Supervision on Dutch representative offices

• Netherlands

• Corporate
• Financial services and markets regulation - UCITS V

01-11-2008

In the middle of a major credit crisis, the Dutch Central Bank (De Nederlandsche Bank, "DCB") announced that in the first quarter of 2009 it will intensify its supervision on Dutch based representative offices ("Rep Offices") of banks established outside the Netherlands. At the end of September 2008 all Rep Offices operating in the Netherlands and known to DCB, received a notification from DCB setting out in more detail the actions DCB intends to take. What does this mean for your business?

Introduction

In general, a Rep Office is understood to be an office located in the Netherlands that is associated with a foreign bank (i.e. a bank not established in the Netherlands). Rep Offices are not allowed to perform activities which are reserved to a bank, a branch office of a bank or a money transaction office, which activities all are subject to supervision by either DCB or a local supervisory authority. The activities to be explored by a bank, a branch office or a money transaction office are regulated by the Dutch Financial Supervision Act (Wet op het financiële toezicht, "FSA") respectively the Dutch Act on Money Transaction Offices (Wet inzake geldtransactiekantoren).

What activities may be explored by a Rep Office?

The main goal of DCB is to ensure that the Dutch public is able to distinguish the difference between a Rep Office from a bank, a branch office or a money transaction office.

The number of activities that may be performed by the Rep Office is limited. In general the Rep Office is intended to be used as a so called listing post (luisterpost) of the foreign bank it is associated with.

A Rep Office may (i) gather information, (ii) perform market fact-finding and market research activities and (iii) maintain contact with other banks and/or professional market parties in the Netherlands, as long as it does not give the impression to the public that it operates as a licensed bank, branch office or money transaction office.

Lastly, a Rep Office may make advertisements aimed at the Dutch public for the financial services of the foreign bank it is associated with, as long as it is clear for the Dutch public that the Rep Office is not a licensed bank, branch office or money transaction office. It must, at all times, stay clear that the Rep Office is not subject to (Dutch) supervision.

What activities may not be explored by a Rep Office?

It is forbidden for a Rep Office to conduct, amongst others, the following activities in the Netherlands:

0. to deposit (or cause to be deposited) redeemable funds of the public in the Netherlands in its accounts or to otherwise receive such funds;
0. to transfer redeemable funds of the public through a corresponding bank and its head office or to another bank;
0. to open current accounts and/or savings accounts;
0. to assist or be involved in opening accounts for Dutch clients or at a bank as well as the issue of bank cards, credit cards, et cetera;
0. to perform activities as referred to in Annex I of the (recast) EU Banking Directive;
0. to provide intermediary services or advice on financial products or financial instruments; and
0. to have contact with the Dutch public for the purpose of concluding, attempting to conclude or handling banking transactions or performing money transactions.

It is important to notice that Rep Offices may not use or include the word "bank" in their company name(s). Under circumstances, DCB may exempt a Rep Office from this rule.

The use of Rep Offices by Foreign banks

There is a thin line between using a Rep Office or a branch office. The disadvantage of using a branch office is that certain compliance obligations have to be observed. The advantage is that there will be the possibility to perform banking activities without having to verify each time whether the proposed activities may be performed Also you have the certainty that you act within the boundaries set by the applicable laws and regulations.

There are foreign banks using both a Rep Office and a branch office in the Netherlands. This is only allowed in case there is no risk of confusion between the status of both entities.

Foreign banks acting in the Netherlands and having a Rep Office located in the Netherlands as well, will have to ensure that their activities are in no manner performed through its Rep Office.

In order to avoid misunderstandings as to which activities may be performed by a Rep Office, we always advise to use a branch office. If you set off the disadvantages against the advantages, you will find that ultimately investments made will pay off.

Measures that could be taken by DCB

If DCB reaches the conclusion that a Rep Office is performing activities without having obtained a required license or notification of DCB, the following measures can be taken by DCB. DCB can (a) issue a direction (aanwijzing), (b) impose an order for incremental penalty payments (last onder dwangsom) or (c) impose an administrative fine (bestuurlijke boete).

What if forbidden activities are explored by you?

What should you do you reach the conclusion that your Rep Office is conducting "forbidden" activities?

Firstly you should make an inventory of all activities that are explored by the Rep Office. Secondly, all activities explored that need specific authorizations should be put on hold without delay.

Thirdly, if you would like to proceed with exploring regulated activities in the future, you should file an application in order to obtain the requisite licenses with DCB or Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten, "AFM"). Fourthly, you need to ensure that all required compliance measures have been taken so to ensure that upon granting of the license you can immediately proceed with offering the regulated services.

How can we assist you?

The persons within the Banking, Securities and Finance Law Group of Eversheds Faasen are, amongst others, specialized in assisting you in making an inventory of your activities and advising on which activities require specific authorizations.

If needed, we can assist you with obtaining the required licenses from DCB or the AFM. Some of our other services are:

• advice on risk mitigation issues for banks, investment funds, asset and fund managers, dealer-brokers and collective investment schemes;
• advice and assistance on the implementation of compliance measures for banks, investment funds, asset and fund managers, dealer-brokers and collective investment schemes;
• advice and assistance on the emergency regulations and reorganization measures and winding-up procedures, including assistance on labour law issues, working counsil position, etc/
• turn key management of application proceedings for licensing banks, banks, investment funds, asset and fund managers, dealer-brokers and collective investment schemes, financial service providers and financial institutions;
• notification of UCITS, advice on notification of investment brokers and banks under the European Passport regime;
• advice and litigation on banking and securities related disputes such as prospectus liability, security lease, et cetera.
• (guidance on and review of) drafting the required prospectus in offerings of investment funds participations and approval by the AFM;
• advice on Dutch market conduct rules;
• acting as intermediary in contacts with DCB and AFM; and
• ongoing advice on Dutch banking and securities law.

Information

We emphasize that the information included in this news letter is non exhaustive. For further information please contact us.