Author: | Published: 9 Jul 2001
Email a friend

Please enter a maximum of 5 recipients. Use ; to separate more than one email address.

Market structure and trends

The consolidation of the banking industry in Belgium has continued in the past year. At the same time, the shareholders' structure of some medium-sized and small banks has undergone important modifications, often implying the entry of foreign players to the market. The strengthened presence of (European) financial institutions has also caused an increased use of the freedom to establish branches and the freedom to provide financial services.

Again, the phenomenon of "bancassurance" has been in the spotlight, through: (i) the further development of financial conglomerates having both a banking and insurance arm; (ii) the creation and distribution of a number of hybrid financial instruments; and (iii) the increasing development of the respective regulatory regimes – and their respective supervisory authorities along the same lines.

The investment firms sector has also undergone considerable changes. Whereas the number of stockbroking firms has decreased (due to more stringent authorization requirements and operation criteria), the number of specialized investment firms (especially the portfolio management firms and the financial instrument placing firms) has increased.

Main regulatory bodies

The Belgian Commission for Banking and Finance (CBF) was created by Royal Decree No. 185 of July 9 1935 on the supervision of banks and the rules governing the issue of securities.

Today, the CBF plays a pivotal role in the supervision of financial institutions and of public transactions in securities. To this end, it has extensive powers of on- and off-site investigation, thereby relying on the support of its staff as well as of accredited auditors. Moreover, it has the power to take a number of exceptional corrective measures.

In its capacity as supervisor, the CBF sees to it that credit institutions meet the applicable authorization requirements and operating criteria. The CBF also collaborates with foreign supervisory authorities – and has concluded a number of agreements with such authorities.

Moreover, the CBF is entrusted with the prudential supervision of investment firms, investment advice companies, exchange offices and undertakings for collective investment.

The CBF is also responsible for the supervision of financial information (eg relating to the public issue of securities) and the regulated markets for financial instruments (eg Euronext (Brussels) and Nasdaq Europe) where it exercises "second-line" supervision complementing the "first-line" activity of the competent market authorities.

Recently, the Belgian Minister of Finance has unveiled a detailed proposal to review this supervisory scheme. Essentially, this proposal provides for: (i) a better delineation of the competence of the CBF and the respective market authorities; (ii) a reinforcement of the decision-making process within the CBF; (iii) a reorganization of the appeal procedures against decisions of the CBF; and (iv) a rapprochement between the CBF and the National Bank of Belgium.

Finally, the Office for Insurance Control (OIC) has been entrusted with the supervision of insurance businesses (Law of July 9 1975). This regulatory body is also responsible for supervising mortgage companies, pension funds and insurance brokers. Given the importance of "bancassurance", the OIC has revised – and strengthened – its collaboration with the CBF.

Types of financial institutions

Credit institutions

A credit institution is an undertaking the business of which is to receive deposits or other repayable funds from the public and to grant credit for its own account. The Law of March 22 1993 on the legal status and supervision of credit institutions is the basic legal text which applies to all credit institutions.

A specific category of credit institutions has also been introduced, ie the securities bank (Law of March 20 1996). This is essentially a marketing tool: its legal status is that of a credit institution, but the law allows it to market itself in accordance with its actual specialty (securities transactions).

Investment firms

The Law of April 6 1995 on secondary markets, the legal status and supervision of investment firms, intermediaries and investment advisers introduced a new legal concept: that of investment firms.

An investment firm is defined as an enterprise the normal business of which is to provide third parties with investment services on a professional basis.

This law provides for four categories of investment firms : (i) stock broking firms; (ii) portfolio management firms; (iii) financial instrument broking firms; and (iv) financial instrument placing firms.

Stock broking firms may, in principle, provide all investment services and ancillary services. Portfolio management companies may, in addition to actual portfolio management, carry out services that include the receipt, the transmission and execution of investors' orders. The activity of financial instrument broking firms consists in bringing two or more professional investors in touch with each other in order to enable them to carry out a transaction in relation to a financial instrument. A financial instrument placing firm is allowed to place securities under a less straining status than that of stock broking firms. However, only stock broking firms may receive financial instruments and, under certain conditions, deposits, from their clients.

Investment advice companies

The rules relating to the activities of investment advice companies are laid down in the Law of April 6 1995 and in a Royal Decree of August 5 1991 and regulate advice rendered with regard to financial instruments provided to the public in return for payment, by a person who acts in a professional capacity.

Exchange offices

The Royal Decree of December 27 1994 on exchange offices and currency trading applies to all natural and legal persons established in Belgium who, as professionals, carry out spot buying or selling transactions in foreign currencies, whether in the form of cash payments, checks made out in foreign currencies, or credit or debit cards, with the exception of: (i) stock broking firms; (ii) credit institutions; and (iii) the Belgian post office.

Undertakings for collective investment

An undertaking for collective investment (UCIT) is an entity, with or without legal personality, which invests funds for a number of investors. The legal status and operation of such UCIT's is regulated by Book III of the Law of December 4 1990.

As far as Belgian UCIT's are concerned, the law recognizes two categories of UCIT's: (i) investment undertakings with a variable number of units (open-ended structure); and (ii) investment undertakings with a fixed number of units (closed-ended structure).

An open-ended structure is a UCIT whereby the holders of parts in such UCIT may sell such parts back to the undertaking at net asset value. With respect to closed-ended structures, the units are, on request of the holders, not repurchased by the undertaking itself, but by a separate company or through the securities exchange.

Both types of investment undertakings can be incorporated either as: (i) investment funds (ie having a purely contractual structure); or (ii) investment companies (ie having separate legal personality).

On May 18 2000, the CBF promulgated a circular letter to ensure that such undertakings would be managed in an independent manner and solely in the interest of the investors. While the major market players have already adapted to the principles laid down in this circular letter, a smaller market participant has instigated proceedings before the Belgian Administrative Supreme Court (Raad van State/Conseil d'Etat). The Supreme Court has suspended the circular letter and the decision on the application for the invalidation of the circular letter is still pending at the time of writing.

Insurance companies

An insurance company is an undertaking active in the insurance business. The Law of July 9 1975 contains a description of the categories of activities for which authorization is needed. A basic distinction is made between life assurance undertakings and non-life insurance undertakings.

Establishing an operation

Foreign financial institutions wishing to establish an operation in Belgium can either: (i) open a branch in Belgium; or alternatively (ii) establish a subsidiary in Belgium. The principles with regard to the regulatory requirements can be summarized as follows:

Branches: EU financial institutions. EU financial institutions like credit institutions, investment companies and insurance companies can open a branch in Belgium after their respective competent authorities of their home member state have informed the CBF or OIC (for insurance companies) of their intention to do so. The CBF or OIC will not be entitled to prevent the opening of such branch in light of the "home country control" principle, but before the financial institutions can commence their operations in Belgium, the CBF or OIC will have sufficient time to organize its (limited) supervision and to communicate to the financial institution such steps it must take in order to facilitate or comply with the CBF's or OIC's (limited) supervisory tasks. The CBF or OIC will also communicate to the financial institution a list of rules and regulations which are considered to be of Belgian "public order" (general good) and which must be complied with by the new branch (eg consumer protection; money laundering; liquidity rules; monetary policy rules; data protection).

Branches: non-EU financial institutions. By contrast, financial institutions from outside the EU that would like to establish a branch in Belgium must apply for such opening with the competent Belgian regulator (CBF or OIC) as if a new Belgian financial institution with full legal personality were to be created, and hence must comply with all requirements and obtain all approvals as are imposed on Belgian financial institutions.

Subsidiaries. The creation of a subsidiary, ie one with a separate legal personality, implies the creation of a new Belgian company and hence the submission to the full Belgian applicable regulatory regime. The most important requirements will relate to share capital, identity of shareholders, management, internal organization and, for credit institutions and investment firms, adherence to the Belgian deposit protection scheme.

Besides the regulatory aspects, a number of other aspects must also be taken into account which mainly relate to corporate law (incorporation; registration; publication of information); tax law (VAT) and employment law (work permits; professional cards; registration with social security administration). In this regard it must be noted that branches must not only publish information in Belgium with regard to the Belgian branch but also with regard to the company of which the branch depends (the extent of such disclosure requirements will again depend on whether such company is located inside or outside the EU).

It might be useful to draw the attention to the existence of the Royal Decree of December 20 1995 regarding foreign investment firms (the RD of 1995). The RD of 1995 creates the framework within which EU and non-EU investment firms are allowed to offer services in Belgium, with or without having an establishment or branch in Belgium. The possibility for non-EU investment firms to provide services in Belgium without having an establishment or branch in Belgium, is a possibility that does not exist for non-EU financial institutions regarding banking services.

Financial services online/e-banking

Today, new technology is revolutionizing the operation of, and access to, markets (eg alternative trading systems or online broking). It is transforming the rendering of financial services (eg web advertising). It is acting as a catalyst for the creation of new financial services and new business models (eg day trading centers), often triggering new alliances involving telecommunications, information technology and financial services providers.

However, financial institutions wishing to use these new technologies still face a number of regulatory uncertainties. On May 5 2000, the CBF laid down a number of guidelines for the organization and internal control of electronic financial services in a circular letter.

These guidelines are based on two widely accepted principles. First, a financial institution offering financial services via the internet is required to comply with all legal and regulatory provisions applicable to these transactions in the same way as via other distribution channels. Second, the institution is required to have an appropriate structure in place, as well as safeguard arrangements for electronic data processing, and to have adequate internal control procedures to cover the specific risks attendant on this distribution channel.

With regard to the issue related to the rendering of transborder services, the national regulators (including the CBF) have in general adopted a pragmatic approach, deciding whether an offer of services is being made on or from their territory based upon a number of targeting criteria (eg use of language or currency). A financial institution should take concrete measures in order to avoid being considered to be offering services in a certain jurisdiction in accordance with these criteria, for example by disclaiming and refusing business outside of the targeted range.

Apart from these regulatory issues, one also faces the question of the validity and enforceability of agreements entered into over the internet. In Belgium, the Civil Code has been amended to proclaim that electronic documents and signatures (under certain conditions) can be used in court (Law of October 20 2000). In the meantime, a draft bill is pending which will create a framework for certification service providers, fully implementing the EU Electronic Signatures Directives No. 1999/93/EC.

The centerpiece of European legislation for a coherent and integrated approach to the legal aspects of electronic commerce is the Electronic Commerce Directive No. 2000/31/EC. It intends to remove the current legal uncertainty and to create an area without internal borders for information society services. Belgium has not yet implemented this directive.

The Distance Selling Directive No. 1997/7/EC, implemented in Belgium by the Law of May 25 1999, excludes financial services from the scope of its application. It obliges the supplier to provide the consumer with certain important information prior to the conclusion of the contract and with a confirmation of that information in durable form. The European Commission has proposed an "Amended Proposal for a Directive on Distance Selling of Financial Services", in order to especially regulate financial services.

Another question often raised is how financial institutions, doing business over the internet, can fulfil their obligations stemming from money laundering laws, such as: (i) the obligation to identify their customers; and (ii) the obligation to report and/or refuse the execution of suspicious transactions (see Belgian Law of January 11 1993). The lack of direct physical contact with the clients makes it more difficult to apply these laws. On May 3 1999, the CBF issued a circular letter addressing this issue.

One must also take into account the restrictions imposed by data protection legislation. The Belgian lawmaker has enacted the Law of December 8 1992, as amended by the Law of December 1998. This legislation: (i) provides for general rules on the lawfulness of the processing of personal data (eg principle of purpose or quality of data); (ii) enumerates the rights of the data subject (eg notice requirement and rights to access, correct or block personal data); (iii) contains safeguards with respect to the confidentiality and security of processing; (iv) installs a commission for the protection of privacy; (v) requires prior notification of processing operations to this commission; and (vi) regulates the transfer of personal data to countries outside the EU.

Buying financial institutions

Each Belgian credit institution, upon incorporation, must apply for a banking licence with the CBF. One of the conditions for such banking licence to be granted, is the notification to the CBF of the identity of the shareholders that, directly or indirectly, own 5% or more of the credit institution's capital. The CBF can refuse to grant the banking licence if it is not convinced of the suitability, from a point of view of a sane and prudent management of the credit institution, of the significant shareholders thereof.

After incorporation, important changes in the direct or indirect shareholders' structure of a Belgian credit institution must be notified to the CBF. The threshold for the obligation to notify is legally set at, again, 5%.

A notification requirement is imposed on both the entity or entities that will acquire, directly or indirectly, a block of 5% or more of the credit institution's capital and the entity or entities that will transfer, directly or indirectly, a block of 5% or more of the credit institution's capital. In addition, the credit institution itself, must notify the CBF of the acquisition or transfer of its shares provided that the threshold of 5% is exceeded.

The notification by the "acquirors", must be made prior to the acquisition of the shares of the credit institution, ie the CBF must be notified of the intention to acquire such shares. In theory, the CBF can raise objections against the acquisition of the shares within three months from the receipt of such notification, if it is not convinced of the suitability, from the point of view of a healthy and prudent management of the credit institution, of the entity that notified the acquisition. The notification by the "transferors" must be made at least one month prior to the intended transfer. The notification by the credit institution, must be made as soon as the credit institution is informed of the acquisition or transfer of its shares.

The CBF has issued sample notification forms. These sample notification forms provide a guideline for both the form and the contents of the notifications.

The guidelines of the CBF provide furthermore that in case of an indirect participation, as is the case here, one single notification can suffice for a "control chain". The CBF recommends that such single notification is made by the company that is the highest up in the chain, acting on behalf of the entire control chain.

The same rules are applicable, mutatis mutandis, to Belgian investment companies and Belgian insurance companies (the latter ones working with a threshold of 10% of the capital), as well as to the Belgian branches of non-EU financial institutions.

Specific transparency regulations exist with regard to the disclosure of change of holdings in Belgian listed companies and the change of control of Belgian public companies. Public takeover bids are regulated by law as well (see law of March 2 1989 on the disclosure of important participations in listed companies and on public takeover bids).

Finally, it must be pointed out that the significant shareholders (this must be interpreted on a case-by-case basis taking into account the specific shareholding structure of the bank) of a Belgian bank must sign an Annex to the Protocol on the autonomy of the banking function in which they accept the provisions of the Protocol, commit themselves to take all necessary measures in order to guarantee a prudent and sound management of the bank and to take the public interest into account in setting the general policy of the bank.

Competition regulations/concentrations


The Belgian rules on the notification and clearance of mergers are set out in the Law of August 5 1991 on the Protection of Economic Competition (the Competition Law). These rules have been modeled on the EU Council Regulation No 4064/89 of December 21 1989 on the control of concentrations between undertakings (the Merger Control Regulation) and accordingly require a "concentration" to be notified to the Belgian competition authorities if the following thresholds are reached:

  • the aggregate turnover realized in Belgium by all of the undertakings concerned amounts to at least euro 40 million ($34 million); and
  • at least two of the undertakings concerned each realize a turnover in Belgium of euro 15 million or more.

Therefore, if the envisaged concentration only implies two parties, no notification in Belgium is required where either of the parties implied in the concentration have an aggregate Belgian turnover of less than euro 15 Million. With respect to the computation of the turnover of banks, credit institutions and "other financial institutions", the Competition Law (Article 46 §3) still requires the application of the balance sheet test formerly used at EU level, ie turnover is defined as one-tenth of the balance sheet total of the undertakings concerned. The issue is often which portion of the calculated turnover of the parties involved in the concentration must be allocated to Belgium. The former Article 5(3) of the Merger Control Regulation provided that the total turnover within one member state was to be replaced by one-tenth of the total assets, multiplied by the ratio between loans and advances to credit institutions and customers in transactions with residents of that member state (in this case, Belgium) and the total sum of the worldwide loans and advances. The latter rule is not expressly contained in Belgian legislation but in view of the close relationship between the Belgian and the EU rule in this area we believe that it may be applied (see Decision No. 2000-C/C-01 of January 25 2000 (Fortis/Belgo Factors)).


Concentrations that meet the thresholds are to be notified to the Belgian competition authorities ("Raad voor de Mededinging/Conseil de la Concurrence") within one month of the conclusion of the agreement that contemplates the concentration.

The Belgian competition authorities have 45 days to determine whether the proposed concentration raises serious doubts as to its admissibility. Until a decision has been taken, the parties cannot implement any measures that would make the concentration irreversible or alter the market structure permanently. In case of non-compliance fines and periodic penalty payments can be imposed. An appeal can by made with the Court of appeal in Brussels.

Besides regulating concentrations, the Belgian Competition Law also contains a prohibition on all agreements, decisions and concerted practices which have as their object or effect the prevention, restriction or distortion of competition within the Belgian market, or any significant part thereof.

Continuing bank supervision

By its nature, banking entails the assumption of a wide array of risks. The CBF can rely on the support of its staff as well as of accredited auditors to monitor on a continuing basis the observance of the authorization and operating criteria (as described above and below) which are designed to limit imprudent risk-taking.

To this end, the CBF has means of collecting, reviewing and analyzing reports and statistical returns from banks on a solo and consolidated basis (Article 44 of the Law of March 22 1993).

In turn, banks are obliged to have in place administrative, bookkeeping and internal control arrangements that are adequate for the nature and scale of their business (Article 20 of the Law of March 22 1993 / CBF Circular Letter D1 97/4).

They are also required to draw up and publish financial statements in accordance with consistent accounting policies and practices (Royal Decrees of September 23 1992).

Disclosure requirements

As indicated above, Belgian financial institutions, and Belgian branches of non-EU financial institutions, must keep the competent Belgian regulator timely informed of possible changes with regard to significant changes in its shareholdership. The same sort of information obligation exists with regard to the management of the Belgian financial institutions and the non-EU financial institutions that have a Belgian branch. Indeed, in order to obtain a Belgian licence, the CBF or the OIC must be convinced of, among others things, the suitability, professional reliability and relevant experience of the management of the financial institution. Therefore, the CBF or the OIC must be notified of possible changes in the management, sufficiently in advance of such change to allow the CBF or OIC to consider the appropriateness of the new management, as well as the effect of such change on the activities, organization and prudential supervision by the CBF or OIC.

When a financial institution becomes insolvent

As described above, the CBF has extensive investigative powers in order to detect problem institutions in a timely manner. Where problems are remediable, the CBF can take exceptional corrective measures, going from the appointment of a special inspector or a temporary director to the suspension or withdrawal of an institution's authorization.

If an institution is no longer viable, the CBF will insist on the prompt and orderly closure of such institution. Under Belgian law, the financial institution may seek creditor protection (Law of July 17 1997) or be declared bankrupt (Law of August 8 1997). In principle, Belgian law follows the concept of the unity and universality of the bankruptcy.

In the event of a deficient credit institution or investment firm, the best interests of depositors and investors are safeguarded through the implementation of deposit-guarantee and investor-compensation schemes (Law of December 17 1998 / Royal Decree of February 15 1999). The details of the functioning of these schemes are laid down in a Communication of February 25 1999. With regard to securities held on a fungible basis (book-entry) with financial institutions that are affiliated with the Belgian CSD (BXS-CIK), full recovery of such deposited securities in the event of an insolvency of such financial institution, is guaranteed by the application of the Royal Decree no. 62 of November 10 1967 enhancing the circulation of securities.

Capital requirements for banks and bank secrecy

Capital requirements

According to Article 82 of the CBF Regulation of December 5 1995 relating to own funds of credit institutions (as amended and coordinated by the CBF on July 4 2000) (the 1995 CBF Regulation) Belgian credit institutions and Belgian branches of non-EU credit institution must satisfy three solvency ratios:

  • their own funds must exceed the total of their fixed (and assimilated) assets;
  • with regard to the credit risk, their own funds must at least be equal to 8% of the risk-weighted assets (risk-asset ratio) (chapters IV to VIII of the 1995 CBF Regulation provide for similar solvency ratios for a number of other risks, like counterparty risks, interest rate risks, exchange rate risks, etc); and
  • their own funds must exceed a percentage going from 6% to 2% of the liabilities to third parties according to a declining scale in amount of such liabilities (gearing ratio).

Own funds sensu stricto (Art. 14, §1, 1° of the 1995 CBF Regulation) consists of the following items:

  • paid-in capital plus share premiums;
  • reserves and profits brought forward; and
  • funds for general banking risks.

from which the following items must be deducted:

  • loss of the exercise and loss carried forward;
  • incorporation and formation expenses;
  • intangible fixed assets;
  • own shares held by the credit institution; and
  • unbooked risk reserves which should have been booked according to the CBF.

Other items may be added, under certain conditions and only up to 100% of the own funds sensu stricto (Art. 14, §1, 2°):

  • revaluation surpluses;
  • internal security funds;
  • funds collected by means of securities for an indefinite period and other financing instruments and satisfying to certain conditions set forth under Article 14, §2); and
  • subordinated debts and fixed-term cumulative preferential shares satisfying certain conditions set forth under Article 14, §3, up to maximum 50% of the own funds sensu stricto.

Article 14, §4, lists other items that have to be deducted from a credit institution's own funds, among which notably shareholdings in, and claims on, affiliated or other group enterprises, except if those amounts result from standard banking transactions. All obligations or undertakings in support of affiliated or other group enterprises should also be deducted.

This deduction is aimed at avoiding the so-called "double gearing". To restore the balance, Article 16, §6, 1° provides that all items which have to be deducted from the own funds pursuant to Article 14, §4, have also to be deducted from the risk-weighted assets.

The capital requirements of stock broking firms has been set forth by the CBF in its Regulation of December 5 1995 relating to own funds of stock broking firms (as amended and coordinated by the CBF on July 4 2000).

Bank secrecy

The duty of confidentiality of Belgian credit institutions is a duty of a contractual (or tortious) nature, and has never been embodied in a statutory provision. A breach of a Belgian bank's duty of confidentiality is not a criminal offence, but the Bank may be liable for damages incurred by its clients due to such a breach. The nature of the duty and its resulting liability will depend on the circumstances.

Exceptions to the confidentiality rule can be found in: (i) the agreements entered into between the banks and their clients; (ii) the Belgian Judicial code or the Belgian Code of Criminal Procedure; (iii) other specific legislation like taxation codes, the laws on consumer credit and the laws on money laundering. An important exception to the banking secrecy principles, with which many banks are faced daily, is the information a bank must provide to a creditor of a client who has served a third-party attachment (garnishee order) against the bank. Notwithstanding all this, it must be noted that the principle of confidentiality is clearly established in Belgium and that banks, when faced with valid disclosure requirements from public authorities or private persons, must not depart from this principle: they must ensure that the person or authority requesting the information has adhered to the procedural rules to do so and the bank must limit the provision of information or document to the minimum required.

June 1 2001


Goedheidsstraat 5-7 Rue de la Bonté
Brussels, B-1000

Tel: +32 2 538 6869
Fax: +32 2 538 6867