Research Agenda 2023: Review 2023 and Outlook 2024

Research Agenda
Review 2023 and Outlook 2024
9 April 2024
AFM
AFM.nl

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1. Introduction
   In addition to its direct supervisory tasks, the AFM conducts applied (scientific) research. Through these studies, we aim to broaden our knowledge and map sector-wide risks to contribute to more effective supervision and policy. The results of the research are published, among other places, in Trendzicht, occasional papers, separate AFM publications, and in scientific journals.
   In 2023, the AFM published its research agenda for 2023-2026, which contains 6 themes. These are broad, overarching themes that reflect the AFM's strategic priorities and help us achieve our supervisory objectives. In this document, we outline which research was conducted in 2023 for each theme and what the plans are for 2024.

2. Digitalization
   Digitalization has direct intersections with all aspects of AFM supervision. Developments in fintech, the increasing role of big tech platforms, artificial intelligence, cryptocurrencies, and the design of the online choice environment create new opportunities and risks for both consumers and financial enterprises.
   In 2023, the AFM investigated the potential influence of digitalization on the insurance market and the supervision thereof. The most important developments are an increased volume of data and greater analytical capacity, increasing connectivity, and issues regarding solidarity, safety, and skills. This exploratory research provides insights and points of attention for supervisors, insurers, and policymakers. This exploration will be followed up in 2024 with a study focused on the credit market. Additionally, the AFM and DNB will conduct a joint study on the impact of artificial intelligence on the financial sector. The MiCAR regulation, which targets providers and service providers of crypto-assets, will largely enter into force by December 2024. In preparation for supervision, the AFM conducted exploratory research into consumer risks that persist despite MiCAR. At the end of 2023, exploratory research was conducted into the design of the choice environment of crypto apps from three Dutch crypto service providers. This research assessed the presence of steering elements that pose risks to consumers. The main risks are: a large public has low-threshold access to the crypto market, users are steered towards trading (with high amounts) in certain crypto tokens and activating additional services, and users are encouraged to return to the app and repeatedly perform actions. Because MiCAR offers the AFM very limited points of reference to reduce these risks in the choice environment, the AFM advises consumers active in the crypto market to remain alert themselves. The use of Buy Now Pay Later (BNPL) has become popular in recent years. Providers offer their customers a low-threshold way to pay afterwards. BNPL is free of charge, provided the customer pays on time. The AFM conducted a behavioral experiment in 2022 and 2023 together with BNPL provider Riverty. The goal was to reduce the number of customers who pay late and thereby incur costs. Sending a reminder SMS proved effective: the percentage of customers incurring costs for late payment decreased by 21%-24% (from 16.8% in the control group to around 13% in the SMS groups). The content of the SMS made little difference: three different versions of the SMS were all approximately equally effective. Using reminders can thus promote timely repayment.

3. Internationalization
   Financial markets are increasingly taking on an international character, which brings cross-border problems, risks, and challenges, as well as opportunities. Because risks are increasingly cross-border, they can be addressed less adequately at the national level. This increases the importance for the AFM of cooperation and alignment with other (international) supervisory organizations.
   There is much attention for internationalization within regular supervision. However, there are no applied (scientific) research projects planned.

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4. Sustainability
   For both consumers and the financial sector, effectively dealing with the risks associated with issues such as climate change and declining biodiversity is a major challenge. Think, for example, of risks associated with the sustainability of homes or the impact of greenwashing and ESG elements in investment decisions.
   In 2023, the AFM published research on the pricing of climate risks in the housing market. This research outlines how homeowners may face risks due to climate change, such as flooding risks and damage to the foundations of homes. These risks have potentially significant financial consequences for home buyers and owners in the form of possible damage claims and a reduction in property values. The AFM outlines several possible solutions in its publication, such as pricing climate risks into housing prices and ensuring sufficient financing space for future repairs due to climate damage. In 2023, the AFM conducted research into so-called voluntary carbon credits. In the occasional paper, the AFM outlines that there is strong growth in the use of voluntary carbon credits. This growth is accompanied by concerns about the integrity of credits, the integrity of the market, and the integrity of claims. Companies must be transparent about how these credits are used in the context of their net-zero claims. Strong quantitative claims about reducing CO2 emissions should not be supported by uncertain voluntary credits. Why? The AFM intends to conduct research on biodiversity in 2024. While attention regarding the ESG agenda has so far focused mainly on dealing with and reporting on climate change and CO2 emissions, biodiversity is increasingly becoming an urgent theme. The scope and complexity of the problems we see regarding CO2 emissions are reflected in an enlarged form in biodiversity. The goal of the exploration is to provide an overview and direction in the discussion on how to deal with the underlying complexity of biodiversity and its interaction with climate change.

5. Financial Resilience of Households
   The world is changing rapidly, and Dutch households are exposed to vulnerabilities in the areas of borrowing, saving, retail investing, insuring, and pensions. Research within this theme can help gain better insight into the various financial vulnerabilities consumers are currently exposed to and the ways in which the financial sector can place customer interests at the center during these times of transition. Existential security was an important and broad theme of the 2023 election campaign. It concerns, among other things, the affordability of life now and in the future, and access to necessary necessities such as care and housing. A large group of Dutch people are building up little or no pension in the second pillar and may therefore encounter problems. Pension shortfalls can be supplemented in the third pillar. In 2023, the AFM published its research on the tax-facilitated accumulation of individual pension wealth in the third pillar. Dutch workers appear to make little use of the opportunity to build wealth in the third pillar. Moreover, contributions are often limited. Usage may increase due to the planned expansion of fiscal space in the new pension system. The AFM published an occasional paper in 2023 on barriers to managing financial matters online. Dutch people with limited digital skills may experience problems accessing financial products and services. The group of people experiencing barriers is very diverse. The AFM calls on the sector to conduct research among hard-to-reach target groups and exchange knowledge to improve access to financial services. As of June 28, 2025, the AFM will supervise compliance with the Accessibility Directive.

6. Market Stability
   The theme of market stability concerns the safeguarding of robustness and transparency of markets. Our efforts towards the robustness of markets aim to ensure that essential parts of the financial markets are adequately managed, so that trading and settlement remain possible and reliable even during times of stress. In addition to robustness, promoting transparent markets also contributes to fair trading and well-considered investment decisions by investors. In 2023, the AFM published its research on algorithmic collusion in capital markets. Some algorithms are self-learning. If algorithms cooperate with each other, they can jointly arrive at the most advantageous action: for example, the highest possible joint profit. This is called algorithmic collusion: tacit cooperation by algorithms. This research describes how self-learning trading algorithms in capital markets can lead to undesirable outcomes. The AFM expects market participants to be aware of the risk of algorithmic collusion when using advanced trading algorithms and to take action to exclude this risk.

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7. Demonstrating Impact
   The AFM has a wide range of intervention strategies available to promote compliant behavior of financial enterprises. These range from imposing fines and publishing guidelines for large groups of enterprises to holding conversations with financial enterprises.
   At the AFM, we are increasingly focusing on being a learning and impactful organization. In 2022, for example, we tested in a letter experiment what the effect of different communication styles is on compliance behavior: what works best to get financial service providers to publish their remuneration policy? A cooperative and deterrent style both proved more effective than a neutral, informative style.
   In 2024, several studies in this vein will be conducted. For example, it will be investigated which overarching communication frame is most effective in encouraging financial enterprises to take action in the sustainability transition. An analysis will also be conducted into the effect of supervisory interventions on behavioral indicators of listed enterprises regarding their handling of inside information.

8. Conclusion
   By being transparent about our research efforts, we hope to stimulate more relevant research by external scientists, industry organizations, and financial enterprises. In this way, we jointly develop relevant insights. Therefore, we publish this research agenda. We prioritize research where the expected impact on our objectives is greatest relative to the costs. As a result, we may pay more attention to some themes than to others.

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As an independent behavioral supervisor, we contribute to sustainable financial well-being in the Netherlands.
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