AFM Legislative Brief 2024

Authority for the Financial Markets
Chamber of Commerce Amsterdam, no. 41207759
Reference of this letter: NeMl-24016663
Visit address Vijzelgracht 50
P.O. Box 11723 • 1001 GS Amsterdam
Telephone +31 (0)20-7972000 • www.afm.nl
AFM - Public
Public version
The Minister of Finance
S.P.R.A. van Weyenberg
Korte Voorhout 7
2511 CW THE HAGUE
The Minister of Poverty Policy, Participation and Pensions C.J. Schouten Parnassusplein 5 2511 VX THE HAGUE JaMilM.C.MNanne MilNanneNeMl-24016663 - AFM Legislative Brief 2024 Date 26 April 2024 Our reference NeMl-24016663 Subject AFM Legislative Brief 2024 Dear Mr. van Weyenberg, Dear Ms. Schouten, The far-reaching digitalization, internationalization, sustainability transition, and transition to the new pension system are significant trends that influence the financial sector and, consequently, the work of the Authority for the Financial Markets (AFM). These trends guide our work with the aim of limiting potential risks. To limit these risks, a (relatively large amount of) new legislation1 is approaching us in 2024, on which we must begin supervision or for which supervision is being prepared or intensified. As an independent conduct supervisor, contact with the legislator remains crucial to be able to exercise efficient and effective supervision on both new and existing legislation. We understand that the legislator, due to limited capacity, focuses on essential points. In light of these challenges, we would like to take this opportunity this year to draw your attention to the main areas of attention or bottlenecks in the current legislation and regulations. In this letter, we first focus on two new wishes for legislation and regulations, and ask for attention for the follow-up of the Financial Sector Assessment Program (FSAP). Secondly, we underline the importance of four essential outstanding requests from letters of previous years.

1. Legislative Wishes 2024
   1.1. Reporting gross short positions
   Market makers are currently exempt from the obligation to report gross short positions in shares to the AFM, even if they are required to report their position in the shares and/or votes of an issuing institution. The consequence of this is that it is not clear to the market whether such parties are taking an offensive (long only) or neutral (both long and short) position. The market receives incomplete information and an incorrect image as a result. We request that you adjust the exception framework for the reporting obligation for gross short positions, so that this framework aligns with the exception framework for the reporting obligation for positions in capital and votes. Subsequently, we ask the legislator to bring this to the European agenda together with the AFM, so that a level playing field can be realized in Europe. In the current situation, parties must report gross short positions to the AFM if, through a transaction in a financial instrument, they have a short position in shares and thereby reach, exceed, or fall below a certain threshold value. Transactions of market makers are mostly exempt from the obligation to report gross short positions. While market makers are required to report a long position in capital or votes, they do not need to report a short position if this interest does not itself exceed a reporting threshold. As a result, it is not clear to the market whether these parties have an offensive (long only) or neutral (both long and short) position. This gives the market incomplete information and an incorrect image. The requested adjustment of the legal framework ensures that market makers also report their gross short position at a reporting moment for their position in capital and/or votes. As a result, issuing institutions and (potential) investors get a complete picture of the actual position a market party holds. This transparency promotes the efficient functioning of capital markets.
   1.2. Inquiring sustainability preferences in pensions and annuities
   Second and third pillar pension products are currently exempt from the requirement that sustainability preferences must be inquired when advising on insurance-based investment products. We request the legislator to make this consistent with the Sustainable Finance Disclosure Regulation (SFDR), in which providers of pension products must be transparent about sustainability themselves.
   Providers of pension products are required by the SFDR to be transparent about sustainability. It would be consistent if the pension advisor also collected information on sustainability preferences from customers. This stimulates the demand for sustainable investments and contributes to the sustainability transition.
   With regard to the pension transition, it is realistic that a large group of clients will seek advice on their pension. Sustainability is an important factor for a significant group of clients. Finally, it also provides clarity for financial advisors. This would create a consistent line where advisors must inquire about sustainability preferences for all investment products.
   Financial Sector Assessment Program (FSAP)
   Furthermore, we request the legislator to investigate, together with the AFM over the coming months, which adjustments may be necessary for us in the context of the FSAP to continue to exercise effective and risk-based supervision. The FSAP is an assessment of the state of affairs in the Dutch financial sector, where attention is also paid to supervision. This assessment is carried out every 5 years by the International Monetary Fund (IMF). Our responsibilities have changed and grown since Brexit. As the new primary supervisor of capital markets in the EU, the IMF has emphasized how important it is that our powers grow to be able to signal and address risks in a timely manner.
2. Wishes from previous Legislative Briefs
   We would like to thank the various ministries for the cooperation during the past year. We also express our appreciation for the steps taken regarding various legislative requests. Nevertheless, various legislative requests from recent years have not yet (fully) realized. In addition to the new wishes, the AFM has four crucial outstanding wishes that we would like to bring to the attention of the Ministers again.
   2.1. Administrative law supervision on financial reporting
   In the context of our supervision on financial and sustainability reporting, the Act on Supervision of Financial Reporting (Wtfv) currently uses a civil law basis, which deviates from our other administrative law supervision. This results in limited independent investigation and enforcement powers. If we deem further investigation or correction in the reporting necessary and the issuing institution does not cooperate, we are currently forced to bring a case before the Enterprise Chamber. This does not constitute an effective and efficient way of supervising and dealing with scarce resources. In the case of serious violations, we wish to have the possibility to use administrative enforcement measures to enforce compliance with reporting requirements. In the AFM Legislative Brief 2023, we therefore drew attention to aligning the Wtfv with the ESMA guidelines. We have learned that the legislator intends to bring this into consultation and are pleased about that. We want to continue to emphasize that it is essential to move the supervision on reporting from a civil law to an administrative law basis.
   2.2. Data wishes regarding accounting organizations and regular data reports of second-pillar pensions by pension administrators
   In a dynamic financial landscape, accurate and timely information is crucial to be able to respond effectively to market developments and potential risks. A strong position in terms of data enables us to act proactively, gain better insight into market trends, and thus fulfill our role as a guarantor of integrity and stability on the financial markets.
   In our Legislative Briefs of 2021-2023, we have drawn attention, among other things, to the legal basis for data reports at accounting organizations, order data of bonds, financial service providers, and investigating a specific legal basis for regular data reports of second-pillar pensions by pension administrators. We thank the Ministry of Finance for the effort and progress made regarding our data wish concerning financial service providers. We kindly request Finance and Social Affairs and Employment (SZW) to (further) engage in dialogue with the AFM regarding the data wishes concerning accounting organizations and the basis for regular data reports of second-pillar pensions. Hereby we strive for a specific focus on identifying possible points for improvement, supported by a suitable risk analysis.
   2.3. Definition change financial service Enforcement Act Consumer Protection (Whc)
   In 2023, we requested the minister to ensure that when implementing the Markets in Crypto-Assets Regulation (MiCAR), the Enforcement Act Consumer Protection (Whc) is adjusted so that the AFM is the competent authority under both the Whc and MiCAR for crypto-asset services, the issuance and offering of crypto-assets and services or activities related thereto. At this moment, crypto-asset services, the issuance and offering of crypto-assets and services or activities related thereto do not fall under the definition of 'financial service or activity' in Article 1.1 of the Whc, meaning we are not the competent authority for these services or activities. In June 2023, Minister Kaag indicated in her response that she stands positively towards appointing the AFM as supervisor under the Whc for services and activities related to crypto-assets. With the entry into force of MiCAR at the end of this year, we would like to once again emphasize the importance and urgency of this wish. Thereby, we also ask the legislator to investigate in a broader sense together with the AFM how we can make this definition future-proof.
   2.4. Notification obligation in the Pension Act regarding errors in information provision
   In 2023, we indicated to the Minister of Poverty, Pensions and Participation (APP) that pension administrators are currently not required to inform us of shortcomings in participant communication, unlike companies under the Financial Supervision Act (Wft). The absence of a notification obligation in the Pension Act can create an uneven playing field, where voluntary reporters are disadvantaged. Last year, the legislator showed understanding for the problem and expressed itself positively in principle. We ask the legislator to investigate together with the AFM how we could give shape to this. We would like to express our appreciation for the opportunity to share this legislative brief with you. Naturally, we are ready to provide further explanation regarding our legislative proposals. We look forward to your response regarding these proposals. Respectfully, Authority for the Financial Markets L.B.J. van Geest J.R. Heuvelman Chairman of the Board Member of the Board

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1 Examples of this are MiCAR, CSRD and SFDR