News Update Financial Regulatory

4 May 2021

In this News Update, we discuss some important developments concerning the IFR and IFD, sustainable finance and the EU Taxonomy, and the IDD Single Rulebook. We also look at the 2021 legislative letters of the AFM and DNB, and highlight some other financial regulatory publications.

DNB – Important developments concerning IFR/IFD

The Dutch Central Bank (De Nederlandsche Bank, "DNB") has drawn attention to developments related to the new prudential framework for investment firms (Investment Firm Regulation, "IFR"/Investment Firm Directive, "IFD") that will apply from 26 June 2021. We covered this topic in our December 2020 News Update, and we further highlight three issues here:

Based on the new regulations, some investment firms may apply for certain exemptions and request approvals from DNB. The application must be made by the investment firm's management board. DNB assesses the applications, but it can only take a formal decision after the new regulations have formally entered into force. Under certain circumstances, DNB strives to give a preliminary opinion. However, this is not possible in all cases. On its website, DNB has published Q&As (in Dutch) on this subject.

Due to the entry into force of the IFR/IFD, investment holding companies will be supervised by DNB. The investment holding company must comply at a consolidated level with the new prudential regulations for investment firms and report periodically, and DNB must test the investment holding company's management board and supervisory board on fitness and propriety.

On 31 March 2021, DNB published new FINREP reporting forms version 3.0.0 for investment firms and fund managers, incorporating the changes resulting from the entry into force of IFR/IFD. As of 30 September 2021, reporting will be required based on these new forms.

European Commission – Sustainable Finance and EU Taxonomy

On 21 April 2021, the European Commission ("Commission") adopted a package of measures to channel money towards sustainable activities across the EU. These measures will contribute to Europe's climate neutrality by 2050, enabling investors to reorient investments towards sustainable technologies and businesses. A key element of the package is the EU Taxonomy Climate Delegated Act that supports sustainable investments by clarifying which economic activities contribute the most to EU's environmental objectives. The College of Commissioners reached a political agreement on the text. The Delegated Act will be formally adopted at the end of May once translations in all EU languages are available. Associated proposals were also announced.

EIOPA – IDD Single Rulebook

On 8 April 2021, the European Insurance and Occupational Pensions Authority ("EIOPA") launched its Insurance Distribution Directive ("IDD") Single Rulebook, an online tool that promotes implementing the regulatory framework for insurance supervision consistently. According to EIOPA, the Single Rulebook benefits users by allowing them to navigate across different legal acts such as the Directive, Delegated and Implementing Regulations, EIOPA Guidelines and IDD Q&As. The IDD Single Rulebook is EIOPA's second Rulebook, after publishing its Solvency II Single Rulebook in July 2020.

AFM and DNB – Legislative letters 2021

On 21 April 2021, the Dutch Minister of Finance sent the 2021 legislative letters of the Dutch Authority for the Financial Markets ("AFM") and DNB to the House of Representatives. The letter to the House of Representatives (in Dutch) also contains the Minister's response to the legislative requests of the AFM and DNB.

In its letter of 30 March 2021 (in Dutch), the AFM divided its legislative requests into four themes. The legislative requests under the theme of financial resilience for households relate to the new pension system, responsible mortgage lending and student loans. Under the theme of digitisation, the AFM identifies bottlenecks in data requests concerning the IT management of third parties. In addition, the AFM has requests in European legislation and regulations, and cross-border service provision. And finally, the AFM also has requests in the business climate for the capital market infrastructure and explaining fees.

The AFM's legislative letter concludes that in the coming period the AFM will investigate the possibility of settlements in administrative fines procedures. It mentions 'as a real possibility' that the administrative fine will be reduced by a certain percentage if the party involved agrees not to pursue further legal remedies.

In its legislative letter of 18 March 2021 (in Dutch), DNB expressed four legislative requests:

• Improving national regulation of the Deposit Guarantee Scheme.
• Modernising Investor Compensation Scheme regulations.
• Revising and modernising outsourcing rules Decree on Prudential Rules for Financial Undertakings (Besluit prudentiële regels Wft).
• Clarifying the term 'on behalf of' ('in opdracht van') in the definition of trust service in the Act on the Supervision of Trust Offices 2018 (Wet toezicht trustkantoren 2018).

Other financial regulatory publications

We have highlighted a selection of other publications by legislatures and regulators for the financial markets and financial supervision in April 2021:

• The AFM and DNB launched a consultation on the Regulation on Sound Remuneration Policies 2021 (Regeling beheerst beloningsbeleid Wft 2021, in Dutch) that will replace DNB's Regulation on Sound Remuneration Policies 2017 (Regeling beheerst beloningsbeleid Wft 2017).
• The AFM published the report 'Algorithmic trading – governance and controls' which shares its findings on the control of trading algorithms by investment firms and trading venues.
• DNB announced a new investigation regarding the quality of CET1 capital at small and medium-sized investment firms, and managers of investment schemes.
• The European Banking Authority ("EBA") launched consultations on its draft Regulatory Technical Standards on the list of countries with an advanced economy for calculating the equity risk under the alternative standardised approach, draft Guidelines on the delineation and reporting of available financial means of Deposit Guarantee Schemes and draft Implementing Technical Standards on supervisory reporting with respect to Additional Liquidity Monitoring Metrics. EBA also published its final draft Regulatory Technical Standards specifying the conditions according to which consolidation shall be carried out in line with Article 18 of the Capital Requirements Regulation.
• EIOPA launched a consultation on a framework to address value for money risk in the European unit-linked market. EIOPA also published an opinion on the supervision of the use of climate change risk scenarios in ORSA.
• The European Securities and Markets Authority ("ESMA") updated its Q&A on the Securities Financing Transactions Regulation and Q&A on market structures issues under the Market in Financial Instruments Directive and Regulation. ESMA also published its final report on the functioning of Organised Trading Facilities. The final report contains recommendations and possible amendments to MiFID II/MiFIR to make it less complex for market participants and the legal framework more effective.
• The Basel Committee on Banking Supervision published two climate-related reports: Climate-related risk drivers and their transmission channels and Climate-related financial risks – measurement methodologies.

If you have any financial regulatory questions, please do not hesitate to contact Berry van Wijk and Roel Theissen. For questions related to Investment Management, you can also contact our colleagues Oscar van Angeren, Daan Horsthuis and Harm-Paul Plas.

4 May 2021

In this News Update, we discuss some important developments concerning the IFR and IFD, sustainable finance and the EU Taxonomy, and the IDD Single Rulebook. We also look at the 2021 legislative letters of the AFM and DNB, and highlight some other financial regulatory publications.

DNB – Important developments concerning IFR/IFD

The Dutch Central Bank (De Nederlandsche Bank, "DNB") has drawn attention to developments related to the new prudential framework for investment firms (Investment Firm Regulation, "IFR"/Investment Firm Directive, "IFD") that will apply from 26 June 2021. We covered this topic in our December 2020 News Update, and we further highlight three issues here:

Based on the new regulations, some investment firms may apply for certain exemptions and request approvals from DNB. The application must be made by the investment firm's management board. DNB assesses the applications, but it can only take a formal decision after the new regulations have formally entered into force. Under certain circumstances, DNB strives to give a preliminary opinion. However, this is not possible in all cases. On its website, DNB has published Q&As (in Dutch) on this subject.

Due to the entry into force of the IFR/IFD, investment holding companies will be supervised by DNB. The investment holding company must comply at a consolidated level with the new prudential regulations for investment firms and report periodically, and DNB must test the investment holding company's management board and supervisory board on fitness and propriety.

On 31 March 2021, DNB published new FINREP reporting forms version 3.0.0 for investment firms and fund managers, incorporating the changes resulting from the entry into force of IFR/IFD. As of 30 September 2021, reporting will be required based on these new forms.

European Commission – Sustainable Finance and EU Taxonomy

On 21 April 2021, the European Commission ("Commission") adopted a package of measures to channel money towards sustainable activities across the EU. These measures will contribute to Europe's climate neutrality by 2050, enabling investors to reorient investments towards sustainable technologies and businesses. A key element of the package is the EU Taxonomy Climate Delegated Act that supports sustainable investments by clarifying which economic activities contribute the most to EU's environmental objectives. The College of Commissioners reached a political agreement on the text. The Delegated Act will be formally adopted at the end of May once translations in all EU languages are available. Associated proposals were also announced.

EIOPA – IDD Single Rulebook

On 8 April 2021, the European Insurance and Occupational Pensions Authority ("EIOPA") launched its Insurance Distribution Directive ("IDD") Single Rulebook, an online tool that promotes implementing the regulatory framework for insurance supervision consistently. According to EIOPA, the Single Rulebook benefits users by allowing them to navigate across different legal acts such as the Directive, Delegated and Implementing Regulations, EIOPA Guidelines and IDD Q&As. The IDD Single Rulebook is EIOPA's second Rulebook, after publishing its Solvency II Single Rulebook in July 2020.

AFM and DNB – Legislative letters 2021

On 21 April 2021, the Dutch Minister of Finance sent the 2021 legislative letters of the Dutch Authority for the Financial Markets ("AFM") and DNB to the House of Representatives. The letter to the House of Representatives (in Dutch) also contains the Minister's response to the legislative requests of the AFM and DNB.

In its letter of 30 March 2021 (in Dutch), the AFM divided its legislative requests into four themes. The legislative requests under the theme of financial resilience for households relate to the new pension system, responsible mortgage lending and student loans. Under the theme of digitisation, the AFM identifies bottlenecks in data requests concerning the IT management of third parties. In addition, the AFM has requests in European legislation and regulations, and cross-border service provision. And finally, the AFM also has requests in the business climate for the capital market infrastructure and explaining fees.

The AFM's legislative letter concludes that in the coming period the AFM will investigate the possibility of settlements in administrative fines procedures. It mentions 'as a real possibility' that the administrative fine will be reduced by a certain percentage if the party involved agrees not to pursue further legal remedies.

In its legislative letter of 18 March 2021 (in Dutch), DNB expressed four legislative requests:

• Improving national regulation of the Deposit Guarantee Scheme.
• Modernising Investor Compensation Scheme regulations.
• Revising and modernising outsourcing rules Decree on Prudential Rules for Financial Undertakings (Besluit prudentiële regels Wft).
• Clarifying the term 'on behalf of' ('in opdracht van') in the definition of trust service in the Act on the Supervision of Trust Offices 2018 (Wet toezicht trustkantoren 2018).

Other financial regulatory publications

We have highlighted a selection of other publications by legislatures and regulators for the financial markets and financial supervision in April 2021:

• The AFM and DNB launched a consultation on the Regulation on Sound Remuneration Policies 2021 (Regeling beheerst beloningsbeleid Wft 2021, in Dutch) that will replace DNB's Regulation on Sound Remuneration Policies 2017 (Regeling beheerst beloningsbeleid Wft 2017).
• The AFM published the report 'Algorithmic trading – governance and controls' which shares its findings on the control of trading algorithms by investment firms and trading venues.
• DNB announced a new investigation regarding the quality of CET1 capital at small and medium-sized investment firms, and managers of investment schemes.
• The European Banking Authority ("EBA") launched consultations on its draft Regulatory Technical Standards on the list of countries with an advanced economy for calculating the equity risk under the alternative standardised approach, draft Guidelines on the delineation and reporting of available financial means of Deposit Guarantee Schemes and draft Implementing Technical Standards on supervisory reporting with respect to Additional Liquidity Monitoring Metrics. EBA also published its final draft Regulatory Technical Standards specifying the conditions according to which consolidation shall be carried out in line with Article 18 of the Capital Requirements Regulation.
• EIOPA launched a consultation on a framework to address value for money risk in the European unit-linked market. EIOPA also published an opinion on the supervision of the use of climate change risk scenarios in ORSA.
• The European Securities and Markets Authority ("ESMA") updated its Q&A on the Securities Financing Transactions Regulation and Q&A on market structures issues under the Market in Financial Instruments Directive and Regulation. ESMA also published its final report on the functioning of Organised Trading Facilities. The final report contains recommendations and possible amendments to MiFID II/MiFIR to make it less complex for market participants and the legal framework more effective.
• The Basel Committee on Banking Supervision published two climate-related reports: Climate-related risk drivers and their transmission channels and Climate-related financial risks – measurement methodologies.

If you have any financial regulatory questions, please do not hesitate to contact Berry van Wijk and Roel Theissen. For questions related to Investment Management, you can also contact our colleagues Oscar van Angeren, Daan Horsthuis and Harm-Paul Plas.