Dutch regulator clarifies banks’ reporting policy

Author: | Published: 6 Sep 2011
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The Dutch markets regulator has clarified the announcement that it will monitor more closely how banks and insurers report their investments in government debt.

The Netherlands Authority for the Financial Markets (AFM) announced last week that it will pay more attention to how financial companies value their investments and what the possible risks are. It will also examine other investments with country-risk.

The monitoring will centre on Dutch banks adhering to International Financial Reporting Standards (IFRS) following a letter sent by International Accounting Standards Board (IASB) to the European Securities and Markets Authority (Esma) complaining that some banks were using their own models for valuing assets.

"This is less a question of inaccurate reporting methods, just divergent ones of marking to market being replaced by marking to model," said Bob Penn, partner at Allen & Overy in London.

The large Dutch banks, ING and Rabobank, have reportedly used market prices to value their Greek bonds. "Until now, Dutch banks have used IFRS. I haven’t seen them do otherwise since I started working here [in 2008]," Imre de Roo, spokesperson for AFM told IFLR.

She added that the troubles in the eurozone highlight the need for more transparency. "This monitoring is because of the recent developments in the sovereign market," she said.

The AFM said it will begin monitoring the 2011 annual reports once they have been published and approved by the shareholders from April next year.

"We have announced this now so companies can ensure they take it into account. It’s an advance warning," said De Roo.

The regulator announced the move via press release on August 31. The release can be read here, but it’s in Dutch.

A spokesperson for the IFRS declined to comment further on the developments and would not confirm whether Dutch banks had been reporting inconsistently with IFRS standards.

It is unclear whether other European national regulators will take the same action as AFM. According to Penn, the regulators are conflicted. "By asking for more conservative marking to market or writing down of positions you ultimately affect the solvency of banks in your own country. That’s a difficult call for regulators to make," said Penn.