AFM Agenda 2023

AFM Agenda 2023
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Contents 2
Contents
Foreword 3
01 Key Developments 4
02 Strategy 8
03 Priorities and Key Activities 2023 9
3.1 Supervision of Financial Services 10
3.2 Supervision of Capital Markets 15
3.3 Supervision of Asset Management 19
3.4 Supervision of Accounting and Reporting 21
3.5 AFM-wide Topics 24
04 Finances 2023 28
Appendix External KPIs 34

Foreword 3
Moving with the flow
War in Ukraine, high gas prices, declining purchasing power, high inflation followed by interest rate hikes, a shrinking economy. Everything flows from everything and everything is connected to everything. Signed: Leonardo da Vinci. We can also look at sustainability this way: extreme weather conditions, CO2 issues, fish-meat-vegan debates, strict criteria for major polluters, ESG reporting. And to digitalization: from self-thinking algorithms to cybersecurity, from tailor-made products to exclusion. Everything flows from everything and everything is connected to everything. But if everything interferes with everything, how should we deal with developments and risks? Close all loopholes in the hope of keeping problems under control? Do we tackle the core? It won't work. It is not desirable. Of course, new rules are regularly added – the financial sector is changing continuously – but that inevitably lags behind developments. In a world of predictable unpredictability, something else is needed. Adjusting, adapting, and channeling is our motto. This applies to the financial sector, the government, citizens and investors, and also to the supervisor. Dealing wisely with changes means adapting wisely. So sometimes issuing prohibitions and permissions – as a supervisor you do not let go of the reins – but above all stating what you expect from the sector and thus providing handles on how to go along with developments. Now, moving with the flow is easier said than done. Changes also give a feeling of uncertainty and concern. Like households and enterprises whose existence is threatened by a high energy bill. Then it is too short-sighted to rely on flexibility or self-reliance. But still, society must learn from these dark days. For example, healthy buffers can prevent setbacks from hitting hard; this applies at the level of the individual, a company, and a country. Furthermore, this changing society requires an active stance. Especially with regard to the sustainability problem and advancing digitalization. Without wind turbines and solar panels, the word 'energy crisis' will always be part of our vocabulary. And when we just let digitalization happen to us, people and companies can become victims of cybercrime or succumb to the siren song of crypto's. That requires mental resilience from everyone. The idea that regulation is the answer to all problems is an illusion. A changing world requires agile and learning organisms and thus also an agile and learning AFM. As a data-driven organization with people from different expertise who detect risks, but preferably prevent them. As the English say beautifully: every cloud has a silver lining. Ultimately, everything has a positive side. From that thought, the AFM will strive in 2023. So that we can also contribute this year to sustainable financial well-being in the Netherlands. Amsterdam, January 12, 2023 Laura van Geest, Chair Hanzo van Beusekom Jos Heuvelman Linda Sas Foreword

01 Key Developments 4
Due to the same lockdowns, groups of households have saved a lot in recent years and therefore have good buffers. The general expectation is that the Dutch economy will grow significantly slower in 2023 or may even stagnate. In the estimates, such as those of the CPB, reference is made to great uncertainties in the economic climate, especially regarding the development of energy prices.
Different effects are also visible among households and companies. To what extent high inflation and high energy prices lead to acute problems depends on many individual factors, for example how long the fixed energy contract continues, whether there are solar panels on the roof, and whether the house is well insulated.
There are therefore both households that experience relatively few consequences, and households that are directly affected in their security of existence ('eat or heat'). The picture also varies for companies. Companies that manage to pass on the increased costs to their customers manage to maintain or even increase their profitability. While other companies that cannot pass on costs to a lesser extent, get into trouble. Meanwhile, the government is relying on large support packages to dampen the consequences of high energy prices and high inflation. An important measure to support the purchasing power of households is the introduction of a price cap for energy. A challenge is to get that support where it is most needed. When a large part of the (generic) support measures ends up with households and companies that do not directly need this support, this can lead to extra spending that actually further fuels inflation. 01 Key Developments Annually, the AFM conducts an environmental analysis of developments that influence our strategy and the Agenda. The trends and major developments in society remain partly the same from year to year. But in recent years we also saw unexpected events, such as the corona pandemic and more recently the Ukraine war, which caused important changes in society and the economy in a short time. These developments are briefly described in this chapter. For more detail we refer to our publication Trendzicht. Trends Since last year, the geopolitical and macroeconomic picture has changed significantly. The cautious optimism that prevailed at the beginning of 2022 about the approaching end of the corona pandemic and the associated lockdowns is now replaced by a feeling of continuing crisis. A decisive turning point was the invasion of Russia into Ukraine, which has helped energy prices rise to unbelievable levels and inflation – already on the rise before the invasion – reach record heights. The increased energy prices and price increases for many other goods and services have a major impact on households (loss of purchasing power) and companies (production costs, transport costs). The economic picture that emerges from the strongly changed environment has two faces and is characterized by a high degree of uncertainty. Even after the Russian invasion of Ukraine, the Dutch economy continued to grow. Even harder than expected. There are still many vacancies, causing labor market tightness to persist and unemployment to remain low. Due to high inflation, consumer confidence is low. However, consumer spending is still at a high level, partly as a result of catching up after the corona lockdowns.

After more than 10 years of steady decline, interest rates begin to rise. In response to high inflation, central banks are raising policy rates with firm steps. The direct effects of rising interest rates are still limited. Interest rates for mortgages and consumer credit are rising, but given the long terms and mostly fixed interest percentages, the interest rate increase only affects new issuances and a small part of mortgages for which the fixed interest period is ending. At pension funds, the consequences are visible sooner; the interest rate increase is the most important factor in the recovery of their coverage ratio. The indirect consequences of the rising interest rate and the underlying cause – inflation – are considerably larger. This has led to falling stock prices and in its wake, the more risky assets (crypto's, tech sector, SPACs) have been hit even harder. This decreasing search for yield, as a result of rising interest rates, increases the robustness of capital markets. The financial markets have so far handled the geopolitical and economic turbulence well. After the financial crisis, reinforcements have been made in the system for professional market participants, such as measures regarding risk management and larger capital buffers, to prevent a repetition of a crisis of such magnitude. These reinforcements seem to have borne fruit. That does not mean there are no points of attention. Think, for example, of the current challenges on the gas term market (see chapter 3 of Trendzicht). With regard to households, the suddenly worsened (purchasing power) circumstances have underscored the usefulness of various consumer protection measures such as the loan norms that limit the taking of consumer and mortgage credit. Nevertheless, the vulnerability (of specific groups) of households will remain a challenge in the coming time. In particular, financial service providers will need to pay extra attention to their duty of care. In addition to acute changes, structural transitions and trends continue. The importance of the transition to a sustainable society is becoming increasingly prominent. Climate change and the associated extreme weather conditions, and on a national level also the nitrogen problem, already have major consequences. Much supervisory attention is focused on promoting transparency about the impact companies have on their living environment and on how the financial sector can take its role in facilitating financing flows to enterprises and projects that contribute to sustainability. Improvement of reporting by companies regarding sustainability risks and performance plays a key role. With the increasing attention for sustainability, sustainable investing is gaining popularity. A growing range of investment products responds to this. However, the way investments contribute to the sustainability transition is not always clear to consumers (see chapter 4 of Trendzicht). Also, digitalization and platformization cause major
changes in the way financial products and services are offered and consumed. The increasing dependence on digital systems combined with the trend of outsourcing digital business processes creates vulnerabilities in the financial sector. New European laws and regulations attempt to influence the direction of various digital developments and address potential risks. For example, DORA aims to strengthen the digital resilience of enterprises, and MiCAR takes a first step in the regulation of crypto's. Absorbing the increasing regulatory burden also places a heavy burden on the sector. The trend of internationalization causes financial markets to become increasingly international in character. In addition to the positive effects of an increase in supply and greater diversity of providers, the cross-border nature of financial markets leads to cross-border risks that are increasingly inadequately addressed at the national level. In response to this, we see a movement towards further internationalization of supervision and supervisory convergence. Risks The risk maps of Trendzicht give an overview of important risks per supervisory area. The risk maps make it clear how the changing environment works through on specific risks. There are risk maps for each of the four supervisory areas of the AFM: financial services, capital markets, asset management, and reporting and accounting organizations. Below, some risks are highlighted per supervisory area; for the full overview we refer to chapter 2 of Trendzicht.

01 Key Developments 7
Directing investors on how sustainability is given content. Due to the high volatility on capital markets, we pay extra attention to liquidity risks in the asset management sector, as these may undermine the financial stability of the system.
Reporting and Accounting Organizations. Digitalization and sustainability change the nature of audited enterprises and lead to new material risks. This places different demands on reporting and audit, with the risk that these changes are not sufficiently implemented. Furthermore, sustainability and the economic conjuncture lead to an increased risk of fraud and discontinuity. Additionally, accounting organizations themselves are also changing, partly due to digitalization, which is accompanied by new control risks. There is also an important change in supervision: the shift of executive supervision on the segment of regular license holders to the AFM. We are therefore working, among other things, on increasing insight into integrity risks in this segment.

02 Strategy 8
The mission of the AFM gives direction to the execution of our statutory tasks. The mission of the AFM is: 'The AFM stands up for fair and transparent financial markets. As an independent conduct supervisor, we contribute to sustainable financial well-being in the Netherlands'.
The AFM uses a supervisory approach that is risk-based, data-driven, and result-oriented. Risk-based means that the AFM focuses on matters where the most damage to consumers, investors, and other market participants can arise.
Data-driven supervision means that we formulate risk hypotheses and risk indicators, determine the information need, and collect and open up data. With this, we can systematically monitor, understand, and effectively address risks.
Result-oriented means that we focus on maximum impact with the formal and informal instruments we have. For the best result, we play on the drivers and causes of behavior.
Digitalization, internationalization, and sustainability are the three long-term trends that have a high impact on Dutch society, the financial sector, and the AFM. These trends give direction to our supervision. The most recent analysis of this can be found in the summary in the previous chapter 1 and the extensive version in our publication Trendzicht.
The mission and external developments have been translated into multi-year supervisory goals for the four supervisory areas. These have been elaborated in chapter 3 for the coming year.
A professional organization offers a solid foundation for achieving the supervisory goals and mission. The objectives in this regard can be found in chapter 3.5.3.
02 Strategy
The AFM renewed its strategy in 2022. The AFM Strategy 2023-2026 is a recalibration of the Strategy 2020-2022. Because a large part of the external developments is comparable to those of the previous period, this strategy is also not fundamentally different, but a further development compared to the earlier strategy.
The strategy is summarized in the figure below.
Professional Organization
An agile and learning organization, an attractive employer, with well-functioning IT We work risk-based, data-driven, and result-oriented The AFM stands up for fair and transparent financial markets.
As an independent conduct supervisor, we contribute to sustainable financial well-being in the Netherlands.
Financial Services
Customer interest central in times of transition Capital Markets Integrity trading behavior and robust and transparent markets Asset Management A robust and agile asset management sector Accounting and Reporting Reliable and relevant (non-)financial information provision Digitalization, internationalization, and sustainability give direction to our work

03 Priorities and Key Activities 2023 9
In 2023, the AFM will give the highest attention in supervision to seven topics.
Further Digitalization
The AFM prioritizes market parties that offer products low-threshold via apps and also digital marketing towards consumers. The AFM wants to prevent consumers from receiving nudges in the direction of products or services that are not primarily in their interest. Supervision of the digital aspects of controlled business operations will be intensified, partly in light of the arrival of DORA. With the arrival of MiCAR, supervision of Crypto's must be shaped and residual risks mitigated. Sustainability We promote that issuing institutions and financial market parties adequately control and integrate sustainability risks. The AFM wants to prevent investments from presenting themselves as 'green', but this is not the case in reality. Enterprises must report in a coherent and balanced manner about the impact of ESG factors and how these factors impact the business model. The AFM demands that financial institutions correctly apply the lower regulation of the SFDR. Transition to New Pension System The transition to a new pension system in the coming years has a significant impact on the sector and participants. The AFM provides guidance to the sector and signals and acts on risks. The AFM continuously emphasizes the perspective of the participant here. For example, we find it important that participants hear in time what the transition means for them personally. Asset managers also play an important role in this system change. The AFM therefore pays extra attention to the integrity and controlled business operations of asset managers in the transition phase. 03 Priorities and Key Activities 2023 Customer Interest Central Due to over-indebtedness because of rising interest rates, being uninsured (under-insured), and not having good (after)care, consumers can get into financial trouble. In the context of 'customer interest central', these themes are our priority. We are in discussion with the sector and the legislator because the advice concept of the Wft does not look at the management phase of products and services. We look forward to the results of an investigation that the ministry has started into the practical consequences and the advice needs of consumers. Execution of Renewed Strategy Quality of Audit and Reporting (KAV) The AFM further develops data-driven supervision by expanding and, where necessary, building up our data position to make supervision more risk-based. We also standardize and automate processes where possible and increase our impact by higher agility. There will be more attention for transparency regarding the extent to which sustainability goals are achieved and the gatekeeper function of accountants with regard to fraud and (dis)continuity. Data Usage in and for Supervision We put extra emphasis on transaction reporting obligations by opening up these reports on our central data platform. We prioritize the approach of platform-crossing market abuse. We work together with (international) supervisors to improve the quality of data.
We consult with the ministry on a good legal basis for structural data requests and with the sector on the prerequisites. We prioritize improving our own data position, such as in CRM. Data quality is a crucial prerequisite for the professional organization.

10 brought about by high energy prices. Although we also see the interest rate on savings rise – this makes indexation of pensions possible – this also increases risks on, for example, the housing market.
In 2023, we want to achieve the following with supervision of financial services:

• The AFM provides clarity on how the pension sector should deal with the implementation of, among others, new open norms such as choice guidance, order confirmation, and participant risk preference. Good implementation of new norms is important to place the interests of participants at the center in the new pension system.
• Financial service providers prevent over-indebtedness, especially in light of rising interest rates and inflation. Furthermore, they reduce the risk of being uninsured (under-insured). They must not lose sight of their duty of care, even after closing a product.
• Digitalization is used by financial service providers in the interest of the customer. This means that financial services become more accessible without losing sight of safeguards for customer interest. This also applies to execution only. The steering that comes from apps and websites...