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Enforcement of the Financial Supervision Act

Enforcement measures are indispensable tools for the Dutch supervisory authorities the Dutch Central Bank (“DNB”) and the Netherlands Authority for the Financial Markets (“AFM”). The application of enforcement measures is a doom scenario for many market parties. Rather than the enforcement as such, it is the consequent loss of reputation that makes it important to prevent enforcement at all times. In the past few years, supervisors have intensified their supervision. The number of cases in which enforcement actions were undertaken has risen substantially, as is evident from the many related publications.

Under the Financial Supervision Act, DNB and the AFM have been designated as supervisors of the Dutch financial markets. DNB primarily exercises prudential supervision (aimed at an institution’s financial solidity and at the financial sector’s stability) while AFM is more focused on business conduct supervision (aimed at orderly and transparent markets, integrity in relationships between market parties and careful treatment of customers).

One duty of DNB and AFM is to supervise compliance with the mandatory and prohibitory provisions of the Financial Supervision Act. If those provisions are breached, DNB and AFM will (eventually) take enforcement actions. To that end, the Financial Supervision Act offers them various possibilities. Enforcement may be light or heavy depending on the seriousness and duration of the breach. Some of the enforcement measures available to supervisors are to demand information (anyone is obliged to provide information to the supervisor upon request), to have a meeting to communicate on a standard breached, to give an instruction, to appoint a (silent) trustee, to impose an order subject to a penalty or an administrative fine and to publish the sanction imposed (which is mandatory). In the worst case, a licence may be withdrawn and the company has to cease its operations immediately.

Following recent legislative changes, the scope of enforcement has been extended to include directors of licensed institutions privately or those effectively in charge and involved in prohibited conduct.

Enforcement by a supervisor may cause the party involved not only direct financial damage, but because publication of some sanctions is mandatory, may also lead to a significant loss of reputation with all the associated consequences.

Although prevention is better than cure, you could find yourself in a situation where a supervisor seeks enforcement. To limit any loss to the greatest extent possible, we advise you to seek legal assistance at an early stage. Eversheds Sutherland can provide such legal assistance. Clients regularly hire us to:

  • assist in consultations with supervisory authorities;
  • map the risk arising from enforcement measures;
  • advise on powers of supervisory authorities;
  • provide assistance in cases of enforcement; and
  • provide legal assistance in enforcement proceedings.

Miriam Ee, van