## FINANCIAL SECTOR ASSESSMENT PROGRAM UPDATE KINGDOM OF THE NETHERLANDS- NETHERLANDS FINANCIAL SECTOR SUPERVISION: THE TWIN PEAKS MODEL TECHNICAL NOTE JUNE 2011

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### Executive Summary
- The Dutch “twin peaks” model: DNB as prudential supervisor for all financial institutions; AFM responsible for conduct-of-business supervision.
- Timeline:
  - Introduced in 2002; full transition completed in 2007 with the Act for Financial Supervision (AFS).
- Rationale and international uptake:
  - Adopted in whole or in part by many countries due to dominance of large and complex financial institutions (LCFIs) and increased interconnectedness.
- Crisis performance:
  - The 2007/08 global financial crisis severely affected the Dutch financial sector; official support as a share of GDP was among the highest in the world.
  - Consolidation of micro- and macro-prudential supervision within DNB enabled a systemic view and decisive action during the crisis.
- Complementary role of AFM:
  - A separate, experienced agency for conduct-of-business helps restore credibility and public acceptance of good conduct-of-business practices.

### I. Background
- Model design and objectives:
  - 2002 adoption of objective-based “twin peaks”: DNB as single prudential supervisor (banks, insurance, investment firms, pension funds, securities firms); AFM responsible for conduct-of-business including securities market activities and consumer/investor protection.
  - Replaced sector-based supervision that included DNB, PVK (pension and insurance supervisor), and STE (securities supervisor).
  - Council of Financial Supervisors (RFT) used pre-2002 for coordination; a “covenant” among DNB, PVK, and AFM facilitated transition.
  - Full transition completed in 2007 with AFS and the Pension Act.
- Key design considerations:
  - Unified prudential supervision chosen because financial conglomerates blurred sectoral boundaries and to minimize regulatory arbitrage.
  - Separation of prudential and conduct-of-business supervision argued on grounds that objectives, skill sets, and tools differ; concern that consumer protection might dominate political attention and divert resources from prudential supervision.
  - Locating unified prudential supervision within DNB leveraged synergies with macroeconomic analysis, the central bank’s credibility, and helped limit conflicts with ECB monetary policy responsibilities.
- Distinctive feature:
  - Consolidation of macro- and micro-prudential supervision within the central bank distinguishes the Dutch model from other twin peaks variants (e.g., Australia).

### II. Twin Peaks Model in Practice
- Legal and institutional framework:
  - AFS came into force on January 1, 2007; supplemented by Royal and Ministerial Decrees.
  - DNB has power to issue rules and policy guidelines mainly for law interpretation; MoF plays a larger role than in many systems because much regulation is in the AFS or Decrees under MoF responsibility.
- Covenant between DNB and AFM:
  - Set practical framework for division of responsibility and cooperation, including:
    - DNB designated lead agency with overall responsibilities for supervision (including licensing) for all financial institutions; AFM designated lead for securities firms.
    - Agreement that lead supervisor would defer to the judgment of other supervisors.
    - Rules for consultation and information sharing.
- Operational outcomes:
  - Clarity of mandates and objectives substantially improved; DNB and AFM generally demonstrated clear understanding of roles and effective cooperation, including during peak crisis stress.
  - AFM strengthened conduct-of-business supervision (consumer protection, transparency), using risk-based onsite supervision complemented with institution-based supervision for high-impact firms.
  - DNB and AFM cooperation example: DNB’s program for supervision of investment firms focuses supervisory resources on firms conducting “risky activities” (e.g., proprietary trading)—such firms are subject to on-site inspections by DNB on an annual cycle; remaining firms on a three year cycle.

### III. Twin Peaks Model During the Crisis
- Crisis coordination and legal permissions:
  - Laws permitted information sharing in crisis management between DNB and AFM and between DNB and MoF.
  - MoF and DNB had codified roles in a MoU: MoF ultimate responsibility for financial stability; DNB tasked to contribute through actions under its jurisdiction.
  - A coordination group on financial stability that met 3–5 times a year began meeting weekly during the crisis and was rapidly expanded; a crisis management group including MoF and AFM met daily.
  - Coordination between DNB and AFM functioned smoothly based on arrangements under the AFS.
- Division of crisis powers and actions:
  - DNB:
    - Lead authority for all bank resolution measures before any public solvency support.
    - Provided emergency liquidity assistance (ELA) to illiquid but solvent banks.
    - Imposed corrective measures, changed management of failing banks, and initiated bank restructuring.
  - AFM:
    - No specific crisis management competences but supported bank resolution measures and required transparency when necessary.
  - MoF:
    - Led official solvency support for ABN-Amro, ING, and other institutions.
- Crisis impacts and supervisory credibility:
  - Severe effects on the financial sector; DNB’s credibility tested by high-profile failures:
    - DSB Bank was closed in 2009; a government report criticized DNB’s handling.
    - IceSave (Icelandic bank internet branch) led to difficult international negotiations.
  - Conduct-of-business problems, especially in insurance (extensive selling of high-commission products), reduced public confidence; settlements expected to take many years.
  - Supervisors have taken proactive measures to rebuild confidence in the industry.
- Crisis-exposed weaknesses:
  - Reliance on “moral suasion”:
    - Despite AFS granting DNB extensive legal sanctions and powers, supervisors were sometimes reluctant to fully use enforcement powers prior to the crisis, reflecting supervision culture and learning about AFS powers.
  - Prudential supervision of internationally active LCFIs:
    - Supervision of international activities of LCFIs (e.g., Fortis, ING Group) had limited resources and instruments.
  - Legal constraints over financial holding companies:
    - DNB’s authority over financial holding companies is constrained: for mixed financial conglomerates, power limited to giving instructions but not imposing penalties when holding companies lack adequate risk management/internal controls.
    - For insurance groups, explicit legal restrictions prevent DNB from imposing broadly applicable limits on intra-group exposures.
    - Limited enforcement power against non-regulated holding companies.
    - These problems are common in other EU countries; EU-level work is underway to address them.

### IV. Twin Peaks Model Going Forward
- Policy priorities and recommended actions:
  - Strengthen enforcement culture and use of legal powers under AFS to reduce dependency on moral suasion.
  - Enhance resources and supervisory instruments for oversight of internationally active LCFIs, especially for cross-border activities.
  - Address legal limitations on supervision and enforcement over financial holding companies and intra-group exposures, in coordination with EU-level initiatives.
  - Maintain and deepen coordination mechanisms among DNB, AFM, and MoF for crisis preparedness and information sharing.

### Supervisory reforms and culture change
- Establishment of an enforcement department for corrective actions and sanctions to reduce reliance on moral suasion.
- Major cultural change project (“VITA”) aimed at:
  - Encouraging supervisors to make more use of their formal powers.
  - Bringing supervisory tools more into line with supervisory best practice and ensuring their more consistent application.
- Pension fund supervision has been more pro-active in recent years; further integration of staff across sectors is expected to enhance synergy potential of having a single prudential supervisor and to foster incorporation of the new supervisory culture.
- DNB has issued two comprehensive studies “DNB Supervisory Strategy 2010–2014” and “From Analysis to Action” that set out concrete steps toward more pro-active and conclusive financial supervision.

### Macro‑prudential regulation and tools
- The crisis underlines the importance of macro-prudential regulation and supervision; the “twin peaks” model can fully integrate macro- and micro-prudential supervisions.
- The AFS explicitly assigns to DNB the responsibility to safeguard the stability of the financial system. Within DNB, the Financial Stability Division (FSD) is primarily responsible.
- Prior to the crisis, comprehensive analytical work by the FSD could detect emerging systemic risks, but it had not been fully translated into surveillance work in part because of lack of sufficient macro-prudential tools.10
- A separate Department for macro-prudential supervision was created within the FSD in 2010 to further improve monitoring of macro-prudential risks.
- Proposals under discussion (in line with the Financial Stability Board (FSB) framework) include:
  - a resolution framework for going-concern banks,
  - higher capital requirements,
  - countercyclical buffers,
  - the use of contingent capital and bail-in instruments.
- There is a case for greater DNB involvement in the rule-making process, or at least discretion to adjust levels of designated instruments, so macro-prudential instruments can be more responsive to market developments.
- Under the AFS, DNB (and the AFM) has relatively limited rule-making authority because most regulatory requirements are in the AFS itself or in Decrees that are the responsibility of the MoF. Example: the MoF is currently responsible for setting the limits for mortgage loan-to-value (LTV) ratios.11
- Suggested operational change: supervisors could be allowed to change the LTV ratio within a range set by the MoF, or to require more capital to be held against high LTV loans.11

### Regulatory perimeter and shadow banking
- To avoid regulatory arbitrage, the perimeter of regulation needs extension to enhance surveillance of shadow banking activities.
- Stricter capital requirements and regulations for banks could invite off-balance-sheet regulatory arbitrage (e.g., loan securitization).
- Rigorous regulation and supervision should also apply to the shadow banking system and to cover off-balance sheet entities.
- DNB, as the single regulator and supervisor, is well positioned to:
  - closely monitor activities of non-banks such as hedge funds and insurance companies,
  - apply uniform regulations to prevent regulatory arbitrage between banks and non-banks,
  - coordinate closely with other regulators to minimize cross-border regulatory arbitrage.

### Cross-border supervision and supervisory colleges
- DNB has recently taken measures to enhance functioning of supervisory colleges consistent with FSB recommendations.
- For large cross-border banks, a multilateral written agreement is signed between college members to provide further formal arrangements for home and host supervisors.
- AFM has been actively participating in the college of supervisors for Euronext N.V., and engaging other EU supervisors through the European Securities Market Authority.
- The “twin peaks” model leverages:
  - the central bank’s wider international experience for cross-border issues,
  - the AFM’s specialized conduct-of-business expertise in international relations.
- Greater international cooperation (e.g., ex-ante burden-sharing agreements), beyond the colleges of supervisors, may be necessary.

### Resource allocation and supervision intensity
- The “twin peaks” model allows redeployment of resources to parts of the financial sector most susceptible to systemic risk.
- Resources devoted to banking supervision require further attention:
  - Frequency of visits to individual banks has been determined according to available resources and risk analysis.
  - Relatively fewer resources devoted to banking supervision influenced DNB’s pre-crisis oversight of overseas subsidiaries of some large Dutch banks; extent of their activities would have justified greater monitoring resources.
- Allocation of supervisory resources needs evaluation according to potential systemic impact of regulated firms.

### DNB–AFM cooperation and dispute resolution
- Growing awareness that conduct-of-business problems can rapidly develop into prudential problems increases importance of closer cooperation between DNB and the AFM.
- The “Covenant” agreement (Article 1.5) sets general guidelines that the lead supervisor would defer to the opinions of other supervisors but lacks a formal procedure for resolving differences in opinions.
- A formal procedure should help avoid public escalation of conflicts that could harm credibility of both institutions; recent incident cited where DNB and AFM had opposite views concerning a fit-and-proper test result.
- The “Covenant” should set out specific guidelines on whether such fit-and-proper tests should be passed by both DNB and the AFM.

### Boxed reforms and actions (summary of measures)
- Created an enforcement department for corrective actions and sanctions, to reduce reliance on moral suasion.
- Introduced a major cultural change project (“VITA”), one component of which is to encourage supervisors to make more use of their formal powers and to bring supervisory tools more into line with supervisory best practice and to ensure their more consistent applications.
- Expanded the department for macro-prudential supervision to further improve the monitoring of macro-prudential risks.
- Enhancing expertise in areas relating to investment and innovative financial products and specific knowledge in the fields of financial risks, fair value reporting, governance and strategy.
- Strengthening risk analysis and the current risk analysis tool (FIRM) to provide more scope for linking macro-prudential risks with the assessment of individual institutions.
- Promoting cooperation and knowledge sharing between different departments, by setting up knowledge networks.
- Intensifying group supervision for banks and insurance companies with large operations abroad, by establishing closer ties with host country supervisors. A day-to-day communication tool has been set up to enable to enable fast and safe sharing of supervisory information between supervisors.
- Supporting the move towards a consistent EU-wide supervisory framework.
- Strengthening quality of supervision through peer reviews and random auditing.

### Staff conclusions and recommendations
- Strengthening macro-prudential supervision:
  - perhaps by introducing financial stability as an explicit mandate for DNB and by expanding the macro-prudential toolbox accordingly to enable DNB to take prompt actions against any emerging systemic risks without having to resort to legislative changes first.
- Intensifying supervision of LCFIs, with greater emphasis on group supervision and soundness of business models:
  - recent steps toward a more proactive and decisive approach—which includes timely on-site inspection and corrective actions that rely less on moral suasion—are welcome.
  - greater international cooperation, beyond the colleges of supervisors, to maintain sound institutions is also necessary.
- Further clarifying the division of responsibilities and cooperation between DNB and the AFM:
  - enhance the existing “Covenant” and establish a formal procedure for resolving differences in views, thus avoiding escalation of conflicts which, as shown by recent experience, could harm the credibility of both institutions.

*IMF staff report excerpt: Netherlands — strengthening prudential supervision under the “twin peaks” framework.*

### 2011. The views expressed in this document are those of the staff team and do not necessarily reflect

### FINANCIAL SECTOR ASSESSMENT PROGRAM UPDATE KINGDOM OF THE NETHERLANDS- NETHERLANDS FINANCIAL SECTOR SUPERVISION: THE TWIN PEAKS MODEL TECHNICAL NOTE JUNE 2011

### Executive Summary
- The Dutch “twin peaks” model: DNB as prudential supervisor for all financial institutions; AFM responsible for conduct-of-business supervision.
- Timeline:
  - Introduced in 2002; full transition completed in 2007 with the Act for Financial Supervision (AFS).
- Rationale and international uptake:
  - Adopted in whole or in part by many countries due to dominance of large and complex financial institutions (LCFIs) and increased interconnectedness.
- Crisis performance:
  - The 2007/08 global financial crisis severely affected the Dutch financial sector; official support as a share of GDP was among the highest in the world.
  - Consolidation of micro- and macro-prudential supervision within DNB enabled a systemic view and decisive action during the crisis.
- Complementary role of AFM:
  - A separate, experienced agency for conduct-of-business helps restore credibility and public acceptance of good conduct-of-business practices.

### I. Background
- Model design and objectives:
  - 2002 adoption of objective-based “twin peaks”: DNB as single prudential supervisor (banks, insurance, investment firms, pension funds, securities firms); AFM responsible for conduct-of-business including securities market activities and consumer/investor protection.
  - Replaced sector-based supervision that included DNB, PVK (pension and insurance supervisor), and STE (securities supervisor).
  - Council of Financial Supervisors (RFT) used pre-2002 for coordination; a “covenant” among DNB, PVK, and AFM facilitated transition.
  - Full transition completed in 2007 with AFS and the Pension Act.
- Key design considerations:
  - Unified prudential supervision chosen because financial conglomerates blurred sectoral boundaries and to minimize regulatory arbitrage.
  - Separation of prudential and conduct-of-business supervision argued on grounds that objectives, skill sets, and tools differ; concern that consumer protection might dominate political attention and divert resources from prudential supervision.
  - Locating unified prudential supervision within DNB leveraged synergies with macroeconomic analysis, the central bank’s credibility, and helped limit conflicts with ECB monetary policy responsibilities.
- Distinctive feature:
  - Consolidation of macro- and micro-prudential supervision within the central bank distinguishes the Dutch model from other twin peaks variants (e.g., Australia).

### II. Twin Peaks Model in Practice
- Legal and institutional framework:
  - AFS came into force on January 1, 2007; supplemented by Royal and Ministerial Decrees.
  - DNB has power to issue rules and policy guidelines mainly for law interpretation; MoF plays a larger role than in many systems because much regulation is in the AFS or Decrees under MoF responsibility.
- Covenant between DNB and AFM:
  - Set practical framework for division of responsibility and cooperation, including:
    - DNB designated lead agency with overall responsibilities for supervision (including licensing) for all financial institutions; AFM designated lead for securities firms.
    - Agreement that lead supervisor would defer to the judgment of other supervisors.
    - Rules for consultation and information sharing.
- Operational outcomes:
  - Clarity of mandates and objectives substantially improved; DNB and AFM generally demonstrated clear understanding of roles and effective cooperation, including during peak crisis stress.
  - AFM strengthened conduct-of-business supervision (consumer protection, transparency), using risk-based onsite supervision complemented with institution-based supervision for high-impact firms.
  - DNB and AFM cooperation example: DNB’s program for supervision of investment firms focuses supervisory resources on firms conducting “risky activities” (e.g., proprietary trading)—such firms are subject to on-site inspections by DNB on an annual cycle; remaining firms on a three year cycle.

### III. Twin Peaks Model During the Crisis
- Crisis coordination and legal permissions:
  - Laws permitted information sharing in crisis management between DNB and AFM and between DNB and MoF.
  - MoF and DNB had codified roles in a MoU: MoF ultimate responsibility for financial stability; DNB tasked to contribute through actions under its jurisdiction.
  - A coordination group on financial stability that met 3–5 times a year began meeting weekly during the crisis and was rapidly expanded; a crisis management group including MoF and AFM met daily.
  - Coordination between DNB and AFM functioned smoothly based on arrangements under the AFS.
- Division of crisis powers and actions:
  - DNB:
    - Lead authority for all bank resolution measures before any public solvency support.
    - Provided emergency liquidity assistance (ELA) to illiquid but solvent banks.
    - Imposed corrective measures, changed management of failing banks, and initiated bank restructuring.
  - AFM:
    - No specific crisis management competences but supported bank resolution measures and required transparency when necessary.
  - MoF:
    - Led official solvency support for ABN-Amro, ING, and other institutions.
- Crisis impacts and supervisory credibility:
  - Severe effects on the financial sector; DNB’s credibility tested by high-profile failures:
    - DSB Bank was closed in 2009; a government report criticized DNB’s handling.
    - IceSave (Icelandic bank internet branch) led to difficult international negotiations.
  - Conduct-of-business problems, especially in insurance (extensive selling of high-commission products), reduced public confidence; settlements expected to take many years.
  - Supervisors have taken proactive measures to rebuild confidence in the industry.
- Crisis-exposed weaknesses:
  - Reliance on “moral suasion”:
    - Despite AFS granting DNB extensive legal sanctions and powers, supervisors were sometimes reluctant to fully use enforcement powers prior to the crisis, reflecting supervision culture and learning about AFS powers.
  - Prudential supervision of internationally active LCFIs:
    - Supervision of international activities of LCFIs (e.g., Fortis, ING Group) had limited resources and instruments.
  - Legal constraints over financial holding companies:
    - DNB’s authority over financial holding companies is constrained: for mixed financial conglomerates, power limited to giving instructions but not imposing penalties when holding companies lack adequate risk management/internal controls.
    - For insurance groups, explicit legal restrictions prevent DNB from imposing broadly applicable limits on intra-group exposures.
    - Limited enforcement power against non-regulated holding companies.
    - These problems are common in other EU countries; EU-level work is underway to address them.

### IV. Twin Peaks Model Going Forward
- Synthesis from prior sections pointing to policy priorities (inferred from identified issues):
  - Strengthen enforcement culture and use of legal powers under AFS to reduce dependency on moral suasion.
  - Enhance resources and supervisory instruments for oversight of internationally active LCFIs, especially for cross-border activities.
  - Address legal limitations on supervision and enforcement over financial holding companies and intra-group exposures, in coordination with EU-level initiatives.
  - Maintain and deepen coordination mechanisms among DNB, AFM, and MoF for crisis preparedness and information sharing.

*International Monetary Fund — Monetary and Capital Markets Department. FINANCIAL SECTOR ASSESSMENT PROGRAM UPDATE KINGDOM OF THE NETHERLANDS-NETHERLANDS: FINANCIAL SECTOR SUPERVISION: THE TWIN PEAKS MODEL TECHNICAL NOTE, JUNE 2011.*

### 13.      DNB is taking decisive steps to achieve a more proactive and conclusive

### 13.      DNB is taking decisive steps to achieve a more proactive and conclusive

### Supervisory reforms and culture change
- Establishment of an enforcement department for corrective actions and sanctions to reduce reliance on moral suasion.
- Major cultural change project (“VITA”) aimed at:
  - Encouraging supervisors to make more use of their formal powers.
  - Bringing supervisory tools more into line with supervisory best practice and ensuring their more consistent application.
- Pension fund supervision has been more pro-active in recent years; further integration of staff across sectors is expected to enhance synergy potential of having a single prudential supervisor and to foster incorporation of the new supervisory culture.
- DNB has issued two comprehensive studies “DNB Supervisory Strategy 2010–2014” and “From Analysis to Action” that set out concrete steps toward more pro-active and conclusive financial supervision.

### Macro‑prudential regulation and tools
- The crisis underlines the importance of macro-prudential regulation and supervision; the “twin peaks” model can fully integrate macro- and micro-prudential supervisions.
- The AFS explicitly assigns to DNB the responsibility to safeguard the stability of the financial system. Within DNB, the Financial Stability Division (FSD) is primarily responsible.
- Prior to the crisis, comprehensive analytical work by the FSD could detect emerging systemic risks, but it had not been fully translated into surveillance work in part because of lack of sufficient macro-prudential tools.10
- A separate Department for macro-prudential supervision was created within the FSD in 2010 to further improve monitoring of macro-prudential risks.
- Proposals under discussion (in line with the Financial Stability Board (FSB) framework) include:
  - a resolution framework for going-concern banks,
  - higher capital requirements,
  - countercyclical buffers,
  - the use of contingent capital and bail-in instruments.
- There is a case for greater DNB involvement in the rule-making process, or at least discretion to adjust levels of designated instruments, so macro-prudential instruments can be more responsive to market developments.
- Under the AFS, DNB (and the AFM) has relatively limited rule-making authority because most regulatory requirements are in the AFS itself or in Decrees that are the responsibility of the MoF. Example: the MoF is currently responsible for setting the limits for mortgage loan-to-value (LTV) ratios.11
- Suggested operational change: supervisors could be allowed to change the LTV ratio within a range set by the MoF, or to require more capital to be held against high LTV loans.11

### Regulatory perimeter and shadow banking
- To avoid regulatory arbitrage, the perimeter of regulation needs extension to enhance surveillance of shadow banking activities.
- Stricter capital requirements and regulations for banks could invite off-balance-sheet regulatory arbitrage (e.g., loan securitization).
- Rigorous regulation and supervision should also apply to the shadow banking system and to cover off-balance sheet entities.
- DNB, as the single regulator and supervisor, is well positioned to:
  - closely monitor activities of non-banks such as hedge funds and insurance companies,
  - apply uniform regulations to prevent regulatory arbitrage between banks and non-banks,
  - coordinate closely with other regulators to minimize cross-border regulatory arbitrage.

### Cross-border supervision and supervisory colleges
- DNB has recently taken measures to enhance functioning of supervisory colleges consistent with FSB recommendations.
- For large cross-border banks, a multilateral written agreement is signed between college members to provide further formal arrangements for home and host supervisors.
- AFM has been actively participating in the college of supervisors for Euronext N.V., and engaging other EU supervisors through the European Securities Market Authority.
- The “twin peaks” model leverages:
  - the central bank’s wider international experience for cross-border issues,
  - the AFM’s specialized conduct-of-business expertise in international relations.
- Greater international cooperation (e.g., ex-ante burden-sharing agreements), beyond the colleges of supervisors, may be necessary.

### Resource allocation and supervision intensity
- The “twin peaks” model allows redeployment of resources to parts of the financial sector most susceptible to systemic risk.
- Resources devoted to banking supervision require further attention:
  - Frequency of visits to individual banks has been determined according to available resources and risk analysis.
  - Relatively fewer resources devoted to banking supervision influenced DNB’s pre-crisis oversight of overseas subsidiaries of some large Dutch banks; extent of their activities would have justified greater monitoring resources.
- Allocation of supervisory resources needs evaluation according to potential systemic impact of regulated firms.

### DNB–AFM cooperation and dispute resolution
- Growing awareness that conduct-of-business problems can rapidly develop into prudential problems increases importance of closer cooperation between DNB and the AFM.
- The “Covenant” agreement (Article 1.5) sets general guidelines that the lead supervisor would defer to the opinions of other supervisors but lacks a formal procedure for resolving differences in opinions.
- A formal procedure should help avoid public escalation of conflicts that could harm credibility of both institutions; recent incident cited where DNB and AFM had opposite views concerning a fit-and-proper test result.
- The “Covenant” should set out specific guidelines on whether such fit-and-proper tests should be passed by both DNB and the AFM.

### Boxed reforms and actions (summary of measures)
- Created an enforcement department for corrective actions and sanctions, to reduce reliance on moral suasion.
- Introduced a major cultural change project (“VITA”), one component of which is to encourage supervisors to make more use of their formal powers and to bring supervisory tools more into line with supervisory best practice and to ensure their more consistent applications.
- Expanded the department for macro-prudential supervision to further improve the monitoring of macro-prudential risks.
- Enhancing expertise in areas relating to investment and innovative financial products and specific knowledge in the fields of financial risks, fair value reporting, governance and strategy.
- Strengthening risk analysis and the current risk analysis tool (FIRM) to provide more scope for linking macro-prudential risks with the assessment of individual institutions.
- Promoting cooperation and knowledge sharing between different departments, by setting up knowledge networks.
- Intensifying group supervision for banks and insurance companies with large operations abroad, by establishing closer ties with host country supervisors. A day-to-day communication tool has been set up to enable to enable fast and safe sharing of supervisory information between supervisors.
- Supporting the move towards a consistent EU-wide supervisory framework.
- Strengthening quality of supervision through peer reviews and random auditing.

### Staff conclusions and recommendations
- Strengthening macro-prudential supervision:
  - perhaps by introducing financial stability as an explicit mandate for DNB and by expanding the macro-prudential toolbox accordingly to enable DNB to take prompt actions against any emerging systemic risks without having to resort to legislative changes first.
- Intensifying supervision of LCFIs, with greater emphasis on group supervision and soundness of business models:
  - recent steps toward a more proactive and decisive approach—which includes timely on-site inspection and corrective actions that rely less on moral suasion—are welcome.
  - greater international cooperation, beyond the colleges of supervisors, to maintain sound institutions is also necessary.
- Further clarifying the division of responsibilities and cooperation between DNB and the AFM:
  - enhance the existing “Covenant” and establish a formal procedure for resolving differences in views, thus avoiding escalation of conflicts which, as shown by recent experience, could harm the credibility of both institutions.

*IMF staff report excerpt: Netherlands — strengthening prudential supervision under the “twin peaks” framework.*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11208.pdf_