On 18 September 2023, the Dutch Central Bank (De Nederlandsche Bank, DNB) launched a public consultation on the draft ‘Good Practices Intra-Group Relationships’ applicable to e-money institutions and payment institutions. The consultation is open until 17 November 2023.

According to DNB, intra-group financial relationships, arrangements and positions between e-money institutions and payment institutions and other group entities may pose a threat to the soundness of a supervised institution. This threat may arise from potential conflicts of interest, contagion risk and/or concentration risk. Therefore, DNB has issued the Good Practices to provide insight into the legislative and regulatory requirements on this topic and DNB’s expectations in this respect.

The Financial Supervision Act (Wet op het financieel toezicht) requires supervised institutions, such as e-money institutions and payment institutions, to have controlled and sound business operations and policies aimed at controlling relevant risks, such as concentration risk, credit risk, but also risks arising from intra-group (financial) relationships. If DNB is of the opinion that a controlled and sound business operation is not sufficiently safeguarded, DNB may decide to impose various enforcement measures.

According to DNB, intra-group relationships can give rise to risks in two ways: conflict of interests and interconnectedness. Conflicts of interest in intra-group relationships can arise when transactions favour one party over the institution, potentially leading to increased risk exposure and mispricing. The interconnectedness of entities within the institution’s group, resulting from intra-group financial relationships, can lead to contagion risks. Without an effective risk management system that takes into account financial interdependencies and risk concentrations, financial problems in other group entities can have a negative impact on the institution.

The Good Practices include:

Good Practice A – Internal Policy Framework: Institutions should ensure that the procedures and measures to control the risks associated with intra-group relationships are set out in a specific policy. This policy should include two sets of procedures and measures: (i) the procedures for conducting periodic risk assessment of all intra-group relationships within the group and (ii) the procedures and measures that enable the institution to ensure that the financial and legal risks of intra-group relationships are adequately managed.

Good Practice B – Containment of financial risks: Where an institution’s exposure to another group entity is disproportionate to the independent repayment capacity of that group entity, the institution’s exposure should be secured by collateral that is/are not correlated with the credit quality of the relevant group entity. In addition, current account relationships between an institution and other group entities should arise only as a result of specific activities that fall within the normal operations of the payment institution and/or electronic money institution. Furthermore, the institution and the group should have at all times a full understanding of both the extent and the financial risks of intra-group relationships and it must be ensured that no single intra-group relationship may pose a threat to the soundness of the institution because of its size.

Good Practice C – Legal assurance: The intra-group relationship needs to be clearly described in a written agreement with an appropriate legal basis between the institution and the counterparty, clearly defining the respective rights and obligations.