## _cr11204

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---

### Executive summary — main findings
- AFM has developed a robust supervisory framework exhibiting high levels of implementation of the IOSCO Principles.
- AFM supervision of intermediaries uses a problem solving risk-based approach with:
  - annual development of themes across the financial sector that become the focus of on-site supervision;
  - an institution-based program of both off- and on-site supervision for high impact firms.
- AFM supervision of markets follows a risk-based approach; significant AFM resources are dedicated to supervision of Euronext Amsterdam and Euronext N.V.
- AFM supervisory programs are implemented under a clear enforcement strategy; AFM’s main goal is to influence behavior and it uses different tools (including fines when necessary). AFM is perceived as a credible and effective enforcer.
- DNB complements AFM with prudential supervision for investment firms:
  - DNB follows a risk-based approach; intensity of supervision determined by type of activities.
  - Investment firms conducting “riskier activities” or larger/complex firms and proprietary trading are subject to on-site inspections on an annual cycle.
  - Remaining firms are visited under a three year cycle.
- Gaps and limitations identified:
  - AFM has limited legal authority to request information from issuers to ensure compliance with financial reporting standards.
  - Some management companies are not subject to solvency requirements nor review of qualified holdings; reporting obligations for all management companies are insufficient from a prudential perspective.
  - DNB does not conduct on-site inspections of management companies except when signaled, grouped with an investment firm, or when dual licensed.
  - Both AFM and DNB have limited authority to issue rules; legal framework prescribes narrowly the cases where they can issue rules.

### Assessment scope, timing, and methodology
- Assessment period: conducted from November 25 to December 14, 2010 as part of the FSAP.
- Methodology: IOSCO Principles and Objectives of Securities Regulation and its Methodology adopted in 2003 and updated in 2008; assessment used current methodology (revision adding nine new Principles approved June 2010 not fully assessed; summary of exploratory discussions included as annex).
- Scope notes:
  - DNB framework assessed for prudential supervisor functions (Principles 17, 22, 24, and 29).
  - Principles 1, 2, 3, 4, 5, 8, 9, 10, 11, 12, and 13 assessed with limited scope in connection with DNB functions.
  - Principle 30 not assessed.
- Information sources: AFM self-assessment (with DNB), laws and documents, meetings with AFM/DNB/MoF and market participants.

### Regulatory structure — roles, mandates, coordination
- Twin peaks approach embedded in the Act on Financial Supervision (AFS):
  - Section 1:24 — prudential supervision focus on solidity and financial stability.
  - Section 1:25 — conduct of business supervision focus on orderly, transparent processes and integrity.
- AFM primary authority for securities markets; DNB participates in prudential supervision.
- AFM specific responsibilities under other laws include:
  - Audit Firm Supervision Act (statutory auditors);
  - Act on Supervision of Financial Reporting;
  - Consumer Protection Enforcement Act (consumer protection for mainly exempted issuers).
- Coordination features:
  - collaboration in developing regulations to ensure equivalence where possible;
  - consultation in licensing and imposition of certain enforcement measures;
  - covenant detailing obligations.
- Private organizations:
  - DSI: voluntary registration; 510 members, 605,000 individuals with 700,000 registrations; not an SRO for assessment purposes.
  - DUFAS: code of governance for CIS; as of November 2010 roughly 99 percent of institutions licensed to provide asset management services were members; not an SRO for assessment purposes.

### Licensing and supervisory perimeter
- Activities subject to authorization or licensing include:
  - (i) offering of securities to the public;
  - (ii) provision of investment services and activities;
  - (iii) management of collective investment schemes (CIS);
  - (iv) operation of a regulated market.
- AFM responsible for authorization of offerings and licensing of activities listed above, except operators of regulated markets (licensed by MoF upon AFM recommendation).
- Banks licensed by DNB can provide investment services without a separate license from AFM.
- Oversight of Credit Rating Agencies (CRAs) licensing will soon transfer to ESMA.

### Market structure — key statistics
- Issuers:
  - As of October 2010, there were 115 companies listed in Euronext Amsterdam, for a total market capitalization of € 462.712 millions.
  - Market concentration: top ten companies represent roughly 74 percent of total market capitalization.
  - New listings in 2010: of 71 new listings in Euronext, only six took place in other segments and only one new listing took place in Euronext Amsterdam.
- Intermediaries:
  - As of November 2010 there were 49 banks and 263 investment firms—of which 243 were located in the Netherlands—authorized to carry out investment services in the Netherlands.
  - Approximately 90 percent of the investment firms are dedicated to asset management.
- Collective Investment Schemes:
  - As of November 2010, there were 120 firms licensed to manage CIS; 113 were located in the Netherlands, of which 93 are management companies and 20 are investment companies.
  - These firms manage a total of 389 CIS, of which 55 are umbrella funds with a total of 559 sub funds.
  - There are roughly 800 foreign CIS authorized in the Netherlands.

### Assets under management (AUM) and fund structure
- AUM by CIS reached € 392 billion at end 2009.
- Drivers of 2009 AUM increase:
  - one-off deposit of € 174 billion by pension funds in the context of restructurings;
  - a € 42 billion price gain on investments.
- Resulting market positions:
  - euro market share of Dutch investment funds grew to 8 percent;
  - by end 2009, the Dutch sector ranked fifth after Luxembourg, Germany, France and Ireland.
- Composition and investor base:
  - Bulk of CIS authorized in the Netherlands are non-UCITS.
  - Bond funds constitute 43 percent of the Dutch investment fund industry;
  - Equity funds constitute 42 percent.
  - Share of Dutch pension funds in the holding unit of Dutch investment funds rose from 44 to 76 percent at end 2009.
- Regulatory feature: non-UCITS do not benefit from the passport regime; they have more flexibility and the possibility to use leverage.

### Markets infrastructure and trading venues
- Main market:
  - Euronext Amsterdam main market; operated by Euronext Amsterdam, a fully owned subsidiary of Euronext NV.
  - Eurolist: centralized electronic order driven cash market; priority based on price/time; quotes anonymous.
  - LCH Clearnet S.A. provides central counterparty and clearing services.
  - Settlements via Euroclear on a DVP T+3 basis.
  - Liffe Connect: regulated market for derivatives; order driven for futures, quote driven for options; LCH Clearnet S.A. provides CCP services.
- MTFs in the Netherlands:
  - Three licensed MTFs: NYSE Arca Europe, Alternext, and TOM.
  - NYSE Arca Europe operates a central limit order book for blue chips from 14 countries.
  - Chi-X Europe and other non-Dutch MTFs are important venues for trading Dutch securities.
- Market share and fragmentation:
  - Estimates indicate roughly 30 percent of trading volumes have already moved to MTFs, and it is expected that they will reach 50 percent in the near future.
  - Fragmentation complicates compliance with best execution obligations; order routing systems are being used to address this challenge.
- Specialized markets:
  - ENDEX: specialized energy market licensed in the Netherlands; estimated roughly 20 percent market share in future contracts for Dutch national grid physical delivery.

### General preconditions for effective securities regulation
- Preconditions observed:
  - No significant barriers to entry and exit;
  - Competition and foreign participation encouraged;
  - Legal and accounting systems support implementation;
  - Commercial law and corporate governance standards up-to-date;
  - Insolvency legislation sophisticated;
  - Regulators have legally enforceable powers;
  - Taxation framework supportive.

### Supervisory framework and market conduct — main findings
- Principles for the regulator (1–5):
  - Functional supervisory approach: AFM for conduct; DNB for prudential.
  - Operational independence in practice; some legal features could pose threats to independence.
  - Limited rulemaking authority may affect ability to react swiftly.
  - AFM limited powers vis-à-vis issuers (financial reporting).
  - AFM sufficient resources; DNB resources for securities intermediaries appear limited.
  - Procedural fairness via General Administrative Law (GALA); decisions subject to judicial review.
- Self-regulation (6–7):
  - No private organizations have legal power to set binding eligibility rules or bar market participation other than AFM and DNB.
  - Exchanges and CCPs perform oversight over members; subject to AFM and DNB oversight.
- Enforcement (8–10):
  - AFM and DNB have extensive investigative powers; can request information and inspect without prior notice.
  - Record-keeping requirements: five years.
  - AML obligations required (Wwft).
  - Enforcement measures include public warnings, instructions, orders for incremental penalties and administrative fines (up to € 8 million mentioned elsewhere; Penalty Act framework gives category maxima).
  - AFM risk-based supervisory framework and clear enforcement strategy.
  - DNB strengthened compliance reporting and started imposing orders for incremental penalties; compliance improved.
  - Remaining limitations in prudential supervision of management companies and criminal enforcement visibility.
- Cooperation (11–13):
  - AFM and DNB subject to cooperation obligations with foreign regulators (AFS requires cooperation).
  - AFM signatory to IOSCO MMoU and many bilateral MoUs; DNB signatory to multiple bilateral MoUs.
  - International cooperation centralized largely in AFM.

### Issuers, prospectus and financial reporting (Principles 14–16)
- Prospectus and disclosure:
  - Issuers of public offerings or with securities admitted to listing must submit a prospectus for AFM approval aligned with IOSCO principles.
  - Prospectus requirements: AFS Section 5:13; must contain all data necessary for investor assessment; prospectuses drafted using Annex XVIII schedules/building blocks.
  - Prospectus language: Dutch or language customary in international finance (AFS Section 5:19).
  - Prospectus exemptions include thresholds: offers to fewer than 100 persons, offers exclusively to qualified investors, denomination per security ≥ € 50,000, equivalent value per investor ≥ € 50,000, total offers < € 10,000 over 12 months.
  - Authorities informed EU members agreed to increase € 50,000 amount to € 100,000.
- Periodic and continuous disclosure:
  - Annual filings within four months: audited annual statements; Executive Board Report including main risks, “in control” statement, disclosure of substantial holdings, assessment of compliance with corporate governance code; responsibility statement (AFS Section 5:25c).
  - Semi-annual requirements: unaudited financial statements; interim management report; responsibility statement.
  - Annual and semi-Annual Reports must be made generally available and submitted simultaneously to AFM.
  - AFM reviews roughly 60-70 annual reports annually; all issuers subject to review on a five year cycle.
- Financial reporting enforcement:
  - AFM enforcement powers limited under civil law: can issue notifications and recommendations; can initiate court proceedings (Enterprise Section of Amsterdam Court of Appeal) within six months of presentation of financial statements.
  - AFM cannot initiate court proceedings for half-yearly reports.
  - Chinese walls limit sharing of information between AFM departments; AFM must request review of whole financial report when filing suit to enforce publication of a recommendation.
- Assessment for accounting & auditing:
  - Auditors subject to AFM oversight; statutory audits follow ISAs (modified) and auditing profession standards; AFM licenses audit firms for PIE and non-PIE audits.
  - Assessment: Partly implemented for financial reporting supervision due to AFM limitations to request information, short court deadline, and departmental information-sharing limits.

### Collective Investment Schemes (Principles 17–20) — licensing, supervision, valuation
- Licensing and perimeter:
  - Management of a CIS subject to licensing by AFM (Section 2:65).
  - Licensing requirements: fitness and properness, expertise, organizational structure, minimum capital.
  - Minimum capital examples:
    - Non-UCITS management company with assets ≥ EUR 250 million: € 225.000 (components per BPR);
    - Non-UCITS management company with assets < EUR 250 million: € 125.000 (components per BPR);
    - UCITS management company: € 125.000.
    - Investment company without separate management company: € 300.000.
  - Fee formula: EUR 125,000 + 0.02 % of the amount by which the assets under management exceed EUR 250 million, to a maximum of EUR 10 million.
- Prudential supervision:
  - Only UCITS management companies must adjust capital according to assets under management; qualifying holdings review applies to UCITS only.
  - DNB supervises CIS liquidity compliance; DNB lacks authority to require additional prudential reporting beyond annual and semiannual statutory submissions.
  - DNB off-site supervises management companies; on-site only when issues are signaled or for group cases or dual licenses (~20 companies).
- Valuation, pricing and redemption:
  - NAV determination obligations: Section 34 Bgfo; prospectus must describe NAV method, frequency and publication.
  - Illiquid assets: independent expert valuation at least once a year (Section 4:52a; Annex E requirements).
  - Compensation of investors for NAV errors: prospectus must state circumstances and manner; industry-consistent thresholds mentioned: (i) 25 percent of a point for money market funds; (ii) 50 percent of a point for mixed funds; (iii) 1 percent of a point for stock funds.
  - AFM expects suspension of pricing/redemption only in exceptional circumstances; suspension must be announced on website and notified to AFM (AFS Section 4:55).
- Depositary and segregation:
  - Unit trusts required to have an independent depositary (AFS Sections 4:42–4:45); investment companies not required to have a depository in law.
  - BPR requires depository minimum capital of € 112.500.
  - Assessor recommends embedding safeguards in law and consider requiring a licensed entity (e.g., credit institution) as depository; authorities indicated AIFM Directive will require a depository.
- Assessment summary: Broadly implemented.
- Key assessor recommendations:
  - Remove unjustified differences in capital and qualifying holdings treatment between UCITS and non-UCITS.
  - Grant DNB power to require periodic prudential reporting, including on a consolidated basis if applicable.
  - Maintain prophylactic on-site inspections given potential investor harm from management company failures.
  - Increase threshold for prospectus exemption (authorities indicated planned increase to € 100.000 and further change under AIFM Directive).

### Market intermediaries — licensing, capital, conduct (Principles 21–24)
- Licensing and entry standards:
  - No party may offer investment services without AFM license (investment firms defined in AFS).
  - AFM license not required for entities with DNB bank license; AFM must provide declaration of no objection.
  - Licensing includes fit and proper requirements, minimum capital, internal controls, segregation of assets, conflict of interest policies.
- Capital and prudential requirements:
  - Minimum own funds for various investment services and activities preserved exactly from source, including:
    - Own funds requirement for proprietary trading/market maker: EUR 730,000.
    - Asset management: EUR 50,000.
    - Remisier: EUR 35,000 (EUR 50,000 if service also provided abroad).
    - Operating/exploiting an MTF: EUR 730,000.
  - Alternative for certain firms: professional indemnity insurance thresholds (e.g., € 1,120,200 per occurrence; € 1,680,300 per annum).
  - Reporting requirements: quarterly for asset managers; monthly summaries for firms investing on own account; annual audited reports.
- Internal organization and conduct:
  - Firms required to have adequate organizational structure, internal control, risk management and compliance functions (Section 31 Bgfo).
  - Directors responsible for control; at least two persons determining day-to-day policy.
  - Client protection: segregation of client assets via client-named bank accounts; auditors provide annual assurance; thematic reviews found no major industry-wide issues.
  - Suitability and “know your client” obligations prescribed (Section 4:23; Article 80(a) Bgfo).
  - Record-keeping: at least five years; client agreement and transaction records saved.
- Investor Compensation Scheme (ICS):
  - Guarantees up to € 20,000 per client per investment firm.
  - Protects private individuals and "small" businesses.
  - Scheme funded by regulated entities via annual levies; ex-post contributions required if insufficient.
- Assessment: Principles 21–24 broadly/fully implemented with recommendations to monitor balance of visits vs inspections and resource allocation.

### Secondary markets — licensing, transparency, surveillance (Principles 25–30)
- Licensing of RMs and MTFs:
  - RM licensed by MoF on AFM recommendation; MTF licensed by AFM as part of investment firm license.
  - License criteria include fitness and properness, six months working capital principle, rules for admission/transparent access, fair and orderly trading, technical operation and settlement rules.
- Supervision and oversight:
  - AFM differentiated oversight based on scale, securities traded and participant type; most resources dedicated to Euronext.
  - Real-time monitoring for price-sensitive information; T+1 surveillance for unfair practices.
  - Revised MoU among five competent authorities for Euronext enables coordinated approvals and on-site inspections.
- Transparency and trade reporting:
  - AFS requires pre- and post-trade transparency for equity markets for RMs and MTFs.
  - Post-trade transparency required for OTC in shares and systematic internalizers.
  - Consolidated tape under review.
  - Concerns about waivers on transparency for large trade blocks; market fragmentation reduces average trade size complicating delay thresholds.
  - Assessment: Principle 27 graded BI (broadly implemented) with recommended action to pursue consolidated tape and review waivers.
- Market abuse detection and enforcement:
  - Insider trading and market manipulation constitute administrative infractions and criminal offenses.
  - AFM has dedicated Monitoring Unit (8 persons) for real-time monitoring and T+1 alerts; AFM conducts roughly 75 market abuse investigations yearly.
  - Implementation of client-ID and additional investigative powers (telephone/internet records) recommended to improve investigation duration and surveillance effectiveness.
- Clearing, settlement and large exposures:
  - DNB and AFM jointly supervise clearing and settlement but do not directly monitor large exposures; receive monthly info from LCH.Clearnet S.A.
  - LCH.Clearnet S.A. uses intraday margining and has default procedures; EMCF oversight via voluntary Oversight Agreement and MTF License basis.
  - Assessors recommend adoption of a comprehensive legal framework for clearing and settlement.
- Sanctions and funding:
  - Administrative fines framework: fixed and variable. Source noted a different maximum reference: administrative fines (up to € 8 million in one earlier summary); Penalty Act categories list specific ranges and overall limits.
  - AFM and DNB funding: annual levies cover roughly two thirds of AFM budget and three quarters of DNB budget; remainder covered by government.
- Selected recommended action items (excerpts):
  - AFM to publish guidance on licensing of regulated markets once finalized.
  - AFM to engage in MiFID review to improve market quality and transparency.
  - AFM and MoF to pursue consolidated tape and address waivers for block trades.
  - Legal reform to allow implementation of client-ID in the Netherlands.
  - Consider additional investigative powers to access telephone and internet service provider records.
  - Adopt a comprehensive legal framework for clearing and settlement.

### Cooperation, information sharing and cross-border assistance
- Domestic cooperation:
  - Section 1:51 establishes obligation to cooperate with supervisory authorities of Member States.
  - AFM and DNB have covenant covering consultation on regulations, licensing, enforcement measures and regular information exchange; cooperation works well in practice.
- Cooperation with non-Member States:
  - Section 1:68 and Section 1:65 allow supplying confidential information to non-member supervisors if equivalent guarantees exist.
  - AFM answers requests within two to three weeks for banking records; consultation with PPO when criminal use is sought (PPO aims to answer in two weeks).
- International MoUs and practice:
  - AFM signatory to IOSCO MMoU, CESR Multilateral MoU, and many bilateral MoUs.
  - AFM received/answered roughly 123 requests for information/cooperation in 2009 and ~86 from January–September 2010.
  - AFM operational statistics on cooperation maintained; practical assistance effective.

### Supervisory resources, independence, transparency, and staff standards
- AFM resources and staff:
  - Total staff: roughly 500; directly involved in supervisory functions: roughly 150.
  - Average age: 38 years.
  - More than 50 percent of professional staff has legal or economic background.
  - 67 percent of staff has at least 10 years of experience.
  - AFM training: roughly 2 percent of budget; Management Development Program; trainee program introduced in 2010.
  - AFM able to pay competitive salaries.
- DNB securities supervision staff:
  - Staff dedicated to supervision of securities firms: 12 vis-à-vis roughly 360 firms.
- AFM expenses and activity figures (selected, preserved exactly):
  - Expenses (in EUR x million): 71.7 (2009); 78.4 (2008); 72.6 (2007).
  - Government contribution as percentage of total expenses: 35% (2009); 34% (2008); 31% (2007).
  - Staff complement in FTE (annual average): 456 (2009); 434 (2008); 434 (2007).
  - Percentage direct supervision: 52% (each year).
  - Number of institutions subject to supervision: 14,100 (2009); 14,700 (2008); 15,100 (2007).
- AFM supervisory measures (selected figures):
  - Total number of fines: 52 (2009); 20 (2008); 6 (2007).
  - Number of fines published: 35 (2009); 14 (2008); 2 (2007).
  - Orders subject to penalty for non-compliance: 59 (2009); 123 (2008); 77 (2007).
  - Instructions: 237 (2009); 24 (2008); 10 (2007).
  - Licences withdrawn: 38 (2009); 11 (2008); 2 (2007).
  - Total number of formal supervisory measures: 454 (2009); 250 (2008); 152 (2007).
  - Number of generic conveyances of standards/letters regarding standards: 1605 (2009); 560 (2008); 269 (2007).
- Independence and accountability:
  - Appointment/termination rules: supervisory board members appointed by MoF for max four years, reappointable twice (Section 1:27); Executive Board appointed by royal decree for renewable four-year periods (Section 1:26).
  - Accountability: annual report to MoF by May 1; periodic evaluations every five years by MoF; public consultations on budget and rulemaking (Section 1:39).
  - Confidentiality: AFS Section 1:89 restricts staff use of confidential data; AFM required to publish administrative fines.
- Staff professional standards and integrity:
  - AFM integrity policy includes pre-employment screening, confidentiality rules (Section 1:89), insider trading pre-clearance, gift limits (€ 50), information security, whistle-blower procedures, ancillary activity approval, and training.
  - C&I conducts risk-based reviews and roughly 60-65 investigations yearly; incidents: 12 minor breaches in 2009; four detected in most recent year.
  - DNB has a similar integrity policy and C&I Department reporting to the Governing and Supervisory Boards.
  - Assessment for staff standards and privacy: Fully implemented.

### Auditing oversight and standards
- AFM oversight of auditors:
  - Licensing: AFM licenses audit firms for statutory audits; ~700 licensing applications processed after licensing function assigned in October 2006.
  - AFM audit supervision department: 21 full-time and 2 part-time professionals (non-practitioners).
  - Currently 15 firms licensed to conduct PIE-audits and approx. 460 to conduct non-PIE audits.
  - Big 4 cover roughly 60 percent of all audits and charge roughly 80 percent of all audit fees.
  - AFM inspects all PIE audit firms; some inspections at non-PIE firms carried out by SRA under MoU.
- Auditor independence and standards:
  - Audit Firms Supervision Act requires independence safeguards; rotation for individual auditor of PIE: seven years; cool off period: two years.
  - Annual transparency report required for audit firms performing PIE audits.
  - Auditing standards based on ISAs with limited modifications.
- Assessment and recommended legal reforms:
  - Assessment: Partly implemented for financial reporting enforcement due to AFM limited information powers, short six-month court filing deadline, and departmental information-sharing limits.
  - Recommendations: strengthen AFM enforcement authority re information requests, longer deadlines for court action, remove legal Chinese walls limiting information sharing among AFM departments.

### Identified weaknesses and policy implications (summary)
- Legal and supervisory limitations:
  - AFM limited legal authority to request information from issuers constrains financial reporting reviews.
  - Management companies: differences in solvency requirements and qualifying holdings reviews between UCITS and non-UCITS not justified; reporting obligations insufficient for prudential supervision.
  - DNB limited on-site inspections of management companies (only on signals, group affiliation, or dual license) limits prudential oversight.
  - AFM and DNB have narrow rulemaking authority limiting swift responses to emerging risks.
- Institutional coordination and oversight gaps:
  - Market infrastructure providers’ oversight roles complementary; cross-jurisdiction coordination for entities like Euronext relies on MoUs and joint arrangements.
- Enforcement and criminal prosecution visibility:
  - Limited visible criminal convictions for market abuse; recommendation to consider further investigative powers and improved coordination with PPO.
- Clearing and settlement:
  - Recommendation to adopt a comprehensive legal framework for clearing and settlement.
- Market transparency:
  - Pursue consolidated tape and reforms addressing waivers on transparency for block trades; review reporting requirements for OTC derivatives and other non-equity markets.

*Source: IMF staff assessment chapter titled "Summary Implementation of the IOSCO Principles and Objectives of Securities Regulation" from the Netherlands IOSCO assessment (FSAP mission, November 25–December 14, 2010).*

### 1.     Summary Implementation of the IOSCO Principles and

### _cr11204 - 1.     Summary Implementation of the IOSCO Principles and

### Executive summary — main findings
- The Netherlands Authority for Financial Markets (AFM) has developed a robust supervisory framework exhibiting high levels of implementation of the International Organization of Securities Commissions (IOSCO) Principles.
- AFM supervision of intermediaries uses a problem solving risk-based approach with:
  - annual development of themes across the financial sector that become the focus of on-site supervision;
  - an institution-based program of both off- and on-site supervision for high impact firms.
- AFM supervision of markets follows a risk-based approach; significant AFM resources are dedicated to supervision of Euronext Amsterdam and Euronext N.V. (together with supervisors from the four remaining countries where Euronext holds licenses).
- Supervisory programs are implemented under a clear enforcement strategy; AFM’s main goal is to influence behavior and it uses different tools (including fines when necessary). The AFM is perceived as a credible and effective enforcer.
- De Nederlandsche Bank (DNB) complements AFM efforts with prudential supervision for investment firms that is reasonable and credible:
  - DNB follows a risk-based approach where intensity of supervision is determined by the type of activities investment firms undertake;
  - investment firms that conduct “riskier activities,” including larger investment firms, investment firms with complex structure, and proprietary trading, are subject to on-site inspections on an annual cycle;
  - remaining firms are visited under a three year cycle.
- DNB has recently strengthened its approach toward compliance with reporting obligations and has started to impose orders for incremental penalty; compliance with such obligations has improved.
- Gaps and limitations:
  - AFM has limited legal authority to request information from issuers to ensure compliance with financial reporting standards, limiting effectiveness of reviews of annual and semi-annual reports.
  - Legal framework for management of collective investment schemes does not subject some types of management companies to solvency requirements nor to the review of qualified holdings; reporting obligations established by law for all management companies are not sufficient from a prudential perspective.
  - DNB does not conduct on-site inspections of management companies except if there is a signal of concern, or a management company is in the same group as an investment firm, or if it holds a license as management company and investment company.
- Both AFM and DNB have limited authority to issue rules; the legal framework prescribes very narrowly the cases where DNB and AFM can issue rules, limiting their ability to react swiftly to emerging risks.

### Assessment scope, timing, and methodology
- The assessment of implementation of the IOSCO Principles in the Netherlands securities market was conducted from November 25 to December 14, 2010 as part of the Financial Sector Assessment Program (FSAP).
- An initial IOSCO assessment was conducted in 2004; since then the twin peak approach has consolidated and significant legal and market-structure changes occurred.
- The assessment used the IOSCO Principles and Objectives of Securities Regulation and its Methodology adopted in 2003 and updated in 2008.
- In June 2010 IOSCO approved a revision to the IOSCO Principles (addition of nine new Principles) but a revised methodology had not been developed; this assessment was conducted based on the current methodology. Authorities agreed to exploratory discussions on status of implementation of the new principles; a summary of such discussions is included as an annex.
- Scope notes:
  - Given the twin peak model, DNB framework is assessed in relation to its functions as prudential supervisor for the securities market (Principles 17, 22, 24, and 29).
  - Principles 1, 2, 3, 4, 5, 8, 9, 10, 11, 12, and 13 are assessed with limited scope in connection with DNB functions in the securities market.
  - Principle 30 is not assessed due to the existence of a separate standard for securities settlement systems.
- Information sources relied upon:
  - (i) a self-assessment developed by the AFM with participation of DNB;
  - (ii) review of relevant laws and documents provided by authorities including annual reports;
  - (iii) meetings with AFM leadership, AFM staff, DNB staff, and representatives of the Ministry of Finance (MoF);
  - (iv) meetings with market participants including issuers, banks, investment firms, fund managers, market operators, external auditors, and law firms.

### Regulatory structure — roles, mandates, and coordination
- The Netherlands follows a functional (“twin peaks”) approach embedded in the Act on Financial Supervision (AFS):
  - Section 1:24 — prudential supervision shall focus on the solidity of financial enterprises and their contribution to the stability of the financial sector.
  - Section 1:25 — conduct of business supervision shall focus on orderly and transparent financial market processes, integrity in relations between market parties and due care in the provision of services to clients.
- AFM is the primary authority responsible for supervision of securities markets; DNB participates in prudential supervision.
- AFM has specific responsibilities under other laws:
  - Supervision of statutory auditors (Audit Firm Supervision Act);
  - Supervision over financial reporting by issuers (Act on Supervision of Financial Reporting);
  - Consumer protection for mainly exempted issuers that engage in “abusive” offerings (Consumer Protection Enforcement Act).
- AFM does not hear individual customer complaints; KIFID (Financial Services Complaint Tribunal) and the Financial Ombudsman handle complaints.
- AFS contains provisions fostering coordination and cooperation between AFM and DNB including:
  - collaboration for developing regulations to ensure equivalence where possible;
  - consultation in licensing of market participants (with reasonable time to provide an opinion);
  - consultation in imposition of certain enforcement measures;
  - a covenant further details such obligations.
- Market infrastructure and oversight roles:
  - Exchanges, MTFs, and CCPs have limited oversight roles complementary to AFM.
  - AFM acts as the front line supervisor for detecting unfair practices and reviews prospectuses and issuer disclosures.
  - LCH Clearnet S.A. and European Multilateral Clearing Facility (EMCF) oversee clearing members; infrastructure providers are subject to indirect oversight by AFM and DNB.
  - MoUs exist among regulators in countries where Euronext and LCH Clearnet S.A. operate to ensure coordination.
- Private organizations:
  - Dutch Securities Institute (DSI) provides voluntary registration with fit and proper requirements; DSI has 510 members, 605,000 individuals with 700,000 registrations; violations can be sanctioned with fines, suspension or de-registration; but DSI is not an SRO for purposes of the assessment because membership is voluntary and entities may choose alternative compliance with AFS.
  - Dutch Asset Management Association (DUFAS) has developed a code of governance for CIS; as of November 2010 roughly 99 percent of institutions licensed to provide asset management services were members; DUFAS is not an SRO for assessment purposes.

### Licensing and supervisory perimeter
- Activities subject to authorization or licensing include:
  - (i) offering of securities to the public;
  - (ii) the provision of investment services and activities;
  - (iii) the management of collective investment schemes;
  - (iv) the operation of a regulated market.
- Statutory audits and ratings used for regulatory purposes are also subject to licensing.
- AFM is responsible for authorization of offerings and licensing of the activities listed above, except operators of regulated markets (licensed by MoF upon AFM recommendation).
- Banks licensed by DNB can provide investment services themselves without a separate license from AFM.
- Oversight of Credit Rating Agencies (CRAs), including licensing, will soon be transferred to the European Securities Markets Authority (ESMA).

### Market structure — key statistics (as reported)
- Issuers:
  - As of October 2010, there were 115 companies listed in Euronext Amsterdam, for a total market capitalization of € 462.712 millions.
  - Market concentration: top ten companies represent roughly 74 percent of total market capitalization.
  - New listings in 2010: of 71 new listings in Euronext, only six took place in other segments and only one new listing took place in Euronext Amsterdam.
- Intermediaries:
  - As of November 2010 there were 49 banks and 263 investment firms—of which 243 were located in the Netherlands—authorized to carry out investment services in the Netherlands.
  - Approximately 90 percent of the investment firms are dedicated to asset management; remaining firms trade on their own account, are market makers or give advice.
  - The majority of investment firms are not leveraged and largely fund activities with own capital.
- Collective Investment Schemes:
  - As of November 2010, there were 120 firms licensed to manage CIS; 113 were located in the Netherlands, of which 93 are management companies and 20 are investment companies.
  - These firms manage a total of 389 CIS, of which 55 are umbrella funds with a total of 559 sub funds.
  - There are roughly 800 foreign CIS authorized in the Netherlands.

### Identified weaknesses and policy implications
- Legal and supervisory limitations:
  - AFM’s limited legal authority to request information from issuers constrains effectiveness of financial reporting reviews.
  - Legal framework for management companies lacks solvency requirements and qualified holding reviews for some types; reporting obligations are insufficient from a prudential perspective.
  - DNB’s limited on-site inspection of management companies (only when signals of concern or grouping with an investment firm or dual license) limits prudential oversight.
  - Both AFM and DNB have narrow legal authority to issue rules, constraining swift reactions to emerging risks.
- Institutional coordination and oversight gaps:
  - Market infrastructure providers’ oversight roles remain complementary; AFM acts as front-line supervisor but coordination across jurisdictions (e.g., Euronext operating in multiple countries) relies on MoUs and joint supervisory arrangements.

*Source: IMF staff assessment chapter titled "Summary Implementation of the IOSCO Principles and Objectives of Securities Regulation" from the Netherlands IOSCO assessment (FSAP mission, November 25–December 14, 2010).*

### 19. Assets under management (AUM) by CIS reached € 392 billion at end 2009.

### _cr11204 - 19. Assets under management (AUM) by CIS reached € 392 billion at end 2009.

### Assets under management (AUM) and fund structure
- AUM by CIS reached € 392 billion at end 2009.
- Drivers of 2009 AUM increase in Dutch investment funds:
  - one-off deposit of € 174 billion by pension funds in the context of restructurings;
  - a € 42 billion price gain on investments.
- Resulting market positions:
  - euro market share of Dutch investment funds grew to 8 percent;
  - by end 2009, the Dutch sector ranked fifth after Luxembourg, Germany, France and Ireland.
- Composition and investor base:
  - The bulk of the CIS authorized in the Netherlands are non-UCITS (Undertakings for Collective Investment Schemes in Transferable Securities).
  - Bond funds constitute 43 percent of the Dutch investment fund industry;
  - Equity funds constitute 42 percent.
  - Share of Dutch pension funds in the holding unit of Dutch investment funds rose from 44 to 76 percent at end 2009.
- Regulatory features:
  - Non-UCITS do not benefit from the passport regime, but have more flexibility in assets and the possibility to use leverage.

### Markets infrastructure and trading venues
- Main market:
  - Euronext Amsterdam is the main market, operated by Euronext Amsterdam, a fully owned subsidiary of Euronext NV.
  - Euronext NV operates Eurolist and Liffe Connect.
  - Eurolist: cash market integrating Brussels, Paris, the Netherlands, and Lisbon (and starting in 2010 also a cash market from London through the London gateway); centralized electronic order driven market; priority assigned based on price and time; quotes are anonymous.
  - LCH Clearnet SA provides central counterparty and clearing services.
  - Settlements are made via Euroclear on a DVP T+3 basis.
  - Liffe Connect: regulated market for derivatives; order driven for futures and quote driven for options; LCH Clearnet S.A. provides central counterparty and clearing services.
- Multilateral trading facilities (MTFs) in the Netherlands:
  - Three licensed MTFs: New York Stock Exchange (NYSE) Arca Europe, Alternext, and TOM.
  - NYSE Arca Europe and Alternext are operated by Euronext; TOM is a recently licensed MTF for cash markets and is seeking a license for derivatives.
  - NYSE Arca Europe operates a central limit order book for blue chips from 14 countries (Austria, Czech Republic, Denmark, Finland, Germany, Hungary, Ireland, Italy, Norway, Spain, Sweden, Switzerland, the United Kingdom and the United States).
  - Alternext is an alternative market for medium size companies.
  - Chi-X Europe (operating from London) and other non-Dutch MTFs are important venues for trading Dutch securities.
- Market share and fragmentation:
  - Estimates indicate roughly 30 percent of trading volumes have already moved to MTFs, and it is expected that they will reach 50 percent in the near future.
  - Fragmentation complicates compliance with best execution obligations; order routing systems are being used to address this challenge.
  - The New York Stock Exchange (NYSE) has announced intention to develop a consolidated tape to increase transparency; liquidity fragmentation issues remain.
- Other trading venues and platforms:
  - Some crossing networks operate similarly to MTFs but may not fit the MiFID definition and thus may escape transparency requirements; these do not appear to be present in the Netherlands but affect pan-European market transparency.
  - Systematic internalization was estimated as of mid 2009 to account for roughly only once percent of trading volumes in Europe—mostly UK participants.
- Specialized markets:
  - European Energy Derivatives Exchange (ENDEX) is a specialized energy market licensed in the Netherlands.
  - ENDEX is estimated to have roughly 20 percent market share in future contracts (physical delivery of gas or power for the Dutch national grid); the remainder is traded bilaterally, resulting in limited trading volumes on ENDEX.

### General preconditions for effective securities regulation
- Preconditions observed in the Netherlands:
  - No significant barriers to entry and exit for market participants;
  - Competition is encouraged and foreign participation is welcomed;
  - Legal and accounting system supports implementation of requirements;
  - Commercial law and corporate governance standards are up-to-date;
  - Insolvency legislation is sophisticated;
  - Regulators have legally enforceable powers of decision and action;
  - Taxation framework is supportive to industry operations.

### Main findings on supervisory framework and market conduct
- Principles for the regulator (Principles 1–5):
  - Functional supervisory approach: AFM responsible for conduct supervision; DNB responsible for prudential supervision.
  - AFM and DNB enjoy operational independence in practice, but certain legal framework features could pose threats to independence.
  - Both operate under strong accountability to the MoF and the public.
  - Limited rulemaking authority may affect ability to react swiftly to market developments.
  - AFM has limited powers in relation to issuers affecting supervision of financial reporting standards.
  - AFM has had sufficient resources for securities market mandate; DNB resources for supervising securities intermediaries appear limited.
  - Both operate under procedural fairness in the General Administrative Law (GALA); decisions subject to judicial review.
  - Comprehensive integrity policies exist and compliance is overseen by specialized departments.
- Principles for self-regulation (Principles 6–7):
  - No organizations other than AFM and DNB have legal power to establish binding eligibility rules or bar persons from market participation.
  - Exchanges and central counterparties perform oversight over members and are subject to AFM (exchanges) and AFM and DNB (central clearing counterparties) oversight.
- Principles for enforcement (Principles 8–10):
  - AFM and DNB have extensive investigative powers over regulated entities and third parties; can request information and inspect documents and premises without prior notice.
  - Regulated entities must keep records for five years.
  - Anti-money laundering mechanisms are required.
  - Enforcement measures include public warnings, instructions, orders for incremental penalties and administrative fines (up to € 8 million).
  - AFM follows a risk based supervisory framework and a clear enforcement strategy aimed at influencing behavior, using fines among other tools.
  - DNB provides prudential supervision of investment firms, has strengthened compliance reporting and started imposing orders for incremental penalties; compliance has improved.
  - Limitations remain in prudential supervision of management companies and criminal enforcement.
- Principles for cooperation (Principles 11–13):
  - AFM and DNB are subject to general cooperation obligations with each other and with foreign regulators; AFS requires cooperation with foreign regulators.
  - Differentiated obligations apply for EU Member State regulators versus non-EU regulators; general obligation to exchange information exists in both cases.
  - AFM and DNB authorized to provide assistance to foreign authorities using their investigative powers.
  - AFM is signatory to the IOSCO Multilateral Memorandum of Understanding (MMoU) and many bilateral MoUs; DNB is signatory to multiple bilateral MoUs.
  - International cooperation is largely centralized in the AFM, with ample evidence of capacity and willingness to cooperate.
- Principles for issuers (Principles 14–16):
  - Issuers of public offerings or with securities admitted to listing must submit a prospectus for AFM approval aligned with IOSCO principles.
  - Issuers with securities admitted to trading must submit annual and semi-annual reports and communicate price-sensitive information as soon as possible; AFM has issued guidance on this obligation.
  - Financial statements for consolidating issuers must follow IFRS as adopted in EU; company-only statements can follow local GAAP.
  - Auditors conducting statutory audits are subject to AFM oversight, including regular on-site inspections and independence requirements.
  - AFM has limited powers to enforce issuers’ compliance with financial reporting standards.
  - Enforcement of mandatory tender offer obligations and fair price is based on private right of action before the Enterprise Chamber of the Amsterdam Court of Appeals; AFM cannot file suits for breaches but can enforce procedural aspects of the tender offer, including approval of the offering memorandum.
- Principles for collective investment schemes (Principles 17–20):
  - Management of collective investment schemes requires AFM licensing, including fit and proper and operational requirements.
  - Management companies are subject to minimum capital requirements; only UCITS management companies face a solvency ratio and qualifying holdings review.
  - CIS constituted as unit trusts require an independent depository; other CIS forms have alternative safeguards.
  - Management companies submit annual and semi-annual records; no additional prudential reporting requirements specified.
  - DNB conducts off-site supervision of management companies; on-site supervision is conducted when problems are signaled, for management companies in the same group as an investment firm, or for management companies holding an investment firm license.
  - AFM devotes most supervisory resources to thematic inspections, complemented by institution-oriented inspections for high impact firms on a one year cycle.
  - CIS must have a prospectus aligned with IOSCO Principles including asset valuation information; illiquid assets must be valued by an independent expert annually.
  - Prospectus must indicate redemption conditions and conditions to suspend redemption; suspension must be notified to the AFM.
- Principles for intermediaries (Principles 21–24):
  - Provision of investment services/activities requires AFM license; banks may provide such services without a separate license but AFM must be consulted.
  - Licensing includes fit and proper and operational requirements; investment firms are subject to minimum capital requirements.
  - DNB receives quarterly and monthly reporting for prudential supervision.
  - On-site inspections: high impact firms (roughly 25 percent of firms) under a one year cycle; all other firms visited under a three year cycle.
  - AFM focuses supervisory resources on thematic inspections, complemented by institution-oriented inspections for high impact firms on a one year cycle.
  - Market intermediaries must have risk management, compliance, and internal control functions; compliance and internal control departments must be independent and report annually to the Board.
  - Investment firms have customer obligations on information disclosure and suitability, and must segregate client assets in bank accounts under strict rules.
  - AFM has developed a plan for an investment firm insolvency event.
  - Investor compensation scheme is funded by levies on market participants.
  - Insolvency of an investment firm follows the corporate insolvency framework.

*Source: _cr11204 - 19. Assets under management (AUM) by CIS reached € 392 billion at end 2009.*

### 35. Principles for secondary markets (Principles 25–30): Both regulated markets and

### 35. Principles for secondary markets (Principles 25–30): Both regulated markets and MTFs are subject to licensing and oversight, and operational requirements are substantially the same.

### Supervision and oversight of trading venues
- The AFM has a system of differentiated oversight depending on scale of operation, securities traded and type of investors participating in a trading venue.
- Most AFM supervisory resources are dedicated to Euronext.
- The AFM supervises the Amsterdam segment:
  - on a real-time basis for purposes of price-sensitive information;
  - on T+1 for purposes of detecting unfair practices.
- The AFM, together with supervisory authorities of the United Kingdom, France, Belgium and Portugal, recently revised the MoU for supervision of Euronext NV; arrangements allow coordinated approval processes and coordinated on-site inspections (e.g., co-location and direct access).
- The AFM has established mechanisms to oversee ENDEX and MTFs licensed by it, including reporting obligations and meetings with the Board.

### Market conduct, manipulation, and enforcement
- Market manipulation and insider trading can be pursued administratively or in the criminal courts.
- Through MoUs and CESR-Pol, European supervisors including the AFM seek to exchange views on enforcement cases.
- Insider trading and market manipulation:
  - constitute both an administrative infraction and a criminal offense;
  - are described in broad terms and apply to securities, derivatives and any financial product.

### Transparency and trade reporting
- The AFS requires pre- and post-trade transparency for equity markets for regulated markets (RM) and MTFs.
- Post-trade transparency is required for Over the Counter (OTC) in shares, and systematic internalizers.
- No transparency requirements exist for other markets, though government debt and corporate debt markets (primarily for professionals) appear to enjoy a good level of transparency via Bloomberg or other data vendors.
- A consolidated tape is under review.
- Concerns exist about waivers on transparency connected to large trade blocks.

### Clearing, settlement, and large exposures
- DNB and the AFM jointly supervise securities clearing and settlement but do not directly monitor large exposures.
- They receive monthly information from LCH Clearnet S.A. on large positions.
- LCH Clearnet S.A. has mechanisms to address large exposures, including intraday margining.
- The assessors recommend adoption of a comprehensive legal framework for clearing and settlement.

### Grading highlights from Table 1 (Principles 25–30 and related)
- Principle 25 (licensing of trading systems): FI
  - Operation of an RM or MTF is subject to licensing: RM licensed by the MoF on recommendation of the AFM; MTF licensed by the AFM as part of an investment firm license.
- Principle 26 (ongoing supervision of exchanges and trading systems): FI
  - AFM conducts real time and T+1 supervision; revised MoU enables coordinated approvals and inspections.
- Principle 27 (promote transparency of trading): BI
  - AFS requires pre- and post-trade transparency on shares for RM and MTFs; post-trade for systematic internalizers and OTC; consolidated tape under review; concerns about waivers for block trades.
- Principle 28 (detect and deter manipulation/unfair trading): FI
  - Broad supervisory, administrative and criminal regimes; coordination via MoUs and CESR-Pol.
- Principle 29 (proper management of large exposures, default risk, market disruption): FI
  - Joint supervision of clearing/settlement; receipt of monthly info from LCH Clearnet S.A.; LCH Clearnet S.A. uses intraday margining.
- Principle 30 (clearing and settlement oversight): N/A (Not assessed)

### Key legal, institutional and operational details affecting secondary markets
- Licensing authority distinctions:
  - Regulated markets: licensed by the MoF on recommendation of the AFM.
  - MTFs: licensed by the AFM as part of the license for an investment firm.
- Enforcement and sanctions:
  - Administrative fines can reach a maximum of € 8 million.
- AFM and DNB funding:
  - Annual levies on market participants currently cover roughly two thirds of the AFM budget and three quarters of the DNB budget; the remainder is covered by the government.
- Mandatory tender offer threshold under the Dutch Civil Code: 30 percent of shares (or control).
- Prospectus exemption threshold mentioned: € 50,000 (authorities informed that EU members have agreed to increase the amount to € 100,000).

### Selected recommended action items related to secondary markets (extracted from Recommended Action Plan)
- Principle 25
  - The AFM should include the guidance on licensing of regulated markets on its website once finalized.
- Principle 27
  - The AFM should continue to actively engage in the MiFID review process to improve market quality and transparency in a multi trading venue environment.
  - AFM and MoF should contribute to European reforms addressing waivers on transparency for block trades and pursue a consolidated tape to enhance post-trade transparency.
  - A legal reform should be pursued to impose reporting requirements on OTC derivatives markets; MoF and AFM should review whether additional transparency is needed in other markets, including government and corporate bond markets.
- Principle 28
  - A legal reform should be pursued to allow implementation of the client-ID in the Netherlands to help the AFM reduce investigation duration and improve market surveillance effectiveness.
  - AFM and MoF should consider whether additional investigative powers to access telephone and internet service providers’ records are desirable.
  - Strengthening CESR-Pol is desirable; longer term further centralization of supervision might be necessary.
- Principle 29
  - A comprehensive legal framework for clearing and settlement should be adopted.

### Authorities’ response (summary)
- Authorities appreciate the FSAP and agree that the Netherlands exhibits a high level of implementation of the IOSCO Principles, with a single exception not fully implemented.
- The AFM is recognized as a credible and effective enforcer in conduct-of-business due to a clear risk-based enforcement strategy.
- Authorities note that stricter assessment standards following the financial crisis explain why some principles (3, 10, 15, 16, 17, 18, 19 and 27) are not fully implemented relative to the 2004 FSAP.
- The MoF will send Parliament an official statement on specific actions the authorities will take in response to IMF recommendations.

*Source: IMF FSAP assessment content (Table 1, Table 2, and related sections) contained in the provided document.*

### Chapter 3 of the DCC). According to those rules, an employer is liable for the actions of his/her

### _cr11204 - Chapter 3 of the DCC). According to those rules, an employer is liable for the actions of his/her

### Liability and legal protection
- Employer liability: Under Chapter 3 of the DCC an employer is liable for the actions of his/her employee. Thus, staff is adequately protected against suits.
- Institutional liability: As per the civil code, the institutions themselves could be held liable.
- Jurisprudence: The highest court set the standard for liability stating that a supervisor would not be liable if it acted as a reasonable supervisor, therefore providing deference to the decisions of the supervisors. Such jurisprudence is of mandatory application by the lower courts.
- Recommendation: Although both staff and supervisors appear adequately protected against suits arising from the performance of their duties, the text notes it might be advisable to have a special provision that expressly deals with such issue.

### Appointments, terms, and removal
- AFM supervisory board (Section 1:27): Members are appointed by the MoF for a maximum period of four years. Members can be reappointed twice. They can only be removed for unsuitability, incompetence or for other important reasons related to the person involved.
- AFM Executive Board (Section 1:26): Members are appointed by royal decree, upon recommendations from the supervisory board, for renewable periods of four years, without limitations on the number of reappointments. They can only be removed for due cause. (Section 1:26.2).
- DNB Governing Board: Members are appointed by the Crown through a Royal Decree for renewable terms of seven years.
- Bank Act 1998 (Section 12(3)): The President and the Executive Directors of the Governing Board may be suspended or relieved from office only if they no longer fulfil the conditions required for the performance of their duties or if they have been found guilty of serious misconduct.

### Accountability requirements and practices
- Annual reporting:
  - Financial supervisors must prepare an Annual Report on the performance of their duties and the policies pursued, including in respect to quality assurance.
  - Such report must be submitted to the MoF by May 1 and a copy of it is sent to Parliament.
  - Such report must be kept in electronic format (Section 1:36).
- Articles of association: Financial supervisors must submit to the MoF proposals to amend their articles of association (Section 1:37).
- Annual financial statements (AFS Sections 1:33 and 1:34):
  - An auditor designated by each supervisor must provide an opinion on: (i) their fair presentation; (ii) a report on whether the collection and deployment of resources is in accordance by law; and (iii) whether management and organization under this Act meet the requirement of efficiency.
  - Approval of the accounting report is given by the ministers and may only be withheld if the report is contrary to law or public interest.
  - AFM and DNB have given the auditing of their financial statements to an entity that does not fall under the oversight of the AFM.
- Periodic evaluations:
  - The AFS requires periodic evaluations (every five years) by the MoF of the performance of duties by the financial supervisors.
  - The MoF must submit a report to Parliament on the efficiency and effectiveness of the supervisor performance (Section 1:33).
  - The AFS required that a first evaluation took place three years after the entry in force of the Act (Section 1:44). Such a report was recently sent to Parliament.
  - The AFS also requested a report on the collaboration of supervisors within such same time frame. All such reports are available to the public.
- Market participant accountability:
  - Consultation is required with industry on the budget, supervisors' profits and losses, and the costs for enterprises relating to the performance of their duties (Section 1:39).
  - Such consultations must be carried out twice a year and their results must be made available to the public via a report.
  - Consultation is also required in connection with the use by the financial regulators of their rulemaking powers (Section 1:28).

### Transparency policy and confidentiality
- Confidentiality (Section 1:89): Staff of AFM and DNB are prevented from making any further (or other) use of confidential data obtained pursuant to their functions, and from making it public other than as required for performance of duties or pursuant to the AFS.
- Definition: The AFS defines confidential information to include commercially sensitive information and information that could disproportionately invade personal privacy.
- AFM enforcement disclosure policy:
  - AFM is cautious about disclosing information relating to current or future investigations.
  - Privacy considerations are important but not decisive; social unrest or strong speculation can be a reason for AFM to disclose.
  - If AFM discloses regarding current investigations, it does so in a neutral manner and states that the results are not yet known.
  - The AFS requires the AFM to make public any administrative fine imposed.

### Judicial review and procedural remedies
- Application of GALA: The GALA framework for decision-making by any public authority applies to AFM and DNB.
  - A person affected by a decision can file a notice of objection to a decision of the AFM or DNB.
  - The decision on the notice of objection can subsequently be appealed in administrative court.
- Procedural fairness specifics:
  - GALA Section 3:46: Every administrative decision must be based on sound reasons.
  - GALA Section 3:47: Reasons shall be presented when the decision is notified to the party concerned.
  - GALA Section 3:40: The decision will not take effect until it has been notified to the party concerned.
  - Sections 4:7 and 4:8: Any party negatively affected by the licensing process is entitled to a hearing whenever AFM or DNB intend to make a negative administrative decision (refusal or withdrawal of a license or imposition of a fine).

### Assessment of independence vs accountability
- Overall assessment: Broadly implemented.
- Comments and potential threats to independence:
  - Authority of the MoF to take from the supervisors some of its functions and carry them out directly or delegate them to the other supervisor. Authorities contend political costs make such use unlikely.
  - Authority of the MoF to set aside rules enacted by the supervisors. Authorities state this power has not been used.
  - Authority of the MoF to request information to assess the AFS or supervisors' implementation, possibly including information on individual entities and cases.
  - Authority of the MoF to approve the budget of the supervisors. In practice MoF has requested budget reductions, but reductions were agreed upon and MoF has not interfered with resource allocation.
  - AFM licensing: Retention by the MoF of licensing authority in connection with regulated markets; AFM develops requirements and licensing is subject to a recommendation from the AFM.
- Context: Some provisions are common to all independent administrative bodies in the Netherlands. Supervisory authorities were excluded from certain other provisions (e.g., Article 21 of the Independent Administrative Authorities Framework Act) that could more directly pose a threat to independence.
- Protection against suits: Both staff and supervisors appear to be adequately protected by general provisions in the civil code and court jurisprudence, though a special express provision may be advisable.

### Principle 3 — Powers, resources, and capacity
- Powers:
  - DNB and AFM have licensing, supervisory, investigative, and enforcement powers.
  - Rulemaking authority is limited to specific cases explicitly allowed by the AFS, usually only on technical issues; in most cases regulations are issued by the MoF, usually based on a recommendation of the supervisors.
  - Two areas where AFM powers are limited:
    - Licensing of operators of regulated markets retained by the MoF.
    - Powers vis-à-vis issuers, in particular regarding compliance with financial reporting standards (see Principle 16).
- Resources:
  - AFM: Overall sufficient resources, including technological resources key for market supervision.
  - Funding: Mixed funding model (fees paid by participants and government funding) has so far provided sufficient resources.
  - DNB: Amount of resources allocated to supervision of investment firms and fund managers appears limited.
- Personnel (AFM):
  - Total staff: roughly 500.
  - Directly involved in supervisory functions: roughly 150.
  - Average age of employees: 38 years.
  - More than 50 percent of the professional staff has a legal or economic background.
  - 67 percent of the staff has at least 10 years of experience.
  - Training: AFM dedicates roughly 2 percent of its budget to training; has an extensive Management Development Program.
  - Trainee program introduced in 2010: trainees work at three different departments over a period of 2 years.
  - Compensation: AFM able to pay salaries competitive with the private sector.
- Personnel (DNB securities supervision):
  - Staff dedicated to supervision of securities firms: 12 vis-à-vis roughly 360 firms.
  - Team composition: professionals (bachelors degree and up) from a wide variety of disciplines; age range between 30-50 years.
- Assessment: Broadly implemented.
- Comments and recommendations:
  - Grade reflects AFM’s limitations vis-à-vis issuers (Principle 16) and resource limitations faced by DNB.
  - Licensing of regulated markets retained by the MoF is noted but AFM recommendation role acknowledged.
  - Recommendation: Reform the AFS to provide AFM and DNB with rulemaking powers so they can issue rules when necessary.
  - Recommendation: DNB should review current resource allocation to the prudential supervision of the securities market.

### Principle 4 — Clear and consistent regulatory processes
- Guiding principles (AFS Section 1:38): In performing duties the supervisor must ensure:
  - a timely preparation and implementation;
  - the quality of the procedures followed in this respect;
  - the treatment of due care of any party that comes into contact with the supervisor; and
  - the treatment with due care of objections and complaints received.
- Rulemaking and consultation:
  - When financial supervisors issue binding regulations they are required to consult an eligible representative delegation from the institutions under their supervision (AFS Section 1:28).
  - Only in special circumstances may AFM and DNB lay down temporary binding regulation without such consultation.
  - AFM consultation standards cover timeframe, transparency, and format (expert panels, open hearings, internet).
  - AFM consults the market on supervisory strategy and enforcement strategy; holds consultations twice a year with CEOs of leading participants.
- Use of expert committees:
  - Capital Markets Committee (CMC): Advises on case-based reasoning, legislative issues, and interpretations in public offerings, market abuse, prospectus-related issues, financial reporting and supervision of audit firms.
  - Financial Reporting Committee (FRC): Advises on themes related to financial reporting.
- Licensing procedures:
  - Requirements established by the AFS and further developed in regulations.
  - Laws and regulations are available on AFM and DNB websites.
  - Guidance for licensing of market operators is not yet on the website but can be requested.
  - AFS establishes deadlines for AFM and DNB to process licensing requests and procedures for consultation between AFM and DNB and with other EU member state supervisory authorities.
- Enforcement:
  - AFS specifies types of enforcement measures available.
  - For administrative fines, the Penalty Act and the Decree on Administrative Penalties in the Financial Sector categorize breaches into minor, medium and serious and provide parameters for fines (see Principle 9).
  - AFS does not detail procedures AFM or DNB should use for imposition of a sanction but contains principles on due process (e.g., separation of investigation and decision-making).
- Internal Audit:
  - AFM Internal Audit Department (IAD):
    - Reports to the Chairman of the Management Board and the Audit Committee of the Supervisory Board.
    - Prepares an annual plan to audit processes and departments based on risk assessment and feedback.
    - Goal: audit at least all major and high risk processes and departments within a specific period (audited all major and high risk departments and processes within the last five years).
    - Process: identify risks and controls, review sample files, provide opinion with rating and recommendations.
    - Time frame for implementation of recommendations: usually within 3-12 months.
    - Reporting: quarterly to the Chairman of the Management Board and half yearly to the Audit Committee on status of implementation of high and medium risks.
    - Annual evaluation of IAD performance with Management Board and audit committee.
  - DNB IAD: Also exists and reports to the governing body.
- Procedural fairness (see Judicial Review):
  - Administrative decisions must be reasoned and notified; affected parties entitled to hearings in licensing-related negative decisions; rights to objection and administrative appeal preserved.

*Source: IMF assessment text excerpt from the supplied PDF content.*

### Section 1:89 prevents the staff from the AFM and DNB from making any further (or other) use

### _cr11204 - Section 1:89 prevents the staff from the AFM and DNB from making any further (or other) use

### Confidentiality and use restrictions (AFS Section 1:89)
- AFS Section 1:89 prevents the staff from the AFM and DNB from making any further (or other) use of confidential data or information supplied or obtained pursuant to their functions, and from making it public in any further (or other) way than it is required for the performance of their duties or required pursuant to the AFS.
- The AFS defines confidential information to include commercial ly sensitive information and information that could disproportionately invade personal privacy.
- The AFS requires the AFM and DNB to make public any administrative fine imposed.
- AFM general enforcement disclosure policy:
  - As a general policy, the AFM does not disclose pending investigations.
  - Social unrest or strong speculation can be a reason for the AFM to disclose information on current investigations.
  - When disclosing regarding current investigations, the AFM does so in a neutral manner and states that results are not yet known and may result in no offense being committed.

### Investor education
- The AFM website includes dedicated sections for investors and market participants, an electronic newspaper, interpretation of important issues, and papers and reports.
- AFM has developed digital tools to assist consumers in financial choices and to test financial knowledge; most recent tools relate to mortgages and were developed in cooperation with the National Institute for Family Finance Information.
- Assessment: Fully implemented.

### Principle 5 — Staff professional standards (integrity policy)
- The AFM has developed an integrity policy covering:
  - Screening: persons screened on reliability (via criminal record, statement of previous employer and integrity statement) prior to employment.
  - Confidentiality: AFS Section 1:89 prohibits use of confidential information except as required for duties.
  - Insider trading:
    - Employees with access to AFM data systems required pre-clearance for all transactions concerning securities that could be subject to insider information (basically all securities listed in Euronext or Alternext).
    - Staff with holdings on such securities prior to engagement may keep them if accounts remain “passive.”
    - Framework for insider trading remains applicable for six months more after the staff has ended his/her contract with the AFM.
  - Gifts, invitations and external appearances:
    - Gifts from supervised entities and other companies up to € 50 must be notified to the Compliance Officer.
    - Gifts with an estimated value of more than € 50 may in principle not be accepted.
    - All business invitations require consent of the department manager; requests for advice can be submitted to the Compliance Officer.
    - Compensations for external performances during work hours must be transferred to the bank account of the AFM.
  - Information security policy: combination of physical and procedural measures (clear desk policy, e-mail and internet policy, visitor’s policy, rules for using IT equipment, procedures for home office, etc.).
  - Policy ancillary activities: proposed non-core activities submitted if there is potential damage to image, conflict of interest, or loss of credibility.
  - Whistle-blowers procedure: employees can report alleged abuse within the organization.
  - Decision-making and signatory regulation: legal action decisions signed by at least one managerial level person and must always be signed by at least two persons.
- Implementation and monitoring:
  - Integrity policy integral to staff contract.
  - New employees receive detailed instruction from the Compliance & Integrity (C&I) Department; updates presented (latest on April 2010).
  - Yearly training to all new staff on integrity dilemmas.
  - Complex issues handled by integrity commission (includes Executive Board member); results published on intranet and incorporated into Q&A's.
  - C&I conducts risk-based reviews and roughly 60-65 investigations on a yearly basis.
  - Members of both Boards and high management subject to annual reviews.
  - Incidents detected: 12 incidents of minor breaches in 2009; four detected this year (decline attributed to active staff training).
  - Under employment law, criminal, civil or administrative actions can be taken for breaches; violations and measures decided by the Public Prosecution Office or courts.
  - At least once a year C&I informs the AFM about all violations on an anonymous basis.
- DNB:
  - DNB has a similar integrity policy, part of staff contracts.
  - DNB created a C&I Department operating independently and reporting regularly to the Governing and Supervisory Boards; head of C&I has access to the Supervisory Board if necessary.
- Assessment: Fully implemented.

### Privacy and data protection
- AFM and DNB must act in accordance with the Data Protection Act.
- AFM:
  - Policies laid down in a “privacy manual”; implementation monitored by a Privacy Officer (PO) with access to all systems where data is processed.
  - PO monitors quality of internal personal data processing and protection policies.
  - AFM must notify the PO before starting a personal data processing operation; PO keeps a register of notifications.
  - Data subjects have the right to obtain confirmation whether data is processed and to obtain information on purposes, categories, recipients, and sources; data subjects can obtain rectification, removal or blocking of data relating to them.
- DNB:
  - Monitoring of compliance with privacy obligations carried out via the “system administrators.”
- Assessment: Fully implemented.

### Principles of Self-Regulation (Principles 6 and 7)
- No private organizations have legal power to set general binding rules of eligibility for participation or to ban persons from securities activities other than AFM and DNB.
- Two private organizations enhance market standards:
  - DSI (private registration system for individuals providing investment services):
    - Membership voluntary; once an entity is a member, registration of personnel becomes mandatory.
    - DSI currently has 510 members, 605,000 individuals with 700,000 registrations (a person can be registered to provide more than one investment service).
    - DSI developed a code of conduct enforceable by a tribunal with fines, suspension of registration, or de-registrations; sanctions are public.
    - A covenant of private-public partnership exists between AFM and DSI.
    - DSI rules are voluntary and therefore do not have the “binding” status to be considered an SRO.
  - DUFAS (CIS industry):
    - Developed a code of governance for CIS and monitors compliance through an independent third party.
    - Membership voluntary; as of November 2010 roughly 99 percent of institutions licensed to provide asset management services were members.
    - For similar reasons as DSI, DUFAS cannot be considered a SRO for assessment purposes.
- Exchanges, MTFs, central clearing counterparties perform oversight functions but are complementary to AFM’s role.
- Assessment (Principle 6): Not assessed. Comment: AFM might review whether a more formal SRO arrangement is advisable and consider reforming AFS to incorporate an SRO regime.
- Assessment (Principle 7): Fully implemented. Comment: Review of oversight regime for central clearing counterparties limited in scope; more thorough review suggested in connection with CPSS-IOSCO Principles.

### Enforcement powers and supervisory authorities (Principles 8–10)
- Powers (AFS Section 1:74 and GALA Sections 5:13 to 5:20):
  - Supervisors can request information from any person for supervision of compliance with the AFS or the rules.
  - Administrative entity powers (GALA):
    - request information from any person;
    - inspect business information and documents, and make copies or take documents for short-term inspection;
    - enter business premises without consent and request police assistance.
  - AFM and DNB can conduct on-site inspections, both routine and for particular inquiries, without prior notice, and request documents and information.
  - GALA interpreted to include testimony (not under oath); failure to cooperate is a criminal offense (GALA Section 5:20 with Section 184 Criminal Act).
- Identity of clients and record-keeping:
  - AFS Section 1:74 with GALA authorizes AFM and DNB to request information that allows identification of customers.
  - DCC requires business to keep accounts and related information for seven years (Book 2, Title 9).
  - AFS and decrees require regulated entities to keep data concerning management and transactions in financial instruments for at least five years (Section 35 of the Decree on Conduct of Business Supervision of Financial Enterprises (BgFo)).
  - Records must permit tracing of funds and securities in and out of brokerage and bank accounts related to securities transactions.
- AML obligations (Wwft):
  - Regulated entities required to conduct customer due diligence to:
    - identify and verify customer identity;
    - identify beneficial owner and take risk-based measures to verify identity and ownership/control structure where applicable;
    - determine objective and nature of business relationship;
    - carry out constant monitoring of the business relationship and transactions to ensure consistency with knowledge of customer and risk profile and to check source of assets where appropriate.
  - Wwft reflects a risk-based approach requiring institutions to appraise individual client/product risks and adapt compliance efforts.
  - Regulated entities required to notify any unusual transactions to the FIU using indicators list.
- Assessment (Principle 8): Fully implemented. Comment: Consistent interpretation of GALA provides comfort on scope of powers; AML issues evaluated separately.

### Enforcement authority and sanctions (Principle 9)
- Investigative powers over third parties:
  - AFM has power to request information, examine documents, and enter premises of any person; failure to cooperate is a criminal offense.
  - AFS Section 1:72 with GALA provides authority to request banking records; AFM does not have authority to request telephone or internet service provider records (subject to special laws; can be requested pursuant to criminal investigation).
- Enforcement measures available:
  - Regulated entities:
    - Instruct regulated entities to adhere to particular conduct if they fail to comply (Section 1:75). DNB can issue instruction if signs of jeopardy to equity capital, solvency or liquidity.
    - Issue a public warning if a regulated entity fails to comply with an instruction (Section 1:94).
    - Appoint a “conservator” when violations seriously jeopardize operations, consumer interests, or capital/solvency/liquidity (Section 1:76); all decisions of the entity must be approved by conservator.
    - Prevent a financial enterprise from conducting business at a branch office or providing financial services in another Member State (Section 1:77).
    - Modify, withdraw or limit the license (Section 1:104).
    - Give the holder of a regulated market instruction to suspend, interrupt or cancel trading in certain financial instruments where issuer does not comply with Section 5:59 (obligation of publication of inside information).
    - Issue generic conveyance of standards to communicate standards to regulated entities.
  - Both regulated and third parties:
    - Impose orders for incremental penalty payments for violations listed in an Annex to the AFS and the Prospectus Regulation, or failure to cooperate (Section 1:79). Applies to regulated entities and third parties.
    - Impose administrative fines for violations arising from same provisions; fines can be imposed on legal entities and individuals (directors). Framework embedded in the Penalty Act with fixed and variable administrative fines across three categories:
      - Minor violations: fixed amounts, with a fine of € 10,000.
      - Medium violations (e.g., consumer protection or integrity rule infringements): start at € 500,000 with a maximum of € 1 million.
      - Serious violations (e.g., insider trading and market manipulation): start at € 2 million up to € 4 million.
      - AFM and DNB can reduce or increase fixed amounts for medium and serious violations by 50 percent depending on gravity/duration/degree of culpability.
      - Although accumulation is possible, overall maximum fine is, in principle, limited to € 4 million. In cases of recidivism, the fine can be doubled.
    - All decisions to impose fines must be made public by AFM or DNB (Section 1:97); publication may be suspended if preliminary court injunction against publication is obtained (Section 1:97(3) and 1:98) or if publication might be contrary to objectives of AFS. Courts have granted suspension in a low percentage of cases (roughly 20 percent).
  - Limitations and other powers:
    - AFM cannot directly impose emergency relief (freeze of assets or closing of business outside regulation perimeter) but may seek such measures within criminal investigation.
    - AFM has no quasi-prosecutorial powers but can refer matters to the PPO.
    - AFM does not have disgorgement nor restitution authority, and it cannot enter into settlements.
  - Information sharing with PPO:
    - AFS Section 1:92 authorizes AFM and DNB to supply confidential data to bodies exercising prosecution powers or experts instructed by such bodies insofar as necessary.
    - AFM and DNB have MoUs with PPOs to coordinate enforcement.
  - Private right of action unaffected by supervisory or PPO enforcement.
- Assessment: Fully implemented.
- Comments:
  - MoF and AFM may review whether assignment of additional investigative powers to AFM could enhance enforcement capacity.
  - AFM should review whether to allow disclosure of enforcement actions, even before a decision, on a more general basis.

### Effective use of powers and compliance program (Principle 10)
- AFM supervisory and enforcement approach:
  - Risk-based supervision tailored to entity type:
    - Principles 14 and 16: issuers’ reporting and financial reporting supervision.
    - Principle 16: external auditors supervision.
    - Principles 17 and 21: management companies and investment firms.
    - Principles 26 and 28: secondary markets.
  - Enforcement strategy aims to influence behavior using softer measures (conveyance of standards, guidance) and harder measures (instructions, fines).
  - Post-AFS implementation (2007) enforcement shifted from licensing to increased use of both softer and harder measures.
  - AFM required to disclose penalties, which appears to have a deterrent effect; market perceives AFM as a strong supervisor.
- AFM activity and resourcing (THE AFM IN BRIEF — selected figures)
  - Expenses (in EUR x million): 71.7 (2009); 78.4 (2008); 72.6 (2007).
  - Government contribution as percentage of total expenses: 35% (2009); 34% (2008); 31% (2007).
  - Staff complement in FTE (annual average): 456 (2009); 434 (2008); 434 (2007).
  - Percentage direct supervision: 52% (each year).
  - Number of institutions subject to supervision: 14,100 (2009); 14,700 (2008); 15,100 (2007).
- Overview of supervisory measures (selected figures)
  - Total number of reports: 15 (2009); 22 (2008); 13 (2007).
  - Total number of fines: 52 (2009); 20 (2008); 6 (2007).
  - Number of fines published: 35 (2009); 14 (2008); 2 (2007).
  - Orders subject to penalty for non-compliance: 59 (2009); 123 (2008); 77 (2007).
  - Instructions: 237 (2009); 24 (2008); 10 (2007).
  - Licences withdrawn: 38 (2009); 11 (2008); 2 (2007).
  - Total number of other formal supervisory measures: 387 (2009); 208 (2008); 133 (2007).
  - Number of penalties for non-compliance published: 37 (2009); 61 (2008); 31 (2007).
  - Total number of formal supervisory measures: 454 (2009); 250 (2008); 152 (2007).
  - Number of generic conveyances of standards/letters regarding standards: 1605 (2009); 560 (2008); 269 (2007).
- DNB supervisory and enforcement approach:
  - DNB follows a risk-based approach for management companies and investment firms.
  - Management companies whose only activity is CIS management mostly supervised off-site via annual and semi-annual reporting (law does not allow DNB to impose additional reporting requirements).
  - Investment firms subject to more intensive supervision; on-site supervision:
    - High-risk firms inspected on an annual basis.
    - Low-risk firms visited on a three year cycle (visits may not equal inspections).
  - Enforcement actions:
    - Immediate action for capital deficits; 'letter of deficit' requires supervised firms to indicate measures within two weeks (25 times in 2010).
    - DNB became tougher since end 2008; enforcement if problem not solved before next reporting deadline (usually 3 months).
    - In 2009 DNB issued five formal instructions and in 2010 one (with two in the pipeline).
    - DNB requested AFM to withdraw licenses in 3 cases over past two years (all led to withdrawal).
    - In 2010 DNB set concrete deadlines for improving business models in at least 3 cases.
    - DNB imposed orders for incremental penalties to enforce timely reporting.
- Criminal enforcement and coordination:
  - Effective coordination mechanisms exist between AFM, PPO and FIU.
  - Criminal convictions for securities violations limited and not always visible; some convictions for investment fraud (outside regulation perimeter) were not always public because PPO prosecuted enterprises on more severe offences.
  - Market abuse convictions difficult; many cases do not achieve desired outcomes.
  - AFM now deals with market manipulation as administrative infractions in several cases.
- Assessment: Broadly implemented overall.
- Comments and recommended attention:
  - Two areas deserve additional attention:
    - Prudential supervision of securities intermediaries by DNB (reporting requirements and use of on-site inspections vs visits).
    - Criminal enforcement visibility and effectiveness; lack of visible criminal convictions may weaken enforcement deterrence over time.
  - Assessor notes management companies’ risks are limited (mostly operational) but failures could damage investors, warranting continued on-site inspection prophylaxis and enhanced reporting requirements.

*Source: _cr11204 - Section 1:89 prevents the staff from the AFM and DNB from making any further (or other) use*

### Section 1:51 establishes an obligation for the financial supervisors to cooperate with the

### _cr11204 - Section 1:51 establishes an obligation for the financial supervisors to cooperate with the

### Obligation to cooperate (Member States)
- Section 1:51 establishes an obligation for the financial supervisors to cooperate with the supervisory authorities of other member states wherever this is required for the performance of the duties of the financial supervisors (the AFM, DNB) or of the duties of the supervisory authority of the member state.
- On request they are obliged to supply all the data and information needed by the supervisory authority of the member state to carry out its mandate.
- In addition to this generic obligation, the AFS contains provisions in regard to the minimum information that the supervisors must provide to supervisory authorities from member states on particular situations.
- Assessment: Fully implemented.

### Cooperation with Non-Member States
- Pursuant to Section 1:65 of the AFS the supervisors can supply confidential information to supervisory authorities from non member states if:
  - the guarantees applicable under the laws of that state with regard to non-disclosure of confidential information are at least equivalent to those established by the AFS; and
  - the exchange of information is for the purpose of the exercise of supervision by the supervisory authority of such other state.
- AFS Section 1:65 also exempts, from the obligation of confidentially, the supply of information to a supervisor from a non-Member State.

### Confidentiality and limits on disclosure
- Section 1:89 prohibits the staff from the supervisors from using or disclosing confidential information and information obtained pursuant to the Act for other uses different from what is required for the performance of their duties.
- Section 1:90 explicitly allows the supervisors to supply such information to the other supervisors or the supervisory authorities of other member states unless:
  - the purpose for which the confidential data or information will be used has not been adequately determined;
  - the intended use of the confidential data or information does not fit into the context of the supervision of financial markets or of persons operating on those markets;
  - the provision of the confidential data or information would be not be compatible with Dutch law or public order;
  - the non-disclosure of the data or information is not sufficiently guaranteed;
  - the provision of the confidential data or information is or might reasonably be considered contrary to the interests that this Act seeks to protect; or
  - there is insufficient guarantee that the confidential data or information will not be used for a purpose other than that for which it is supplied.
- If a foreign supervisory authority requests the AFM permission to use supplied data or information for a purpose other than the one for which it was supplied, the request may be granted solely (Section 1:90, subsection 3):
  - if the intended use is not in violation of subsection 1 or 2 of Section 1:90; or
  - if the foreign supervisory authority could also obtain the data or information for that other purpose in a manner other than provided for by the AFS; and
  - after consulting the Dutch Minister of Justice, if the request refers to a criminal investigation.
- A 2007 agreement between the Functional PPO and the AFM establishes procedural arrangements for such consultation:
  - the consultation will take no more than two weeks (except in extraordinary situations);
  - the consultation concerns whether the principle against double jeopardy could be breached, and whether it is possible to exchange the information requested pursuant to an international assistance treaty for criminal law.
- According to the AFM, the PPO cannot impose restrictions beyond those contained in the IOSCO Multilateral MoU, and has no power or obligation to deny a request or to force the AFM to deny a request.
- There is no obligation for the AFM in the AFS or any other Dutch law to deny a Multilateral MoU request from a foreign supervisory authority on the basis of its consultation with the PPO.
- It is always at the discretion of the AFM to decide on a Multilateral MoU request, even when the opinion of the PPO is negative.

### Domestic cooperation (AFM and DNB)
- The AFM and DNB have the power in practice to enter into information sharing agreements with each other and have in fact done so.
- Matters covered by the covenant include:
  - Consultation of regulations;
  - Consultation of licensing;
  - Consultation of enforcement measures; and
  - Information exchange between the two regulators (including details on the information should be exchanged on a regular basis and without prior request, as well as coordination of information requests vis-à-vis market participants).
- Cooperation in practice:
  - Authorities believe the framework has allowed for coordination and cooperation to work well in practice.
  - A study commissioned by the MoF concluded that in daily practice, the cooperation between the supervisors is effective, while operating from their own expertise, culture, objectives, and responsibilities.
  - Financial institutions do not experience major problems.

### International cooperation (MoUs and practice)
- The AFM has the authority to sign MoUs with foreign supervisors. Once signed, such MoUs must be notified to the MoF.
- AFM is signatory to:
  - the IOSCO MMoU;
  - the CESR Multilateral MoU on the exchange of information and Surveillance of Securities Activities;
  - the MoU between EU supervisors, central banks and ministries;
  - the convention on insider trading between the member States of the Council of Europe;
  - a significant number of bilateral MoUs.
- DNB has concluded 37 MoUs with relevant EEA and non-EEA supervisors.
- International cooperation in practice:
  - Securities market cooperation is mainly centralized in the AFM; prudential information requests would approach DNB directly.
  - Such prudential requests occur ad-hoc (example: information requests in 2009 and 2010 regarding the bankruptcy of an investment company).
- AFM operational statistics and timelines:
  - The AFM received and answered roughly 123 requests for information and cooperation during 2009.
  - From January until September of 2010 it had answered approximately 86 requests for information and cooperation.
  - The AFM keeps statistics on request by foreign regulators, including the number and time spent in dealing with the requests.
  - Overall, the AFM answers requests within two to three weeks if they include banking records; however the time could be more if the request involves a significant number of accounts.
  - In cases involving a requesting authority seeking possibility to use such information for criminal purposes, the AFM consults with the PPO; the PPO aims to answer in two weeks, although sometimes it has taken longer.
- Assessment: Fully implemented.

### Assistance to foreign regulators (Principle 13)
- AFS Section 1:52 allows the supervisors to demand information from any party in order to fulfill its duties of cooperation with Member States.
- Section 1:52 explicitly stipulates that for such purpose sections 5:13 to 5:20 of the GALA apply.
- In practice this means that the supervisors can provide assistance to regulators from Member States and request information on their behalf, using the same powers that they have for their own investigations.

*Source: _cr11204 - Section 1:51 establishes an obligation for the financial supervisors to cooperate with the*

### Section 1:68 allows the supervisors to request information from any party for the

### _cr11204 - Section 1:68 allows the supervisors to request information from any party for the

### Supervisors’ information‑request powers and cross‑border cooperation
- Section 1:68 allows the supervisors to request information from any party for the implementation of treaties on the exchange of information, or agreements on the exchange of information concluded with other supervisory authorities (from non member states).
- Section 1:68 explicitly states that for such purpose sections 5:13 to 5:20 of the GALA applies.
- Consequence: supervisors can provide assistance to regulators from non‑Member States and request information on their behalf using the same powers that they have for their own investigations.
- In both domestic and cross‑border assistance requests the request can include banking records.
- The legal framework of the Netherlands does not require any process of notification to the holder of the bank account.

### Assistance in practice and assessment
- A significant number of the requests that the AFM receives are requests for assistance (i.e., information not in AFM files).
- Based on information provided in Principle 12, the AFM has in practice provided effective assistance.
- Assessment: Implemented.

### Prospectus and disclosure at offering (AFS Section references)
- AFS Section 5:2: No public offering of securities or admission to trading on a regulated market in the Netherlands without a prospectus approved by the AFM.
- AFS Section 5:13: Prospectus must contain all data necessary to enable investors to make an informed assessment of assets and liabilities, financial position, profits and losses and prospects of issuer and any guarantor, and rights and obligations attached to securities, including data required by the Prospectus Regulation.
- Prospectuses shall be drafted using one or a combination of schedules and building blocks provided in Annex XVIII of the Commission Regulation.
- AFM may not demand supplementary information not covered by specific items in schedules/building blocks, but may require completion of these items.
- Prospectus language: must be written in Dutch or in a language customary in international finance (AFS Section 5:19).
- Obligation to make prospectus generally available (AFS Section 5:21).

### Risk factor disclosure requirements
- Prospectus must provide “prominent disclosure of risk factors that are specific to the issuer or its industry.”
- For non‑equity securities: “prominent disclosure of risk factors that may affect the issuer’s ability to fulfil its obligations.”
- For the transaction: “prominent disclosure of risk factors that are material to the securities being offered and/or admitted to trading in order to assess the market risk associated with these securities.”

### Prospectus update and issuer responsibilities
- Issuer must supplement the prospectus if a material event occurs during the offering; such supplement is subject to AFM approval.
- Investors have the right to give back the product within a two day period if a supplement occurs during the offering.
- After offering close, issuers must supplement the prospectus if necessary.
- Prospectuses must be updated on an annual basis and are subject to AFM approval.
- Prospectus Directive: persons responsible for drafting must explicitly take responsibility (responsibility statement).
- Under the DCC, issuers and persons involved in the offering (e.g., lead managers) could be held liable for damages if information provided during the offering was misleading and caused damage. Under the DCC there is no system of strict liability.

### Cross‑border offerings and exemptions
- Prospectus approved by the AFM can be used to offer securities throughout the EU if AFM provides host Member State with a certificate of approval.
- Prospectuses approved by another Member State's competent authority will be accepted in the Netherlands.
- Host Member States may not impose additional requirements on an approved prospectus for which a certificate has been provided.
- Prospectus exemptions under AFS Section 5:2:
  - the securities are offered exclusively to qualified investors;
  - the securities are offered to fewer than 100 persons other than qualified investors;
  - the securities on offer can only be acquired for an equivalent value of at least € 50,000 per investor;
  - the denomination per security is at least € 50,000; or
  - the total equivalent value of the offer of securities to the public is less than € 10,000, which limit is calculated over a period of 12 months.
- Comment: Out of the current exemptions, the threshold of € 50,000 to exempt from the requirement of a prospectus raises some concerns in the context of the Dutch market. Authorities informed that EU members have agreed to increase the amount to € 100,000.

### Periodic and continuous disclosure obligations (timing and content)
- Annual (within four months of end of financial year) filings required:
  - (i) the audited annual statements;
  - (ii) the Executive Board Report, which must include among other things:
    - a description of the main risks and uncertainties faced by the issuer and policies to manage the risks of financial instruments;
    - an in control statement;
    - disclosure of all substantial holdings (as per the takeover directive); and
    - an assessment of compliance with the Dutch corporate governance code under a comply or explain regime.
  - (iii) a responsibility statement from persons designated by the issuer stating that the financial statements provide a fair view and the Annual Report provides a true and fair view (AFS Section 5:25c).
- Semi‑annual requirements:
  - unaudited financial statements;
  - an interim management report describing material events and transactions and general description of financial position and performance;
  - the responsibility statement referred to above.
- Exemption: Issuers that only have debt securities with a denomination per‑unit of € 50,000 are not required to file semi‑Annual Reports.
- Annual and semi‑Annual Reports must be made generally available and submitted simultaneously to the AFM.
- Filing methods: electronically or by mail using hardcopy filings.
- Issuers must keep reports for five years.
- Issuers admitted to trading must communicate material events as soon as possible (AFM guidance issued; timing varies by event type).
- AFM may issue an instruction to the relevant market to halt trading in relevant financial instruments if there is an indication of asymmetrical information in the marketplace.
- Public issuers not admitted to trading: not subject to semi‑annual reports nor material events, but must comply with annual reporting as established in the DCC.
- Dutch issuers listed outside Europe are not required to submit financial reports to the AFM; however, they are subject to financial reporting supervision of the AFM.

### AFM powers in offerings and disclosure enforcement
- Offering securities to the public without a prospectus is an infraction pursued by the AFM via administrative proceeding.
- Measures that the AFM can impose: an instruction, an administrative fine or an order of incremental penalty.
- Same types of measures apply for failure to comply with periodic and continuous disclosure obligations; AFM powers stem from administrative law.

### AFM practice: prospectus review, monitoring, and enforcement
- Prospectus review is done by the Securities Offerings and Take Over Bids Supervision Division; all prospectuses are reviewed.
- Review tests completeness, consistency, and comprehensibility under the four eye principle: each prospectus assigned to a reader and a senior person responsible.
- AFM developed guidance notes for specialized products (e.g., special purpose vehicles, asset‑backed securities and private equity firms).
- AFM provides Q&A guidance on website, yearly seminars for issuers and lead managers, and a Capital Markets Newsletter.
- Monitoring of material events:
  - AFM has a monitoring system with alerts for material events disseminated by issuers.
  - If a statement is incomplete or incorrect AFM contacts issuer for clarification.
  - If trading anomalies are observed (e.g., shifts in price or volume not attributable to public information or relevant rumours), AFM proactively contacts issuers to assess price‑sensitive information.
  - AFM created a database of contact persons within publicly listed companies to ensure quick contact.
  - If issuer indicates price‑sensitive information exists, AFM can require immediate public disclosure.
  - AFM can instruct the market to halt trading if asymmetric information is indicated.
- Review of advertisements:
  - Advertisements monitored daily using Adfac software.
  - Approximately 15 to 20 communications on investments are assessed every week.
  - Communications considered harmful are prioritized for follow‑up and enforcement as appropriate.
- Compliance with filing financial reports:
  - During 2008 virtually all issuers preparing consolidated statements complied with filing obligations.
  - Issuers preparing company‑only financial statements—mostly debt issuers—showed important non‑compliance.
  - AFM strategy toward non‑compliance favored issuing instructions rather than orders for incremental penalties due to relative novelty of filing obligations.
  - AFM announced in its 2009 report that during 2010 it would pay attention to timely and full compliance and take appropriate enforcement measures where necessary.
- Transparency: AFM publishes an activity report at end of each year and an interim report at the beginning of November annually.
- Assessment: Fully implemented.
- Comment: Absence of periodic requirements (other than annual reporting) for unlisted issuers could be questioned, but in practice only about 15 percent of the equity issuers are not listed; percentage of debt issuers not listed is even lower.

### Shareholders’ rights and corporate governance
- Book 2 of the DCC provides general regulations on shareholders’ rights; corporations must regard these rights and may elaborate in articles of association.
- Shareholder rights generally include approval of:
  - amendments to the articles of association;
  - declaration of dividends;
  - appointment of the independent auditor;
  - approval of annual accounts;
  - statutory mergers;
  - statutory divisions;
  - dissolution (winding up) of the company; and
  - conversion of the company into another legal structure.
- Articles of association may transfer some decisions to the Supervisory Board.
- Company law provides for registration and transfer of ownership of shares; bearer shares are permitted.
- Listed companies must present an annual report on compliance with the corporate governance code under a “comply or explain” regime.
- AFM only indirectly supervises compliance with Book 2 of the DCC or corporate governance code where compliance relates to or overlaps with public takeover bids.
- Takeover rules: some are based on public law (AFM supervision of procedural requirements), others on civil law (Enterprise Chamber enforces private rights of action).

### Control transactions and mandatory tender offers
- DCC requires a mandatory tender offer when a legal person, alone or acting in concert, can exercise at least 30 percent of the voting rights in the general meeting of shareholders of the target company.
- Mandatory tender offer should obtain all remaining shares and be done at a fair price.
- ‘Fair price’ is regarded as the highest price paid for the same shares by the offeror in the year prior to the announcement of the mandatory offer; Enterprise Chamber may determine the fair price on request.
- Determination of whether a mandatory offer is required or whether price is fair must be made by the Enterprise Chamber based on a suit by the company or shareholders; AFM is not authorized to file such court cases.
- As soon as a mandatory offer is announced, the offer is subject to AFM supervision regarding compliance with AFS procedures.
- Offeror obligation: submit an offering memorandum for AFM approval to provide shareholders sufficient information.
- Target company obliged to hold a general meeting of shareholders to inform shareholders about the offer; at least four days prior to that meeting the target must publicly announce its determination of the position (support or not) with reasons. The position statement is not subject to AFM approval prior to publication.

### Practice on tender offers
- AFM sees between 5-20 files on tender offers depending on the year.
- Roughly 10-20 percent of these involve a mandatory tender offer.
- Only one case has tested the effectiveness of the split responsibilities between AFM and the Enterprise Chamber; that case involved a dispute over fair price and the Court decision took roughly a year.
- AFM has received numerous questions requesting guidance on when a mandatory tender offer is triggered; such aspects fall under the Enterprise Chamber’s responsibility.
- Assessment: Broadly implemented.
- Comment: Assessors consider that private rights of action place an important burden on shareholders; low shareholder activism suggests adding some form of public enforcement mechanism (e.g., AFM authority to enforce obligations or to file suits before the Enterprise Chamber) would be important, with attention to timely decisions by the Enterprise Chamber.

### Substantial and insider holdings notifications
- AFS Section 5:38: notification obligations for any person who obtains or loses disposal of shares or voting rights crossing thresholds 5, 10, 15, 20, 25, 30, 40, 50, 60, 75, and 95. Notification must be made without delay.
- AFS Section 5:48: Directors or Supervisory Board Members must notify the AFM of shares and voting rights in issuer and affiliates within two weeks of appointment and notify without delay of any change.
- AFS Section 5:49: AFM required to inform the issuer of notifications received; issuer must inform AFM without delay if it suspects incorrect notification.
- AFS Section 5:52: If notification not made, court may order measures including ordering the party to make the notification, suspending its voting rights, suspending a decision of the general meeting, annulment of decisions, or prohibiting the party from acquiring more shares. Parties that may file an application: holders of a substantial holding; holders of one or more shares with special controlling rights; or the issuer.
- All notifications by substantial holders and insiders are kept in a public register by the AFM.

### Accounting and auditing standards
- Listed issuers required to prepare annual consolidated financial statements in accordance with IFRS as adopted by the EU for each financial year starting on or after January 1, 2005.
- Two current differences between IFRS and IFRS as endorsed by the EU relate to the carve‑out for macro‑hedging (IAS 39) and IFRS 9 (IFRS 9 has not yet been endorsed by the EU).
- Non‑EU issuers may use consolidated financial statements drawn up in accordance with equivalent third‑country standards (US GAAP, Canadian GAAP, and Japanese GAAP).

*Source: _cr11204 - Section 1:68 allows the supervisors to request information from any party for the (PDF).*

### Part 9 of Book 2 of the DCC (Section 362(8)). Such issuers must submit their statements

### Part 9 of Book 2 of the DCC (Section 362(8)). Such issuers must submit their statements

### Application of accounting standards and filing practices
- Issuers must submit their statements according to local accounting standards.
- Overall local standards are less strict than IFRS and provide issuers with more choices.
- In practice almost all equity issuers are required to prepare consolidated statements, and so are the majority (roughly 80 percent) of the bond issuers.

### Mechanisms to enforce compliance with financial reporting standards
- AFM enforcement powers stem from civil law and are limited: reviews must be based on public facts and circumstances.
- AFM can request additional information only if public information gives rise to doubts about correct application of standards.
- Issuers are not required to submit specific information when asked by the AFM; if an issuer fails to comply the AFM can request the Enterprise Section of the Amsterdam Court of Appeal to enforce the obligation, within six months of the presentation of the financial statements.
- AFM may issue:
  - Notifications: requested remarks to be taken into account in future financial reports; notifications are not public; AFM reviews compliance in the next financial year; failure to implement is taken into account in AFM risk analysis and selection of financial statements for review.
  - Recommendations: used where non-compliance affects a primary statement (balance sheet, income statement, cash flow statement, or statement of changes in equity), may require public statements by the issuer explaining how requirements will be applied or explaining in what respects the financial statements do not comply and the consequences; such issuer statements are filed with the AFM public financial reporting register and press releases are available on the AFM’s website (www.afm.nl, under public database/financial reporting).
- In case of non-compliance with a recommendation, AFM can initiate proceedings with the Enterprise Chamber of the Amsterdam Court of Appeal but must request a review of the whole financial report.
- The law gives AFM authority to start proceedings with the Enterprise Chamber directly to enforce information requests or seek a restatement of financial statements, within six months of receipt of the financial statements.
- AFM is not allowed to initiate a proceeding with the Court in respect of half-yearly reports.
- The legislation includes “Chinese walls” preventing exchange of information between supervision departments; the financial reporting supervision department cannot use information obtained by AFM in other supervisory activities (prospectus, public offerings, audit firms).

### Review of periodic reports and risk-based selection
- The Financial Reporting Supervision Division supervises compliance with financial reporting standards and filing obligations.
- AFM does not review all Annual Financial Reports; it follows a risk-based approach based on criteria determining:
  - (i) the impact of company-related factors on the risk of non-compliance;
  - (ii) the potential impact of any non-compliance on investors and functioning of the capital market.
- Other annual reports selected based on rotation: all issuers should be subject to review on a five year cycle.
- Annual Reports of all issuers that received notifications in the previous year are selected for review for follow-up.
- AFM reviews approximately 60-70 reports annually.
- Semi-annual statements receive a more limited review because they are not audited, shareholders have not approved them, and AFM’s enforcement powers are more limited (cannot initiate court proceedings). Semi-Annual Financial Reports are selected if AFM has indications of potential issues and if the preceding Annual Report was selected for review.
- Thematic reviews: AFM conducts three thematic inspections a year, covering 40-60 reports; example topic: valuation of financial instruments.

### AFM actions and historical practice (selected figures and events)
- In 2009, in connection with Annual Reports, AFM issued one notification with a recommendation and 35 notifications.
- As of 2010, AFM had issued 14 recommendations; in all cases issuers complied with publication of the corresponding statement.
- AFM used its power to go directly to Court to ask for restatement of financial statements once; the Court dismissed the case stating AFM should first ask the company to issue a public statement.
- AFM has used onsite inspections on the Big 4 firms during 2009; findings included insufficient professional skepticism, failure to apply accounting standards, insufficient testing, and shortcomings in quality control monitoring. AFM required firms to present plans to address weaknesses.
- AFM planned onsite inspections focusing on financial incentives and impact on audit quality in the second half of 2010 and 2011.
- AFM initiated enforcement proceedings against one or more Big 4 firms; proceedings are currently pending.

### Auditing standards and standard-setting
- Standard setting for auditing standards in the Netherlands is conducted by professional bodies under supervision of the MoF.
- Dutch auditing profession applies a slightly modified version of the International Standards on Auditing (ISAs) of IFAC; adherence to these standards is mandatory.
- Differences between ISAs and local auditing standards are limited to references to other legislative requirements.
- Overall requirements on audit firm structure, governance, quality control, independence, data protection, and individual auditor’s independence, competence, objectivity, and integrity are included in laws and bylaws by the Dutch government.
- Standard setting involves consultation with the MoF and the AFM; example: AFM objected to a new Code of Ethics developed by professional bodies and MoF took the recommendation leading to redrafting.
- Anticipation: European Commission may endorse international auditing standards under Article 26 of the Statutory Audit Directive; if so, professional bodies will no longer set auditing standards for statutory audits but will continue for other audits.

### Auditor independence provisions (legal requirements)
- Audit Firms Supervision Act (AFSA) requires auditors and audit firms to assess and document their independence; if situations cast doubt, implement additional safeguards or withdraw from engagement.
- AFSA specific cases where an audit firm cannot perform a statutory audit of a public interest entity:
  - It has compiled the financial accounts on which the statutory audit is based at any time during the previous two years; or
  - It provided or actually set up, or shall provide or actually set up respectively, a substantial part of the accounting records during the period to which the financial accounts refer; or during the performance of the statutory audit.
- Rotation requirements for the individual auditor that audit public interest entities: seven years.
- Cool off period for individual auditor: two years.
- Each year, the audit firm performing statutory audits for a “Public Interest Entity” (PIE) shall:
  - confirm its independence from the audit client to the audit committee;
  - notify the audit committee of all services provided to the audit client other than statutory audits;
  - discuss threats to independence and mitigation measures.
- Audit firms must prepare and publish annually on their website a “transparency report” including a statement concerning the firm's independence practices and confirming an internal review of independence compliance.

### Auditors oversight, licensing, registration, and enforcement
- All audit firms performing statutory audits in the Netherlands must obtain a license from the AFM.
- Individual auditors conducting statutory audits must be employed by or affiliated to an AFM-licensed audit firm; firms must register individual auditors performing statutory audits with the AFM.
- Statutory audits include audits of listed companies, banks and insurance companies.
- Law distinguishes:
  - a licence for PIE-audits (necessary to perform all statutory audits including listed companies, banks, insurance companies), and
  - a licence not for PIE-audits (covers statutory audits of other non-PIE statutory audits).
- Licensing requirements include integrity tests on co-policymakers and demonstration of robust quality assurance systems.
- Auditors need to be registered accountants with the Dutch Profession Accounting Organization (NBA), constituted out of the merger of the Netherlands Institute of Chartered Accountants (NIVRA) and the Netherlands Order of Accountants (NOvaA) (the required legislation for this merger is expected to come into force on 1st July 2012).
- Registration requirements: theoretical examination and practical experience.
- Continuous education requirement for auditors: on average, at least 120 hours per 3 years.
- AFM may take punitive actions against audit firms based on administrative law with due process; appeals: Management Board of the AFM, Court in Rotterdam, Administrative High Court for Trade and Industry.
- Disciplinary action against individual auditors is responsibility of the Disciplinary Court for auditors; AFM may file cases at that Court.

### AFM practice and market structure (numeric details)
- AFM audit supervision department: 21 full-time and 2 part-time professionals, all non-practitioners.
- Licensing function given to AFM in October 2006.
- AFM received approximately 700 applications for licensing.
- Applied risk-based approach to licensing: firms with substantive statutory audits received on-site inspections; firms with null or very few statutory audits received desktop review.
- Currently there are 15 firms licensed to conduct PIE audits, and approx. 460 to conduct non PIE audits.
- The Big 4 firms cover roughly 60 percent of all audits and charge roughly 80 percent of all audit fees.
- AFM conducts inspections of all PIE audit firms; some inspections at non-PIE audit firms are carried out by SRA under an MoU; AFM remains fully responsible for oversight and enforcement.

### Assessment, comments, and recommended legal reforms
- Assessment: Partly implemented.
- Key comments:
  - Legal framework provides AFM authority to issue recommendations and notifications, but conditions limiting information requests significantly hinder AFM’s ability to enforce compliance with accounting standards and to carry out investor protection mandate.
  - Deadline to pursue action before the court is too short (six months).
  - Chinese walls in law limit sharing of information collected by other AFM departments.
  - AFM must request review of the whole financial report when filing suit to enforce publication of a recommendation.
  - These limitations collectively are the reasons for the downgrade to “Partly implemented.”
- Assessor’s recommendation for legal reform to strengthen AFM enforcement authority, addressing in particular:
  - (i) limitations in AFM’s authority to request information from issuers;
  - (ii) the tight schedule under which AFM must file suits before the Enterprise Chamber of the Court of Appeals;
  - (iii) limitations to share information among departments;
  - (iv) the need to request review of the whole financial report when filing a suit to enforce compliance with publication of a recommendation.
- Note on accounting standards: IOSCO Principles have not adopted IFRS as the only set of “high quality standards.” Dutch GAAPs are viewed by experts as “high quality standards,” albeit with important differences from IFRS (more choices). The difference is not assessed as affecting the grade. Only a limited number of issuers file according to local GAAP. Application of IFRS to all issuers might be desirable to foster comparability.

### Principles for Collective Investment Schemes — licensing and requirements (Principle 17)
- Activities subject to license:
  - Pursuant to Section 2:65, management of a CIS is subject to licensing by the AFM. If an investment company chooses not to have a separate management company then the investment company itself is subject to licensing.
  - Requirements for licensing of a management company are set out in Section 2:67; Section 2:68 outlines requirements for an investment company without a separate manager.
  - Provision of investment services in relation to CIS also requires a license, since CIS are financial instruments (Section 1.1).
  - Provision of such activities without a license constitutes an offense; AFM can make a public warning; impose an order for incremental penalty; an administrative fine; and report the offense to the PPO.
  - AFS allows exemptions to licensing requirements; for management companies a key exemption is offering units of € 50,000 or more per unit (Section 4 (1), Exemption Regulation of the Financial Markets Supervision Act).
- Licensing requirements include:
  - Properness of persons holding a qualifying holding, set at 10 percent of the capital. Qualifying holdings are subject to declaration of no objection only for UCITS. For non-UCITS, properness is assessed for qualifying holdings of 50 percent or more of the capital.
  - Fitness and properness of persons in charge of day-to-day policy.
  - Expertise of staff who directly engage in providing services to consumers. Current framework does not require registration of staff individuals nor specific professional requirements (examinations or courses). Voluntarily, DSI has registered individuals and set standards (for example examinations).
  - Policies aimed at ensuring controlled and sound business operations (conflict of interest, breaches to laws, etc).
  - An organizational structure aimed at ensuring controlled and sound business operations.
  - Proper handling of customers’ complaints, requiring an internal complaints procedure.
  - Management companies must comply with a minimum capital requirement (Section 3:53 AFS; art. 48, 50, 51 BPR).
- Financial thresholds and own funds (as presented in source):
  - Non-UCITS management company with assets of ≥ EUR 250 million: € 225.000; components of own funds: The core capital referred to in Section 91 BPR and the supplementary capital referred to in Section 92 BPR.
  - Non-UCITS management company with assets of < EUR 250 million: € 125.000; components of own funds: The components referred to in parts a. to g. of the second paragraph of [text truncated in source].

*Source: _cr11204 - Part 9 of Book 2 of the DCC (Section 362(8)). Such issuers must submit their statements*

### Section 91 BPR

### Section 91 BPR

### UCITS management company
- € 125.000
- The components referred to in parts a. to g. of the second paragraph of

### Fee formula (as presented)
- EUR 125,000 + 0.02 % of the amount by which the assets under management exceed EUR 250 million, to a maximum of EUR 10 million

### Investment company without separate management company
- € 300.000
- The components referred to in parts a. to g. of the second paragraph of

*Source: Section 91 BPR (as provided in the supplied content).*

### Section 91 BPR

### Section 91 BPR

### Passport and cross-border offering
- A Dutch management company that is a UCITS pursuant to the EU directive can avoid a new license procedure to offer a fund within the EU (European passport); in these circumstances the AFM notifies the foreign regulator.
- The UCITS directive regulates supervisors’ responsibilities at market entry and subsequent supervision.
- A non-UCITS cannot offer units outside the Netherlands on the basis of an AFM license, except in Switzerland, as Switzerland has declared AFM supervision to be adequate; in that case the AFM approves the prospectus on an ongoing basis.

### Changes to management, holdings, and reporting of incidents
- Pursuant to Section 4:26, a management company must notify changes in management and in qualifying holdings so the AFM can assess fitness and properness (management) or properness only (qualifying holdings); AFM approval follows if requirements are met.
- Management companies must report incidents related to controlled and sound operations (Section 4:11).
- Directors are required to disclose their own interests in CIS investments.

### Ongoing prudential supervision (DNB and AFM roles)
- The AFS requires management companies to be solvent.
- Only management companies of UCITS must adjust capital according to assets under management (see table above in source).
- DNB supervises CIS liquidity compliance.
- Management companies must submit annual and semiannual statements; DNB lacks legal authority to require additional prudential reporting beyond these statutory submissions.
- DNB regulatory measures for noncompliance with capital requirements include:
  - the imposition of extra reporting obligations;
  - the possibility to notify the entity that it should meet minimum capital requirements within a period set off time;
  - giving an instruction, imposing a letter of deficit, issuing a warning, appoint a conservator; and
  - withdrawal of the exemption, withdrawal of the certificate of no objection, or ultimately (the request for) withdrawal of the license.

### Periodic reporting requirements
- Annual Report: includes audited financial statements, within four months of the end of the year.
- Semiannual report: includes semi-annual financial statements, within nine weeks of the end of the first half of the financial year.
- Financial statements preparation standards:
  - IFRS for CIS that fall under the Prospectus Directive (CIS that are listed).
  - Dutch GAAP for CIS that do not fall under the Prospectus Directive (most open-end CIS).
- Quarterly reports: not required, but large CIS often produce them voluntarily.
- AFM requests the Management Letter from the management company.
- Management companies must issue an “in control statement” in the CIS’s annual financial statements (Section 121 of the Bgfo).
- Monthly disclosure (on management company website, Section 50 Bgfo): total value of investments, overview of composition of investments (pie chart), total number of outstanding units, and the net asset value.

### Record keeping
- The DCC requires businesses to keep accounts, accompanying books and other information concerning the profession for a period of seven years (Book 2, Title 9).
- The Code lists information to be kept for seven years, including financial statements and Annual Reports.
- The AFS contains specific record keeping obligations for regulated entities.

### Conflicts of interest and affiliated transactions
- AFS requires management companies and investment companies to develop adequate measures to prevent conflicts of interest (AFS Sections 4:11; Section 18 of the Bgfo).
- Affiliated transactions must be reported in detail and clarified in the prospectus and financial statements (Section 124 Bgfo).
- Prospectus must include:
  - a description of the types of transactions concerned; and
  - a statement as to whether the transactions with the affiliated parties take place under market terms and conditions, and if not, the reason for this (5.6 Annex E of the Bgfo).
- Financial statements must state activities with affiliated parties and transaction volume, accompanied by an explicit statement that transactions took place at market rates.
- Directors must disclose their own interests in CIS investments.

### Acting in the interest of unit holders
- Management companies and investment companies must act in the interest of unit holders (Section 83 of the Bgfo) and treat unit holders equally (Section 83, subsection 2 of the Bgfo).
- Specific principles and prohibitions:
  - A CIS may not conduct transactions at a frequency or magnitude that apparently only serve to benefit the management company, CIS or affiliated parties (‘churning’) (Section 83, subsection 3 of the Bgfo).
  - Management companies must apply ‘best execution’ when choosing brokers or agents.
  - Fee terms, including performance fees, may not be detrimental to unit holders (e.g., conflict with investment policy or causing excessive transactions).
  - Management companies must not allow disproportionately high costs charged to unit holders for variable or unspecified costs.

### Outsourcing
- AFS Sections 4:16 and 38 of the Bgfo permit outsourcing of some functions; outsourcing of the investment policy (a key duty) is not permitted.
- AFM does not accept outsourcing that leaves an empty shell; outsourcing agreements must be in writing.
- Legally the management company remains accountable and liable for work performed by third parties.
- The outsourced third party should demonstrably be able to perform the assignment properly; licensing of the third party is not required by the framework.
- Management company must be periodically and adequately updated on outsourced duties and should perform due diligence assessing continuity.
- Prospectus requirements (Section 1.3 Annex E of the Bgfo): description of work outsourced and name(s) of third party(ies).
- Outsourcing costs must be shown in financial statements (Section 123 of the Bgfo).
- AFM findings: no major industry-wide issues; some cases where deposit of CIS assets was entrusted to the same company providing administration—AFM is reviewing outsourcing and considering guidance.

### Practice: Licensing and supervisory approaches
- Licensing:
  - AFM reviews licensing applications for management companies and investment companies, focusing on fitness and properness of directors and policies for sound business.
  - AFM requests a declaration of no objection from DNB concerning prudential compliance; AFM cannot deviate from DNB’s opinion (Section 1:103).
  - DNB requires a recent independent auditor report certifying whether the management company has the required minimum initial capital.
  - DNB checks the business plan (income and expenses budgeted for the first 3 years) to assess solvency in coming years and assesses internal controls, risk management and supervisory systems.
  - AFM conducts “nursery visits” during the first 3-6 months of operation instead of on-site inspection during application period.
- Ongoing supervision by DNB:
  - Supervision of prudential requirements is mostly off-site via review of annual and semi-annual financial statements; DNB conducts a quick review of all statements.
  - On-site inspections by DNB occur if issues are detected, or for management companies in the same group as an investment firm, or if licensed as both management company and investment company (approximately 20 companies).
- Ongoing supervision by AFM:
  - AFM uses a problem-solving risk-based approach with thematic and institution-based components and an integrated supervisory program across the financial sector.
  - Department of Risk Analysis identifies and prioritizes key risks on a half-yearly bottom-up basis; signals from various sources are categorized into high, medium, low risk.
  - Alerts specific to entities are sent to supervisory teams for action; alerts also lead to thematic inspections.
  - Entities are classified via a qualitative process; those classified as high risk are subject to “enhanced supervision” with an account manager and an annual supervision plan including meetings and on-site inspections.
  - Currently roughly 50-60 regulated entities are classified as high risk; out of them 40 entities are stable in the list because of size; roughly 10-12 entities are smaller but included due to signals/alerts—some of those are investment firms and management companies.
  - Allocation of supervisory resources: 70 percent to thematic work (including on-site inspections) and 30 percent on an institution-basis.
  - Regulated entities submit yearly self-assessments; Supervision Department checks roughly 15 per year.
  - Desktop reviews of annual reports are quick for all management companies; some selected for thorough review on a risk basis.
  - Advertisements and websites are monitored daily using Adfac; approximately 15-20 communications on investments are assessed every week, of which approximately 5 relate to CIS. Communications considered harmful are prioritized.

### Assessment, comments, and recommendations
- Assessment summary: Broadly implemented.
- Key assessor comments and recommendations:
  - Differences in capital requirements for UCITS management companies versus non-UCITS management companies and investment companies, and differences in the review of qualifying holdings, are not justified; the assessor recommends removing such differences.
  - Current reporting obligations are not sufficient from a prudential perspective; the law should provide DNB with the power to require periodic reporting for prudential supervision, including, if applicable, on a consolidated basis.
  - Although risks undertaken by management companies are limited (mostly operational risks), failure/insolvency could lead to irregularities vis-à-vis CIS assets and harm investors; maintain prophylactic effect of on-site inspections even with predominant off-site supervision.
  - The threshold of € 50,000 does not appear a good proxy for investor sophistication; the assessor recommends increasing the threshold. Authorities indicated the licensing exemption will cease for regulated CIS after amendment of the law in 2012 to a new threshold of € 100.000 and for all Dutch CISs after implementation of the AIFM Directive in 2013.
  - IOSCO Principles do not impose IFRS as the only “high quality accounting standards”; majority of Dutch CIS authorized file according to Dutch GAAP, which experts consider to meet “high quality” standard though with important differences from IFRS. The assessor recommends that the MoF jointly with the AFM consider adoption of IFRS.
  - AFM’s choice to conduct ex-post nursery visits rather than on-site inspections during licensing does not raise substantive concerns because visits occur shortly after licensing.
  - AFM’s shift of supervisory resources to thematic reviews, with institution-based inspections for high-impact firms, appears credible and effective; important that the balance between thematic and institution-based supervision be periodically assessed.

### Principle 18 — Legal form, structure, and segregation of client assets
- Legal forms:
  - A CIS can be constituted as an investment company or as a unit trust (Section 1:1 AFS).
  - Investment company: CIS as legal entity under DCC; assets of investment company do not form part of assets of the management company; management company as director controls assets; unit holder rights set out in DCC and articles of association.
  - Unit trust: not a legal entity; collective of assets managed by a management company for unit holders; assets of a unit trust must be held by an independent depositary (AFS Sections 4:42 to 4:45); unit holder rights are in trust conditions and contracts between management company and depositary.
- Prospectus must describe legal structure and associated risks (Annex E of the Bgfo).
- Supervisory oversight:
  - Both AFM and DNB supervise CIS at market entry and subsequently; AFM can act if formal or actual control structure impedes adequate supervision (Section 4:13).
- Depositary and segregation of assets:
  - Only CIS constituted as unit trust are required to have a depository (AFS Section 4:42).
  - Depositary must be a separate legal entity whose only activity is to hold CIS assets (Section 4:44).
  - BPR requires the depository to have a minimum capital of € 112.500.
  - AFS requires depositary independence; it can be an entity in the same group but should not have the same personnel or directors and must establish appropriate Chinese walls.
  - Depositary must hold securities and money in a bank account and clear all transactions through such accounts.
  - Depositary must act in the interest of unit holders (Sections 83 and 116 of the Bgfo) and is liable for damage attributable to it (Section 116 of the Bgfo).
- Investment companies are not required to have a depository; in practice management companies use additional protective mechanisms (two-tier boards, compliance structures, voluntary depositary use), and supervisors review adequacy.
- Changes affecting unit holders’ rights:
  - Changes do not require investor or AFM approval but must be adequately informed to investors and notified to the AFM prior to taking effect.
  - Management company must advertise the proposal to amend terms and conditions in a national Dutch newspaper or notify each unit holder individually and on its website, accompanied by an explanatory note; proposal must be simultaneously notified to AFM.
  - If change is detrimental to unit holders or the investment policy is amended, amendments may not take effect until three months after publication of the proposal on the website (Section 4:47). This period will decrease to one month in 2012 when new legislation comes into effect.
- Bankruptcy and winding up:
  - Prospectus must include information on how and under what conditions a CIS will be liquidated and wound up, specifically regarding unit holders’ rights.

*Source: Section 91 BPR, _cr11204 - Section 91 BPR*

### Section 4:54 of the AFS states that the AFM may submit a request to the District Court for the

### _cr11204 - Section 4:54 of the AFS states that the AFM may submit a request to the District Court for the

### Winding-up authority and grounds
- AFS Section 4:54: the AFM may submit a request to the District Court for the winding-up of the CIS.
- The AFM may submit such a request in the following cases:
  - the license of the management company or CIS is withdrawn;
  - the CIS or the management company no longer undertakes any activities;
  - the CIS or the management company fails to comply with the AFS; or
  - the CIS or the management company has failed to carry out, or insufficiently carried out, an instruction from the AFM or DNB.
- If the court accepts the request, the court will appoint one or more liquidators to wind up the CIS within a specified term.

### Assessment and recommendations
- Assessment: Broadly implemented.
- Comments:
  - IOSCO Principles require that assets be entrusted to an independent third party or that legal or regulatory safeguards be in place where custodial functions are assigned to the same entity responsible for investment decisions.
  - Netherlands CIS structured as investment companies are not required to have a depository; the legal structure operates as a basic safeguard and management companies appear to be establishing additional safeguards in practice.
  - The assessor recommends that such safeguards be embedded in law or regulations and that the legal framework be strengthened to require a depository in all cases.
  - Authorities have informed that the Alternative Investment Funds Directive will require all management companies to have such a depository.
  - In adopting a common approach for all CIS the authorities should consider strengthening the requirement to have a “depository” by imposing that it be a licensed entity, such as a credit institution.

### Principle 19 — Prospectus and disclosure requirements (description)
- Principle 19 statement: Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a collective investment scheme for a particular investor and the value of the investor’s interest in the scheme.
- Two separate regimes for prospectuses of CIS under Dutch regulation:
  - Negotiable units in a closed-end CIS are securities according to the AFS (see AFS Section 1:1). Prospectuses for most closed-end funds fall under the European prospectus directive and have the same requirements as for an issuer.
  - All other CISs must issue a prospectus in compliance with AFS Section 4:49.
- AFS Section 4:49 requirements:
  - The prospectus should contain all the information necessary for investors to properly assess whether or not to invest in the CIS.
  - The management company must prepare a Financial Information Leaflet summarizing the essential characteristics of the CIS.
  - The management company is required to update the prospectus if there is reason to do so (AFS Section 4:49). This obligation also applies to the Financial Information Leaflet (Section 66 of the Bgfo).
- Overall disclosure expectations:
  - Investment policy, costs, risks, structure, and rights of unit holders must be described in both the prospectus and the Financial Information Leaflet (Sections 4:49 and 4:22 of the AFS; for closed-end CISs see AFS Section 5:9, 18 Prospectus Regulation, Annex XV items 1 and 3).
  - Each CIS is obliged to include a risk-indicator in the Financial Information Leaflet (Section 66 of Bgfo) showing how great the risk is that the client will lose its money.

### Specific prospectus and disclosure content items
- The Management Registration Document:
  - Must show that the articles of association, the financial statements and annual accounts of the management company and each depositary and the half-year figures of the management company are available on the website, and that unit holders can obtain these documents, free of charge, from the management company (Annex D, Paragraph 5.4 of the Bgfo).
- Information on the CIS:
  - The name of the CIS, the registered office, and location of the head office of the CIS, the date of incorporation, the length of time for which the CIS has been incorporated if this is not an indefinite period, and, where applicable, the CIS’s registration number in the Commercial Register kept by the Chamber of Commerce and Industry and the place of registration (Annex E, 1.2 Bgfo; Annex XV introduction with reference to Annex I, item 5.1).
- Rights of unit holders:
  - Main elements given in Annex E, paragraph 7.1, 7.2, 11.1, and 11.2 Bgfo. For a closed-end CIS, see Annex XV (introduction), with reference to Annex I, item 21, and Annex III, item 4.
- Information on persons determining or co-determining day-to-day policy or belonging to a supervisory body:
  - Names of such persons and a list of non-investment company activities of these persons insofar as these activities are related to the investment company’s operations (Pursuant to Annex E Paragraph 2 of Bgfo).
- Information required to form an opinion about the CIS and its risks:
  - The CIS must outline the risks in a separate paragraph (Annex E, Paragraph 8 of Bfo). For a closed-end CIS this obligation can be found in Annex XV introduction in connection with Annex I, item 4).
- Method of valuation of the assets:
  - Pursuant to Annex E, Paragraph 12 of Bgfo. For a closed-end CIS, see Annex XV item 6 and Annex XV introduction with reference to Annex I, item 20.
- Information about the depositary:
  - Pursuant to Annex E, Paragraphs 1.6, 1.7, and 1.8 of Bgfo. For a closed-end CIS, see Annex XV item 5.
- Certain audited financial information:
  - Pursuant to Annex E, Paragraphs 4.2, 5.9, 5.11, 5.12, 7.6, and 9.2. of Bfo. For a close-end fund this information can be found in Annex XV in connection with Annex I, Item 20.
- Information on costs:
  - The prospectus must outline the costs and the manner in which they are charged to the result of the CIS (Section 118 of Bgfo) in a separate paragraph.

*Source: _cr11204 - Section 4:54 of the AFS states that the AFM may submit a request to the District Court for the (PDF).*

### Annex E, Paragraph 6 of Bgfo provides further detail as to the various costs which must

### _cr11204 - Annex E, Paragraph 6 of Bgfo provides further detail as to the various costs which must

### Prospectus: costs, update, advertisement, reporting
- Annex E, Paragraph 6 of Bgfo: provides detail as to various costs which must be included in the prospectus.
- For a closed-end CIS: obligations found in AFS Section 5:13 and Annex XV item 3.
- Explanatory notes to balance sheet and profit and loss accounts of the CIS: all costs shown in the prospectus must also be presented in detail in a paragraph on costs (Section 123 of Bgfo).
- Costs must also be shown in the Financial Information Leaflet (Section 66 of Bgfo).
- Update of the Prospectus:
  - Prospectus of CIS that fall under the Prospectus Directive: must be updated on an annual basis.
  - For other CIS: AFS requires prospectus be updated when there is the need to do so.
  - AFM recommendation: such CISs must also review and update their prospectus on an annual basis.
- Advertisement:
  - An advertisement may not contain information which is inaccurate or misleading, and must be in accordance with the information included in the prospectus.
- Reporting:
  - Management company required to submit an Annual Report with audited financial statements and a semi-Annual Report with non-audited financial statements (as indicated in Principle 17).
  - Such reports are available on the website of the management company; investors have the right to receive a copy upon request and the prospectus must state such right.
  - Other information required on the website (as indicated in Principle 17): the total value of the investments, an overview of the composition of the investments, the total number of outstanding units and the net asset value (Section 50 of the Bgfo).

### Practice: review and approval of prospectus; registration process
- Prospectus subject to the Prospectus Directive: prior approval required from the AFM; AFM reviews all such prospectuses.
- Prior approval also required for UCITS.
- Objective of AFM review: assess whether all information necessary for an investor to make an investment decision has been included and whether information is clear; average consumer or client used to test clarity.
- AFS: does not require prior approval of prospectus for non-UCITS (most UCITS registered in the Netherlands are non-UCITS and thus not subject to AFM approval).
- AFS requires an external auditor report verifying whether the prospectus contains all required information; such reports must be included in the prospectus.
- Fund registration with AFM required; fund manager cannot sell a non-UCIT until registered (AFS Sections 4:50 and 1:107).
- As part of registration the AFM reviews:
  - (i) whether the report by an external auditor exists and is complete;
  - (ii) whether a report from the fund manager on compliance of the prospectus with disclosure requirements exists;
  - (iii) the nature open-end or close-end of the fund and whether the AFM agrees with such qualification;
  - (iv) if closed-end, whether the non-UCIT is negotiable or not and whether the AFM agrees with such qualification;
  - (v) whether the prospectus allows for side-pockets, in which case the AFM requires that such condition be deleted from the prospectus.
- AFS requires registration takes place within two weeks (1:107); during this period the AFM can hold discussions with fund managers and has imposition of sanctions available.
- Advertisement monitoring: monitored daily using Adfac; approximately 15 to 20 communications on investments are assessed every week; communications considered harmful are prioritized for follow-up and enforcement.

### Assessment and recommendations on prospectus oversight
- Assessment: Broadly implemented.
- Comments:
  - IOSCO principles accept mechanisms other than supervisor vetting to ensure prospectus completeness and accuracy; lack of vetting for non-UCITs by AFM is not a priori a gap.
  - Principles require regulator authority to “intervene” or “hold-back” an offering. AFS provides AFM limited authority to intervene in non-UCITS offerings via registration process; in practice the process is flexible and allows conversations with fund managers and sanctions.
  - Grade of broadly implemented given to this principle.
- Recommendation:
  - Pursue legal reform to provide AFM with more clear authority to “intervene” or “hold-back” an offering as required by the Principles.
  - MoF jointly with AFM to review whether the system of “certification” by external auditors provides a comparable level of “oversight” as AFM vetting.

### Principle 20 — Valuation, pricing and redemption of units
- Valuation Rules:
  - Specific requirements for valuation of CIS assets stem from the DCC; obligations incorporated in Title 9 Book 2 of the DCC and recommendations from the Dutch Accounting Standards Board.
  - Appendix E of Bgfo: valuation of assets must be done in accordance to generally accepted standards.
  - Section 34 of Bgfo: CIS business operations must ensure determination of a reliable, correct and consistent net asset value.
  - Prospectus disclosure obligations: must include description of how NAV is determined, in what currency, and frequency; manner and conditions in which units are sold, repurchased or redeemed; how price for sell/repurchase/redemption is determined; manner and frequency of calculation; how, where and how often prices are made public.
  - Each time a CIS offers, sells, repurchases or redeems units the NAV must be available on the management company website with an indication of the moment it was determined (Section 4:46).
  - Open-end listed funds required to conduct transactions via Euronext Fund Services; prices issued once per day and must be published.
- Valuation of Illiquid Assets:
  - No specific regulations governing valuation of illiquid assets.
  - AFM expects CIS to have procedure to determine value when no market prices available; AFM provided guidance for cases with no current prices.
  - Responsibility of management company to issue NAV reflecting the ‘fair value’ of the CIS.
  - For illiquid assets the AFS requires an independent expert to perform valuation at least once a year (Section 4:52a).
  - Pursuant to Annex E, Paragraphs 7.4, 7.5, 7.7, 7.12, and 7.13 of Bgfo: valuation by independent expert must be included in the prospectus. For closed-end CIS, obligation in Annex XV item 6.
  - During annual audit external auditors usually hire outside experts to perform such review.
- Compensation of Investors:
  - Pursuant to Appendix E, Paragraph 12.3 of Bgfo: prospectus must state circumstances and manner to compensate investors if NAV was incorrectly calculated, including the maximum percentage of divergence for which compensation applies.
  - AFM expects administrative organization and internal controls to include procedure to compensate investors for NAV calculation errors pursuant to AFS Sections 4:14 and 34 of the Bgfo.
  - Industry-consistent thresholds in practice:
    - (i) 25 percent of a point for money market funds;
    - (ii) fifty percent of a point for mixed funds;
    - (iii) one percent of a point for stock funds.
- Redemption/Suspension of Units:
  - Pursuant to Appendix E, paragraph 7.12 of Bgfo: prospectus must describe cases in which repurchase of units may be temporarily suspended.
  - AFM only accepts suspension of pricing and redemption in open-end funds in exceptional circumstances; AFM issued guidance on what constitutes exceptional circumstances (circumstances beyond control of CIS making correct valuation or repurchase impossible).
  - Pursuant to AFS Section 4:55: CIS must announce suspension on its website and notify AFM.
  - Management company responsible for suspension decision and whether continuation is in investor interest.
  - AFS does not have explicit rules whether AFM could demand, delay or stop a suspension; AFM has power to demand fund manager acts in accordance with prospectus rules on redemptions and suspensions.
  - Pursuant to Section 1:75 of AFS: AFM could, for example, order a temporarily closed-end fund to resume redemptions (subject to review of changed conditions).
  - AFM could take enforcement action based on violation of due care obligations of management company.

### Practice and enforcement on NAV and suspensions
- AFM performs investigation into the NAV at 3 to 4 CISs each year.
- NAV was the subject of a thematic inspection in 2009; AFM did not find major deviations but provided guidance including valuation of illiquid assets.
- AFM has provided guidance on conditions for structuring as an open-end fund.
- Enforcement actions in recent years:
  - AFM imposed one administrative fine and issued one instruction related to incorrect valuation and pricing.
  - AFM performed generic conveyance of standards at various CISs on this matter.
  - AFM issued an instruction regarding setting up a side pocket.
- 2010 AFM position: banned side pockets except where a separate sub-fund is created for purpose of liquidating assets (reason: side pocket is closed-end and open-end fund cannot have a closed-end part).
- Assessment: Fully implemented.
- Comments:
  - During the crisis funds investing in real estate securities structured as open-end funds had to suspend redemptions due to illiquidity.
  - Assessor notes AFM guidance; recommends MoF jointly with AFM explore whether actual rules on conditions for open-end funds should be developed, and whether additional rules on suspensions of redemptions are needed.

### Principles for Market Intermediaries — Principle 21: licensing and entry standards
- Description:
  - No party may offer investment services or perform investment activities without AFM license (Section 1:1 of AFS defines an investment firm).
  - Pursuant to AFS Section 2:97: AFM license not required for financial enterprises with bank license from DNB and other prudentially supervised financial enterprises allowed to provide investment services; AFM must provide a declaration of no objection for such firms and its opinion is binding for DNB.
- Licensing requirements (AFS, Bgfo, Bmfo and Principle 17 framework) include:
  - Properness of shareholders who hold more than 10 percent of shares (qualifying holdings); fit and properness of shareholders who hold 50 percent or more.
  - Fit and properness of persons in charge of day to day policy.
  - Minimum of two persons determining day-to-day policy, located in the Netherlands.
  - Policy on the sound conduct of business.
  - Control structure.
  - Operational structure.
  - Segregation of assets.
  - Policy to prevent conflicts of interests.
  - Minimum equity capital.
  - Specific requirements depending on activity (systemic internalizers, operate an MTF, etc).
- Licence specifics:
  - A license can be granted for various activities and can have limitations and conditions.
  - Capital requirements differ depending on activities.
- Process to grant a license:
  - AFM reviews application and requests declaration of no objection from DNB regarding minimum equity capital; AFM cannot deviate from opinion of DNB (AFS Section 1:103).
  - DNB requires recent independent auditor report certifying required minimum initial capital and checks a 3-year business plan for solvency prospects; DNB assesses internal controls, risk management and supervisory systems for prudential requirements.
  - AFM conducts “nursery visits” within 3-6 months of operation of a management company; AFM does not conduct on-site inspections as part of license process.
- Notification of changes:
  - Changes in directors or shareholders holding a qualifying holding must be notified to AFM; AFM approves changes if requirements met.
  - Investment firm must notify changes to licensing requirements.
- Public information:
  - AFM holds Register of Investment Firms. Online public information includes date of granting the license, activities covered, any limitations, and country of registered office. Administrative fines can be found online.
  - Each firm required to register with Chamber of Commerce; registration includes information on directors.
- AFM powers in connection with license:
  - AFM authorized to modify, withdraw or limit, attach conditions to licenses (Section 1:104) under certain circumstances (failure to meet requirements, incorrect/incomplete information, suppression of information, discontinuation > six months, insolvency).
  - When withdrawing a license AFM may stipulate winding up within specified period; during winding-up the enterprise remains classified as licensed.
  - AFM authorized to impose ban on unlicensed firms carrying certain investment services or activities when Section 4 provisions not observed.
- Ongoing supervision:
  - AFM supervises following problem-solving risk-based approach (Principles 10 and 17).
  - High-risk investment firms part of institution-based on-site inspection plan; inspections on them conducted annually. Currently between 50–60 regulated entities fall under this category (roughly 40 are banks/affiliates/insurers; roughly 10–12 are stand alone investment firms or management companies).
  - Majority of investment firms not in that category are subject to thematic inspections as part of sample for thematic reviews.
  - Recent thematic reviews: structured products (5 entities in 2008); best execution pilot (5 entities in 2008); inducement pilot (5 entities in 2008); inventory of margining Monitoring (8 institutions); asset segregation (38 entities between 2006 and 2007).
  - AFM conducts desktop reviews of all annual reports to determine major irregularities and more thorough reviews on a risk basis.
- Assessment: Fully implemented.
- Comments:
  - See comments on nursery visits and supervisory approach in Principle 17.
  - Assessor welcomes legislative initiative to establish a suitability requirement for directors to strengthen fit and proper requirements by allowing supervisors to assess specific competences.

### Principle 22 — Initial and ongoing capital and prudential requirements
- Description:
  - Investment firm providing investment services in the Netherlands required to have initial minimum equity capital and satisfy ongoing minimum solvency requirements.
  - Initial minimum capital requirements: Section 2:99 (1) subsection (i) in conjunction with Section 3:53 (1) and elaborated in Section 48 (1), subsection (h) of BPR.
  - Ongoing minimum solvency requirements: Section 3:57 (1) and elaborated in Sections 59, 60, 62a and 89 of BPR.
  - Requirements based on EU Capital Adequacy Directive.
  - Specific minimum equity capital is a licence requirement; amount depends on investment services performed.
  - Investment firm may request exemption from minimum equity capital requirement wholly or in part; AFM decides on such requests within license context.
  - All other prudential requirements, including minimum solvency requirements, are ongoing and supervised by DNB.
- Minimum Capital specifics:
  - Investment firms licensed to offer investment service a, b, c, d, and/or f which also trade on their own account (with no duty to obtain a license) must maintain own funds of   
    € 730,000.
  - (i) Where an investment firm has a license pursuant to AFS Section 2:96 (investment service (a) or (d) and no additional services under part a), it is sufficient to hold:
    - professional indemnity insurance providing at least € 1,120,200 per occurrence and at least € 1,680,300 per annum for all occurrences together, or
    - a combination of professional indemnity insurance or a comparable facility equivalent to either at least € 50,000 or as under (a).
- Tabulated own funds requirements preserved from source:
  - Investment service — Short description — Own funds requirement
    - A — Remisier — EUR 35,000 * EUR 50,000 if the service is also provided abroad
    - B — Commissioning agent/broker — EUR 50,000
    - C — Asset management — EUR 50,000
    - D — Investment advice — EUR 50,000 *
    - E — Arranging or underwriting share issues with placement guarantee — EUR 730,000
    - F — Arranging or underwriting share issues without placement guarantee — EUR 50,000
  - Investment activity — Short description — Own funds requirement
    - A — Proprietary trading including acting as a market maker — EUR 730,000
    - B — Operating or exploiting a Multilateral Trading Facility (MTF) — EUR 730,000

*Source: _cr11204 - Annex E, Paragraph 6 of Bgfo provides further detail as to the various costs which must*

### Section 2:86 (reinsurance agents) the following requirements must also be satisfied:

### _cr11204 - Section 2:86 (reinsurance agents) the following requirements must also be satisfied:

### Reinsurance agents: capital and insurance requirements
- an own funds requirement of € 25,000, or
- professional indemnity insurance or a comparable facility covering its liability for mistakes, omissions and negligence, to a sum of at least € 500,000 per occurrence and at least € 750,000 per annum for all occurrences together, or
- a combination of professional indemnity insurance or a comparable facility equivalent to either at least € 25,000 or as under (b).

### Solvency Requirements
- Solvency must be at least equal to the minimum size of the assessment capital.
- The minimum amount of the assessment capital will be at least equal to the minimum equity capital requirements.
- The minimum initial en ongoing capital requirements takes into account the position risk, settlement risk, delivery and counterparty risk, large exposures and foreign exchange risk.
- Pursuant to Part 3 of the AFS, other prudential requirements aimed at the solidity of the investment firm apply in addition to the above mentioned minimum equity capital requirements and the minimum solvency requirements.
- Requirements aim to control financial risks (e.g., market, credit, and liquidity risk) and non-financial risks (e.g., operational, legal, and reputational risk).
- The assessment capital is established depending on the extent of the risk for the investment firm by risk-type credit risk, market risk and operational risk.
- For calculation of internal capital requirements, economic capital, and depending on how DNB assesses internal processes, DNB establishes how much capital an investment firm is obliged to maintain or how much the capital has to be increased as a result of an increased risk.
- The minimal solvency requirement will be sensitive to an increase in the risk of the enterprise.
- Investment firms that do not hold client moneys and do not deal for their own account have a fixed overhead requirement instead of operational risk capital charge:
  - require the investment firms to hold a minimum own funds of at least 25 percent of the fixed overhead of the preceding year.
  - this requirement requires the investment firm to hold sufficient capital to finance the wind down of its business in a relatively short period of time.
  - If the capital charge is not sufficient to allow the investment firm to wind down a Pillar 2 add-on capital charge will raise the minimum capital required to the needed level for this purpose.
- The risk and capital charge not covered in Pillar 1 of Basel II are addressed in Pillar 2 of Basel II the Internal Capital Adequacy Assessment Process (ICAAP) and the supervisory review evaluation process.

### Reporting Requirements
- Investment firms are subject to periodic reporting vis-à-vis DNB. According to Section 130 of BPR, investment firms must provide:
  - Balance sheet and result-related data as well as additional financial details for the purpose of supervision of compliance of the Prudential Supervision of Financial Enterprises part of the AFS.
  - Other details for the purpose of supervision of compliance with the rules pertaining to: solvency, maintaining balance sheet items and items of the balance sheet; and liquidity.
- Reports are standardized and must be submitted electronically. Periodicity varies depending on the type of activities authorized:
  - Assets managers must submit such reports on a quarterly basis.
  - Firms that invest on their own account are required to submit also summary report of the whole reporting package on a monthly basis.
- Once a year, an investment firm must submit its annual report, accompanied by audited financial statements, stating that the books have been approved and that the firm meets all capital requirements.
- The AFM receives the annual reports. The quarterly reports are sent only to DNB since they are strictly prudential. AFM and DNB have regular contact and if necessary DNB forwards the input from such reports to the AFM.

### Measures that DNB Can Take in Connection with Prudential Requirements
- the imposition of extra reporting obligations;
- the possibility to notify an enterprise that it should meet minimum capital requirements within a period set off time;
- giving an instruction, or a “letter of deficit” issuing a warning, appointing a undisclosed conservator; and
- withdrawal of the exemption, withdrawal of the certificate of no objection, or ultimately (the request for) withdrawal of the license.

### Ongoing Supervision by DNB
- DNB uses a mix of off-site and on-site supervision to supervise compliance of investment firms with prudential requirements.
- Desktop review of all reports to detect major irregularities; on a risk-based basis conducts more thorough review of a number of them.
- Classification for on-site supervision intensity:
  - Roughly 25 percent of the investment firms are classified as high impact (large investment firms, complex structure, proprietary trading). Such firms are inspected once or twice a year. DNB performs testing of their risk management as well as their technology.
  - A bulk of the firms is classified as low impact (asset managers). Subject to visits on a three year cycle. DNB usually sends a questionnaire before the visit; depending on answers the supervisory team might ask additional information during the visit.
- Enforcement experience and activity:
  - In 2009 DNB issued five formal instructions and in 2010 one (with two still in the pipeline).
  - In case of non-compliance DNB may request the AFM to withdraw the license (3 cases over the past two years all of which led to withdrawal).
  - In 2010, in at least 3 cases DNB set concrete deadlines for improving the business model of investment firms that have been showing losses for a considerable period of time.
  - DNB has imposed orders for incremental penalties to enforce timely reporting; currently most investment firms comply with reporting obligations.
- Assessment: Fully implemented.
- Comments: The assessor considers that the supervisory program developed by DNB is reasonable and credible. It is important however that, in the case of low risk firms, it periodically monitors the balance between visits and on-site inspections.

### Principle 23 — Internal organization and operational conduct
- Market intermediaries should be required to comply with standards for internal organization and operational conduct that aim to protect the interests of clients, ensure proper management of risk, and under which management of the intermediary accepts primary responsibility for these matters.

### Appropriate Management and Organizational Structure
- Pursuant to Section 31 of the Bgfo, an investment firm should have a clear and adequate organizational structure which should be documented.
- Principle: nature, scope, risks and complexity of the business and activities should be taken into account.
- Investment firm responsibilities:
  - clear decision-making processes;
  - a clear and adequate organizational structure;
  - an adequate division and distribution of duties, powers and responsibilities;
  - unequivocal reporting lines; and
  - an adequate system of information provision and communication.
- Section 31 prescribes adequate internal control procedures to ensure decisions and procedures are observed at all levels.
- Day-to-day policy should be determined by at least two persons (Directors). Directors are responsible for any actions taken within and by the investment firm.
- Pursuant to Section 4:14 directors are responsible for controlling business processes and business risks as well as the conduct-related aspects of management.
- Bgfo requires investment firms to have:
  - (i) an internal control function,
  - (ii) a risk management function, and
  - (iii) a compliance function.
- Effectiveness assessment:
  - Must be assessed at least once a year by a department with an internal control function.
  - Such departments must be independent from management and must report on an annual basis to the directors.
  - Shortcomings identified must be remedied.
- Section 31 (c) prescribes an organizational department that performs a compliance function in an independent and effective manner:
  - duties include assessing effectiveness of procedures and measures taken to remedy shortcomings regarding compliance with statutory and internal rules;
  - required to report at least once a year to the Directors and to the supervisory body, if there is one.

### Investor Complaints
- An investment firm should ensure that complaints from clients are dealt with properly (Section 4:17).
- AFS requires investment firms to have an internal complaints procedure and to keep information on all complaints received.
- Investment firms are required to be affiliated to a body recognized by the AFM to solve disputes; this role is performed by KIFID.
- AFM and KIFID have bimonthly discussions on trends on complaints; AFM receives information on final decisions.

### Separation of Clients’ Assets
- Protection of clients’ assets in case of bankruptcy regulated in Section 6:14 to 6:20 of the NRgfo (with Section 165 subsection 1 of the Bgfo).
- Objective: prevent financial instruments belonging to a client from becoming part of the assets of the investment firm in the event of its bankruptcy.
- Main provision: the investment firm must open a bank account in the name of the client.
- In practice 3 or 4 banks provide this service for the bulk of the investment firms (tripartite agreements signed between the bank, the investment firm and the client).
- Bank required to:
  - (i) keep the financial instruments in Euroclear Netherlands, and/or
  - (ii) for instruments that cannot be deposited in Euroclear the bank is required to hold the assets in a depository.
- Depository in Dutch system: a separate legal entity with no capital created by the bank to segregate assets of the customer; operates in practice as a trust account.
- With MIFID implementation, external auditors are required to provide annually an assurance report in relation to compliance with segregation rules.
- AFM actions: contacted auditing firms for feedback on expectations and conducted a thematic review in 2006-2007 after an insolvency; found no major industry-wide issues though followed up with specific entities.

### Client Profile and Suitability
- “Know your client” principle: investment firms should develop a client profile when providing services.
- Obligations vary by service type:
  - For individual asset management or provision of investment advice:
    - Article 80(a) Bgfo lists elements for assessing suitability: investors’ objectives; investors’ ability to bear the risks of the transaction; investor’s understanding of the transaction and the risks attached.
    - Section 4:23 requires the firm to obtain information about the client’s financial position, knowledge, experience, objectives and risk tolerance, insofar as relevant.
    - Without this information the firm cannot perform asset management or provide advice.
  - For other investment services, including execution-only services:
    - Firm required to obtain information about knowledge and experience relevant to the service/product to assess suitability.
    - If client fails to supply required information, firm should warn the client it cannot assess suitability.
    - For execution-only services in simple financial instruments the firm is not obliged to obtain information; must notify client that suitability has not been assessed.
- AFM has issued guidance on suitability and risk profiles; these areas will receive significant attention in 2011 as part of thematic work.

### Agreement between Client and Investment Firm
- Contracts required for provision of investment services and ancillary services, on paper or another durable medium (Section 4:89).
- Contracts should specify rights and obligations of parties, the investment services, and the manner in which they will be provided.
- Section 168 of the Bgfo stipulates which provisions client contracts should contain.

### Provision of Information to the Client
- Before the service is provided:
  - Section 4:20 requires supply of information reasonably relevant for an adequate assessment of the service or product; can be standardized.
  - Matters for non-professional investors listed in sections 58a to 58e and Section 59 of the Bgfo include: language and methods of communications; nature, frequency and timetable of performance reports; brief description of measures to protect client funds/instruments if firm holds them; outline of guarantee scheme applicable; description of conflicts of interest policy per section 35a; general description of nature and risks of financial instruments sufficiently detailed for non-professional investors to decide.
  - If requested, further particulars of conflicts of interest policy must be provided.
- During the term of the contract:
  - Firm required to provide information about execution of any order with regard to a financial instrument (transaction notification) and development of managed assets (regular investment statement) (4:20 subsection 3).
  - For individual asset management, provide regular statement of portfolio management activities unless already provided by a third party; requirements listed in Section 70 of the Bgfo.
  - Firms should establish a suitable method of evaluation and comparison to allow clients to assess performance.
  - Section 58e: provide information about the total costs of the financial instrument, the investment service or ancillary service, including all associated costs; disclose commissions charged and commissions received from a third party (existence, nature and amount).

### Record-Keeping
- Firms required to maintain records of all investment and ancillary services provided and investment activities performed.
- Data must be saved for a period of at least five years.
- Data concerning rights and obligations under the client agreement and other conditions must be saved for at least the term of the contract.
- Obligation applies to information on both professional and non-professional investors; does not apply if the firm is no longer licensed.
- AFM has published on its website the list of data that investment firms should save.
- Data must be saved on a durable medium in a form that provides the AFM with easy access.

### Conflict of Interest
- Firms should take measures to prevent conflicts of interest.
- Circumstances raising conflict of interest include conflicts between interests of the company or connected persons/group and the firm’s obligations toward the client, or between the interests of two or more clients.
- AFS Section 4:88 requires an adequate policy to prevent and manage conflicts of interest between the firm and its clients and among clients.
- Bgfo Sections 167, 167(a), and 167(b) detail conflict policy obligations covering:
  - recognizing conflicts of interest;
  - implementing and maintaining measures; and
  - disclosing conflicts of interest.

*Source: _cr11204 - Section 2:86 (reinsurance agents) the following requirements must also be satisfied:*

### Section 35a, subsection 1 of the Bgfo specifies that an investment firm shall have procedures

### Section 35a, subsection 1 of the Bgfo specifies that an investment firm shall have procedures

### Conflicts of interest
- Section 35a, subsection 1 of the Bgfo specifies that an investment firm shall have procedures and measures in place for preventing and dealing with conflicts of interest between the investment firm and its clients or between the clients themselves.
- Assessment: Fully implemented.
- Comment: "The more fragmented the markets become, the more the AFM would need to pay additional attention to compliance with best execution by investment firms."

### Early warning mechanisms and reporting
- Investment firms are subject to a series of reporting obligations which allow DNB to form a view as to the solvency of the firm.
- Changes in licensing requirements must be notified to the AFM; certain changes (qualifying holdings) require an explicit declaration of no objection.
- Reporting and notification obligations are complemented by ongoing supervision (off site and on site) by AFM and DNB.
- AFM and DNB may request information on an ad-hoc basis, access business information and records, and perform onsite inspections (Sections 1:72-1:74).

### Supervisory measures to address problems
- AFM and DNB can issue an instruction to adhere to a certain line of conduct (Section 1:75) where: (i) the investment firm does not comply with the provisions of the AFS or related legislation; or (ii) DNB detects signs of a development that may jeopardize the equity capital, solvency or liquidity of the investment firm.
- AFM and DNB may appoint a conservatorship if provisions of the AFS are violated (AFS Section 1:76). Under conservatorship the investment firm may only exercise powers subject to the liquidator's approval.
- AFM and DNB may impose an order for incremental penalty payments (Section 1:79) or an administrative fine (Section 1:80).
- AFM and DNB may publish a public warning and publish decisions to impose an administrative fine or incremental penalty payments (Section 1:94, 1:97 and 1:99).
- DNB may impose a higher capital charge, pursue a specific provisioning policy or limit the risk profile of the institution (Section 3:111).
- Instrument choice and method of action are based on the gravity of the situation.

### Investor Compensation Scheme (ICS)
- The ICS guarantees a minimum level of protection if the bank or investment firm is unable to fulfil its obligations resulting from the provision of investment services.
- The ICS guarantees an amount not exceeding € 20,000 per client per investment firm.
- The ICS protects private individuals and "small" businesses (i.e., businesses which may publish an abridged balance sheet) that have entrusted money or financial instruments to a licensed bank or investment firm.
- Claims (in money or securities) connected with the performance of certain investment services are eligible for compensation where the money or securities cannot be returned because the bank or investment firm is unable to perform its obligations.
- Losses suffered in connection with financial instruments are not in themselves damages that can be compensated by the ICS.
- The scheme is administered by a separate entity whose board members include board members of DNB, the AFM and representatives of the industry.
- Regulated entities providing investment services pay an annual fee part fixed and part based on the amount/number of non professional clients.
- If the scheme is not sufficient to cover claims, regulated entities are required to contribute additional moneys (ex-post).

### Procedures on the eventuality of a firm’s failure
- AFM has developed a working plan to deal with the failure of an entity that provides investment services.
- Role allocation depends on licensing:
  - If the investment firm holds a bank license, DNB takes primary responsibility.
  - If licensed by the AFM, the AFM has responsibility.
- AFM roles:
  - Monitoring to ensure that (financial) damage remains as limited as possible for the clients and that the investment firm continues to act in the interests of its clients.
  - Monitoring to ensure clients are accurately, promptly and fully informed.
  - Providing guidance to ensure the best possible solution for clients.
- Measures are taken on an ad hoc basis after consultation with DNB.
- AFS requires a supervisor to allow the other supervisor reasonable time to submit its view (section1:47) before taking certain measures (appointment of conservatorship, application for bankruptcy, emergency regulations).
- Assessment: Fully implemented.
- Comment: Assessor welcomes AFM initiative to seek mechanisms to receive timely information from KIFID on complaints; recommends AFM and DNB conduct scenario analysis and crisis simulation exercises to test and improve the AFM plan or their covenant.

### Resolution regime
- There is no special resolution regime for investment firms; the bankruptcy procedures of the DCC apply.
- Few firms have gone into insolvency; in those cases the regime worked well.
- It took 2-3 days to transfer the portfolio of assets to another bank in insolvency cases.
- Majority of investment firms are plain vanilla asset managers; the Netherlands does not appear to need a special regime for resolution of investment firms.
- Key remaining requirement: segregation of assets must be properly implemented by investment firms.

### Principles for the Secondary Market — Licensing of Regulated Markets (Principle 25)
- Power to grant a license to operate a Regulated Market (RM) corresponds to the MoF (AFS Section 5:26). Operating a RM without a license is prohibited unless an exemption is granted.
- License criteria (Sections 5:27, 5:29, 5:30, 5:32) include:
  - Fitness and properness of persons determining day-to-day policy.
  - Sufficient financial resources to promote orderly operation; "enough funds and working capital for six months" is the principle.
  - Rules and procedures for identifying and controlling potential conflicts between interests of the regulated market, the owners or the market.
  - Rules on admission of financial instruments to trading.
  - Transparency and non-discriminatory access rules.
  - Transparent, non-discretionary rules and procedures guaranteeing fair and orderly trading and objective criteria for efficient execution of orders.
  - Rules and regulations for identifying significant risks and measures to limit them.
  - Rules and procedures for proper management of technical operation and precautionary measures to eliminate system breakdown risks.
  - Effective rules and procedures for timely settlement.
  - Effective rules and procedures to regularly check ongoing compliance by members/participants.
- AFM developed a "Handbook for Regulated Markets" detailing recognition and ongoing evaluation criteria; it is not publicly available but provided to potential licensees.
- AFM must provide MoF with a recommendation; license may be subject to conditions and limitations (AFS Section 1:102).

### Licensing of MTFs
- Operating an MTF is an "investment activity" that can only be carried out by an investment firm, a credit institution or an operator of a RM; requires corresponding license and compliance.
- AFS Section 4:91 sets specific requirements for MTF operators, including:
  - Transparent, non-discretionary rules and procedures guaranteeing fair and orderly trading.
  - Rules for healthy management and technical operation, precautionary measures for breakdowns.
  - Transparent rules regarding tradable instruments.
  - Sufficient price transparency.
  - Transparent access rules comparable to a RM.
  - Measures to promote efficient settlement and clear user settlement responsibilities.
  - Effective procedures to check compliance by users.
- As an investment firm, the operator must also satisfy general conditions (Sections 4:10; 4:11(1) and (3); 4:83(1); 4:84; 4:13(1) and (2); 4:14(1) and (2); 4:87; 4:88; 3:53(1) and (3); 3:57(1) and (2)).
- License to operate a MTF may be subject to conditions and limitations (AFS Section 1:102).

### Monitoring compliance by RM or MTF
- RM and MTF operators must adopt effective rules and procedures to identify violations and trading conditions disrupting orderly operation or indicative of market abuse (Sections 5:32 and 4:91(b)).
- Serious violations must be informed to the AFM.
- Operators must supply applicable information to the AFM, the Public Prosecution Office or investigating officers competent under the Economic Offenses Act, and fully cooperate in investigations or prosecutions of market abuse.

### Practice and operational supervision (Principle 26)
- AFM's degree of supervision over RMs and MTFs depends on scale, type of securities, and participants (example: closer scrutiny for MTF allowing retail participation).
- Significant supervisory resources are dedicated to Euronext due to scale and securities type.
- AFM has a dedicated Monitoring Unit of 8 persons for real-time monitoring of Euronext Amsterdam cash and derivatives markets using real-time order and transaction data feeds and computerized surveillance producing T+1 alerts reviewed by the Monitoring Unit and Investigations Unit.
- The five competent authorities for Euronext (Netherlands, Belgium, France, Portugal and the UK) signed a revised MoU to jointly address oversight; the MoU covers consultation on changes to market structure, ownership, appointments, rule changes, systems and controls, and significant resource changes.
- The college of supervisors meets at Working Party, Steering Committee and Chairmen Committee levels and generally works by consensus; a streamlined procedure exists for issues without major impact.
- The college coordinates on-site inspections; participation by jurisdictions is decided case-by-case (example: IT data services relocation to London led to an on-site inspection led by two supervisors).
- A MoU with the US SEC exists for collaboration after the NYSE–Euronext merger; limited joint approvals have been required so far (example: development of a universal trading platform).
- Day-to-day supervision examples:
  - ENDEX: meetings every six weeks with Compliance and Risk Manager; monthly incident reports and trading statistics; management meetings three times a year; ad-hoc email contact.
  - Alternext Amsterdam and NYSE Arca Europe: considered trading segments of NYSE Euronext; AFM meets local management every six weeks; trading statistics sent daily electronically; ad-hoc email contact on rule changes.
  - TOM Cash: AFM meets TOM management every six weeks; trading statistics sent daily electronically; ad-hoc email contact on rule changes.
- Changes to RM/MTF rules and to persons determining day-to-day policy must be submitted to the AFM for approval; AFM must approve unless change threatens healthy and prudent management.
- Acquisition of a qualify holding or exercise of control related to a qualifying holding requires a declaration of no objection (Section 5:32(d)).
- Consequences for violations include issuance of an instruction, advice to MoF to withdraw license (for RM), order for incremental penalty payments, and issuance of a reprimand; for MTF the withdrawal of license corresponds to the AFM.
- Assessment: Fully implemented.
- Comment: Differentiated supervision by scale, securities and participants is reasonable; AFM should consider adding on-site inspections for markets that grow materially (TOM example). College of supervisors appears to be working well.

### Transparency of trading (Principle 27)
- AFS subjects regulated markets and MTFs to the same obligations for pre- and post-trade transparency for shares (Section 5:32 for RMs and 4:91 for MTFs). Obligations are limited to shares; AFS allows imposition of pre- and post-trade obligations in other instruments via decree.
- Pre-trade transparency:
  - RMs and MTFs must disclose bid and offer prices and the size of the market at these prices for shares admitted to trading.
  - Information must be available to the public on a continuous basis on reasonable commercial terms and during normal trading hours.
  - Operators may derogate from pre-trade transparency after AFM approval in cases described in Articles 18 to 20 of the MiFID Implementing Regulation; CESR has a protocol for these requests at EU level.
- Post-trade transparency:
  - RMs and MTFs must disclose price, scope, and time of transactions conducted in shares admitted to trading on reasonable commercial terms and within a timeframe as close as possible to real time.
  - AFM may allow deferral of publication of transaction details where criteria in Article 28 of MiFID Implementation Regulation are satisfied (mainly delay reporting for large transactions).
- OTC markets:
  - Currently only OTC for shares are subject to post-trade transparency reporting; reporting obligation lies on the investment firm.
- Equity option market:
  - While not legally required, the equity options market in the Netherlands has complied with the same level of pre- and post-trade transparency as the equity market.

*Source: _cr11204 - Section 35a, subsection 1 of the Bgfo specifies that an investment firm shall have procedures*

### Section 4:91 of the AFS imposes post trade obligations on investment firms that operate

### Section 4:91 of the AFS imposes post trade obligations on investment firms that operate systemic internalizers systems.

### Post-trade transparency and systemic internalizers
- Assessment: Broadly implemented.
- Findings:
  - Participants expressed concern about waivers on transparency connected to large trade blocks.
  - Market fragmentation has reduced average trade size, making it easier to meet thresholds to delay transparency; this issue should be reviewed.
  - Further strengthening of post-trade transparency requirements in the equity markets via a consolidated tape is warranted.
  - The assessor notes CESR work on consolidated tape, “dark pools” and crossing networks and welcomes a prompt decision as to amendments to MiFID.
  - A legal reform to impose post-trade transparency in OTC derivatives markets should be pursued.
  - Markets for government debt and corporate debt (in the Netherlands for professionals) appear to enjoy a good level of transparency via Bloomberg or other data vendors, but MoF jointly with the AFM should review whether additional transparency is needed.

### Principle 28 — Detection and deterrence of manipulation and unfair trading practices
- Description of misconduct provisions:
  - The AFS contains specific provisions prohibiting insider trading and market manipulation (Chapter 5).
  - AFS requires notifications concerning major shareholdings and insider transactions and obliges persons professionally arranging transactions in financial instruments to notify the AFM of suspicious transactions.
  - Insider trading under the AFS covers front-running in addition to trading on the basis of knowledge about orders.
  - The definition of market manipulation addresses four categories:
    - (i) transactions or orders which provide false and misleading signals to the market;
    - (ii) use of misleading or deceptive tactics;
    - (iii) bring the price to an artificial level by means of transactions or orders; and
    - (iv) dissemination of false or misleading information regarding a financial instrument.
  - AFM has provided further guidance concerning market manipulation and types of transactions or orders it might interpret as violations.
  - Both insider trading and market manipulation can be committed in the context of financial products, including derivatives on commodities.

- Sanctions and enforcement:
  - Violations in Chapter 5 can be pursued by the AFM as an administrative offense.
  - The AFM has at its disposal the sanctions detailed in Principle 9.
  - Pursuant to Section 5:54 of the AFS insider-trading and market manipulation also constitute a criminal offense.
  - Parallel proceedings (administrative and criminal) are not allowed in the Netherlands; AFM, the PPO and Financial Intelligence and Investigations Unit have coordination mechanisms formalized in a written covenant and meet once per month to decide which cases will be criminally prosecuted.
  - According to the AFS the AFM refers insider-trading cases to the PPO, but AFM is often unable to establish a link between the information and the persons who have traded suspiciously, largely due to limitations in investigatory powers to access telephone logs.
  - Cases of market manipulation more often are pursued on the administrative venue.

- Assessment: Fully implemented.
- Comments:
  - At the local level the AFM appears to be working effectively in detecting and combating unfair trading practices.
  - Implementation of a client-ID in the Netherlands would significantly help the AFM reduce the duration of its investigations and contribute to surveillance effectiveness.
  - The AFM encourages voluntary reporting of the client-ID and aims to prepare investment firms for a possible future requirement to report the client-ID.
  - The specific form of this requirement is expected to be published mid 2011 when the European Commission is expected to propose amendments to MiFID.
  - MoF jointly with the AFM should consider whether additional investigative powers to access telephone and internet service provider records are desirable.
  - Issues related to criminal enforcement are dealt with in Principle 10.

### Systems and arrangements for continuous market monitoring
- Operational arrangements:
  - The AFM performs real-time monitoring of the markets mainly on issues related to price sensitive information.
  - The AFM has a dedicated Monitoring Unit consisting of 8 persons tasked with daily monitoring of both Euronext Amsterdam cash and derivatives markets to identify unusual activity, assisted by real-time order and transaction data feeds.
  - AFM uses computerized surveillance with sophisticated software applications that generate a significant number of alerts on a “T+1” basis; alerts are reviewed by the Monitoring Unit and some passed to the Investigations Unit for evaluation.
  - With MiFID implementation the AFM, via the Transaction Reporting database, has access to all relevant transaction information important to market abuse investigations; authorities report quality and timeliness of such reporting has improved overtime.
  - AFM can request information from investment firms regarding specific transactions to determine responsible client(s); submission of a unique client-identifying number is not required to be reported in the Netherlands.
  - When the Monitoring Unit detects transactions or orders giving rise to suspicion of market manipulation, particularly involving professional traders, the AFM will often contact the investment firm directly to obtain explanations.
- Statistics and activity:
  - The AFM conducts roughly 75 investigations on market abuse on a yearly basis.

### Cross-border cooperation
- Arrangements and practices:
  - AFM has signed MoU’s with nearly every major regulatory body, domestic and foreign, concerning regulation of financial markets.
  - At the European level, enforcement contact takes place under CESR-Pol, the subcommittee on enforcement of CESR; this committee holds bimonthly meetings where supervisors share enforcement cases and seek advice.
  - AFM has been active in CESR-Pol, notably in a major cross-border insider-trading ring where it requested creation of an Urgent Issues Group to facilitate cross-border cooperation.
  - AFM implemented communications with other regulators per CESR guidelines to notify them of AFM’s intention to request a trading halt so foreign regulator(s) can halt related securities on their own exchanges or MTF’s in a timely manner.
- Comments:
  - In regard to cross-border issues, CESR-Pol provides a venue for discussing enforcement cases, but over the long run further centralization of supervision might be necessary.

### Principle 29 — Management of large exposures, default risk and market disruption
- Description and supervisory scope:
  - DNB and the AFM indirectly supervise securities clearing and settlement and central clearing counterparties; mandate derives from the AFS, particularly provisions on RMs and MTFs related to efficient settlement described in Principle 25.
  - AFS does not contain a comprehensive framework for clearing and settlement.
  - AFS now includes “clearing” members as a specific category of regulated entity under supervision of DNB (prior to that clearing members were supervised indirectly because of their condition of banks).
  - AFM and/or DNB do not monitor or supervise ‘large exposures’ directly; under the Capital Adequacy Directive (CAD) DNB supervises financial positions of investment firms and banks, which includes insight in “large exposures” since these are relevant for capital adequacy.
  - Banks and investment firms must submit financial reports to DNB.
- Exchange and CCP arrangements:
  - Euronext has mechanisms to address extreme volatility and market disruption, including dynamic thresholds to apply circuit-breakers and reinstatement of static thresholds after the US “flash crash”.
  - LCH.Clearnet S.A. monitors large exposures of its clearing members on a daily basis and can require clearing members to report clients’ open positions daily.
  - LCH.Clearnet S.A. can refuse to clear additional transactions if position limits are exceeded, impose additional margins including intraday margins on an individual basis (CRB Article 1.5.3.6), require positions be reduced (CRB 1.5.3.7), revoke trading privileges or require additional capital from a clearing member.
  - There is a MoU on oversight of LCH.Clearnet S.A. between Dutch, French, Belgian and Portuguese authorities; LCH.Clearnet S.A. shares information on large positions at monthly meetings with signatory authorities.
  - The French supervisor (ACP), as direct supervisor of LCH.Clearnet S.A., monitors positions on a daily basis.
  - Authorities reported no need to take measures regarding large exposures because LCH.Clearnet S.A. has sufficient powers (mainly via intraday margining).
- Default and segregation:
  - LCH.Clearnet S.A. has a default procedure available to Clearing Members and a more detailed default procedure for supervisors.
  - If a Clearing member defaults, all its collaterals, margins and/or payments to the default fund belong to LCH.Clearnet S.A., which can exercise these rights without waiting for bankruptcy proceedings.
  - Under Dutch law there is segregation between clients’ funds and the investment firm for securities (providing investor protection in bankruptcy); this segregation does not apply to investments in derivatives, which are not protected and would fall within liquidation assets of the investment firm.

- The Order Machine (TOM) and EMCF:
  - Since 2007 a new Dutch central clearing counterparty, EMCF, was set up.
  - Oversight of EMCF is conducted on the same basis as LCH.Clearnet S.A., though legal basis differs (LCH.Clearnet S.A. subject to oversight based on Exchange License of NYSE.Euronext; EMCF subject to oversight on basis of a voluntary Oversight Agreement and recently on the basis of the MTF License granted to TOM, for which EMCF clears).
  - MoUs with relevant authorities have been agreed.
  - EMCF provides monthly reports which cover (large) exposures. Exposures are covered by initial and variation margin calls and, when needed, additional (intraday) margin calls.
- Assessment: Fully implemented.
- Comments:
  - Assessment of this Principle is limited in scope since an assessment of the central clearing counterparties was not conducted.
  - The assessor recommends that a comprehensive legal framework for clearing and settlement be developed.

### Principle 30 — Regulatory oversight of clearing and settlement systems
- Assessment: Not assessed.
- Comments: (no additional content provided)

*Source: _cr11204 - Section 4:91 of the AFS imposes post trade obligations on investment firms that operate systemic internalizers systems.*

### ANNEX I: STATUS OF IMPLEMENTATION OF THE NEW IOSCO PRINCIPLES

### ANNEX I: STATUS OF IMPLEMENTATION OF THE NEW IOSCO PRINCIPLES

### Monitoring, mitigation and management of systemic risk
- The AFM has developed a process to identify and prioritize risks—including risk to systemic stability—and decide on actions to manage them.
- Identification of risks:
  - Strategy Department gathers and analyzes information (signals) annually from different sources to identify main market risks, including from entities/activities outside the perimeter of regulation.
  - Informal networks are used to identify emerging risks.
  - An initial list is shared with experts in different supervision areas and external experts; results discussed with Heads of Departments and the Executive Board.
  - Outcome is a selection of “themes” for the next year: in 2010 this resulted in eight themes, and for 2011 this resulted in ten themes.
  - Each theme is managed by a member of the Executive Board (‘theme owner’) and a Head of Department (‘theme coordinator’) and supported by a mid-term to long-term plan updated annually.
  - AFM Annual Report includes a risk statement covering financial services market, capital markets, organization and business conduct; the statement expresses AFM’s view on possible need for amendment of—or new—legislation.
- Mitigation of risk:
  - Theme plans are strategic; prioritization produces activities and projects for assessment, analysis and mitigation.
  - Department of Supervision of Financial Services holds priority sessions twice a year leading to projects that contribute to AFM’s strategic goals and risk mitigation.
  - Department of Supervision of Capital Markets conducts continuous risk analysis by market segment and holds a capital market session twice a year; it is developing an institutional risk management framework.
- Control process of the Annual Plan:
  - Twice a year the Executive Board discusses progress in implementation of the Annual Plan in three sessions: financial services, capital markets, and organization.
  - Sessions are based on reports by Heads of Departments and theme coordinators; reports form the foundation of the AFM Annual Report.
- Incorporation with DNB:
  - AFM shares its themes and market risk view with DNB annually during DNB’s process to identify strategic priorities.
  - Chairmen of the Executive Boards of AFM and DNB meet periodically to discuss market developments and risks.
- Further extension:
  - AFM participates with DNB in the European Systemic Risk Board (ESRB); AFM participates in financial stability workstreams of ESMA and IOSCO.
  - AFM is evaluating internal processes to strengthen its risk-based approach and cooperation with DNB.
- Assessment: N/A.

### Review of the perimeter of regulation
- Review of perimeter is embedded in AFM’s risk identification process (Principle 6).
- Legislative reporting:
  - Per request of the MoF, AFM and DNB annually submit a letter of legislation summarizing limitations in the legal framework hindering effective performance.
  - MoF sends these letters to Parliament with response and future plans for regulation on financial supervision. First letters were sent in 2010.
- Assessment: N/A.

### Conflicts of interest and misalignment of incentives
- AFM’s annual risk identification process also identifies sources of conflict of interest arising from market participants, new products or activities.
- Product development supervision:
  - AFM emphasizes supervision of product development processes of regulated entities to identify risks and conflicts early.
  - AFM is seeking authority to review product development processes of intermediaries; meanwhile it has provided market guidance on key elements of a robust product development process.
- Assessment: N/A.

### Oversight of auditors (licensing, inspections, enforcement)
- Licensing and registration:
  - All audit firms performing statutory audits in the Netherlands must obtain a license from the AFM.
  - Individual auditors must be employed by or affiliated to an AFM-licensed audit firm and be registered with the professional accounting body (NBA).
  - The law distinguishes between a licence for Public Interest Entity (PIE)-audits (required for audits of listed companies, banks and insurance companies) and a licence not for PIE-audits (covers other statutory audits).
  - Licensing requirements include integrity tests on (co-)policymakers and demonstration of robust quality assurance systems.
- Registration of individual auditors:
  - Auditors need to be registered accountants with the NBA (merger of NIVRA and NOvAA).
  - Requirements include a theoretical examination and practical experience.
  - Auditors are required to pursue continuous education (on average, at least 120 hours per 3 years).
- Enforcement powers and appeals:
  - AFM may take punitive actions against audit firms based on administrative law; appeals: Management Board of AFM → Court in Rotterdam → Administrative High Court for Trade and Industry.
  - Disciplinary actions against individual auditors are the responsibility of the Disciplinary Court for auditors; AFM may file cases there.
- AFM oversight practice:
  - AFM has a separate department for supervision of audit firms with 21 full-time and 2 part-time professionals (all non-practitioners).
  - Licensing function assigned to AFM in October 2006; AFM received approximately 700 applications.
  - Risk-based review: firms with substantive statutory audits subject to on-site inspections; firms with null or very few statutory audits subject to desktop review.
  - Currently there are 15 firms licensed to conduct PIE-audits, and approx. 460 to conduct non PIE-audits.
  - The Big 4 cover approximately 60 percent of all audits and charge approximately 80 percent of all audit fees.
  - AFM carries out inspections of all PIE audit firms; some inspections at non-PIE firms are carried out by SRA under a Memorandum of Understanding; AFM remains fully responsible for oversight and enforcement.
- Inspection findings and enforcement:
  - In 2009 AFM conducted on-site inspections on the Big 4; report found failures in professional skepticism and application of accounting standards, insufficient testing, and weak quality control monitoring; AFM required firms to present remediation plans.
  - AFM indicated focus in second half of 2010 and 2011 on financial incentives and their impact on audit quality.
  - AFM initiated enforcement proceedings against one or more firms (currently pending).
- Assessment: N/A.

### Auditor independence
- Legal provisions:
  - Audit Firms Supervision Act (AAFS) requires auditors and audit firms to assess and document independence; where doubts exist, safeguards must be implemented or auditor/firm should withdraw.
  - Specific cases where an audit firm cannot perform a statutory audit of a public interest entity:
    - It has compiled the financial accounts on which the statutory audit is based at any time during the previous two years; or
    - It provided or actually set up, or shall provide or actually set up respectively, a substantial part of the accounting records during the period to which the financial accounts refer or during the performance of the statutory audit.
  - Rotation requirements for the individual auditor that audit public interest entities: seven years.
  - Cool off period: two years.
- Annual confirmations and transparency:
  - Each year, the audit firm performing statutory audits for a PIE shall confirm its independence to the audit committee, notify it of all services provided other than statutory audits, and discuss threats to independence and mitigation measures.
  - Audit firms are required to prepare and publish on their website a “transparency report” which includes a statement concerning independence practices and confirms an internal review of independence compliance has been conducted.
- Assessment: N/A.

### Auditing standards
- Standard setting:
  - Standard setting is conducted by professional bodies under supervision of the MoF.
  - The Dutch profession applies a slightly modified version of the International Standards on Auditing (ISAs) of IFAC; adherence to these standards is mandatory.
  - Differences between ISAs and local auditing standards are limited and primarily reference other legislative requirements.
  - Standard setting involves consultation with MoF and AFM.
  - AFM objected to the new Code of Ethics developed by IFAC as weak; MoF took recommendation and the Code will be redrafted before entering into force in the Netherlands.
- European endorsement:
  - It is anticipated that the EC, on the basis of Article 26 of the Statutory Audit Directive, will endorse international auditing standards; if so, professional bodies will no longer set auditing standards for statutory audits though they will continue to set standards for other audits.
- Assessment: N/A.

### Oversight of credit rating agencies (CRAs)
- Regulatory framework:
  - CRAs are subject to registration and oversight pursuant to Regulation (EC) No 1060/2009 (the Regulation); oversight and supervision is performed by competent authorities of Member States (Article 22:1).
  - The MoF has designated the AFM as the competent authority for the Netherlands (Wte Article 1 sub (e)).
  - Expected as of July 1, 2011, supervision of CRAs will be carried over to ESMA (successor to CESR).
- ESMA responsibilities (expected):
  - Registration of CRAs: CRAs will have to apply for registration with ESMA, which will decide on each of them.
  - Day-to-day supervision: ESMA will monitor ongoing compliance with the CRA Regulation with supervisory powers including requesting information, hearing persons, examining records and conducting on-site inspections.
  - Taking supervisory measures for breaches, ranging from issuance of a public notice to withdrawal of registration depending on seriousness.
  - National supervisors can be appointed as temporary delegates of ESMA and must maintain capacity to fulfil delegated tasks upon ESMA request.
- Regulation alignment with IOSCO Code of Conduct:
  - Regulation addresses independence and minimized conflicts of interest; quality and integrity of rating process; timely information and transparency about procedures and methodologies; protection of non-public information.
- Registration process description:
  - A college of competent authorities is formed to examine a CRA registration application (Recital (46) and Article 18).
  - First stage: review of completeness of information; a Facilitator coordinates feedback and merges into one table; differences discussed in conference calls/meetings.
  - College members may request additional information due to local legislation (e.g., AFM performs fit and proper tests for Board Members requiring signed authorization to request governmental information and résumés to assess conflicts of interest).
  - If complete, the college starts a compliance check assessing policies/procedures against Regulation obligations.
  - At the time of the report, neither of the two CRAs for which AFM participates in the supervisory college was in the compliance-check stage.
- Assessment: N/A.

### Oversight of other entities offering analytical/evaluative services
- Legal framework:
  - Entities, independent analysts and other persons offering investors analytical or evaluative services are subject to rules on investment recommendations under the AFS.
- Main disclosure requirements for persons disseminating investment recommendations:
  - Publication of the identity of the person or entity issuing the recommendation.
  - Ensuring the recommendation presents the facts in the right way.
  - Publication of information that could reasonably be assumed to compromise objectivity of the recommendation.
- Interaction with market abuse:
  - Trading ahead of an investment recommendation may, under certain circumstances, be considered insider trading.
  - Spreading misleading or false information can be market manipulation.
- AFM practice:
  - Initial focus on preventive measures since 2005 through meetings with investment firms and analysts to raise awareness.
  - AFM reviewed reports of main investment firms; followed up where necessary.
  - AFM published a brochure with FAQs and is working on guidelines regarding relationship between investment recommendations and insider trading.
  - Market monitoring centers on identifying possible instances of insider trading by broker/dealers trading ahead of analyst recommendations; AFM monitors signals from market and media daily.
- Assessment: N/A.

### Regulation and oversight of hedge funds and hedge fund managers/advisers
- Current framework and retail offering:
  - Hedge funds that offer units to retail investors are subject to the same requirements described in Principles 17-20; management companies of such hedge funds must apply for a licence and comply with ongoing supervision requirements as other management companies and CISs.
- Professional investor threshold and exemptions:
  - Management companies that only offer to professional parties are currently exempted from the licence obligation (offering > € 50,000 per unit).
  - This exemption threshold will be increased to € 100.000 by way of amendment in the FSA.
  - The exemption will cease to have effect for all Dutch CISs after implementation of the Alternative Investment Fund Managers (AIFM) Directive, expected for 2013; thereafter all hedge funds offered to professional parties will fall under AFM supervision.
  - According to the AIFM Directive, management companies with less than 100 million worth of assets will be exempted from a license requirement, but need to register and be transparent toward the supervisor.
- Prudential oversight:
  - Banks and brokers providing funding for hedge funds fall under prudential regulations supervised by DNB.
- Assessment: N/A.

*Source: _cr11204 - ANNEX I: STATUS OF IMPLEMENTATION OF THE NEW IOSCO PRINCIPLES*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11204.pdf_