Feedback statement

Subject Explanation Response DNB Amendment

1.1 Concerns about application of IFR/IFD regime to managers Dufas expresses concerns about the application of the IFR/IFD regime to managers and points out a lack of proportionality in practice, additional regulatory burden, an uneven playing field, and competitive disadvantage.

Under the Financial Supervision Act (Wft), the manager of an investment undertaking and the manager of an AIF/UCITS that provides certain investment services based on a permit as referred to in Article 2:65 Wft must currently comply to a large extent with the same prudential requirements as parties providing the same services based on a permit as referred to in Article 2:96 Wft. With this, the long-standing practice of prudential alignment between investment firms and the aforementioned managers is continued with the entry into force of the IFR/IFD. The reasons and consequences of this prudential alignment have been considered extensively.1 The policy rule aims to consolidate DNB’s current supervisory practice regarding the implementation of its SREP mandate towards the aforementioned managers and to communicate this transparently.

No.

1. DNB (2020/2021), 35 783, no. 3, p. 17-19, 30-37.

1.2 Dufas suggests that the line in the cabinet's commitment for the European Capital Markets Union to focus on more proportional rules and an improved classification method for investment firms can be continued for managers.

As indicated above, when implementing the IFD, a choice was explicitly made to continue the system of prudential alignment and enshrine this in legislation. The policy rule does not relate to this.

No.

1.3 Dufas states that it would be more logical and more in line with DNB’s earlier positions to link the determination of capital requirements and the identification of (additional) risks to the activities and to make a clearer distinction between investment services and fund management.

DNB considers making this distinction to be inconsistent with the way the SREP must be applied based on legislation and regulation2 and as explained by the EBA in the SREP guidelines (EBA/GL/2022/09). The guidelines imply that supervisors must examine whether risks to which the institution is or may be exposed, or which it creates for others, have been adequately identified and assessed.3 Thus, it follows that supervisors must assess in the context of the completeness of the ICARAP whether this adequately covers the business model, business units, activities, and legal entities of the investment firm.4 Supervisors must also analyze business activities in the context of assessing the business model.5 Furthermore, making a distinction when determining capital requirements is inconsistent with the fixed cost requirement because the calculation thereof in the Netherlands is based on the fixed costs from the audited annual accounts of the preceding year.6 Finally, prudential risks may arise at managers who are permitted to provide certain investment services which stem from fund management and have an impact on investment service provision. This makes it difficult to distinguish between business units, and it is important for both the enterprise and DNB to evaluate the risks of the entire business of the manager. In light of the foregoing, a provision has been included in the policy rule that DNB applies the SREP guidelines (EBA/GL/2022/09) with regard to the entire enterprise of the manager.

Yes.

1. Parliamentary Papers II 2020/2021, 35 783, no. 3, p. 17-19, 30-37.
2. Article 3:17 jo. Article 1:19 Wft. Article 3:18aa, first paragraph, of the Financial Supervision Act read in conjunction with Article 29, first paragraph, under c, and Article 36, first paragraph, under a, of Directive (EU) 2019/2034 concerning the prudential supervision of investment firms.
3. Supra note 2.
4. Paragraph 126 of EBA/GL/2022/09.
5. Paragraph 77 of EBA/GL/2022/09.
6. Article 13, first paragraph, of Regulation (EU) 2019/2033 concerning prudential requirements for investment firms read in conjunction

1.4 Dufas states that for managers all organizational requirements, including the management of capital risks, must fall under the AIFMD/UCITS regime.

DNB points out that the organizational requirements applicable to managers who are permitted to provide certain investment services follow from Article 1:19, second paragraph, of the Wft. These include, among others, the requirements from Article 3:17, third paragraph, and 3:18 of the Wft. The policy rule does not relate to this.

No.

1.5 Dufas considers it disproportionate to treat the risks and capital requirements as they apply to fund management and the provision of investment services as one and the same when drawing up the ICAAP and ILAAP. In this regard, Dufas finds it incorrect and possibly even contra legem that managers are expected to draw up the ICAAP and ILAAP for the entire enterprise, instead of only for those business units that perform the investment services.

DNB points out that prudential alignment implies that managers who are permitted to provide certain investment services must map the size and nature of the risks they may create for others or to which they themselves are or may be exposed. In this regard, it is up to the manager to map the source of these risks (e.g., stemming from fund management or investment service provision), and whether these risks align with its assessment capacity and liquid assets. It is therefore up to the manager to assess whether the internal capital it holds to cover the aforementioned risks is sufficient for this purpose. It is existing supervisory practice that DNB examines whether the manager adequately identifies and assesses these risks, and whether the determination and composition of the internal capital are in line with these risks. This assessment is also used to determine an additional own-funds requirement. This is a practice that is fully in line with the explanation on the ICAAP and ILAAP obligations in the EBA SREP guidelines and, according to DNB, a correct implementation of the supervision of compliance with Article 24a1 of the Decision on Prudential Rules Wft.

No.

Dufas states that it is not clearly motivated how managers can apply proportionality in practice and asks DNB to clarify how proportionality manifests itself in the application of the SREP guidelines.

The explanation of the policy rule has clarified how DNB considers proportionality in the application of the SREP guidelines (EBA/GL/2022/09) to managers with regard to the complexity and materiality of prudential risks.

Yes.

2. Overlap in group structure Dufas states that the policy rule raises questions regarding the applicability of the SREP guidelines to managers that are part of a group, where the parent company is a bank, and requests DNB to specify how it will deal with any (increased) overlap between the ICARAP of the manager and the ICAAP of the parent company if a manager is the subsidiary of a bank.

The ICARAP of a manager who is permitted to provide certain investment services applies at its individual level because the application of consolidation under the Regulation concerning prudential requirements for investment firms does not apply to a manager. The ICAAP of a bank that is the parent company of a manager may apply at the consolidated level. In that case, the bank must map risks at the consolidated level. If this results in overlap with the ICARAP of the manager, this follows from the level of application that legislation and regulation prescribe. Additionally, risks that the manager, as a subsidiary of a bank, creates for the assessment capacity of this bank and/or for the entities it must consolidate must naturally be taken into account by this bank in its ICAAP. The existence of a separate ICARAP for the manager cannot detract from this.

No.

3. Date of entry into force Dufas draws attention to the date of entry into force of the policy rule and assumes that the policy rule will apply from January 1 of the new year.

The policy rule aims to consolidate existing supervisory practice and to be transparent about this. Entry into force of the policy rule should therefore not have any influence on the ongoing SREP cycle.

No.