Banking & Finance in The Netherlands

Current status of implementation CRD II/CRD III

It is expected that effective 1 January 2012 a number of further amendments to the Dutch Act on Financial Supervision (“AFS”) and to lower Governmental Decrees will enter into force in order to meet the implementation requirements pursuant to the CRD II and CRD III directives.  With these amendments the Netherlands catches up with almost all the other EU member states that had met the European Directive deadlines causing the national laws to reflect the new rules for (i) large exposures of banks, (ii) recognition of (innovative) Tier 1 hybrid capital instruments (iii) capital requirements for re-securitisation positions, (iv) remuneration policies and (v) the other technical amendments of CRD II and CRD III.  The Dutch law amendments in the AFS and Governmental decrees close the legislative gap that existed from 1 January 2011 where regulations of DCB already imposed the relevant new CRD II and CRD III rules on banks in accordance with the European requirements. Such DCB regulations were not supported by legislative mandates at the level of the AFS and Governmental Decrees.

Overview of CRD IV proposals and implementation efforts

Banks and investment firms in Europe will be subject to new capital requirement rules with the introduction of the revised Capital Requirements Directive (“CRD”).  The first reading of the proposals of the European Commission for further changes to the CRD that aim to implement Basel III in Europe as published on 20 July 2011 learn that Europe’s legislative environment for regulatory capital requirements will change drastically.

The new European framework consists of a completely rewritten CRD Directive (Directive of the European Parliament and of the Council on the access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms and amending Directive 2002/87/EC of the European Parliament and of the Council on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate) and a comprehensive CRD Regulation (Regulation of the European Parliament and of the Council on prudential requirements for credit institutions and investment firms).

The methodology chosen by the European Commission stems from the recommendations made by the High Level Group chaired by Mr. Jacques de Larosière in which it has been promoted that the banking sector in Europe should be subject as much as possible to a Single Rule Book avoiding (i) a shift of businesses to the unregulated shadow banking sector (ii) the avoidance to “race to the top” mechanisms and (iii) avoidance of regulatory arbitrage.  See the explanations of the European Commission in the Explanatory Memorandum to the CRD Regulation, page 10.

Until the CRD IV are adopted and transposed to the laws of the member states of the European Union (and EER), the banking industry has to apply the existing CRD rules as regards the subject matter of risk management procedures, governance and bank funding. It is particularly the latter topic where many uncertainties exist in practice as regards the application of the existing rules and regulations.  In order to address the various topics forming part of the transition towards the implementation of Basel III/CRD IV, the Dutch Central Bank (“DCB”) has published in 2010 and 2011 some further guidance on the policies enforced in this area.

In practice, many of the Dutch banks are working towards revisions of the capital base and there is activity towards redemption of outstanding instruments and replacement of the same for new (CRD II/CRD IV qualifying instruments).  In a recent policy statement of 11 October 2011 DCB gave the market an advance warning that it considers most recapitalisation decisions to be subject to a declaration of no-objection requirement based on the application of the provisions on structural supervision on banks if they de facto result into a decrease of the own funds of the bank.  This means that banks, before they take irrevocable decisions on the redemption of outstanding instruments must, generally, obtain a declaration of no-objection from DCB.  This requirement is applicable for all instruments qualifying as regulatory capital, whether it be Tier 1, Tier 2, Tier 3 or hybrid instruments qualifying as Tier 1. With this policy, DCB has made clear that it considers the mechanisms introduced with the adoption of CRD II for the recognition of hybrid capital instruments applicable to the whole of bank’s regulatory capital.

Outlook for 2012

Early 2012 the Dutch Ministry of Finance shall propose to the Dutch parliament a package of changes to the regulations concerning the deposit guarantee scheme for banks.  It is likely that the changes will be adopted in the first quarter of 2012 and will enter into force from the second half of 2012.  This would mean an amendment of the Dutch regulations well ahead of the European requirements pursuant to the expected adoption of a new Directive on deposit guarantee schemes for which a proposal was published in the summer of 2010.  The changes to the Dutch deposit guarantee scheme will require banks to make contributions on a quarterly basis in the amount 2.5 basis points per calendar quarter over the deposit taking basis of the relevant bank to an ex ante financed scheme in so far as such banks offer protection under the Dutch deposit guarantee scheme. For banks established in the Netherlands this participation is mandatory, for EU banks raising deposits in the Netherlands the scheme will be optional as they will continue to be able to apply the deposit guarantee scheme of the home state of establishment.  In anticipation of this new regime becoming applicable, the DCB introduced a proposal to amend the regulations on the reporting by banks in order to establish the calculation of the ex ante levy.  Banks are expected to furnish the additional elements of the DCB reporting on the number and size of deposits by June 2012.

Bart Joosen is the managing partner of FMLA Financial Markets Lawyers.  Prior to founding FMLA Financial Markets Lawyers, Bart spent over 20 years with international firms, managing finance teams.

Bart focuses on capital adequacy and capital requirements for banks, insurers, pension funds and other regulated companies and has broad experience in all matters concerning credit risk, market risk, interest risk, currency risk, reputational and operational risk for regulated entities and risk transfer and mitigation.

Bart obtained his PhD from Tilburg University.  He is a regular contributor to leading Dutch and international legal journals and is a member of the editorial board of and author contributing to a leading commentary on the Dutch Act on Financial Supervision.

Recent experience includes:

• Advised a regulated re-insurance company on structuring its risk management, actuarial and compliance functions in anticipation of Solvency II requirements.
• Advised on a potential default under ISDA Master Agreements entered into by a Dutch pension fund as a consequence of extraordinary measures taken by the Dutch Central Bank.
• Managed a group of lawyers across 17 jurisdictions to obtain regulatory clearances for the acquisition of a controlling interest of an international trust business by a private equity firm; and managed subsequent regulatory clearances for the merger of the acquired business with the private equity firm’s existing regulated portfolio.

Bart can be contacted on +31(0)20 348 5210 or by email at bart.joosen@fmlawfirm.eu