Kingdom of the Netherlands-Netherlands
Publication of Financial Sector Assessment Program Documentation: Detailed Assessment of Observance on IOSCO Principles and Objectives of Securities Regulation

The Netherlands Authority for Financial Markets (AFM) has developed a robust supervisory framework, which exhibits high levels of implementation of the International Organization of Securities Commissions Principles. The AFM’s efforts are complemented by The NetherlandsCentral bank's (DNB) program of prudential supervision, which is reasonable and credible. Gaps in the legal framework for issuers, and on management of collective investment schemes, in the case of the DNB, have imposed limitations. Their ability to react in a swift manner to emerging risks in the financial sector is limited.

Abstract

The Netherlands Authority for Financial Markets (AFM) has developed a robust supervisory framework, which exhibits high levels of implementation of the International Organization of Securities Commissions Principles. The AFM’s efforts are complemented by The NetherlandsCentral bank's (DNB) program of prudential supervision, which is reasonable and credible. Gaps in the legal framework for issuers, and on management of collective investment schemes, in the case of the DNB, have imposed limitations. Their ability to react in a swift manner to emerging risks in the financial sector is limited.

I. Executive Summary

1. As the primary supervisor of the securities market the Netherlands Authority for Financial Markets (AFMs) has developed a robust supervisory framework, which exhibits high levels of implementation of the International Organization of Securities Commissions (IOSCO) Principles. For its supervision of intermediaries (investment firms and banks), the AFM uses a problem solving risk-based approach which is based on the development on an annual basis of themes across the financial sector that become the focus of on-site supervision, complemented with an institution based program of both off- and onsite supervision for high impact firms. Its supervision of markets also follows a risk-based approach, and thus a significant amount of the AFM’s resources are currently dedicated to the supervision of Euronext Amsterdam, as well as to Euronext N.V., the latter along with the supervisors from the four remaining countries where Euronext holds licenses. Supervisory programs are implemented under a clear enforcement strategy. The AFM’s main goal is to influence behavior and it uses the different tools at its disposal (including fines when necessary) to achieve such result. The AFM is perceived as a credible and effective enforcer.

2. The AFM’s efforts are complemented by De Nederlandsche Bank (DNB)’s program of prudential supervision, which for investment firms is reasonable and credible. It also follows a risk-based approach, whereby intensity of supervision is determined by the type of activities that the investment firms undertake. As a result, most supervisory resources are spent in the investment firms that conduct “riskier activities,” including larger investment firms and investment firms with complex structure as well, and proprietary trading. Such firms are subject to on-site inspections on an annual cycle, while the remaining firms are visited under a three year cycle. DNB has recently strengthened its approach toward compliance with reporting obligations, and has started to impose orders for incremental penalty. As a result compliance with such obligations has improved.

3. Gaps in the legal framework for issuers, in the case of the AFM, and on management of collective investment schemes, in the case of DNB, have imposed limitations to the supervision that they carry out on such type of participants. The AFM has limited legal authority to request information from issuers in order to ensure their compliance with financial reporting standards, which limits the effectiveness of the review that it conducts on their annual and semi-annual reports. In the case of management companies, the legal framework does not subject some types of management companies to solvency requirements nor to the review of qualified holdings, and the reporting obligations established by the law for all management companies are not sufficient from a prudential perspective. To a certain extent due to those limitations, but also possibly because of limited resources, DNB does not conduct on-site inspections of management companies, except if there is a signal of concern, or a management company is in the same group of an investment firm, or if it holds a license as management company and investment company.

4. More importantly, both supervisors have limited authority to issue rules. The current legal framework prescribes very narrowly the cases where DNB and the AFM can issue rules. As a result their ability to react in a swift manner to emerging risks in the financial sector is very limited.

II. Introduction

5. An assessment of the level of implementation of the IOSCO Principles in the Netherlands securities market was conducted from November 25 to December 14, 2010 as part of the Financial Sector Assessment Program (FSAP) by Ana Carvajal, Monetary and Capital Markets Department. An initial IOSCO assessment was conducted in 2004. At that time the structure for financial regulation in the Netherlands was in transition to a twin peak approach. Since then significant changes in laws and regulations took place and the twin peak approach has consolidated. The AFM has had the opportunity to use and test the authority given to it by the Act on Financial Supervision (AFS), as well as other Acts, such as the Supervision of Financial Reporting Act (SFRA), and so has DNB. As a result the assessor has had at her disposal additional information to assess the scope and effectiveness of the powers that these new laws provided to the financial supervisors. Furthermore important changes in market structure—which pose regulatory and supervisory challenges—have taken place. All these developments and changes should also be taking into account in explaining differences in the grades received in 2004 vis-à-vis this new assessment.

III. Information and Methodology Used for the Assessment

6. The assessment was conducted based on the IOSCO Principles and Objectives of Securities Regulation and its Methodology adopted in 2003 and updated in 2008.1 In June 2010 IOSCO approved a revision to the IOSCO Principles, which mainly resulted in the addition of nine new Principles. However, a revised methodology has not been developed yet. As a result this assessment has been conducted based on the current methodology. Nevertheless the authorities agreed to hold exploratory discussions on the status of implementation of the new principles. A summary of such discussions is included as an annex to this assessment.

7. Certain comments must be made in regard to the scope of this assessment. Given the twin peak model, the framework for DNB is assessed in relation to its functions as the prudential supervisor for the securities market (Principles 17, 22, 24, and 29). Principles 1, 2, 3, 4, 5, 8, 9, 10, 11, 12, and 13 are also assessed, but with limited scope, that is, in connection with the functions that DNB performs in the securities market. Finally Principle 30 is not assessed due to the existence of a separate standard for securities settlement systems.

8. The assessor relied on: (i) a self-assessment developed by the AFM with the participation of the DNB; (ii) the review of relevant laws, and other relevant documents provided by the authorities including annual reports; (iii) meetings with the Chairman of the AFM and other members of the Executive Board and Management Directors of the AFM, staff of both supervisory authorities, and other public authorities, in particular representatives of the Ministry of Finance (MoF); as well as (iv) meetings with market participants, including issuers, banks, investment firms, fund managers, market operators, external auditors, and law firms.

9. The assessor wants to thank both the AFM and DNB for their full cooperation as well as their willingness to engage in very candid conversations regarding the regulatory and supervisory framework in the Netherlands. The assessor also wants to extend her appreciation to all other public authorities and market participants with whom she met.

IV. Description of the Regulatory Structure

10. The structure of financial regulation in the Netherlands follows a functional (“twin peaks”) approach. Such an approach is embedded in the Act on Financial Supervision (AFS), which charges DNB with prudential supervision and the AFM with conduct supervision of all participants in the financial sector. The AFS is clear in relation to the core mandates of the AFM and DNB, and their objectives. According to Section 1:24 prudential supervision shall focus on the solidity of financial enterprises and their contribution to the stability of the financial sector. Pursuant to Section 1:25 conduct of business supervision shall focus on orderly and transparent financial market processes, integrity in relations between market parties and due care in the provision of services to clients. Such respective mandates appear to be well understood not only by the financial supervisors, but also by market participants. This conclusion is supported by a recent study commissioned by the MoF as part of the reports required by the AFS.

11. The AFM is the primary authority responsible for the supervision of securities markets in the Netherlands, with the participation of DNB in prudential supervision. In addition to its responsibility in conduct supervision, the AFM has specific responsibilities stemming from other laws: (i) Supervision of statutory auditors (Audit Firm Supervision Act); (ii) Supervision over financial reporting by issuers (Act on Supervision of Financial Reporting); and (iii) consumer protection in relation to mainly exempted issuers that engage in “abusive” offerings (Consumer Protection Enforcement Act). Similar to many other securities regulators, the AFM does not have the mandate to hear individual complaints of customers. Rather this is a mandate of the Financial Services Complaint Tribunal (KIFID) and the Financial Ombudsman.

12. The AFS contains several provisions aimed at fostering coordination and cooperation among the AFM and DNB. In particular: (i) collaboration for the purposes of developing regulations to ensure that they are equivalent whenever possible—the law further details areas in which such coordination is expected; (ii) consultation of one another (and reasonable time to provide an opinion) in connection with licensing of market participants; and (iii) consultation in connection with the imposition of certain “enforcement” measures. A covenant between the authorities has further detailed such obligations.

13. Exchanges, Multilateral Trading Facilities (MTFs), and central clearing counterparties (CCPs) have a limited role in oversight of the Dutch market. As is the case with other exchanges, Euronext and ENDEX perform certain oversight functions over its members, in order to ensure fair and orderly markets. However, in the Dutch market their role is only complementary to that of the AFM, which actually can be considered the front line supervisor for purposes of detecting unfair practices. The AFM has also taken over the responsibility to review prospectus, as well as periodic and continuous disclosure by issuers. LCH Clearnet S.A. and the European Multilateral Clearing Facility (EMCF), in their conditions of central clearing counterparties, oversee clearing members to ensure that trades are clear and settled with no disruptions to the market. All of these infrastructure providers are subject to the (indirect) oversight of the AFM and DNB. Furthermore, there are Memoranda of Understanding (MoUs) in place among the regulators of the countries where Euronext and LCH Clearnet SA operate to ensure coordination of such oversight.

14. Certain private organizations are having an important role in enhancing professional standards but do not meet the conditions of self-regulatory organizations (SROs). In particular, the Dutch Securities Institute (DSI) is a private entity that has developed a system of registration with fit and proper requirements for individuals that provide investment services. Membership is voluntary; but once an entity has become a member, registration of the individuals through which it provides investment services is mandatory. DSI currently has 510 members which are institutions licensed by the AFM and DNB, 605,000 individuals with 700,000 registrations (a person can be registered to provide more than one investment service), which entails the whole investment services industry. In addition to requirements for registration, the DSI has developed a code of conduct and its violation can be sanctioned with a fine, a suspension of registration or even de-registration. The DSI has in fact applied such sanctions. Its sanctions are public (disclosed on its website). However, securities firms and the individuals that carry functions on their behalf can choose not to register with DSI and fulfill the fit and proper requirements of the AFS in another way. Thus, DSI rules do not have the “binding” status required by the principles to be considered a SRO for the purposes of this assessment. The Dutch Asset Management Association (DUFAS) is also playing a role in enhancing market standards for the Collective Investment Schemes (CIS) industry. It has developed a code of governance for CIS, and it monitors membership compliance with it through an independent third party. Membership is also voluntary, but as of November 2010 roughly 99 percent of the institutions licensed to provide asset management services were members of it. For the same reasons as DSI, it cannot be considered an SRO for the purposes of this assessment.

15. The framework for the securities markets rests in the definition of a list of activities that are subject to authorization or licensing: Those activities include: (i) offering of securities to the public; (ii) the provision of investment services and activities;2 (iii) the management of collective investment schemes; and (iv) the operation of a regulated market. In addition the provision of statutory audits and ratings used for regulatory purposes are also subject to licensing. The AFM is the entity responsible for the authorization of offerings and the licensing of all the activities listed above with the exception of operators of regulated markets, which are licensed by the MoF upon a recommendation of the AFM. Banks licensed by DNB can provide investment services and activities themselves, without a separate license from the AFM. Credit Rating Agencies (CRAs) oversight, including licensing, will soon be transferred to the European Securities Markets Authority (ESMA).

V. Market Structure

Issuers

16. As of October 2010, there were 115 companies listed in Euronext Amsterdam, for a total market capitalization of € 462.712 millions. The market is highly concentrated. The top ten companies represent roughly 74 percent of total market capitalization. The bulk of new listings in Euronext take place in the Paris segment. In 2010, only six out of 71 new listings took place in other segment of Euronext, and only one new listing took place in Euronext Amsterdam.

Intermediaries

17. As of November 2010 there were 49 banks and 263 investment firms—of which 243 were located in the Netherlands—authorized to carry out investment services in the Netherlands. Overall banks (or their investment firms’ affiliates) are the main participants in the securities markets, in terms of trading volumes and assets under management. Approximately 90 percent of the investment firms are dedicated to asset management. The remaining investment firms trade on their own account, are market makers or give advice. The majority of the investment firms are not leveraged, rather they largely fund their activities with own capital.

18. As of November 2010, there were 120 firms licensed to manage CIS. 113 were located in the Netherlands; of which 93 are management companies, and 20 are investment companies. These firms have a total of 389 CIS under management, of which 55 are umbrella funds with a total of 559 sub funds. There are roughly 800 foreign CIS authorized in the Netherlands.

Collective Investment Schemes

19. Assets under management (AUM) by CIS reached € 392 billion at end 2009. During 2009 AUM in Dutch investment funds significantly increased driven by large-scale restructuring operations carried out at some big pension funds and strongly recovering stock markets. The main components of this increase were a one-off deposit of € 174 billion by pension funds in the context of restructurings, and a € 42 billion price gain on investments. As a result of this growth the euro market share of Dutch investment funds grew to 8 percent. By end 2009, the Dutch sector ranked fifth after Luxembourg, Germany, France and Ireland.

20. The bulk of the CIS authorized in the Netherlands are non-UCITS (Undertakings for Collective Investment Schemes in Transferable Securities). They do not benefit from the passport regime, but have more flexibility in terms of the assets in which they invest and the possibility to use leverage. Bond funds make the largest segment of the Dutch investment fund industry (43 percent) followed by equity funds (42 percent). The share of Dutch pension funds in the holding unit of Dutch investment funds rose from 44 to 76 percent at end 2009.

Markets

21. The main market in the Netherlands is Euronext Amsterdam, which is operated by Euronext Amsterdam, a fully owned subsidiary of Euronext NV. Euronext NV operates Eurolist and Liffe Connect. Eurolist is a cash market that integrates the markets of Brussels, Paris, the Netherlands, and Lisbon into a single market with the same rules for access as well as listing requirements. Starting in 2010 it has also integrated a cash market from London through the London gateway. Eurolist is a centralized electronic order driven market, where priority is assigned based on price and time and quotes are anonymous. LCH Clearnet SA, a bank registered under French Law, provides central counterparty and clearing services. Settlements are made via Euroclear in a DVP T+3 basis. Liffe Connect is a regulated market for derivatives. Trading mechanisms are order driven for futures and quote driven for options. LCH Clearnet S.A. provides central counterparty and clearing services.

22. There are also three MTFs licensed in the Netherlands: New York Stock Exchange (NYSE) Arca Europe, Alternext, and TOM. The first two are operated by Euronext. NYSE Arca Europe operates a central limit order book for trading blue chips stocks from 14 countries: Austria, Czech Republic, Denmark, Finland, Germany, Hungary, Ireland, Italy, Norway, Spain, Sweden, Switzerland, the United Kingdom and the United States. Alternext is an alternative market for medium size companies. Both Alternext Amsterdam and NYSE Arca Europe make use of NYSE Euronext management and operating structure. Thus in practice they are considered trading segments of NYSE Euronext, whereby only the applicable trading rules for each trading segment vary. TOM is a MTF for cash markets recently licensed; and currently in the process of obtaining a license to operate also a MTF for derivatives. MTFs licensed in other countries in Europe are also important venues for trading of Dutch securities, in particular Chi-X Europe, which operates from London.

23. MTFs have created competition vis-à-vis Euronext, but are also leading to market fragmentation. Some estimates indicate that roughly 30 percent of trading volumes have already moved to MTFs, and it is expected that they will reach 50 percent in the near future. Such development are making more difficult for investment firms to comply with their best execution obligations. Order routing systems are helping to address such challenge.3 In addition, the New York Stock Exchange (NYSE) has recently announced its intention to develop a consolidated tape which will increase transparency vis-à-vis the public. However, the problem of liquidity fragmentation itself remains. In this regard, while orders are routinely routed to the execution venue offering the best price; there is often only a small amount of stock bid or offered at that location and such prices; larger orders need to be rerouted, perhaps several times, to get filled; which is costly.

24. Supervisors, as well, face challenges due to market fragmentation both in regard to market surveillance for purposes of detecting unfair practices, as well as to supervise compliance with best execution. Here also technological advances are helping to address the challenges. Under the auspices of the Committee of European Securities Regulators (CESR), the European supervisors have developed a transaction report that allows supervisors to have all the transaction information coming from other jurisdictions for the securities for which they are the competent authority, which is critical for market supervision. On the other hand, a consolidated transaction tape will also be a very useful tool to supervise compliance with best execution obligations.

25. Other types of electronic platforms that do not operate under the same levels of transparency are also developing in Europe. Some crossing networks appear to be operating in a similar way as MTFs but technically would not fit the definition included in Market in Financial Instruments Directive (MiFID) and as a result have not been subject to regulation, including transparency requirements, raising concerns about an unlevel playing field. These types of networks do not appear to be present in the Netherlands; however given the pan-European nature of the market they do affect transparency for the whole market, including the Netherlands. On the other hand, systematic internalization is not been widely used. As of mid 2009 it was estimated that roughly only once percent of trading volumes in Europe were taken place through systemic internalizers—mostly UK participants.

26. There is also a specialized energy market licensed in the Netherlands, the European Energy Derivatives Exchange (ENDEX). It is estimated that ENDEX has roughly 20 percent market share in future contracts, with the physical delivery of gas or power for the Dutch national grid as an underlying commodity. The balance is traded bilaterally between professional market parties. As a result, trading volumes on ENDEX are limited.

VI. General Preconditions for Effective Securities Regulation

27. There are a number of general preconditions necessary for the effective regulation of securities markets that appear to be in place in the Netherlands. There are no significant barriers to entry and exit for market participants. Competition is encouraged and foreign participation is welcomed. The legal and accounting system supports the implementation of requirements and effective regulation of market participants. The commercial law is up-to-date, and so are corporate governance standards. The legislation regarding insolvency is sophisticated. The regulators have legally enforceable powers of decision and action. The taxation framework is supportive to the operations of the industry in the jurisdiction.

VII. Main Findings

28. Principles for the regulator (Principles 1–5): The supervisors work under a clear legal framework that provides for a functional approach to supervision whereby the AFM is responsible for conduct supervision and DNB for prudential supervision of financial markets. In practice the AFM and DNB enjoy operational independence; however certain features of the legal framework could pose threats to such independence. Both the AFM and DNB operate under a strong framework of accountability to the MoF and the public. Overall the AFM and DNB have sufficient powers to supervise the securities markets. However their limited rulemaking authority can affect their ability to react swiftly to market developments. The AFM also has limited powers in relation to issuers which is affecting its ability to supervise compliance with financial reporting standards. The AFM has had sufficient resources to carry out its mandate in the securities market. The resources dedicated by DNB to supervise securities intermediaries appear to be limited. Both the AFM and DNB operate under a framework of procedural fairness imbedded in the General Administrative Law (GALA). Their decisions are subject to judicial review. The AFM and DNB have developed comprehensive integrity policies designed to ensure high professional standards; whose compliance is overseen by specialized departments.

29. Principles for self-regulation (Principles 6–7): There are no organizations which have the legal power to establish binding rules of eligibility for participants in securities markets activities, or which have the legal power to bar a person from participating in the securities markets, except for the AFM and DNB. Exchanges and central clearing counterparties perform certain oversight functions over their members (see paragraph 13). As providers of infrastructure services they all have been subject to the oversight of the AFM (exchanges) and the AFM and DNB (central clearing counterparties).

30. Principles for enforcement (Principles 8–10): The AFM and DNB have extensive investigative powers not only over regulated entities but also over third parties. They can request information from any person, as well as inspect business documents and business premises of any person, without prior notice. Regulated entities are subject to record keeping obligations for a period of five years. They are also required to have in place mechanisms to minimize the potential for anti-money laundering. Both the AFM and DNB have at their disposal a wide range of enforcement measures, including public warnings, instructions, orders for incremental penalties and administrative fines (up to € 8 million). As the primary authority responsible for the securities markets, the AFM has developed a robust supervisory framework that follows a risk based approach. The AFM has a clear strategy toward enforcement, which is based on the principle of influencing behavior. It uses all the tools at its disposal (including fines) to achieve such result. DNB has complemented such efforts with a reasonable and credible framework for the prudential supervision of investment firms. It has recently strengthened its approach toward compliance with reporting obligations, and has started to impose orders for incremental penalties. As a result, compliance with such obligations has improved. As a whole the system works effectively, but limitations exist in two areas: prudential supervision of management companies and criminal enforcement.

31. Principles for cooperation (Principles 11–13): The AFM and DNB are subject to general obligations to cooperate with one another, as well as specific areas where such cooperation is required in the form of exchange of information, notification or even consultation to one another. The AFS also requires them to cooperate with foreign regulators. The system differentiates between regulators from European Union (EU) Member States, for which this obligation even entails instances where consultation is required, and other non-EU States. In both cases there is a general obligation to exchange information. Both the AFM and DNB are authorized to provide assistance to foreign authorities from both member and non-Member States. For such purposes they can use the same investigative powers that they have for purposes of conducting their own investigations. The AFM is signatory of the IOSCO Multilateral Memorandum of Understanding (MMoU), as well as many bilateral MoUs. DNB is also signatory of multiple bilateral MoUs. International cooperation is largely centralized in the AFM. There is ample evidence of the AFM’s capacity and willingness to cooperate with foreign regulators.

32. Principles for issuers (Principles 14–16): Issuers of public offerings or whose securities are admitted to listing are required to submit a prospectus for the approval of the AFM, which content is in line with the IOSCO principles. Issuers whose securities are admitted to trading must submit annual and semi-annual reports and are required to communicate to the regulated market and the AFM price-sensitive information, as soon as possible. The AFM has issued guidance in regard to the latter obligation. Financial statements must be prepared in accordance with International Financial Reporting Standards (IFRS) as adopted in EU for issuers that consolidate. Issuers that submit company only statements can issue them in accordance to local General Accepted Accounting Principles (GAAP). Auditors that conduct statutory audits are subject to the oversight of the AFM, which has developed a comprehensive supervisory framework for them, including regular on-site inspections. The framework requires that auditors be independent. The AFM has limited powers to enforce issuers’ compliance with financial reporting standards. The system to enforce compliance with the obligation to launch a mandatory tender offer, or to pay a fair price is based on a private right of action, whereby the company or a shareholder can file a suit before the Enterprise Chamber of the Amsterdam Court of Appeals, which is a specialized tribunal. The AFM does not have the authority to file a suit for breach of those obligations. The AFM, on the other hand, has authority to enforce compliance with procedural aspects related to the tender offer, including the approval of the offering memorandum.

33. Principles for collective investment schemes (Principles 17–20): Management of collective investment schemes is subject to licensing by the AFM. Licensing requirements include fit and proper requirements, as well as compliance with a set of operational requirements aimed at ensuring sound and controlled business. Management companies are also subject to minimum capital requirements, but only UCITS management companies are subject to a solvency ratio and review of qualifying holdings. CIS constituted as unit trusts are required to have an independent depository; while there are other safeguards for CIS constituted as investment companies. Management companies are required to submit annual and semi-annual records, but there are no additional reporting requirements for prudential supervision. DNB conducts off-site supervision of management companies, but on-site supervision is only conducted when there is a signal of problems, for management companies that are part of the same group of an investment firm or for management companies that also hold an investment firm license. The bulk of the supervisory resources of the AFM are spent on thematic inspections, which are complemented by institution oriented inspections for the high impact firms on a one year cycle. CIS must have a prospectus, which content is in line with the IOSCO Principles. The prospectus must include information on valuation of assets. Illiquid assets must be subject to valuation by an independent expert on an annual basis. The prospectus must also indicate the conditions under which redemption takes place, as well as the conditions to suspend redemption. Suspension of redemptions must be notified to the AFM

34. Principles for intermediaries (Principles 21–24): The provision of investment services or investment activities requires a license by the AFM. Banks can also provide such services, without the need for a separate license but the AFM must be consulted. Licensing requirements include fit and proper requirements, as well as compliance with a set of operational requirements aimed at ensuring sound and controlled business. Investment firms are subject to minimum capital requirements. DNB receives quarterly and monthly reporting to supervise compliance with prudential requirements. It conducts on-site inspections of high impact firms (roughly 25 percent of the firms) under a one year cycle. All other firms are visited under a three year cycle. The bulk of the supervisory resources of the AFM are spent on thematic inspections, which are complemented by institution oriented inspections for the high impact firms on a one year cycle. Market intermediaries are required to have a risk management function, a compliance function and an internal control function. In the latter two cases the respective departments must be independent from management, and are required to report on their findings to the Board on an annual basis. Investment firms have several obligations vis-à-vis their customers in relation to information disclosure and suitability. In addition they are required to hold their assets on bank accounts under strict rules of segregation. The AFM has developed a plan to deal with the event of their insolvency. There is also an investor compensation scheme, which is funded by levies on market participants. Insolvency of an investment firm is subject to the framework applicable to corporations.

35. Principles for secondary markets (Principles 25–30): Both regulated markets and MTFs are subject to licensing and oversight, and operational requirements are substantially the same. The AFM has a system of differentiated oversight, depending on the scale of operation, securities traded and type of investors that participate in a trading venue. Currently most of its supervisory resources are dedicated to Euronext. It supervises the Amsterdam segment on a real-time basis for purposes of price-sensitive information and on T+1 for purposes of detecting unfair practices. The AFM, along with the supervisory authorities of the United Kingdom, France, Belgium and Portugal have recently revised the MoU for the supervision of Euronext NV. The arrangements set up in such MoU appear to be working well. The framework allows for a coordinated approval process which has been effectively used to deal with critical developments such as co-location and direct access. The arrangements have also led to coordinated on-site inspections. Market manipulation and insider trading can be pursued administratively or in the criminal courts. Through MoUs and more generally CESR-Pol European supervisors, including the AFM are seeking to exchange views on enforcement cases. The AFS requires pre and post-trade transparency for equity markets, for regulated markets (RM), and MTFs. Post trade transparency is required for Over the Counter (OTC) in shares, and systematic internalizers. There are no transparency requirements for other markets, although it appears that the markets for government debt and corporate debt—which in the Netherlands are for professionals—do enjoy a good level of transparency via Bloomberg or other data vendors. DNB and the AFM indirectly supervise securities clearing and settlement. They do not directly monitor large exposures, but they do receive monthly information from LCH Clearnet S.A. on such positions. LCH Clearnet S.A. on the other hand, has mechanisms to address large exposures, including intraday margining.

Table 1.

The Netherlands: Summary Implementation of the IOSCO Principles and Objectives of Securities Regulation

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Recommended action plan and authorities’ response

Recommended action plan

Table 2.

The Netherlands: Recommended Action Plan to Improve Implementation of the IOSCO Principles and Objectives of Securities Regulation

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Authorities’ response to the IOSCO assessment

The authorities of the Netherlands would like to express their appreciation to the IMF and the assessment team for their effort, time and resources spent to prepare the Financial Sector Assessment Program of the Netherlands. The FSAP has been a useful exercise and has given the authorities insight in the current state of the regulatory framework and the supervisory practice in the Netherlands as well as the risks in the financial sector. The authorities would also like to thank the IMF for the fruitful conversations on the importance of addressing risks that could harm the financial sector and the public and the discussions on how to see to these risks effectively on national and European level. The authorities believe that the European and international cooperation will benefit from the FSAP conducted by the IMF, as it will prove to be a valuable tool for countries and international bodies to understand, compare and learn from other regulatory frameworks and practices.

We are grateful for the opportunity to comment on the findings and recommendations in the assessment. The authorities are pleased with the overall outcome that the Netherlands exhibits high level of implementation of the IOSCO Principles. The AFM has gained a reputation of a credible and effective enforcer in the field of conduct-of-business. This is the result of its focus on a clear risk-based enforcement strategy. Prudential supervision is considered reasonable and credible.

The assessment has also identified some areas for improvement. This is currently under review by the AFM, DNB and the MoF. In this regard, the MoF will send the Parliament an official statement on the specific areas where the authorities will take action in response to the recommendations of the IMF.

The authorities have taken good notice of the findings and the comments of the assessor. With a single exception, all principles are fully or broadly implemented, which reflects that the objectives of the core principles are adequately met. With regard to the principles 3, 10, 15, 16, 17, 18, 19 and 27, the authorities note that these principles are not fully implemented in this assessment in comparison with the FSAP in 2004. The authorities would like to emphasize that this is the result of the fact that the financial crisis has put the standard of observance in a different perspective. As a result, the regulatory framework and practice in the Netherlands was subject to a more stringent assessment of the IMF compared to the FSAP in 2004. The authorities agree with the IMF that supervisors worldwide should raise the bar to higher levels. However the authorities would like to stress that the assessment should by no means be interpreted as an indication that the supervisory framework exhibits a lower level of observance compared to the FSAP in 2004. On the contrary, supervision has been strengthened over the years: the AFM has since 2006 been given more supervisory tasks and broader powers, for example in the areas of financial reporting and supervision of auditors.

In conclusion, the authorities believe that the findings of the IMF are in line with current practice and will review and further take into account the recommendations. In light of the importance to cooperate at European and international level to enhance the regulatory system and practice, the authorities look forward to continue the discussions with the IMF and other regulators worldwide to take on the challenge to build a stronger and more robust framework for the financial sector.

Table 3.

The Netherlands: Detailed Assessment of Implementation of the IOSCO Principles

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