory outputs including 2018 sector letter, 2021 occasional paper, and 2023 follow-up sector letter on LMTs.
- Data gaps and AIFMD reporting:
  - Dutch authorities receive data on existing borrowing by funds but do not receive data on committed credit lines which may be drawn down in times of stress.
  - Article 1(10) of the provisional AIFMD revision allows further specification of reporting under Article 24, to be developed through RTS by ESMA.
  - Recommendation: AFM should actively contribute to the draft RTS to include specific data about the size, source and commitment status of CIS credit lines.
- Supervisory posture for funds:
  - AFM is the main authority for authorization and supervision of fund managers, with prudential input from DNB; DNB has ultimate responsibility for SREP, drawing on AFM input.
  - AFM’s risk-based approach prioritizes higher risk/impact managers, enhanced by SREP implementation.

### REGULATORY REFORMS AND NEW FRAMEWORKS
- MiFID II features highlighted:
  - Introduced OTF venue type, expanded regulation to non-equities and derivatives, enhanced resilience requirements, expanded instrument scope (including commodity derivatives and position limits), refined transparency with a ‘double volume cap’ for dark trading, and introduced STO and DTO obligations.
- DRSPs and Consolidated Tape:
  - DRSPs include APAs and ARMs; provision for Consolidated Tape Providers (CTP) made but no CTP emerged; 2023 political agreement to simplify transparency and waiver regime and encourage a consolidated tape.
- PFOF and DORA/MiCAR:
  - Political agreement includes prohibition by 2026 of ‘payment for order flow’ (PFOF); Dutch authorities supported prohibition on PFOF.
  - MiCAR will provide regulatory framework for crypto assets not captured by MiFID II; DORA aims to raise digital operational resilience; MiCAR and DORA due from June 2024 and January 2025 respectively.
  - EU DLT sandbox enables financial market infrastructures to operate with exemptions; authorities had started receiving applications under the pilot, including one for an MTF.
- Recommendation on sandbox/crypto risk:
  - Authorities should plan collaborative work with other NCAs on risks where crypto asset trading platforms blend trading, clearing, settlement and lending and may operate like a CCP without meeting CCP criteria.

### INSTITUTIONAL FRAMEWORK, LEGAL POWERS, AND REFORM ACTIONS
- Institutional constraints and autonomy issues:
  - Dutch arrangements fall short of international standards in several areas; EU arrangements rely on national frameworks to give competent authorities independence, autonomy, and technical powers.
  - Problematic aspects: requirement for budgetary approval by the Ministry of Finance for budget expansion; lack of an autonomous rule-making power in areas not explicitly accorded by EU legislation; Ministry of Finance’s power to overturn rules made by regulatory authorities (Article 1:29 Wft).
- Recommendation on legal reform:
  - AFM should commission an assessment on additional supervisory powers, drawing on external advice and make recommendations to the Ministry of Finance.
  - Ministry of Finance should amend legislation to give AFM greater autonomy and a wider range of powers, in line with international standards and peer comparators.
- Specific legal reform implementation status (summary of recommendations 3–6 and others):
  - Recommendation 3 (expand rule-making authority of AFM and DNB) — Not Implemented.
  - Recommendation 4 (clarify MoF power to set aside supervisors’ rules) — Not implemented (conditions clarified in law Article 1:29 Wft).
  - Recommendation 5 (expand AFM powers to obtain telecom data and freeze assets) — Not implemented (powers assigned to public prosecutor).
  - Recommendation 6 (expand authority to use outside experts for examinations) — Not implemented (AFM can involve experts under Article 1:72 Wft but cannot require firm to reimburse expert costs).
- Auditor oversight and implementation status:
  - Recommendation 8 (auditor change disclosure) — Fully implemented.
  - Recommendation 9 (more resources for on-site reviews beyond Big Four) — Partially implemented; AFM additional budget and 35 FTE for non-PIE supervision by end-2024.
  - Recommendation 10 (renegotiate agreements with professional associations for AFM control) — Fully implemented; AFM sole oversight body for non-PIE audit firms since 2022.
- Market-based finance and fund management recommendations (selected implementation):
  - Recommendation 7 (loan-based crowdfunding supervision) — Fully implemented.
  - Recommendation 11 (significant shareholders of AIFMs subject to same assessments) — Partially implemented.
  - Recommendation 12 (watch MMFs and IOSCO compliance) — Fully implemented; Dutch MMFs insignificant in EU market.
  - Recommendation 13–16, 17, 18 (liquidity, leverage, depositaries, related-party guidance, on-site exams) — mix of Fully or Partially implemented as described in source.
- Reporting, data and systemic monitoring:
  - Recommendation 19–21: work with ESMA to improve reporting and ensure timely data — various actions implemented; AFM and DNB improved data programs, AFM launched ‘spot on’ project, DNB implemented data mastery programs.
  - AFM set up custodian reporting every 6 months and monitoring frameworks on swap rates; AFM and DNB argued for European UCITS reporting comparable to AIFMD.
- Remuneration benchmarking and governance:
  - Recommendation: AFM should periodically benchmark supervisors’ salary levels against the financial services industry, at working and senior levels.
  - AFM encouraged to improve appointment and accountability practices for supervisory board and executive governance.

### MAIN RECOMMENDATIONS (selected, from Table 1)
- Trading Venue Regulation and Supervision
  1. Periodically assess degree of substitutability of key trading venues and actions needed where substitutability is limited (¶8). — AFM — M — ST
  2. Assess degree of substitutability of SIs in different asset classes, taking account of typical SI transaction sizes (¶11). — AFM — M — ST
  3. Update analysis of intra-day trading patterns and closing auction role and impacts, with European counterparts (¶13). — AFM — H — I
  4. Reconsider arrangements for exercise of powers under MiFID II Article 69(2)(e) and 69 (2)(r) to enable the AFM to use them more directly and efficiently (¶21). — MOF, AFM — M — ST
  5. Clarify that bank-operated MTFs and OTFs are subject to same standards as those operated by investment firms and assess fulfilment before extending licenses (¶24). — MOF, DNB, AFM — M — ST
  6. Give AFM explicit legal power to require appointment of independent non-executive directors (¶26). — MOF, AFM — H — ST
  7. Liaise with ESMA to ensure coherent, risk-based supervision of linked trading venues and DRSPs (¶28). — AFM — M — ST
  8. Carry out thematic work and joint supervisory action with European counterparts on resilience of core trading systems, including closing auctions recovery and contingency planning (¶31). — AFM — H — ST
  9. Refocus AFM’s data program to provide timely, user-friendly access to data and analytics for trading venue supervision (¶34). — AFM — H — I
- Asset Management Regulation and Supervision
  10. Review transposition of insolvency provisions for depositories and check robustness of client asset protection under Dutch insolvency law (¶41). — MOF, MOJ, AFM — H — I
  11. Continue to monitor liquidity mismatch in CIS real estate and corporate bond funds, including risks arising from credit lines, and availability/use of appropriate LMTs (¶46). — AFM — H — ST
  12. Contribute to revision of AIFMD reporting RTS to obtain data about the size, source and commitment status of CIS credit lines (¶49). — AFM — H — ST
- Institutional Framework
  13. Commission an assessment on additional supervisory powers, drawing on external advice, and make recommendations for change to Ministry of Finance (¶56). — AFM — H — I
  14. Amend legislation to give AFM greater autonomy and a wider range of powers, in line with international standards and peer comparators (¶55). — MOF — H — ST
  15. Periodically benchmark supervisors’ salary levels against the financial services industry, at working and senior levels (¶59). — AFM — M — ST
- Note on coding:
  - Priorities: H, M, L = high, medium, low.
  - Time frame: I, ST, MT = immediate (within one year), short-term (within 1–2 years), medium-term (within 3–5 years).

*Source: EXECUTIVE SUMMARY and chapter excerpts (Technical Note prepared in the context of the 2024 Netherlands Financial Sector Assessment Program).*

### EXECUTIVE SUMMARY__ ________________________________________________________________________5

### EXECUTIVE SUMMARY

### INTRODUCTION AND CONTEXT
- Regulation and supervision of securities and derivatives markets in the Netherlands is carried out within the broader context of the EU environment; regulation is increasingly, though not yet exclusively, at EU level.
- Major EU reforms affecting securities and derivatives:
  - MiFID II implemented in 2018; revisions agreed in 2023 that will bring further changes including plans to support greater consolidation of transaction data.
  - AIFMD review is incorporating enhanced provisions on liquidity management.
  - For UCITS, a new regulatory regime for depositories was put in place.
- Market and standard developments since the last FSAP that shaped the mission’s focus:
  - Market turmoil of March 2020 and related FSB/IOSCO work on liquidity mismatch in open-ended funds.
  - MiFID II (2018) broadened scope of regulated trading venues and imposed more stringent operating requirements.
  - International focus on operational resilience of trading venues given wider consequences of outages on funds and derivatives.
- The mission focused on areas where Dutch authorities have national responsibilities and discretion, concentrating on supervision and national-level enhancements to address risks.

### TRADING VENUE MARKET STRUCTURE AND SUPERVISION
- Post-Brexit market shift:
  - Prior to Brexit, securities trading within the EU took place largely in the UK.
  - Because no UK trading venues have been deemed ‘equivalent’, many trading venues established EU bases and many chose the Netherlands.
- Netherlands’ role and supervisory implications:
  - The Netherlands is now of EU-wide significance for trading of securities, particularly equities.
  - This increase brought challenges: assessing many authorisation applications and supervising a larger scale and variety of institutions and business models.
- AFM performance and actions:
  - The Autoriteit Financiële Markten (AFM) has increased and upskilled staff and applied regulatory requirements thoughtfully across asset classes and trading modalities.
  - AFM has undertaken firm-specific proactive and reactive work and thematic studies on operational and market resilience, including algorithmic trading.
- Remaining and emerging supervisory priorities:
  - Further enhancements to AFM’s approach and continued focus on trading system operational resilience are needed.
  - New entrants, diversification of established venues, and fintech models combining trading and post-trading operations increase supervisory complexity.
  - AFM needs to re-set a risk-based strategy, reinforce resources including enhanced data analytics infrastructure, and be ready to use the full range of supervisory tools, including more formal and intrusive tools where appropriate.
- Specific supervisory concerns highlighted:
  - Closing auctions: liquidity is highly concentrated in closing auctions; failures can impact benchmarks, CIS, and derivatives. ESMA has articulated expectations; supervisory attention must return to adequacy of individual venues’ arrangements, with particular focus on primary listing venues for equities.
  - Substitutability: periodic assessments are needed of substitutability of trading venues and Systematic Internalisers (SIs), to understand risks where substitutability is limited and to ensure trading continuity if specialist venues are unavailable.

### COLLECTIVE INVESTMENT SCHEMES (CIS)
- AFM supervisory approach to open-ended funds:
  - AFM assessed liquidity mismatch risks, particularly in real estate funds, and found that investor type, asset composition and CIS redemption terms have moderated liquidity mismatch in currently available real estate CIS.
  - Supervisory work ensured availability and likely use of different techniques for reducing and managing liquidity shocks where appropriate.
  - AFM, with DNB, contributed to EU and international policy responses.
- Ongoing CIS risks and data needs:
  - Evolution of liquidity mismatch needs continued monitoring, particularly in light of second-round effects from upcoming pension reforms.
  - Enhanced EU-wide data on CIS credit lines could assist monitoring; AFM should contribute to revision of AIFMD reporting requirements (RTS) to obtain data about the size, source and commitment status of CIS credit lines.

### INSTITUTIONAL FRAMEWORK AND LEGAL POWERS
- Need for legislative enhancements:
  - EU arrangements still rely on national frameworks to give competent authorities independence, autonomy, and technical powers. Dutch arrangements fall short of international standards in several areas, risking weakened credibility with EU and international counterparts.
  - Enhancements would allow AFM to act timely, responsively and proportionately as new practices and risks emerge, and to make best use of resources while keeping regulatory burden proportionate.
- Institutional resource considerations:
  - AFM should periodically benchmark supervisors’ salary levels against the financial services industry, at working and senior levels.

### MAIN RECOMMENDATIONS (from Table 1: The Netherlands: Securities Regulation/Supervision — Main Recommendations)
- Trading Venue Regulation and Supervision
  1. Periodically assess the degree of substitutability of key trading venues and actions needed to address risks arising where substitutability is limited (¶8). — AFM — M — ST
  2. Assess the degree of substitutability of SIs in different asset classes, taking account of typical SI transaction sizes (¶11). — AFM — M — ST
  3. Update analysis of intra-day trading patterns and closing auction role and impacts, with European counterparts (¶13). — AFM — H — I
  4. Reconsider arrangements for the exercise of the powers under MiFID II Article 69(2)(e) and 69 (2)(r) to enable the AFM to use them more directly and efficiently (¶21). — MOF, AFM — M — ST
  5. Clarify that bank-operated MTFs and OTFs are subject to the same standards as those operated by investment firms and that their ability to demonstrate fulfilment of obligations will be assessed before an extension to their license to operate such a venue will be granted (¶24). — MOF, DNB, AFM — M — ST
  6. Give the AFM an explicit legal power to require appointment of independent non-executive directors (¶26). — MOF, AFM — H — ST
  7. Liaise with ESMA to ensure coherent, risk-based supervision of linked trading venues and Data Reporting Services Providers (DRSP) (¶28). — AFM — M — ST
  8. Carry out thematic work and joint supervisory action with relevant European counterparts on the resilience of core trading systems, including closing auctions recovery and contingency planning (¶31). — AFM — H — ST
  9. Refocus the AFM’s data program to provide timely, user-friendly access to data and analytics for trading venue supervision (¶34). — AFM — H — I

- Asset Management Regulation and Supervision
  10. Review the transposition of insolvency provisions for depositories and check robustness of other client asset protection under Dutch insolvency law (¶41). — MOF, MOJ, AFM — H — I
  11. Continue to monitor liquidity mismatch in CIS real estate and corporate bond funds, including risks arising from credit lines, and availability/use of appropriate liquidity management tools (¶46). — AFM — H — ST
  12. Contribute to revision of AIFMD reporting requirements Regulatory technical standards (RTS), to obtain data about the size, source and commitment status of CIS credit lines (¶49). — AFM — H — ST

- Institutional Framework
  13. Commission an assessment on additional supervisory powers, drawing on external advice, and make recommendations for change to Ministry of Finance (¶56). — AFM — H — I
  14. Amend legislation to give the AFM greater autonomy and a wider range of powers, in line with international standards and peer comparators (¶55). — MOF — H — ST
  15. Periodically benchmark supervisors’ salary levels against the financial services industry, at working and senior levels (¶59). — AFM — M — ST

- Note on priority and timeframe coding:
  - In terms of priorities, H, M, and L stand for high, medium and low.
  - In terms of time frame, I, ST, and MT stand for immediate (within one year), short-term (within 1–2 years), and medium-term (within 3–5 years).

*Source: EXECUTIVE SUMMARY (Technical Note prepared in the context of the 2024 Netherlands Financial Sector Assessment Program).*

### 5.      The regulatory classification and treatment of trading venues in the EU changed with

### 5.      The regulatory classification and treatment of trading venues in the EU changed with

### MiFID II: new venue types, expanded perimeter, and transparency regime
- MiFID II (a regulation (EU) No 600/2014 and directive 2014/65/EU) implemented in 2018 introduced:
  - a new venue type: the ‘organised trading venue’ (OTF) to capture venues with more discretion and negotiation (often used for fixed income and commodity markets).
  - expanded regulation to non-equities and derivatives, including new categories of regulated trading venues for non-equity securities and derivatives.
  - enhanced testing and resilience requirements for trading venues and participants (algorithms, trading halts, circuit breakers).
  - expanded instrument scope to include a wider range of commodity derivatives and a system of position limits.
  - refined pre- and post-trade transparency requirements for equities with a ‘double volume cap’ on the proportion of ‘dark’ trading permissible, and extension of transparency rules to non-equities (with various waivers and calibration methods).
- MiFID II introduced obligations:
  - Share-Trading Obligation (STO): EU investment firms must trade shares on organized EU venues or SIs, or third-country venues deemed ‘equivalent’.
  - Derivatives Trading Obligation (DTO): certain centrally-cleared, sufficiently-standardized and sufficiently-liquid derivatives must be traded on organized EU venues (not SIs) or equivalent third-country venues.
- DRSPs and data consolidation:
  - DRSPs include APAs (market trade data) and ARMs (transaction reporting to regulators). Provision was made for Consolidated Tape Providers (CTP) but no CTP emerged; data provision remained fragmented.
  - Responsibility for DRSPs meeting certain size thresholds was transferred from national competent authorities to ESMA.

### Brexit and the shift of trading activity to the Netherlands
- ESMA analysis: before Brexit the UK was the main trading hub for the EU in every instrument class considered.
- Post-Brexit movements and impacts:
  - Cboe NL reported average daily notional value (ADNV) increased from €0.03 billion in December 2020 to €4.9 billion in January 2021.
  - MiFID II STO meant EU investment firms had to trade shares on EU venues or recognized ‘equivalent’ third-country venues; the EU did not recognize any UK venues as ‘equivalent’ after 31 December 2020.
  - ESMA reported increased proportion of share trading on organized venues in 2021 and 2022; the Netherlands became the largest location for MTF share trading in the EU.
- Market-share and venue statistics (2022 and comparisons to 2020 where stated):
  - 57 percent of MTF trading was taking place in the Netherlands (compared to 29 percent in France and 9 percent in Germany).
  - 12 percent of trading on regulated markets (RM) took place in the Netherlands (compare 24 percent in Germany, 20 percent in France and 11 percent in Italy).
  - 42 percent of total share trading took place on RMs and 32 percent on MTFs (compared to 29 percent and 27 percent respectively in 2020).
  - In the year after Brexit, the Netherlands was the largest venue in the EU for trading in Exchange Traded Funds (ETF).

### Expansion of trading venues and concentration in specific markets
- Number and significance of Dutch venues:
  - ESMA data from 2020: the Netherlands had the second highest number of trading venues in the EU, after Germany.
  - The Netherlands hosts significant venues in bonds, repos, Title Transfer Facility (TTF) gas futures, other exchange-traded derivatives, and cash equities.
  - ESMA data for bond trading venues indicates that for nearly 80 percent of the over 35,000 ISINs included in the exercise, the EU venue with the highest trading volume was located in the Netherlands.
- Applications for venues and DRSPs in the Netherlands, 2017-May 2023 (source: AFM):
  - Regulated Market (RM): 2   2
  - Multilateral Trading Facility (MTF): 15   11 4
  - Organized Trading Facility (OTF): 6 1  4 1
  - Systematic Internalisers (SI): 10   10
  - Approved Publication Arrangement (APA): 6   6
  - Approved Reporting Mechanism (ARM): 6   6
  - Note: Many operators would seek multiple authorizations; DRSPs initially supervised by Dutch authorities but supervision of some has since transferred to ESMA.

### Derivatives, SIs, and trading venue substitutability
- Derivatives trading:
  - Global open interest largest in interest rate swap contracts; in 2022 the UK remained the largest venue globally for turnover of interest rate swaps, but the Netherlands joined the top 10.
  - The EU’s DTO can be fulfilled on licensed organized EU venues or on third-country venues deemed ‘equivalent’; equivalence decisions exist for certain US and Singapore venues, but not for any UK venues.
- Systematic Internalisers (SIs) in the Netherlands:
  - There were twelve SIs in the Netherlands at the time of the mission; only a couple were bank-owned.
  - Pre-Brexit ESMA analysis (2019) showed the five largest equity SIs and four largest bond SIs in the EU were bank-owned; the largest equity SI was the second largest execution venue, and the largest bond SI was the largest bond trading execution venue by volume in the EU.
  - Dutch SIs are more often part of proprietary trading firms, many established pre-Brexit and others since.
  - ESMA analysis: the proportion of EU share trading on SIs in 2021 and 2022 was materially lower than in 2019 and 2020.
  - ISDA notes that average transaction size of trades executed by SIs is significantly larger than those executed on trading venues — implying importance beyond transaction volumes and potential lower substitutability.

### Market structure risks: closing auctions and trading outages
- Concentration in closing auctions:
  - Equity markets show high concentration of trading activity in closing auctions of the main market of listing; closing prices are used in CIS valuations, portfolio rebalancing, related derivatives, and benchmark calculations.
  - If a main market closing auction fails, other venues generally take a ‘reference price’ from the main market, so trading on such venues effectively ceases for instruments affected by a main market outage — different from the US where routing to alternative venues can allow trading to continue.
  - AMF 2019 analysis observed increasing concentration in closing auctions; trend evident in other EU markets though less pronounced in the Netherlands than in some markets.
- Implications:
  - On certain days, increased pressure on trading venue systems coincides with greater impact if a problem arises, magnifying systemic implications of outages.

### Regulatory reforms, national discretion, and supervisory powers
- DRSP/CTP reform and political agreement (2023):
  - Political agreement reached in 2023 to simplify the transparency and waiver regime (for example, shifting to a single ‘volume cap’) and to encourage the emergence of a consolidated tape.
  - Other reforms include a prohibition by 2026 of ‘payment for order flow’ (PFOF); the Dutch authorities supported the prohibition on PFOF.
- National discretion and Netherlands’ choices:
  - MiFID II leaves limited scope for national discretion; the Netherlands has mainly used discretion for retail investor protection:
    - Maintained a prohibition on inducements in sales to retail clients.
    - Prohibited sales of binary options to retail clients and restricted contracts for difference sold OTC to retail clients.
    - Introduced additional restrictions/prohibitions on exchange-traded products known as ‘turbos’.
- AFM supervisory powers:
  - Some MiFID II powers related to competent authorities are in a directive requiring transposition; the AFM has most but not all powers.
  - The AFM lacks two powers under Article 69(2):
    - Article 69(2)(e): the power to request the freezing and/or attachment of assets.
    - Article 69(2)(r): the power to request existing overviews of data traffic in possession of a telecommunications provider.
  - These powers can be exercised in the Netherlands but only by investigators and the public prosecutor, which makes market abuse investigations more difficult and time-consuming and may risk loss of client assets before a freeze can be obtained.
  - Some countries embedded staff with formal investigatory powers within the competent authority to increase supervisory efficiency.

### Recommendations and supervisory actions
- Recommendation (paragraph 9):
  - Given the diversity and potential significance of trading venues in the Netherlands, the authorities should regularly assess, with European counterparts:
    - the extent to which substitutes are available for significant venues;
    - the ways in which friction may materialize in the system if substitutes are relied on;
    - the actions authorities and market participants may need to take to minimize the risk of market disruption.
- Recommendation (paragraph 13):
  - The AFM should ensure its risk-profiling of SIs takes account of transaction size as well as transaction counts and, with European counterparts, assess the degree of substitutability for SIs across asset classes.
- Recommendation (paragraph 16):
  - The AFM should work with European counterparts to:
    - update analysis of intra-day trading patterns, focusing on liquidity concentration in closing auctions of primary listing venues;
    - assess mechanisms through which a closing auction failure could cause wider market impacts and identify dates of heightened stress;
    - incorporate findings into its supervisory program and propose joint supervisory action on trading system resilience and recovery through ESMA’s Senior Supervisory Forum and other supervisory forums.

_Italic: IMF—KINGDOM OF THE NETHERLANDS—THE NETHERLANDS, excerpt chapter on trading venue regulation and market structure._

### 23.      Recommendation: The authorities should reconsider arrangements for the exercise of the

### 23.      Recommendation: The authorities should reconsider arrangements for the exercise of the

### Crypto assets, DORA, MiCAR, and DLT sandbox
- Findings:
  - Primary legislation Markets in Crypto Assets Regulation (MiCAR) will provide a regulatory framework for the trading of crypto assets where they are not tokenized securities already captured by MiFID II.
  - Many existing crypto asset trading platforms blend trading, clearing and settlement as well as lending to traders, which may make them hard to regulate and supervise.
  - Dutch authorities were expecting to receive several applications with these characteristics and are planning collaborative work with other NCAs on the risks and how to address them, particularly where part of the business may operate like a Central Counterparty (CCP) without meeting the criteria to be regulated as a CCP.
  - Digital Operational Resilience Act (DORA) aims to raise standards of digital operational resilience and to make critical third-party information technology (IT) suppliers subject to direct supervision at the EU level.
  - MiCAR and DORA are due to be implemented from June 2024 and January 2025 respectively.
  - The EU has legislated for a ‘sandbox’ to enable financial market infrastructures including trading venues that use distributed ledger technology (DLT) to operate with exemptions from specific rules that may not be workable with DLT arrangements.
  - Authorities had started to receive applications under the pilot, including one for the operation of an MTF.
- Recommendation:
  - The authorities should reconsider arrangements for the exercise of the powers under Article 69(2)(e) and 69 (2)(r) to enable the AFM to use them more directly and efficiently.

### Licensing and supervision of trading venues
- Findings:
  - Authorization to operate a regulated market must formally be granted by the Minister of Finance; no formal opinion from the AFM is required though an opinion is generally given.
  - Where a market operator of a regulated market also operates an MTF or OTF, this is treated as an addition to the RM license.
  - Banks who wish to provide investment services need to apply to DNB for an extension of their permissions under WfT 3:33. This Article requires such banks who wish to operate an MTF, but not an OTF, to comply with certain provisions including those relating to trading rules in WfT 4:91a, but not provisions relating to market surveillance in WfT 4:91ab and 4:91b.
  - This approach may increase the risk that necessary controls (for example, in relation to trade surveillance for the purposes of detecting potential market abuse) are not in place initially.
  - It is not clear that WfT Article 3:33 explicitly provides for the same level of obligation on bank-operated MTFs/OTFs as for those operated by investment firms, for example in relation to trade surveillance.
  - For ‘Brexit firms’, ESMA put in place arrangements for approaches to be discussed by competent authorities before decisions were made and carried out a retrospective peer review.
  - The AFM’s substantive assessment of license applications considers the full range of MiFID II requirements, including fitness and propriety of senior staff; adequacy of internal systems, controls and resources; and plans for market surveillance.
  - The AFM would benefit from a stronger basis to require the appointment of an independent non-executive director from outside the group and such other corporate governance arrangements as necessary to mitigate risk.
  - DRSP supervision responsibility for the five Dutch DRSPs has transferred to ESMA; DRSPs are often operated by entities that operate trading venues, requiring coherent and proportionate split-supervisory arrangements.
  - Ongoing supervision mixes firm-specific and horizontal thematic work; AFM publishes digests and provides individual feedback, typically requiring remediation before sanctions.
  - Some trading venues had low maturity in governance of IT change and incident recovery; several had recently completed large IT migrations and others were ongoing.
  - ESMA’s position on outages affecting closing auctions emphasized improved preparation and recovery but did not require contingency arrangements enabling an auction to be held on alternative venues.
  - Potential for trading activity in Amsterdam to grow, diversify, and innovate; operations may diverge commercially from UK counterparts and new entrants with different business models and technologies are likely to arrive.
- Recommendations (trading venues and supervision):
  - The authorities should clarify that bank-operated MTFs and OTFs are subject to the same standards as those operated by investment firms and that their ability to demonstrate they can fulfil their obligations, including in relation to market surveillance, will be assessed before any extension to their license to operate such a venue will be granted under WfT Article 3:33.
  - The authorities should amend legislation to explicitly enable the AFM to require the appointment of independent non-executive directors and such other corporate governance arrangements as it considers necessary to mitigate risk.
  - The AFM should continue formal and informal interaction with counterparts in ESMA to ensure a coherent, risk-based approach to supervision of trading venues and DRSPs belonging to the same operator and a coherent communication of the combined approach to regulated entities.
  - The AFM should carry out thematic work focusing specifically on the resilience of systems critical to the core trading functionality, including closing auctions on those markets that have them. The work should explicitly cover:
    - the adequacy of Recovery Time Objectives (RTO) and Recovery Point Objectives (RPO) and assurance of the ability to meet those objectives;
    - the adequacy of contingency arrangements for closing auctions where applicable; and
    - testing and activation of failover procedures.
  - The AFM should seek opportunities to carry out the above work in parallel with counterparts responsible for the supervision of other significant equity primary listing venues in Europe, and through joint action in relation to venues governed by supervisory college arrangements.
  - The AFM should refocus its ‘data-led’ change program to intensify its focus on providing timely, user-friendly access to data and analytics in a form relevant for trading venue supervision, which will often differ from what is needed for the detection and investigation of potential market abuse. This is likely to include adapting the governance and direction of the current work program.

### Collective Investment Schemes (CIS) — structure, sizing, and regulation
- Key statistics and findings:
  - Pension schemes/funds account for 69 percent of AUM in the Netherlands.
  - Under 4 percent of AUM is invested directly by households.
  - Only 4 percent of AUM is invested by other financial institutions and 3 percent by non-financial corporates.
  - In the European market as a whole, there is around €7 trillion AUM in AIFs compared with €12 trillion in UCITS (EFAMA Quarterly Statistical Release Q2 2023).
  - In May 2023:
    - around 20 UCITS managers and 168 UCITS funds authorized in the Netherlands;
    - 126 UCITS funds managed by a Dutch FMC, having total AUM in the region of €39bn;
    - 42 UCITS funds managed by non-Dutch FMCs, having total AUM of around €14bn;
    - 103 authorized AIFMs in the Netherlands, with around €877bn AUM in 953 EEA AIFs and around €4bn in seven non-EEA AIFs;
    - 688 AIFMs subject to the de minimis exemption, with 533 of those AIFMs for whom data is available having around €23.9bn AUM.
  - MMF AUM had reduced to around €620m; remaining funds all have floating rather than fixed NAV. There are other sizeable funds with material holdings of money market instruments.
  - CIS AUM by asset class, end Q2 2023 (millions of euro):
    - Equity: 247,996
    - Bond: 104,613
    - Multi-asset: 59,566
    - Real Estate: 117,969
    - Other: 276,511
- Regulation and supervision:
  - The AFM is primarily responsible for authorization and supervision of fund managers, with prudential input from DNB; for fund managers, the AFM consults DNB before licensing.
  - DNB has ultimate responsibility for the Supervisory Review and Evaluation Process (SREP), drawing on input from the AFM.
  - UCITS and AIFs are subject to different EU regimes; UCITS have extensive requirements on asset eligibility, diversification and custodianship; AIF regime is in some respects less restrictive.
  - Changes to the EU UCITS regime included a new regulatory regime for depositories not licensed as banks.
  - In transposition, Dutch authorities considered existing provisions in Section 4:45 of the Wft sufficient to give effect to Article 22(8) of the consolidated UCITS directive, but it is not clear whether the wording is sufficiently broad to protect UCITS assets in all situations under the new regime.
  - Existing provisions appear to allow the assets of the UCITS to be used for other purposes than paying the debts of the UCITS and returns to unitholders; further consideration is needed on adequacy and compatibility with UCITS legislation.
  - The AFM has licensed around a half dozen new depositories and begun to supervise them alongside bank-owned depositories. Supervisory approach includes periodic data reports and on-site inspections covering compliance with investment mandates, NAV calculation errors and use of sub-depositories.
- Recommendation (UCITS transposition and client asset protections):
  - The Ministry of Finance and the AFM should commission external legal advice on the adequacy of the transposition of UCITS Article 22(8) and include any necessary changes in its next annual ‘legislative letter’.
  - If problems are found, a wider review of the adequacy of client asset protections under Dutch insolvency law should be initiated.
  - The Ministry of Finance should commit to finding an early opportunity to make any necessary changes and commit the necessary resources to do so.

*Source: IMF mission findings and recommendations as presented in the provided chapter excerpt.*

### 45.      A new EU regulatory regime for MMFs has also been implemented.  This regime sets

### A new EU regulatory regime for MMFs has also been implemented.  This regime sets

### Money Market Funds (MMFs): regime and implementation
- New EU regulatory regime sets stringent eligible asset and liquidity requirements for MMFs, particularly those operating with constant NAV (CNAV).
- The regime prevents the fund manager or other third party from injecting funds to meet redemptions (see Regulation (EU) 2017/1131 on money market funds (consolidated), Article 35 External Support).
- All MMFs operating in the Netherlands at the time of the mission had been licensed under this new regime.
- The European Commission reported on the implementation and effect of the Money Market Funds Regulation (MMFR) in July 2023 and decided not to propose changes to the legislation at that time.

### UCITS and AIFM reforms, liquidity management tools (LMTs)
- Recent agreements to reform UCITS and AIFM regimes include:
  - standardized data reporting in relation to UCITS funds (addressing a significant gap in the current framework),
  - a more structured framework for the management of liquidity mismatch and deployment of liquidity tools in both AIFs and UCITS,
  - a harmonized framework for loan-origination funds.
- The provisional text of the political agreement between the Council and Parliament was published 9 November 2023; the official version of Directive (EU) 2024/927 was published on 13 March 2024, with most of the new provisions applicable from 16 April 2026.
- Negotiations considered whether authorities should have powers to directly use a wider range of liquidity management tools in addition to the ability to suspend redemptions; it was concluded that the use of such tools should be directly triggered by the fund manager.
- The AFM has powers to require funds to suspend redemptions, but not to require funds to use other LMTs and does not envisage that position changing given the negotiation outcome.

### Liquidity mismatch risk assessment and supervisory work
- Dutch authorities analyzed liquidity mismatch risk across the fund population and carried out thematic work on availability, use and reporting of LMTs.
- Conclusions on real estate-related liquidity mismatch:
  - Mitigations include many property funds being closed-ended;
  - Some funds invest primarily in equities in the sector rather than physical real estate, potentially reducing lead time to liquidate assets;
  - Some funds have only a few pension fund investors, reducing likelihood of short-term withdrawals;
  - Many funds have redemption terms with significant notice periods and other limitations on redemption.
- Supervisory outputs (published) include:
  - 2018 sector letter on liquidity risk and associated reporting by CISs,
  - contribution to ESMA’s work with NCAs on fund liquidity in light of the ESRB’s recommendations,
  - 2021 occasional paper on liquidity risks associated with margin calls in March 2020,
  - 2023 follow-up sector letter on LMTs.
- All LMTs other than mandatory liquidity buffers are legally available for use in the Netherlands and are already incorporated in many funds.
- The ESRB work stresses the importance of notice periods, matching redemption frequencies to underlying assets, and having LMTs in place to manage shocks.
- Redemption terms and conditions of the largest open-ended property funds in the Netherlands appear to envisage long notice periods, infrequent opportunities for redemption, and in some cases caps on the proportion of fund assets which can be redeemed at each opportunity; there is no formal requirement under AIFMD currently or Dutch national law for that to be the case.

### Recommendation (liquidity mismatch supervision)
- The authorities should continue to periodically assess the extent of liquidity mismatch in relation to CIS investments in both real estate and corporate bonds, and ensure that any change to the risk profile is reflected in the focus of supervision of liquidity risk management.

### AIFMD reporting and credit line data
- The revision of the AIFMD provides an opportunity to gather enhanced data on fund credit lines to give better visibility of a potential transmission mechanism for systemic risk.
- Article 1(10) of the provisional text of the revision to AIFMD allows for further specification of the data to be reported by AIFMs under Article 24 about fund composition and risks, including arrangements for managing liquidity; further specification will be developed through RTS based on drafts by ESMA.
- Dutch authorities receive data on existing borrowing by funds but do not receive data on committed credit lines which may be drawn down in times of stress (for example to meet redemption requests).
- Having data on committed credit lines would make it easier to identify dependencies on particular banks before stresses arise.

### Recommendation (AIFMD reporting)
- The AFM should actively contribute to the development of the draft RTS further specifying the AIFMD Article 24 reporting requirements, with a view to including specific data about the size and source of credit lines available to each fund, and whether the credit lines are committed.

### AFM risk-based supervision and institutional responsibilities
- The AFM’s risk-based approach prioritizes higher risk/impact fund managers, typically those with larger AUM, but it also risk assesses smaller managers and has used formal powers when needed.
- Implementation of the SREP process, carried out in collaboration with DNB, has enhanced risk-based determination of firms and topics requiring focus.
- Institutional allocation:
  - AFM is the main Dutch authority responsible for securities and derivatives markets supervision and, within EU constraints, regulation.
  - Under the Dutch ‘Twin Peaks’ structure, AFM leads on market conduct and DNB on prudential issues.
  - AFM consults DNB on prudential aspects of authorization decisions for asset managers; DNB decides under Pillar 2 with input from AFM.
  - AFM is primarily the Dutch participant in ESMA.

### AFM organizational developments and international engagement
- AFM has restructured, grown, and embedded centers of expertise in data management and analytics, IT and operational risk.
- Publishes Strategy 2023-2026, Agenda 2023, and Annual Report 2022.
- Changed supervisory model to a more intensive ‘account management’ model for higher risk firms and dedicated more staff/resources to asset management and trading venue supervision.
- Increased engagement at EU and international levels, including chairing ESMA’s Senior Supervisors’ Forum and joining ESMA’s Management Board and the IOSCO Board.

### Institutional constraints and recommendations on AFM autonomy and powers
- Problematic aspects remaining since 2017 include:
  - requirement for budgetary approval by the Ministry of Finance (budgetary approval is required only for budget expansion, not for re-allocation within the organization; supervisory budgets are further protected by the Cost Framework ‘kostenkader’),
  - lack of an autonomous rule-making power in areas not explicitly accorded by EU legislation,
  - Ministry of Finance’s power to overturn rules made by the regulatory authorities (conditions clarified in article 1:29 of the Financial Supervision Act (Wft)).
- The mission noted the need for a distinctive treatment of the financial services sector to allow timely, efficient, proportionate responses to emerging risks.
- Recommendation: The AFM should commission an assessment of additional supervisory powers which could be beneficial in enabling it to address risk efficiently and effectively, drawing on external advice with detailed knowledge of international peer comparators, and make recommendations for change to the Ministry of Finance.
- Recommendation: The Ministry of Finance should review the legislation governing the powers of the AFM to give it greater autonomy in regulation and a wider range of supervisory powers, taking into account the recommendations from the last FSAP, the AFM’s recommendations following the above review, and the IOSCO Objectives and Principles of Regulation.

### IT, staffing, remuneration benchmarking, and governance
- Delivering efficient supervisory outcomes depends on IT capabilities and access to specialists in IT, analytics and financial markets; AFM has been building IT infrastructure to make better use of large data sets.
- AFM may need additional expertise in wholesale financial markets and scarce skills; bringing in former market practitioners as senior advisers was recommended.
- Recommendation: The AFM should institute periodic benchmarking of remuneration against industry remuneration packages, including for senior staff.
- Corporate governance standards:
  - AFM has robust policies for staff conflicts of interest and restrictions on securities dealing, but some appointment and accountability practices could be improved.
  - Example concerns: most recent appointment of the chair of the supervisory board was made without public advertisement; delayed filing of personal company accounts by some supervisory board members and one executive director raised questions about AFM’s response.
  - A stronger, more transparent response and commitment to lessons learned would better reflect AFM leadership responsibilities.

*Source: IMF staff report excerpt on securities regulation, supervision, and investment fund liquidity management in the Netherlands (excerpts provided).*

### 3.  Pursue legal reform

### 3.  Pursue legal reform to expand the rule-making authority of the AFM and the DNB

### Legal reform and supervisory rule-making (Recommendations 3–6)
- Recommendation 3: Pursue legal reform to expand the rule-making authority of the AFM and the DNB — Not Implemented.
  - The powers of DNB and the AFM to introduce technical regulations have not been enhanced. No actions to do so are currently foreseen.
  - Under Dutch constitutional system, the Government usually initiates new legislation; regulatory powers can primarily only be granted to independent administrative bodies when they concern organizational or technical topics, or for extraordinary cases and on the condition that the minister has the power to approve the regulation.
  - DNB and the AFM can adopt so-called policy rules (Article 4:81 of the General Act on Administrative Law) which are self-binding on DNB and the AFM but are not legally binding for supervised institutions; supervisors take these policy rules into account when exercising supervisory powers.
  - DNB and the AFM have delegated regulatory powers based on provisions in the Financial Supervision Act or directly applicable EU law and can adopt legally binding, usually technical, requirements further specifying higher legislation.

- Recommendation 4: Clarify conditions under which the MoF power to set aside rules of supervisors would be exercised and make these transparent to the public — Not implemented.
  - The conditions are already clarified in law (Article 1:29 of the Financial Supervision Act).
  - Any application of this power would result in public decisions and thus public transparency is assured.
  - The MoF’s power to repeal generally binding regulations adopted by DNB or the AFM stems from the primacy of the legislature; specific cases and procedural safeguards are considered to provide sufficient protection of supervisor independence, so no further action was deemed necessary.

- Recommendation 5: Amend legislation to expand the AFM’s authority to obtain information from telecom providers and freeze assets — Not implemented.
  - In 2015-2016 implementation of EU Regulation 596/2014 and Directive 2014/57/EU, AFM requested extension of powers to (i) obtain records kept by providers of telecommunication and data exchange; and (ii) freeze securities/bank accounts.
  - The NL legislator assigned and extended these powers to the NL public prosecutor and considered necessary supervisory powers in article 23 of the MAR were available in Dutch law; no further implementation was deemed necessary.

- Recommendation 6: Amend legislation to expand authority of DNB and AFM to conduct examinations and investigations using outside experts — Not implemented.
  - DNB and the AFM can involve outside expertise under Article 1:72 Wft, in conjunction with Article 5:15 Awb.
  - AFM can appoint an expert without the regulated firm’s consent and require the expert to report to the AFM, but cannot require the firm to reimburse the AFM for the expert’s cost.
  - Alternatively, AFM can require firms to verify results or enact changes with external experts at the firm’s expense, in which case the firm may select the expert(s).

### Auditor oversight (Recommendations 8–10)
- Recommendation 8: Require all public issuers and auditors to make prompt public disclosure of auditor/audit firm changes or resignations — Fully implemented.
  - Changes of auditors during the financial year qualify as inside information requiring public disclosure.
  - Shareholders assembly (AVA) must be informed of auditor changes; audit firms must inform the AFM of interim termination during the fiscal year of an audit assignment of PIE, enabling AFM to match with public disclosure.
  - AFM does not foresee a need for additional public disclosure requirements.

- Recommendation 9: Devote more resources to routine on-site reviews of PIE-audit firms other than the four largest international firms and periodic spot-checking at non-PIE-audit firms — Partially implemented.
  - Supervisory focus mainly on PIE audit firms. AFM received additional budget to intensify oversight from 2023 onwards, allowing higher periodic cycles of inspections and/or more thematic reviews.
  - Starting in 2021, incremental growth in AFM budget for non-PIE supervision. At the end of 2024, the AFM will have 35 FTE for non-PIE supervision.
  - In 2022 AFM started thematic reviews, other on-site activities and interviews, and built its data position for more risk-based and data-driven audit methodology.

- Recommendation 10: Renegotiate agreements with accounting professional associations to give AFM express control over key issues on reviews of non-PIE firms — Fully implemented.
  - Until 2021 oversight of non-PIE audit firms was primarily delegated to two professional bodies; since 2022 AFM is the sole oversight body of non-PIE audit firms regarding statutory audits and has increased contact and thematic reviews.

### Market-based finance and fund management (Recommendations 7, 11–18)
- Recommendation 7: Broaden AFM supervisory authority regarding loan-based crowdfunding — Fully Implemented.
  - AFM requested legislative provisions in 2016; European Regulation 2020/1503 on European crowdfunding service providers for business (published October 2020) introduced a fully harmonized regime, went into force on 10 November 2021, and Dutch law amended accordingly to ensure supervision by AFM and DNB.

- Recommendation 11: Ensure significant shareholders of AIFMs are subject to the same supervisory assessments as MiFID firms and UCITS fund managers — Partially implemented.
  - Larger AIFMs are subject to MiFID requirements; smaller ones without such a top-up were considered disproportionate and no additional requirements were put in place.

- Recommendation 12: Keep watch on growth of MMFs and ensure compliance with IOSCO policy recommendations — Fully implemented.
  - Since 21 July 2018, funds must apply for an additional MMF top-up under the EU MMFR; transitional arrangement until 21 January 2019 applied to existing MMFs.
  - MMFR sets additional requirements (investment policy, assets allowed). Application for MMF license extension is in addition to mandatory notification for new funds (AIFs and UCITS); top up can only be granted to managers who already have a UCITS or AIFM license.
  - Managers must demonstrate they meet MMFR conditions: know your client policy; internal credit quality assessment procedure; data reporting obligations.
  - Managers must register all offered and/or managed MMFs separately; to register a MMF with AFM the manager must demonstrate compliance with MMFR requirements including the investment policy and valuation method.
  - No additional national requirements in NL. As of May 2023 there are six MMFs from three fund managers registered with a total AuM of EUR 623 million.
  - Dutch MMFs are very insignificant in the total European MMF market.

- Recommendation 13: Enhance liquidity risk management for UCITS; consider routine reporting of liquidity data and stress test results — Partially implemented.
  - From 2020 AFM developed data dashboards for structural monitoring of AIFMD reporting data; dashboards use regulatory AIFMD data and fund-related data from data vendors for funds not subject to regulatory reporting (e.g., UCITS).
  - Dashboards allow supervisors to view fund characteristics, liquidity mismatch levels, reported stress test results, presence of liquidity buffer if fund uses derivatives, and available LMTs.
  - More supervisory capacity is devoted to AIFs because AIF sector is significantly larger than UCITS in the Netherlands.

- Recommendation 14: Develop approach to measuring investment fund leverage and contribute to harmonizing leverage calculation — Partially implemented.
  - For AIFs, leverage measurement is defined and harmonized by European AIFMD reporting; AFM adheres to this and with DNB monitors leverage (DNB responsible for article 25 of the AIFMD).
  - For UCITS there is no additional national reporting regime; UCITS make up less than 5 percent of Dutch investment funds, so AFM has not implemented regular reporting requirements for Dutch UCITS.
  - AFM advocates for a uniform EU reporting scheme consistent with AIFMD.

- Recommendation 15: Assess risks from use of related depositaries and consider requiring additional safeguards — Fully implemented.
  - AFM established regulatory regime for depositaries in light of UCITS V, including licensing of those not already authorized as a bank or investment firm.
  - On 1 November 2018 AFM published sector briefing Points of attention for the organization of the depositary; further feedback provided in 2021; AFM visits and expects to visit 3-4 depositaries a year (other than during the pandemic).

- Recommendation 16: Provide guidance when a depositary is a related party of a CIS manager — Fully implemented.
  - Guidance provided in the referenced sector briefings.

- Recommendation 17: Contribute to EU discussions on common approach to asset segregation requirements for CIS — Fully implemented.
  - AFM contributed to ESMA Opinion on asset segregation (2017), formalized in final Delegated Regulations for UCITS and AIFMD; AFM considers this framework sufficient.

- Recommendation 18: Both supervisors should conduct more on-site examinations and consider comprehensive examinations — Fully implemented.
  - AFM established ‘account management’ for the 20 biggest fund managers (UCITS and AIF), visits quarterly and conducts approximately 2 deep dives each year on specific themes (e.g., AML or delegation).
  - AFM conducts on-site examinations with depositaries.
  - DNB conducts 4 visits/interviews a year with each of the 16 largest investment managers: 2 with the executive board, 1 with risk management, and 1 with Internal Audit; plus several on-site examinations at lower frequency for thematic reviews.

### Reporting, data, and systemic risk monitoring (Recommendations 19–21)
- Recommendation 19: Work with ESMA and supervisors to improve AIFMD reporting template and guidance — See answer to 21.

- Recommendation 20: Consider whether prudential reporting for fund managers should be more frequent than semi-annual — Partially implemented.
  - Large fund managers report quarterly because they all have a MiFID top-up; AFM considers this frequency appropriate.
  - Smaller managers (without MiFID top-ups) report semi-annually.

- Recommendation 21: Ensure all data needed for supervision and systemic risk monitoring is available timely and strive for enhanced international exchange of information — Fully implemented.
  - Cross-sector: From 2018 DNB implemented programs on mastering data and innovation of supervision using technology: innovation lab; network of data desks within business units; data science hub for data analytics, machine learning and data science.
  - AFM launched project ‘spot on’ to improve data-driven off-site supervision, exploring machine learning and new reporting standards; AFM and Ministry of Finance are exploring an additional legal basis for periodic data requests.
  - Collective investment schemes:
    - DNB monitors data quality using quarterly updated reports resulting in substantial improvement in quality and consistency; coverage of investment managers and funds has grown significantly as AIFMD authorization/registration progressed; all investment managers have reported since beginning of 2018.
    - Since 2018 AFM sends AIFMD data to ESMA; data quality has received increased attention and cooperation improved data coverage; efforts to synchronize registry data among ESMA, AFM and DNB continue.
    - Over 2018, reporting data for more than 80 percent of authorized investment managers under AIFMD have been successfully reported to ESMA.
    - AFM set up a custodian reporting requirement every 6 months covering the previous reference period to gain insight into material irregularities and interactions between custodians and fund managers.
    - Based on analysis of margin calls during the March 2020 stress, AFM set up monitoring framework on eurozone swap rates and now contacts large pension funds when monitoring shows relatively large changes in swap rates as part of broader liquidity monitoring tracking investment fund flows and market stress indicators.
    - AFM and DNB argued for a European reporting regime for UCITS comparable to AIFMD; this will be part of upcoming changes to AIFMD and UCITS.

### Liquidity management tools at CIS (Recommendation 22)
- Recommendation 22: Pursue an assessment of supervisors’ powers with respect to use of liquidity management tools at CIS — Partially implemented.
  - AFM carried out work to assess liquidity risk in funds, gather information on LMTs available to and used by CISs, and checked consistency between disclosed tools and regulatory reporting.
  - AFM’s assessment of its powers with respect to LMTs was performed in 2016; in 2019 AFM formalized the power to suspend an internal procedure.
  - AFM recognizes AIFMD and UCITS provide powers to suspend subscriptions and redemptions: Art. 46(2)j AIFMD and Art. 84(2)b UCITS, implemented in national law in Art. 1.77a Wft.

*Source: 1nldea2024009 - 3.  Pursue legal reform (extracted content).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1nldea2024009.pdf_