AFM draft agenda 2014

The Netherlands Authority for the Financial Markets (AFM) has recently published its 2014 draft agenda. In 2014 the AFM will continue its nine supervision themes, although these themes have been adjusted in accordance with observed market developments.

The following supervision themes have been included in the draft agenda:

1. Product providers put customer’s interests first
2. The quality of financial services has improved
3. The quality of capital accumulation has improved
4. Financial services to professional parties is suitable
5. Pension administrators provide an overview and insight into the size and risks of pensions
6. The quality of governance, reporting and audits will improve
7. The securities markets function fairly and efficiently and the infrastructure remains robust
8. Market conduct supervision contributes to the stability of the financial system
9. Harmful behaviour and financial crime decrease

In this news item we will pinpoint a few themes and discuss them based on recent developments and/or publications of the AFM. In doing so we will briefly address the implications of the objectives for 2014 and what this means for financial enterprises.

This theme began in 2009 in reaction to the credit crisis. The desired effect of this theme is restoring the trust in the financial sector. According to the AFM, in order to restore this trust it is essential to put the customer’s interests first. The AFM points out that this is a long-term process.

Among other things, the AFM has set the objective for 2014 to press providers of products and services to better serve the interests of the customer. Providers are expected to play an active role; they will particularly have to take this into account during the product approval procedure (to be called ‘PAP’) and the product review procedure (to be called ‘PRP’). In these processes extra attention will have to be paid to whether the customer’s interests are put first and which considerations need to form the basis for this.

The origin of this theme lies in the observation that the quality of advice given by financial service providers is insufficient (on average). The AFM wants to improve this quality and has therefore included this as a theme in its agenda. 

For 2014 the AFM will emphasise the stimulation of parties to implement new service concepts serving the interests of the customer. In this context it is important to mention that the AFM already provided in July this year a number of tools market parties can use when organising their service provision. You can find these tools in the publications Customised Service

The AFM wants to make clear to parties that it is not always necessary to draw up an integral financial advice to be able to put the customer’s interests first. In addition to these tools for financial service providers, the AFM has also introduced a similar concept for investment enterprises.

The quality of capital accumulation has improved
The AFM believes that the average quality of services to customers with regard to capital accumulation is insufficient; this theme was introduced to improve the quality of this service. Furthermore, the AFM intends to stimulate the customer’s awareness and encourage a more critical stance.

In this context the AFM in 2014 will concentrate on, among other things, the prohibition of commissions for investment firms that comes into force on 1 January 2014. This means that all forms of commission in asset management, investment advice and execution only service will be prohibited. Investment firms will have to adapt their earnings model, if they have not already done so, to comply with this new legislation.

Furthermore, in 2014 the AFM will continue paying considerable attention to the AIFM Directive, based on which the AFM is responsible for supervising all investment institutions as of July 2013. This also means that a considerable number of institutions will be put under supervision and are required to register of apply for a licence. The AFM will also give further guidance concerning new themes from the AIFM Directive and monitor its compliance. Administrators must investigate whether they fall under the AIFM directive and whether they need to request a licence.

For custodians it is essential to follow the developments in the field of the AIFM directive and to determine what this means for them and whether they need to apply for an additional licence.
 

In recent years financial services to business clients have been marked by a number of developments and incidents, for instance the problems surrounding derivatives of housing associations and cooperatives. Until recently the basic assumption was that business clients needed less public-service protection; they were supposed to be able to take care of themselves or to be assertive enough and/or have sufficient financial means to request for adequate assistance. Meanwhile, the AFM believes that certain business clients do not have the necessary knowledge and experience and that it is therefore appropriate to offer suitable financial services to business clients.

In 2014 the AFM will, using control and enforcement, move parties to offer suitable services to business customers. Financial firms selling products or services to business customers or advice for that matter, must verify whether the service is sufficiently in the interest of the business customers. A critical eye needs to be cast upon at least the following parts of the service:

1. Information provision; it is often unclear that banks do not give advice when offering interest rate derivatives. Furthermore, the information given about interest rate derivatives often appears to be unbalanced and too positive.
2. Making an inventory of customer profile and suitability of the service rendered. Research by the AFM has proven that it is often not clearly communicated whether small and medium business are considered professional or not. This qualification is important because non-professional customers are less protected.
3. Fair and controlled management; for instance, the ability to reconstruct the relation with the customer and how he is treated.

This theme contributes to two of the three strategic objectives of the AFM; to promote fair and efficient capital markets and to contribute to the stability of the financial markets. In this context the supervision by the AFM consists of a number of pillars, such as the supervision of market abuse, the supervision of the trade infrastructure, reporting and registering and the implementation of European directives in these fields.

In 2014 the AFM will further unroll the supervision strategy with regard to EMIR, starting from three areas of interest:

• The risk management of OTC derivative transactions and reporting these;
• The mitigation of the central counterparty risk and;
• Setting up a transaction register.

For parties that eventually have to deal with EMIR it is therefore very important to verify whether they need to further adapt their organisation to comply with the requirements based on EMIR.

Conclusion
The AFM discusses the draft agenda with the Advisory Panel of the representative organisations. This panel is comprised of business, consumer and investor organisations. The Agenda will be sent to the Ministry of Finance and the Ministry of Social Affairs for approval in December.

Although there are no entirely new themes on the agenda, the AFM has formulated a number of specific objectives for 2014 within the existing themes. If you would like to know more about these topics and what they mean for your organisation, Charco & Dique can help you.

For more information on this subject please contact Charco & Dique on: 020-4165403 or e-mail to: info@charcoendique.nl