On 14 July 2015, the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten, the AFM) published a consultation paper which focuses on the question whether an investment firm and an offeror of investment funds can function within the same group. In the last few years, the AFM has been requested to express an opinion in relation to investment firms (managing assets) that invest on behalf of their clients in an AIF or UCITS that is managed by an entity within the same group. The AFM has indicated that it believes that such a situation could cause perverse incentives and may lead to conflicts of interest.

To address this issue, the AFM has been in discussions with various market parties during the last few months in order to assess to what extent investment firms invest in AIFs or UCITS managed by an entity within the same group and the advantages and disadvantages of this practice. With the aim of promoting a transparent market and preventing conflicts of interest, the AFM is now proposing to establish conditions under which an investment firm is allowed to continue this practice. These conditions include, amongst other things, a requirement for investment firms to have an adequate conflicts of interest policy in place. In this respect, the AFM indicates that a conflict of interest will, by definition, be assumed to exist if an investment firm invests in an AIF or UCITS which is a group company. Another example of the AFM’s conditions is the requirement that investments in group companies should be limited to a certain percentage, that there should be cost transparency and that margin incentives should be limited.

The AFM asks market parties to respond to this consultation paper, and provide their views as to whether the proposed conditions are clear, comprehensive and feasible. The deadline for comments on the consultation paper is 31 August 2015.