Once the AIFM Guideline (AIFMD) comes into effect on 22 July 2013 many investment institutions’ administrators, which have been exempt from doing so, will now need to apply for an AIFMD licence. By applying the administrator automatically falls under the supervision of the Authority for the financial markets (AFM) and De Nederlandsche Bank (DNB). The AFM is the licensing authority and supervises the so-called conduct of business. DNB dedicates itself to prudential and system supervision.
This news item addresses the relationship between the licence holder and its financial supervisors. Below will be explained what it means to be under supervision and in which manner it is expected you to interact with the financial supervisors. The following three subjects will be expanded upon:
- Reporting and informing duties once the licence has been granted
- Investigation and information requests
- Conduct etiquette
The financial supervisors and the licence application
The relation between the administrator and the financial supervisors starts with the application for a licence. When applying for the AIFMD-licence the administrator is expected to disclose a large amount of information to the AFM. Information relevant for the supervision by DNB will be forwarded by the AFM to DNB.
The specific licence application requirements will not be expanded upon in this news item. A Dutch summary of the information necessary for the application of a licence can be found in the ‘Practical guide for an AIFMD-licence’, on our website.
Once the administrator has been granted a licence it is under continuous supervision by the AFM and DNB. As licensing supervisor the AFM is the primary contact and as such must be informed with regards to incidents such as; material changes in the conduct of business or the establishment of new investment institutions. In addition, annual statements for each of the administrated investment institutions must be presented to the AFM.
As prudential supervisor DNB must be informed with regards to matters concerning the financial soundness of the administrator and its administrated investment institutions. This is in particular the case with the periodic presentation of so-called ‘states’, laying bare the financial position of the administrator.
Along with the above-mentioned reporting requirements the administrators must periodically extend an extensive informative report to the financial supervisors. For this report the European Commission drew up a format consisting of 25 pages. For administrators with a total administrated capital of more than one billion euro’s the reporting frequency is set to once every quarter, the remaining administrators must present the required information every six months.
As can be deduced from the extensive mandatory format, the information required regarding the administrator and its administrated investment institutions is very detailed. Examples of required information are:
- an account of the followed strategies per investment institution;
- an inventory of the foremost (financial) instruments invested in;
- a summary of the markets, most active in, and
- the extent to which participation rights are concentrated in a limited amount of investors.
In addition a detailed account must be given of the exposure each administrated investment institution has with regards to several kinds of assets and currencies (divided into subcategories).
Furthermore, questions need to be answered regarding the risks run by the administrator and the administrated investment institutions. An inventory must, for example, be submitted of the five biggest competitors as well as an indication given to which extent investors had been able to withdraw from investments in the previous period. The results of the many periodically performed stress tests, as required by the AIFMD, must also be extended.
Investigations and information requests of the supervisors
While the data received from the administrators is important to the AFM and DNB, financial supervision is more than the evaluation of this information. The financial supervisors will at times request additional information or conduct investigations.
Both the AFM and DNB have organised their supervision predominantly according to themes. This means that besides their supervising tasks they annually choose one or more themes to focus on. Depending on the theme they will request (in writing) information from a large group of market parties, or pay them a visit to conduct an investigation on the spot. The results of these market-wide investigations are often shared (keeping the parties anonymous) in public reports, guidelines or press releases. In general, the parties involved also receive a report with the specific findings concerning the party in question. In case of illegal activity the administrator may be given a sanction, such as an official warning, an order for penalty payment, or a fine.
The AFM in particular also performs ad hoc supervising activities. The AFM keeps track of all questions, complaints and other indications it receives regarding each supervised entity, such as articles in the media or information on websites. Based on these questions and complaints the AFM can decide to initiate an investigation with respect to a specific party. At worst, these investigations can lead to sanctions by the financial supervisor.
Interaction with the supervisors
On the basis of the Act on Financial supervision (Wft) DNB and the AFM are the appointed financial supervisors of the financial sector and its markets. One of the implications of this is that a company under financial supervision is obliged to cooperate with the investigations of DNB and the AFM and to present them with all the required information.
When you receive an information request in writing from the financial supervisor it is advisable to, submit the (literal) information per individual question. If so desired, you may offer a separate general explanation containing your vision with regards to the investigation started by the financial supervisor, the questions asked, the manner in which certain processes are structured in your organisation and how you meet certain regulations.
It is strongly advised to at all time respond honestly to the financial supervisors and to never, (intentionally), give incorrect or misleading information. Presenting the supervisor with wrong information can cause the latter to doubt the reliability of the company’s policymakers. Once a policymaker is no longer deemed irreproachable he/she will in the future no longer be able to fulfil a policymaking function in the financial sector.
Although the AFM and DNB generally communicate in writing information can also be exchanged verbally. In general this offers the possibility to engage in an open and constructive dialogue with the financial supervisor. Keep in mind however that the AFM and DNB are hesitant to answer questions regarding any specific investigation and that verbal recommendations are non-binding.
When a dialogue takes place on the initiative of the AFM or DNB and questions are asked – for the purpose of their supervising activities –, you are generally obliged to cooperate and answer questions.
This news item indicates in which cases and at what moments an administrator of an investment institution falling under the AIFM-guideline must present information to De Nederlandsche Bank and the Autoriteit Financiële Markten and what is expected in the interaction with these financial supervisors. The periodically required information will often originate from your own (financial) administration. To ensure that you will be able to present the required information on time we advise you to make a detailed analysis of the information expected and to ensure that your administration coincides with the reporting formats used by DNB.
It is important to understand that you are (in most cases) obliged to fulfil the information requests by the financial supervisors. The information presented must be correct and exhaustive and handed in within the time stipulated. This applies to the information presented for the licence application as well as to the information requirements after the licence has been obtained.
Charco & Dique can be of assistance to you in your contact with the AFM and DNB. We can also help you with your AIFMD licence application.
For more information please contact Charco & Dique at phone number 020-4165403 or e-mail firstname.lastname@example.org