The Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten, the AFM) recently submitted its legislative letter (wetgevingsbrief) for 2020 to the Dutch Minister of Finance (the Minister). This letter is submitted to the Minister annually and sets out the relevant European and national developments relevant to the financial sector and the legislative changes desired by the AFM to address bottlenecks in Dutch laws and regulations.
The AFM’s legislative letter describes the following general developments in the legislative field:
- the upcoming EU Crowdfunding Regulation which is expected to enter into force in 2021. The AFM welcomes the introduction of this regulation, as there is currently no solid legal framework applicable to crowdfunding platforms;
- the Minister’s announcement that the transparency and accessibility of the Act of the Financial Supervision (Wet op het financieel toezicht, the AFS) will going forward be improved by way of smaller incidental changes (instead of a major legislative change); and
- the AFM will investigate whether improvements can be made to the requirements that apply to credit and insurance products after the sale of such products.
Besides these developments, the AFM brings a number of legislative wishes to the Minister’s attention, including, but not limited to the following.
1. Regulating private lease
The AFM notes that there is a huge increase in the availability of operational lease options for consumers (commonly referred to as private lease). As opposed to regular credit and financial lease, private lease is not adequately regulated, which can lead to financial problems for consumers. Although private lease products have similar properties as (regulated) goods credit, and private lease falls within the definition of “credit” used in the AFS, private lease products currently fall under an exception from application of the AFS. The intention of this exception has been to not to make “ordinary” rental of movable property subject to financial supervision.
However, due to this exception, certain basic principles from the AFS currently do not apply to private lease products, which are often long-term and involve substantial monthly amounts. The AFM sees that in practice consumers are facing greater risks than with other types of credit and that the incentive for market parties to avoid payment issues is weak. In addition, the AFM notes that a lack of maximization of costs and transparency requirements lead to high (hidden) costs.
In view of this, the AFM believes that the aforementioned exception is no longer acceptable. The AFM advocates that providing operational lease to consumers should be subject to a licence regime and ongoing supervision similar to what applies in relation to consumer credit.
2. AIFM light regime changes
Under the AFS managers of alternative investment funds (AIFMs) are exempt from the licence obligation if the portfolio of such manager does not exceed EUR 500 million (for closed-end investment funds without leveraged financing) or EUR 100 million. These so-called “ light” AIFMs fall under a separate regime in the AFS (set out in Article 2:66a of the AFS) and they are only allowed to make offers to certain investors in the Netherlands (e.g. only to less than 150 retail investors or the nominal amount of a participation right must be at least EUR 100,000).
This light regime is limited to Dutch AIFMs only, as a result of which foreign AIFMs meeting the same size criteria are not able join the Dutch market in the same way. The light regime in the Netherlands is only applicable to Dutch AIFMs, while similar regimes in other EU Member States are also available for AIFMs based in other EU Member States. This does not only raises the questions why a light AIFM from another EU Member State is treated differently, but also leads to reluctance by the regulators in other EU Member States to grant market access to Dutch light AIFMs. Besides investigating whether the Dutch light regime should also be open to AIFMs from other EU Member States, the AFM also believes it to be desirable to investigate whether the offer to less than 150 retail investors should be maintained for both Dutch AIFMs and AIFMs from other EU Member States.
The AFM requests the Minister to propose an amendment to Article 2:66 AFS so that AIFMs from other EU Member States are also able to make use of the Dutch light regime. In addition, the AFM asks the Minister to examine whether the aforementioned 150 threshold should be maintained.
3. UCITS market access
The UCITS Directive allows licensed managers of undertakings for the collective investment in transferable securities (UCITS) to manage UCITS on a cross-border basis using an European passport. The way in which the UCITS Directive has been implemented in Dutch legislation on this particular point creates conflicting and undesirable situations.
Firstly, the AFS provides for a separate license requirement for UCITS when a manager with its registered office in another EU Member State wishes to manage a UCITS in the Netherlands by on a freedom of services basis, while other EU Member States, such as France, Luxembourg, Germany and Ireland, do not know such licence requirement.
Secondly, a Dutch UCITS manager is required to make available an AFS-compliant prospectus for each UCITS it manages, including for an UCITS with its registered office in another EU Member State. The UCITS Directive does, however, provide that elements of the prospectus must comply with the legislation of the UCITS’ home member state.
Finally, UCITS managers from another EU Member State managing an UCITS in the Netherlands are excluded from certain provisions laid down in the AFS (which do apply to Dutch UCITS). As a result, the AFM is unable to supervise compliance of these provisions by UCITS managers based in another EU Member State.
In view of this, the AFM requests the Minister to remove the separate licence requirement for UCITS managers based in another EU Member State managing Dutch UCITS. In addition, the AFM requests the Minister to review the implementation of Article 19 of the UCITS Directive (containing part of the European passport framework).
The Minister has responded to the AFM’s legislative letter and in summary responded as follows to the three legislative wishes set out above.
- The Minister would like to discuss the growth of private lease with the AFM and asks the AFM and other relevant parties to provide more insight into the growth of private lease, the causes of this growth and the risks for consumers, among other things. This will allow the Minister to assess whether there is a problem requiring intervention and whether a legislative change is necessary.
- Together with the AFM, the Minister will consider whether it is desirable to also amend Article 2:66a of the AFS to open the light regime up to EU AIFMs. The Minister will also investigate whether the 150 threshold for retail investors should be retained for EU and Dutch AIFMs.
- The Minister notes that a UCITS manager from another EU Member State which is licensed to manage certain types of UCITS does not require a licence to set up a UCITS in the Netherlands (insofar as the type of UCITS falls within the scope of such manager’s licence). The Minister will consider whether the AFMS should be amended to reflect this. The Minister will also examine whether Article 19 of the UCITS Directive has been correctly implemented into Dutch legislation and whether there are any ongoing requirements that should also apply to Dutch UCITS managed by a UCITS manager from another EU Member State.