Recent publications on AFM Agenda, remuneration of financial enterprises, MiFID II disclosure and DORA

News Update Financial Regulatory

AFM's and DNB's 2024 agenda's, Report on application of the IDD and the 2024 Market Monitor

5 February 2024

In this News Update we discuss:

AFM's 2024 Agenda;
DNB's 2024 supervisory themes;
EIOPA's second Report on the application of the IDD; and
AFM's 2024 Market monitor for advisers and intermediaries in life insurance.

We further highlight some other financial regulatory publications issued since our last News Update. Subscribe to the News Update Financial Regulatory.

AFM's 2024 Agenda

On 15 January 2024 the Dutch Authority for the Financial Markets (Autoriteit Financiële Markten, AFM) published its Agenda for 2024, containing its priorities and supervisory activities for the year ahead. As in previous years, the AFM clustered these topics into four supervisory areas: financial services, capital markets, asset management, and audit firms (including reporting).

The trends in digitalisation, sustainability and internationalisation apply to all of the AFM's supervisory areas. In this News Update we highlight some aspects of the AFM's Agenda for the supervision of financial services.

Overall objective: priority to customer interests in times of transition

Digitalisation and internationalisation, the transition to a sustainable economy and the pension transition will all affect the products and services offered by financial service providers. The AFM expects these providers to give central priority to the customer's interests during these transitions. This has resulted in the following supervision objectives and related key activities for 2024:

Financial service providers use digitalisation in the customer’s interest

For providers of consumer loans and mortgage providers, the AFM will focus on the automation of approval processes. This includes inspections at consumer credit providers and file reviews and exploratory investigations into possible excessive lending by mortgage providers.
The provision of unsolicited cross-border products or services will be closely monitored.
Crowdfunding service providers may expect a baseline measurement on ongoing requirements.
Buy-now-pay-later market participants will become subject to supervision under the revised Consumer Credit Directive. The AFM's preparation will focus on responsible lending, the provider's earning models and transparency towards customers.
Brokers and neobrokers that serve Dutch customers may also expect extra attention from the AFM.
Margin personalisation by insurers will be investigated, in particular if insurers charge different margins per person.
The supervision of market participants that provide low-threshold financial services via social media, websites, mobile websites and embedded solutions will be prioritised.

Market participants support consumers in making responsible choices for a healthy financial future and should offer products that fit consumers' needs

In the further development of the supervision under the Markets in Crypto-Assets Regulation (MiCA) the AFM will focus on money laundering, consumer protection and illegality.
The AFM will begin processing licence applications under MiCA, including the assessment of whether management is 'fit and proper'.

Compliance with sustainability legislation and regulations

This supervision objective is not restricted to compliance with the Sustainable Finance Disclosure Regulation, and covers other areas that the AFM considers important.
The AFM will monitor mortgage lending standards, in particular the use of energy labels, and if necessary provide recommendations on the modernisation of these lending standards.
The AFM will monitor whether insurers give central priority to customers' interests, despite pressure on margins.
The AFM continues to pay attention to underinsurability and non-insurability, in particular in respect of climate-related risks.

Other supervision activities

Completion of the review on the quality of mortgage advice.
Continued investigation of ethical and controlled business operations by financial services providers.
Risk-based supervision of the transparency requirements in respect of commission rates for non-life insurance policies.
Investigation of the operation of collective licensees.

DNB's 2024 supervisory themes

In December 2023 the Dutch Central Bank (De Nederlandsche Bank, DNB) published (Dutch-language) announcements of its supervisory themes for 2024 per sector and per individual firm.

For insurance firms DNB will focus on sustainability, mortgages and real estate, artificial intelligence, cyber resilience in preparation for the Digital Operational and Resilience Act, and the impact of the draft Future of Pensions Act (Wet toekomst pensioenen). DNB will also conduct an inventory and assessment of future management actions.
The supervisory themes for payment institutions and electronic money institutions include the safekeeping of third-party funds, IT and cybersecurity risks and a thematic review of transaction monitoring (at selected Payment Service Providers and Electronic Money Institutions).
For investment firms and investment fund managers DNB will focus on the quality of prudential reports filed with DNB and the control of prudential risks following the implementation of the Supervisory Review and Evaluation Process Guidelines. Furthermore, DNB will conduct an investigation of market risk and supervisory reporting of market risks by dealers on own account.

EIOPA's second Report on the application of the IDD

On 15 January 2024 the European Insurance and Occupational Pensions Authority (EIOPA) published its second Report on the application of the Insurance Distribution Directive (IDD). The Report covers the impact of the IDD on consumers, insurance distributors and supervisory activities over the past two years in relation to the EU insurance distribution market and the regulatory and supervisory framework. The Report is based on surveys run with the National Competent Authorities.

On market structure the Report addresses the impact of inflation and rising interest rates, which is not sufficiently considered in the product governance process. Although the number of natural persons registered as intermediaries dropped significantly, there was only a slight increase in the number of intermediaries registered as legal persons. In most Member States, commission is the predominant remuneration model, whereas in the Netherlands the remuneration is a combination of a fee and commission.

In respect of the new regulatory framework, the level of professionalism and competence of insurance distributors varies among Member States. Applying the IDD to the form and timing of disclosures (pre-contractual), artificial intelligence (demands-and-needs test, unfair price walking practices and lack of transparency on robo-advice and comparison tools) and digital platforms (scope of 'insurance distribution', finfluencers or embedded insurance) appears challenging for both distributors and supervisors. The quality of the advice and selling methods provided another mixed picture. Telephone recording requirements are not prescribed by the IDD, leading consumer associations to raise concerns, in particular regarding pushy sales tactics. Integrating sustainability factors, risks and preferences into product oversight and governance arrangements remains challenging.

The Report also covers the need for additional guidance on the regulatory framework. Following a decision of the European Court of Justice on group insurance, further clarification is needed on the conditions under which a policyholder of a group insurance contract acts as an insurance intermediary, and on home and host supervisory responsibilities in respect of group insurance supervision. The European Commission is expected to publish Q&As on this topic. The supervisory practice also revealed shortcomings in remuneration and conflicts of interest and in cross-selling of financial products, and a need for more guidance on the product oversight and governance framework.

AFM's 2024 Market monitor for advisers and intermediaries in life insurance

The AFM published a Dutch-language information page on its website announcing its 2024 Market monitor. This monitor is a lengthy questionnaire the AFM uses to gather information from individual firms on their business and processes. It is addressed to intermediaries in life insurance.

The AFM uses the information to be obtained through this exercise for two main purposes: (i) determining the size of the contributions by individual firms in financing the costs of ongoing supervision by the AFM and (ii) identifying developments and risks. The monitor is not a facultative exercise; it is a supervision instrument. Firms in scope need to make a serious effort to complete the monitor in a timely and adequate manner, ensuring the various questions are answered accurately and faithfully.

The AFM indicates that the monitor can be completed by the first batch of respondents in mid-February through the AFM's online portal. The monitor consists of various chapters including information on firms' financial performance. Compared to previous versions, the questionnaire places greater emphasis on compliance with anti-money laundering (AML) legislation and sanctions legislation. Firms are required to provide answers to detailed questions on how they have implemented compliance with these topics in their organisations.

The AFM's 2024 Market monitor demonstrates the AFM's increasing focus on compliance with AML legislation and sanctions legislation. If you require any support in completing this AFM questionnaire, or if you are interested in learning more about AML compliance and how your firm can better organise this, please do not hesitate to contact us.

Other financial regulatory publications

We have highlighted a selection of other publications by legislatures and regulators for the financial markets and financial supervision since our December 2023 News Update.

AFM

On 18 December 2023 the AFM published news (in Dutch only) that, in July 2023, it had imposed orders subject to a penalty (lasten onder dwangsom) on two financial service providers for failing to complete the 2023 Market monitor on time. The providers concerned had also faced orders subject to a penalty in previous years for failing to complete the monitor on time. The penalties amount to EUR 2,000 per day, with a maximum of EUR 20,000.
The AFM fined Zwaan Finance B.V., a light Alternative Investment Fund Manager, for non-compliance with the customer due diligence requirements under the Act on the Prevention of Money Laundering and Terrorism Financing (Wet ter voorkoming van witwassen en terrorrismefinanciering).
In December 2023 the AFM published a press release on the results of an exploratory study into providers that actively offer savings accounts in the Dutch market. The savings products offered differ from traditional Dutch savings accounts: their interest rates vary subject to restrictions or minimum requirements. Those offering these products to Dutch consumers must comply with information requirements, including on the nature of the product. Some products, although presented as savings accounts, are in fact investment products, for which different information rules apply.
On 25 January 2024 the AFM fined Tinka B.V., a credit services provider, for irresponsible lending. The fine amounts to EUR 1.75 million.

DNB
On 19 December 2023 DNB published the updated Q&A and Good Practice on Information Security 2023 (both updates in Dutch only). The Good Practice should help financial institutions prepare for the implementation of the Digital Operational Resilience Act. DNB's news item summarises the most important changes, which include attention to the digital operational resilience strategy and the desired role of the board in information security, including controls and continued customised training of management and key function holders so that they understand and address key IT and cyber risks. The factsheet Q&A has been supplemented with outsourcing and sub-outsourcing, governance and key functions, training and education, and a definition of information security and cybersecurity.
DNB published its 2025 Cyber strategy (in Dutch only) outlining how it is committed to increasing the cyber resilience of the financial sector.
In a short Dutch-language news item, DNB published some findings from its annual questionnaire on integrity supervision for insurers.
DNB recently announced that banks and insurers will receive a questionnaire in Q1 2024 on the further evaluation of the Remuneration Policy (Financial Enterprises) Act (Wet beloningsbeleid financiële ondernemingen).

EBA
On 18 December 2023 the European Banking Authority (EBA) published its final report on Guidelines on the diversity benchmarking exercise under the Capital Requirements and Investment Firms Directives. These Guidelines apply from three months after the publication of translations in all official EU languages.
On 16 January 2024 the EBA published its Final Report on the amendment of the Guidelines on money laundering and terrorist financing risk factors, which will now also include crypto-asset services. The amended Guidelines will be translated into the official EU languages and will apply from 30 December 2024.

EIOPA

EIOPA published its Supervisory Convergence Plan for 2024. The supervisory topics for 2024 include a review of the Guidelines on the Supervisory Review Process under Solvency II, the implementation of the digital operational resilience framework and the use of artificial intelligence by insurance undertakings in their digital transformation.

ESMA
On 29 January 2024 the European Securities and Markets Authority (ESMA) launched two consultations on MiCA: (i) a Guideline on the qualification of crypto-assets as financial instruments and (ii) a Guideline on reverse solicitation under MiCA. The consultation period ends on 29 April 2024.

Ministry of Finance

In December 2023 the Ministry of Finance launched a consultation (in Dutch only) on possible measures (legislative or other) that could strengthen the contribution of financial companies to the climate transition. The consultation period ends on 15 February 2024.
On 26 January 2024 the Ministry of Finance started its consultation on the Cash Payments Bill (Wet chartaal betalingsverkeer) (in Dutch only) The consultation period ends on 8 March 2024.
Publication of the Decree (Wijzigingsbesluit financiële markten 2023) (in Dutch only) containing among others the requirement for non-life insurance intermediaries to inform the consumer on commissions for non-life insurance agreements (actieve transparantieverplichting). The requirement applies in respect of non-life insurance agreements concluded on or after 1 July 2024.