Enforcement Policy of the AFM and DNB

Stichting Autoriteit Financiële Markten
De Nederlandsche Bank N.V.
Oktober 2020
Enforcement Policy

Stichting Autoriteit Financiële Markten
De Nederlandsche Bank N.V.
2 October 2020

Enforcement Policy of the Authority for the Financial Markets and De Nederlandsche Bank § 1. Introduction The following describes the policy1 applied by the Stichting Autoriteit Financiële Markten (AFM) and De Nederlandsche Bank N.V. (DNB), hereinafter referred to as "the supervisors," for the enforcement of the provisions of financial legislation2 on which they exercise supervision, in accordance with the supervisory tasks assigned to them under those laws.
The supervisors focus on ensuring compliance with the standards laid down in financial legislation. The starting point is that everyone behaves in compliance with norms of their own accord. Regular supervision contributes significantly to this. When regular supervision does not have or is not expected to have the desired effect, norm-conforming behavior can be achieved through the use of instruments (hereinafter: "enforcement instruments"). The enforcement policy described below provides insight into the principles and factors that guide the supervisors in determining the use of enforcement instruments, in order to achieve compliance with the standards laid down in financial legislation. In line with their own tasks, the supervisors independently arrive at an appropriate manner of action, based on a weighing of the interests directly involved in the decision. In accordance with financial legislation or the Cooperation Convention concluded between the AFM and DNB3, the opinion of the other supervisor is involved in this weighing in the cases specified therein, or this weighing is coordinated with the other supervisor. Due to developments at the European level, the European framework is becoming increasingly significant for the manner in which the supervisors exercise their supervisory tasks. For example, DNB is part of the Single Supervisory Mechanism (SSM)4 and, where applicable, takes into account the supervisory and enforcement frameworks applicable within the SSM. The European Supervisory Authorities (ESAs) also play an important role. The supervisors exercise supervision in accordance with the guidelines and recommendations (also known as guidelines and recommendations) of the ESAs, such as EBA, EIOPA, and ESMA.5

Below, the first part describes how supervision is exercised regarding compliance with provisions of financial legislation (paragraph 2). This is followed by the principles that the supervisors base their enforcement policy on (paragraph 3). Subsequently, it is explained which factors play a role in the use of enforcement instruments (paragraph 4) and the legal framework for the publication of imposed administrative sanctions is summarized (paragraph 5). Finally, the accountability provided by the supervisors regarding the use of enforcement instruments is briefly mentioned (paragraph 6) and the timing and manner of entry into force of this enforcement policy are described (paragraph 7). ––––––––––––– In 2003, an enforcement policy was already published under the title 'Note on the enforcement policy of the Authority for the Financial Markets, De Nederlandsche Bank and the Pension and Insurance Authority'. These policy rules were revised and updated in 2008 and now in 2020. By this, at least the following laws and the regulations based on them are meant: Financial Supervision Act (Wft), Consumer Protection Enforcement Act (Whc), Supervision of Trust Companies Act 2018 (Wtt 2018), Pension Act (Pw), Act on Mandatory Occupational Pension Schemes (Wvb), Act on Mandatory Participation in an Industry Pension Fund 2000 (Wet Bpf 2000), Act on the Prevention of Money Laundering and Financing of Terrorism (Wwft), Sanctions Act 1977 (Sw), Supervision of Accountancy Organizations Act (Wta), Act on the Security of Network and Information Systems (Wbni), Financial Markets Act BES (Wfm BES), and Act on the Prevention of Money Laundering and Financing of Terrorism BES (Wwft BES) and the regulations as included in the Decision on the Implementation of EU Regulations on Financial Markets, for which the AFM and/or DNB have been designated as competent supervisors. Staatscourant 2016, no. 1863-n1. The SSM is the joint supervisory authority, consisting of the European Central Bank (ECB) and national supervisors, which has been responsible for the supervision of banks since 2014. EBA: European Banking Authority; EIOPA: European Insurance and Occupational Pensions Authority; and ESMA: European Securities and Markets Authority.

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§ 2. Supervision and Enforcement
It is the task of the supervisors to supervise compliance with the provisions of financial legislation for which they have been designated as supervisors.
Regular supervision consists of prudential supervision6, integrity supervision7, substantive supervision8, and conduct supervision9. In addition, the supervisors also exercise special supervisory tasks, such as, among others, securitization supervision10, supervision of accountancy organizations11, and supervision of market regulation provisions12. The exercise of supervision also includes – when there is cause – the use of enforcement instruments.
Paragraphs 3 and 4 mention principles and factors, respectively, that guide the use of enforcement instruments. In this paragraph, the manner in which regular supervision ensures compliance with provisions of financial legislation is discussed.
In the context of regular supervision, the supervisors collect data and conduct research into the extent to which the standards laid down in financial legislation are complied with. The supervisors conduct both institution-specific and thematic investigations. In addition, the supervisors provide information about their interpretation of legal standards in, among others, policy rules, guidelines, and 'questions & answers'.13 The supervisors also initiate consultations with the financial sector and other stakeholders in round-table meetings and seminars. Furthermore, the supervisors cooperate with other authorities at both the national and international levels. In the Netherlands, for example, cooperation takes place in the area of risk signaling, knowledge sharing, and enforcement within the Financial Expertise Center (FEC)14, and at the international level, supervisory activities on banks are coordinated through 'colleges of supervisors'. For regular supervision, the supervisors each use a risk-based approach. This means that the supervisors primarily deploy their supervisory capacity on risks that emerge as the highest based on used methods and/or models.15 In regular supervision, the supervisors can also make use of behavioral and cultural insights, for example when determining the depth and intensity of supervision. With the supervision of governance, conduct, and culture, the supervisors identify behavioral and cultural aspects that can influence the management of a supervised company. This aims to make supervision more effective and forward-looking, because behavioral and cultural problems can be detected early and often lie at the root of non-compliance with financial legislation. At all events, regular supervision is preventive. If necessary, intervention follows. Upon the establishment of violations of financial legislation, the supervisors take measures, for example to enforce restoration and improvement. Not every (threatened) violation of financial legislation leads to the use of a formal enforcement instrument. In addition to generic influence, informal measures, where norm transfer takes place through a conversation or (warning) letter, play an important role in enforcement. In many cases, such a conversation or letter will already have the desired effect, namely norm-conforming behavior. The use of formal enforcement instruments is then often no longer necessary. This does not mean, however, that in all cases where a violation of financial legislation is established, action is taken informally only or initially. Whether the supervisors act informally or formally, and which measure or combination of measures is taken, will always depend on the circumstances of the case and on the weighing of the factors that play a role therein, as elaborated below in paragraph 4. In addition to the severity and duration of the violation, the supervisors weigh, among other things, the degree of culpability and the degree of compliance-orientation.
In this regard, behavioral and cultural insights obtained from regular supervision can also influence an intervention strategy. ––––––––––––– Prudential supervision is aimed at the solidity of financial companies and the stability of the financial system. Integrity supervision is aimed at a clean and honest financial sector, by, among other things, tackling (facilitating) financial-economic crime. Substantive supervision focuses on compliance with substantive provisions included in legislation and regulations regarding pension schemes and pension providers. Conduct supervision is, also in the interest of the stability of the financial system, aimed at orderly and transparent financial market processes, fair relationships between market parties, and careful treatment of clients. 10 This takes place on the basis of the Securitisation Regulation (EU) no. 2017/2402. 11 This takes place on the basis of the Wta. 12 Such provisions apply, for example, pursuant to the Wet Bpf 2000 for mandatory pension funds. 13 The guidelines and Q&As can be used, among other things, to clarify the various legal obligations and to provide handles for the implementation of these obligations. In that case, these documents must always be read in conjunction with the legal obligations. A guideline or Q&A is not a legally binding document or policy rule as intended in Article 1:3, fourth paragraph, of the General Administrative Law Act and does not or does not intend to have legal effect. 14 A multidisciplinary partnership with – besides the supervisors – among others the Public Prosecution Service, Tax Administration, and FIOD as partners. 15 The approach used by the supervisors is tailored to their own specific task. For example, DNB uses a Risk Assessment System (RAS) methodology developed by the ECB for banks within the framework of the SSM.

Stichting Autoriteit Financiële Markten
De Nederlandsche Bank N.V.
4 October 2020

§ 3. Principles
Financial legislation serves multiple objectives, including ensuring the solidity of financial companies and pension funds, the stability of the financial sector, orderly and transparent financial market processes, fair relationships between market parties, careful treatment of clients, protection of the investor/consumer, and the integrity of the financial system.
The supervisors have the task of supervising compliance with financial legislation. To realize this compliance, the supervisors have been assigned legal powers and enforcement instruments. For the use of enforcement instruments, the supervisors have formulated a number of principles that align with the objectives of financial legislation. These principles are as follows. a. Action as soon as a violation is known (no tolerance) The supervisors enforce the financial legislation for which they have a supervisory task. This means that if the supervisors are aware of a situation where rules are not being followed, they will take action to end this situation. The manner in which the supervisors achieve this depends on the concrete situation. This principle does not affect that the supervisors, within the framework of the adopted risk-based approach and with regard to available capacity, can set priorities in their enforcement. b. Action aimed at achieving norm-conforming behavior In the manner in which the supervisors act, promoting norm-conforming behavior is central. The strategy of the supervisors is aimed at everyone behaving in compliance with norms of their own accord. When this strategy does not lead to or is not expected to lead to the desired result, norm-conforming behavior is in principle enforced by the use of enforcement instruments. If the established violation continues, the enforcement action is in any case aimed at ending the violation and restoring compliance with the norm. Furthermore, the supervisors consider whether there is cause to impose an administrative fine on the offender (including accomplice) and/or the de facto director. As the severity of the violation and the degree of culpability of the offender (including accomplice) and/or the de facto director increase, this is more likely.
c. Administrative or criminal law enforcement
In general, the supervisors themselves take administrative action against established violations of financial legislation that also qualify as economic crimes. In a number of cases, however, (also) reporting to the Public Prosecution Service is considered. These are the cases listed in the Covenant on the Prevention of Unauthorized Concurrency of Administrative and Criminal Sanctions.16 Based on this Covenant, prior coordination takes place with the Fiscal Information and Investigation Service (FIOD) and the Functional Prosecution Service. When the supervisors have the suspicion of serious additional common crimes, they can report both the established violation of financial legislation and the suspected common crimes. Under certain circumstances, a case can also be split into an administrative part (financial legislation) and a criminal part (common crimes). ––––––––––––– 16 Staatsblad 2009, no. 665.

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d. Action depending on the content and purport of the norm The nature of the supervisors' reaction to a (threatened) violation is largely determined by the content and purport of the violated norm. For example, violation of market entry requirements, integrity requirements, prudential requirements, and conduct requirements each require their own approach. In addition, many supervisory laws know both open and closed norms. Unlike closed norms, open norms give those under supervision room in specific situations for their interpretation, whereby it is the responsibility of the supervised party to interpret these norms correctly. This distinction makes no difference for the enforcement action of the supervisors. Once a violation of an open or closed norm is established, norm-conforming behavior is in principle enforced by the use of enforcement instruments in both cases – in accordance with the principle as stated under b. However, enforcement of open norms always requires (extensive) motivation demonstrating that the open norm was violated, whereas for closed norms, regarding motivation, sometimes a reference to the conduct and the violated provision17 is sufficient. e. Action in an effective manner The choice for using a specific instrument and the manner in which it is used must always be viewed in a concrete situation against the background of the specific circumstances of that case. Through tailor-made solutions, it is determined per situation which instrument is most effective to achieve the goal pursued with the use of the instrument. Restoration measures have the main goal of ending the violation, i.e., restoring compliance with the norm. A punitive measure, on the other hand, consciously adds suffering. A punitive sanction, however, not only has a punitive effect. It also exerts a special and – in the case of publication – a general preventive effect. A punitive measure can be imposed in addition to a restoration measure, but also separately. f. Action in accordance with the general principles of proper administration The enforcement action is in accordance with the general principles of proper administration and, where applicable, principles of European law and international public law. This concerns, among others, the following principles: □ Principle of proportionality: with the instruments available to them, the supervisors always provide a proportional response to a violation; the principle thus concerns the relationship between the consequences of the intervention by the supervisors and the goal to be served by the intervention. The principle thus relates to the 'sizing' of the intervention in this context. □ Principle of a balanced weighing of interests: following the enforcement policy is never automatic; always, based on a weighing of the interests directly involved in the decision, it is assessed whether and, if so, which enforcement instrument is used. This is tailor-made. □ Principle of equality: in equal cases, the enforcement
action is also equal; the enforcement instruments are used consistently. ––––––––––––– 17 For illustration, the violation of a closed norm (for example, requiring institutions to submit a certain report on a certain date or to include a certain mention on their website) can be established quite unequivocally. The mere establishment of the absence of the legally required action and the reference to the legal norm may be sufficient to establish the violation. In the case of violation of legal norms that offer more room for own interpretation, a single reference to the action and the norm is usually not sufficient, and further motivation is required to qualify the violation.

Stichting Autoriteit Financiële Markten
De Nederlandsche Bank N.V.
6 October 2020

§ 4. Use of Enforcement Instruments
The supervisors have various informal and formal enforcement instruments18, which can be used regarding both legal entities and natural persons.
Informal Enforcement Instruments
The informal enforcement instruments used by the supervisors are: □ norm transfer via a conversation and/or letter; □ a warning letter.
Formal Enforcement Instruments
Important enforcement instruments available to the supervisors based on financial legislation are:19 □ giving a directive;20 □ imposing a penalty payment; □ appointing a curator; □ the power to deprive natural persons of the right to exercise certain functions for a certain period; □ modifying, wholly or partially withdrawing, or limiting a license; □ imposing an administrative fine on the offender (including accomplice) and/or the de facto director.
This list is not intended to be exhaustive. There are still various specific enforcement instruments in financial legislation, which are tailored to the different supervised financial companies, markets, and/or sectors.21 The supervisors also have other instruments. For example, the supervisors have the possibility to publicly disclose a (specific) violation and the name of the offender with a public statement or a public warning.22 Factors Based on all relevant circumstances and interests, it is assessed per situation which enforcement instrument is most effective and appropriate to achieve the goal pursued with the use of the enforcement instrument. Factors involved in the choice to use a specific enforcement instrument include, among others, the severity and duration of the violation, the degree of culpability, and the compliance-orientation of the offender. In this regard, the following can be weighed, among other things: □ to what extent the violation was reported by the offender to the supervisors; □ to what extent the offender cooperated with the investigation by the supervisors; □ whether the offender ended the violation of their own accord; ––––––––––––– 18 Informal enforcement instruments are measures not explicitly mentioned in the law. Formal enforcement instruments have an explicit legal basis and are called administrative sanctions. 19 It does not apply to all these instruments that they can only be used after the supervisors have established a violation. For example, DNB is, on the basis of the Wft, under certain circumstances authorized to appoint a curator if it detects signs at a financial company of a development that could endanger the equity, solvency, or liquidity of that financial company. The AFM is, for example, on the basis of the Whc, under certain circumstances authorized to issue a public warning before it has established an infringement or intra-Community infringement, if that is reasonably necessary to inform consumers quickly and effectively about a damaging trading practice of a trader and thereby prevent damage. 20 The directive can, among other things, serve to remove a (co-)policy maker whose suitability and/or reliability is no longer beyond doubt. 21 An example is the imposition of a prohibition on a non-licensed financial company to carry out activities contrary to Part 4 of the Wft (solely AFM competence). 22 A public statement and/or warning serves to inform or warn parties on the financial markets and to contribute to better information and protection of the public. The public statement and/or warning is strictly speaking not an enforcement instrument, as its purpose is to inform or warn third parties and is not aimed at ending or punishing a violation.

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• and, if so, whether that happened before or after the offender was aware of the investigation by the supervisor; □ what the duration of the violation has been; □ to what extent the violation is culpable; □ whether there is recidivism; □ to what extent the offender has already been addressed for other types of violations than the one in question; □ to what extent the violation is the result of (conscious) incorrect policy within the company; □ to what extent the violation affected third parties (for example, con