On 21 March 2018, the Dutch Central Bank (De Nederlandsche Bank, DNB) published Q&As relevant to investment firms dealing on own account (handelaren voor eigen rekening), so-called proprietary trading firms. The background to the Q&As are developments around the prudential regime and remuneration rules applicable to proprietary trading firms that were designated as local firms (plaatselijke ondernemingen) by DNB, which followed the European Banking Authority breach of EU law investigation against DNB in November 2017 for interpreting the term ‘local firm’ too broadly (view our earlier blog entries here and here).

In the press release announcing the Q&As, DNB reiterates that the proprietary trading firms concerned have been given the opportunity until 31 March 2018 to comply with the applicable requirements in the Capital Requirements Regulation (the CRR). These proprietary trading firms must report their capital position to DNB by no later than 14 May 2018 (calculated on the basis of the capital requirements applicable to them as of 31 March 2018 under the CRR). In the event of a capital shortfall, the proprietary trading firms must draw up a recovery plan, which demonstrates to DNB that it will be able to meet the applicable capital requirements within a reasonable period set by DNB (such period will be determined on a case-by-case basis), but in any event no later than by 31 December 2019.

The Q&As are relevant for investment firms that meet all conditions set out in Article 96(1)(b) of the CRR. The Q&As provide for answers to the following questions:

  • Which CRR capital requirements apply to proprietary trading firms that full under the revised prudential regime of 13 November 2017?
  • To what extent are the various components of the capital buffer requirements from the Capital Requirements Directive IV (CRD IV) applicable to proprietary trading firms?
  • Is it possible for proprietary trading firms to use an internal model for the calculation of the capital requirements for certain (partial) risks, instead of the standardised approach described in the CRR? What process applies for approving an internal model?
  • Which reporting obligations apply to proprietary trading firms?
  • In which case is a proprietary trading firm required to submit a recovery plan to DNB and what must such plan cover?
  • Which exemptions and exceptions laid down in CRD IV and the CRR are potentially relevant to proprietary trading firms, and under which conditions are proprietary trading firms eligible for these exemptions and exceptions?
  • When does a proprietary trading firm qualify as a local firm within the meaning of the CRR?
  • What does the ICAAP and SREP process look like for a proprietary trading firm?

View DNB’s press release containing the Q&As (Dutch only), 21 March 2018.