Prudential assessment conducted within the context of granting investment firms authorisation

Factsheet

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DNB assesses applications for authorisation as an investment firm within the meaning of Section 2:99 of the Financial Supervision Act (Wet op het financieel toezicht – Wft) in terms of adherence to prudential standards.

Published: 01 January 2007

The Dutch Authority for the Financial Markets (AFM) is the authorising authority. As part of the application process, the AFM requests DNB for advice on the applicant's adherence to prudential rules and regulations, pursuant to Article 1:48(2) of the Wft. DNB's advice forms part of the AFM's decision on the application for authorisation. DNB’s assessment covers the following aspects:

Own funds requirement and liquidity requirement

Investment firms within the meaning of the Investment Firms Directive (IFD) are required to comply with the prudential requirements that follow from the Investment Firms Regulation (IFR) and IFD. This entails that there is an own funds requirement based on Article 11 of the IFR. This own funds requirement is based on the highest of (1) the fixed overheads requirement, (2) the permanent minimum capital requirement, or, if applicable, (3) the K-factor requirement. The own funds requirement consists of capital that fulfils the requirements of Article 9 of the IFR. Besides that, a liquidity requirement applies based on Article 43 of the IFR. The licence applicant is therefore required to submit a business plan with a projection of the own funds requirement and the liquidity requirement on the basis of which DNB determines whether the applicant is in a position to comply with these requirements during the coming three years.

Internal governance

As the authorising authority, the AFM assesses on the basis of Article 4:14(1) of the Wft whether an investment firm has structured its internal governance in such a manner that it safeguards a controlled and sound business operation. Additionally, within its role as prudential supervisor, DNB assesses whether the applicant has a controlled and financially solid business operation based on Article 3:17(2)(c) and (3) of the Wft. To this end, DNB assesses whether the financial and prudential risks that could affect the applicant are sufficiently controlled and whether in the description of the business operation of the undertaking there are procedures which safeguard that the investment firm can comply with the IFR and IFD on a continuous basis.

Consolidated supervision

When there is a Union parent investment firm, Union parent investment holding company or Union parent mixed financial holding company, the IFR and IFD also has to be complied with on a consolidated basis. In that case, DNB will also assess the consolidated situation in her prudential assessment of the licence application.

For more information on the IFR/IFD see:

The Open Boek Toezicht page IFR/IFD

The website of the European Banking Authority (Refers to an external website)

For questions regarding the prudential assessment for licence application please contact bobi@dnb.nl .

Disclaimer

To read more about the status of this communication, see the Explanatory guide to DNB's policy statements on Open Book on Supervision.

Base law

Art. 48 BPRWFT (Refers to an external site)

Art. 1:48 Wft (Refers to an external site)

Art. 2:99 Wft (Refers to an external site)

Art. 3:53 Wft (Refers to an external site)

Art. 3:57 Wft (Refers to an external site)

Art. 4:14 Wft (Refers to an external site)

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