On January 1 2007, Dutch legislation relating to the supervision of financial institutions and markets was completely overhauled. In the Netherlands, each type of financial activity has traditionally been regulated by a sector-based act, for example, the Act on the Supervision of the Credit System 1992, the Act on the Supervision of the Insurance Industry 1993, the Act on the Supervision of the Securities Trade 1995 and the Act on the Supervision of Collective Investment Schemes. All these acts have now been replaced by one single act that applies to all financial institutions on a cross-sector basis: the Act on Financial Supervision (Wet op het financieel toezicht, or the WFT). Rules have also been laid down in extensive secondary legislation, including 11 decrees and a number of regulations by the Minister of Finance, the Dutch central bank and the Authority for the Financial Markets.
The WFT intended merely to integrate and harmonize existing rules, without amending the law substantially. However, an exemption regulation based upon the WFT (published by the Minister of Finance) has taken the market by surprise. It implies that the licensing regime has been liberalized, particularly for investment firms established in the US, Australia and Switzerland. Under certain conditions, investment firms that are registered in these jurisdictions may provide cross-border broker/dealer services or offer discretionary asset management in the Netherlands, or establish a branch in the Netherlands, without a licence from the Dutch Authority for the Financial Markets (the AFM). Market access will become much less time consuming and costly.
For instance, an SEC registered broker/dealer might wish to become a member of Euronext Amsterdam and so be able to trade on the pan-European Euronext trading platform. This would become particularly attractive after the merger between Euronext and the New York Stock Exchange. Pursuant to the exemption regulation, the broker/dealer would be able to passport its SEC registration to the Netherlands. An AFM licence would not be required.
Asset managers from the US, Australia and Switzerland might wish to enter into investment management agreements with Dutch pension funds, which have large assets and are increasingly outsourcing their management.
This will only be a temporary exemption pending the implementation of the Markets in Financial Instruments Directive (2004/39/EC, the MiFID). The MiFID contains a number of rules regarding the relationship between EU member states and third countries. The MiFID is not expected to be implemented in the Dutch securities regulations before November 1 2007. The legislator will consider whether the exemption described above should be replaced by the system that is used in respect of collective investment schemes from non-EU countries. According to this system, the Dutch Minister of Finance can, upon request, decide that a state qualifies as a state with adequate supervision. Collective investment schemes from countries with adequate supervision (including the US) are exempted from the licence obligation. If a similar system were introduced in respect of investment firms, investment firms from countries with adequate supervision would still be able to perform investment services in the Netherlands without a licence from the Dutch regulator.
By Hugo V Oppelaar
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