On 24 January 2018, the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten, the AFM) issued a press release on its website announcing its supervisory agenda for 2018 (the Agenda 2018). In its press release, the AFM puts emphasis on new data analysis initiatives that it will be commencing in 2018 with the aim to protect investors against malicious practices and market abuse. The recast Markets in Financial Instruments Directive (MiFID II), which has applied since 3 January 2018, has provided the AFM with new instruments to do this.
The AFM has identified three important trends from which risks for financial markets and consumers arise:
- increased digitization;
- persistently low interest rates; and
- the blurring of the borders of financial markets.
According to the AFM, these three trends reinforce each other, which results in increasing complexity and creates new risks on the financial markets. An example of this is the ‘gamification’ of financial products. The AFM states that this involves risky investment products such as binary options, which are brought onto the market using aggressive marketing techniques from the online gaming and gambling industry.
The AFM describes the risks and the supervisory approach to combat them in its Agenda 2018. The AFM has identified the following top ten risks:
- risk that loans are not in the interest of the customer;
- risk of unsuitable investment products;
- risk of undesirable consequences for financial markets and supervision as a result of international developments;
- risk of irresponsible use of technology and data;
- risk of insufficient improvement in quality of audits;
- risk of disappointing financial positions after retirement;
- risk of insufficient risk management in asset management;
- risk that the operation of capital markets does not result in the best price;
- risk of insufficient focus on sustainability; and
- risk of using the financial sector for criminal behaviour.
In order to strengthen supervision, the AFM is constantly investing in innovations. An important example is the use of behavioural science to assess whether financial undertakings organize their online environment for the benefit of their customers. The AFM will also start using risk profiles for the first time in 2018, in order to be able to more effectively identify providers that do not sufficiently focus on the interests of their customers.
In addition, the AFM announces that in 2018 it will start investigating providers that use ‘evil nudges’ in their digital services. This concerns the online provision of financial services in combination with aggressive marketing methods. This responds to the irrational behaviour of consumers, e.g. when taking out consumer credit. According to the AFM, consumers are also confronted with aggressive providers of binary options and certain contracts for differences (CFDs). On the basis of MiFID II the AFM has the ability to take protective measures in 2018 against this type products and their suppliers. The AFM’s chairman, Merel van Vroonhoven, is in charge of this at an European level as chairman of the Investor Protection and Intermediaries Standing Committee.
View the AFM’s press release (Dutch only), 24 January 2018.
View the Agenda 2018 (Dutch only), 24 January 2018.