Dutch, government, AML policy agenda, fine, money, laundering, financial markets

News Update Financial Regulatory

Dutch government's AML policy agenda and fine for collective licence holder

12 June 2023

In this News Update we discuss a status overview of the Dutch government's anti-money laundering policy agenda; a fine imposed on a collective licence holder for not implementing adequate policies to ensure sound conduct of business at the level of its affiliated undertakings; and the Dutch Banking Association's Risk-Based Baselines on AML.

We further highlight some other financial regulatory publications issued since our last News Update.

Status overview of Dutch government's anti-money laundering policy agenda

On 17 May 2023 the Dutch Minister of Finance published its letter (in Dutch only) informing parliament on the status of and progress made in various matters relating to compliance with sanctions and the prevention of money laundering/terrorism financing.

Annex 2 to the letter sets out the status of each priority item on the anti-money laundering policy agenda (in Dutch: toelichting stand van zaken beleidsagenda aanpak witwassen). This overview also specifies the focus areas for 2023. Priority items covered include:

Transparent ownership structures of legal entities, including Ultimate Beneficial Owner (UBO) registration;
Safeguarding effective information sharing and cooperation;
Balanced/proportionate requirements for smaller institutions; and
Safeguarding access to payment services for high-risk sectors.

Noteworthy other developments on these topics include:

On 22 November 2022, the Court of Justice of the EU (CJEU) ruled that a particular provision in the Anti-Money Laundering Directive relating to public access to UBO records infringes a person's rights to private life and personal data protection. Therefore the Dutch government had to suspend access to the UBO register in November 2022. A key priority for the Minister of Finance is ensuring that institutions in the scope of the Dutch Anti-Money Laundering and Anti-Terrorist Financing Act (Wet ter voorkoming van witwassen en financieren van terrorisme) (Wwft) will regain access to the Dutch UBO register. This requires adopting emergency legislation. On 30 May 2023, the Ministry of Finance published a draft act for consultation (in Dutch only): the Amendment Act Restricting Access to UBO-Registers (Wijzigingswet beperking toegang tot UBO-registers). The consultation is open until 28 June 2023.
The Minister of Finance will not pursue any expansion to the existing arrangements for Anti-Money Laundering (AML) information sharing, e.g. between banks or between public and private parties. The legal basis for existing information sharing practices is politically controversial. Until the existing discussion has been resolved, there is no room for new initiatives.
Regulators and the Minister of Finance will investigate improving information provision to small institutions to increase their knowledge of the Wwft and to support them in their efforts to become Wwft compliant.
The Dutch Banking Association (Nederlandse Vereniging van Banken) (NVB) will draft a proposal for self-regulation for its members, in relation to access to a basic payment account for small and medium enterprises (SMEs)/corporate clients. The Minister of Finance will investigate the added value of granting SMEs access to the Dutch Institute for Financial Disputes (Klachteninstituut Financiële Dienstverlening), specifically for complaints relating to banks' refusals to open bank accounts for them.

Collective licence holder fined for not implementing adequate policies to ensure sound conduct of business

The Dutch Authority for the Financial Markets (AFM) recently imposed an administrative fine of EUR 2.5 million on a collective licence holder for breaching Article 4:11(2) of the Financial Supervision Act (Wet op het financieel toezicht) (Wft) (news item in Dutch only). This article requires financial service providers to have an adequate policy to ensure soundness in the conduct of their business. The policy should thus prevent the financial service provider or its employees from committing criminal offences or other breaches of the law that could impair confidence in the financial service provider or the financial markets.

Several breaches of the law were involved, mostly committed by the affiliated undertakings (aangesloten ondernemingen) of the collective licence holder.

Unclear, incorrect or misleading information

As explained below, most of the breaches committed related to the provision of unclear, incorrect or misleading information, or a combination thereof, violating Article 4:19(2) Wft.

Existing clients were not clearly informed that policy conditions had been changed to their favour, making policyholders less inclined to invoke their rights under the new policy conditions.
In another set of policy conditions, changes to the disadvantage of clients – a reduction in coverage – were insufficiently communicated.
Discrepancy between the actual annual indexation and the indexation stipulated in the policy conditions resulted in incorrect, unclear and/or misleading information.
Concealed communication of a premium increase without the – mandatory – information about the early cancellation option was also judged unclear and/or misleading.
Client reviews were selectively published, in favour of the financial service provider, and some of the positive reviews were posted by employees. This information was therefore unclear and misleading.
An insurance provision stating that the right to compensation lapses two years after the occurrence of the uncertain event is, in the opinion of the AFM, contrary to mandatory law (Articles 7:941, 7:942 and 7:943 of the Dutch Civil Code).

Violation of consent requirement manner of disclosure

The AFM also ruled that the manner of obtaining client consent for the provision of information on a durable medium (i.e. via online communication) violated Article 49 of the Decree on Conduct of Business Supervision (Besluit Gedragstoezicht financiële ondernemingen Wft). The consent box had been pre-ticked by the firm, and information on several items that the client consented to could only be obtained via a pop-up screen by pressing the question mark next to the consent bar.

Description of remuneration policy not disclosed

Finally, the central organisation was judged not to have disclosed the description of its remuneration policy pursuant to Article 1:120 Wft.

Attributing violations to central firm

The AFM ultimately determined its fine pursuant to the overarching violation of Article 4:11(2) Wft, for which the violations mentioned above formed the basis. The collective licence holder's policy fell short of preventing breaches of the law. The AFM noted that:

Providing incorrect, unclear and misleading information can impair confidence.
Concealing or disguising information does not demonstrate sound conduct of business.
A consent arrangement that does not require the client to take action and does not make clear what the consent is being given for does not demonstrate sound conduct of business either.
The transparency requirements for the remuneration policy are part of the system aimed at protecting the integrity of the financial markets.

Pursuant to Articles 4:5 and 2:105 Wft, these violations were attributed to the collective licence holder, even if such violations were committed by affiliated undertakings.

Dutch Banking Association publishes first set of Risk-Based Baselines on AML

The Dutch Banking Association (Nederlandse Vereniging van Banken) (NVB) has developed Risk-Based Baselines (Baselines) for the Anti-Money Laundering (AML) customer due diligence. These Baselines follow round table discussions between banks, the Dutch Central Bank (DNB) and the Ministry of Finance on a more risk-based AML customer due diligence.

Current, future and envisaged Baselines

The first set of Baselines are risk based and relate to UBO identification and verification, pseudo UBOs, enhanced due diligence measures for European Commission high risk third countries, expected transaction profiles and client data actualisation (data update).

Subsequent Baselines are being prepared on politically exposed persons, sources of funds, methods of alert handling, models in alert generating and alert handling, and ongoing due diligence.

Sector-specific Baselines will be prepared to deal with customer due diligence and the risks related to specific sectors, such as not-for-profit organisations, sex workers, crypto service providers and the automotive sector.

Impact

The NVB expects the risk-based approach in these Baselines to lead to reduced customer impact in several areas, i.e. less frequent questions on transactions if not relevant from a risk perspective. Where banks need to verify the identity of the UBO, they will have two options in low and neutral risk scenarios. The first is to use the personal information in the central UBO register in combination with confirmation of that information by the client. The other option is to request the UBO or the client to provide a copy of the UBO's identity document.

Status of the Baselines

The NVB explains that the Baselines provide guidance (good practices) on the implementation of the risk-based approach and that there is no legal requirement to use these. The Baselines describe principles and contain illustrative and non-exhaustive examples. It is up to each bank to decide whether or not it will use these Baselines and implement the guidance in its own policies, including as regards the definition of its risk appetite and policies on when to ask its customers additional questions.

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 May 2023 News Update.

AFM

Dutch Authority for the Financial Markets (AFM) news item: AFM joins DNB's interpretation of retention bonuses (in Dutch only);
Publication of 'Incident reporting' for investment firms (in Dutch only);
Information on the high earners periodic data collection exercises (investment firms) (in Dutch only).

DNB

Dutch Central Bank (DNB) news item (in Dutch only): in 2023 DNB will update its Q&A on independent function of the supervisory board;
In early May 2023, DNB published its fine for IJmond Corporate Solutions B.V. for not having two directors in time;
News item: Status of your assessment application with DNB;
In early May 2023 DNB shared its letter (in Dutch only) on its benchmark report Information Security 2022 for the insurance sector;
On 11 May 2023 DNB provided information about the mandatory audit of financial statements for payment institutions and electronic money institutions applicable as from 1 January 2023 (in Dutch only);
The timelines for the 2023 remuneration benchmark exercises for banks were published on 19 May 2023 (in Dutch only).

ESAs

On 12 May 2023 the European Supervisory Authorities (ESAs) published an interactive factsheet for consumers on the effect of inflation and the rise in interest rates on consumers' money;
Consolidated Q&As on the Package Retail and Insurance-based Investment Product (PRIIPs) Key Information Document (KID);
Joint discussion paper on DORA concerning the ESAs' advice to the European Commission on further criteria for critical third-party service providers and fees levied on such providers. The consultation period ends on 23 June 2023.

ESMA

In late May 2023, the European Securities and Markets Authority (ESMA) published a statement highlighting the risks arising from the provision of unregulated products and/or services by investment firms;
Updated Q&A on the European crowdfunding service providers for business Regulation.