AFM
The Netherlands Authority for the Financial Markets AFM ('Autoriteit Financiële Markten') supervises the conduct of the entire financial market sector: savings, investment, insurance and loans.
By supervising the conduct of the financial markets, AFM aims to make a contribution to the efficient operation of these markets. The AFM has been responsible for supervising the operation of the financial markets since 1 March 2002.
Role of AFM
The AFM is the independent supervisory authority for the savings, lending, investment and insurance markets. Also, the AFM promotes the conscientious provision of financial services to consumers and supervises the honest and efficient operation of the capital markets.
In essence, AFM promotes fairness and transparency within financial markets and aims to:
- make the financial markets more accessible;
- promote the smooth operation of the financial markets; and
- maintain confidence in the financial markets.
The public, the business sector and the government all depend on the financial products offered on the various markets for many of their activities. Confidence in the fair and orderly and honest operation of these markets is therefore crucial.
The AFM is the successor of the STE (Securities Board of the Netherlands / Stichting Toezicht Effectenverkeer), which supervised all of the participants in the securities trade.
The current function-based supervision is divided into:
- prudential supervision, and
- supervision of market conduct.
Prudential supervision
Prudential supervision addresses the question of whether participants in the financial markets can rely on their contracting parties being able to meet their financial obligations.
The Dutch Central Bank (De Nederlandsche Bank, see: www.dnb.nl) is, after the merger with the Pensions and Insurance Board (Pensioen- & Verzekeringskamer) in 2004, responsible for prudential supervision.
Supervision of market conduct
The supervision of market conduct focuses on the question of whether the participants in the financial markets are treated properly and whether accurate information is disclosed in a timely manner. This supervision is the responsibility of AFM (see: www.afm.nl).
Investors, as well as other parties active in the capital markets, must be able to rely on the fact that the capital markets operate fairly and efficiently. The AFM supervision is designed to establish that companies operating in the capital markets provide timely and reliable information, and that auditors who have to assess the reliability of the financial reporting perform this task correctly. The AFM establishes whether the financial reporting is prepared in accordance with the correct standards.
The AFM conducts its supervision by means of inspections, enforcement and transfer of standards, and in so doing expressly monitors signals originating from the market and findings from its own control organisation.
If the AFM identifies any breaches, it can impose sanctions. It may issue instructions or public warnings, place institutions under undisclosed custody, withdraw licences, cancel or refuse registrations or file reports with the Public Prosecution Service. The AFM is also authorised to impose fines and orders for periodic penalty payments.
National supervision
The AFM supervises the orderly operation and stability of the financial infrastructure. Together with DNB, the AFM aims at creating the preconditions for a financial system with manageable and transparent risks.
At a national level the two supervisory authorities in the financial sector, the Dutch Central Bank and the Netherlands Authority for the Financial Markets work closely together.
International cooperation on supervision
Most of the legislation concerning financial supervision is the result of choices made at not only European but also global level. The AFM tries to ensure that it is permanently represented in both European and global cooperative bodies that address issues relating to the supervision of conduct on the financial markets.
Internationally there are various associations and consultative bodies, the most important of which are the European Securities and Markets Authority (ESMA) and the International Organisation of Securities Commissions (IOSCO).
The AFM also works closely on a bilateral basis with a large number of its fellow supervisory authorities in other countries. The law allows the AFM the freedom to make written agreements with national and international supervisory authorities in the form of a covenant, a Memorandum of Understanding (MoU) or an Exchange of Letters.
Offences against regulation
If the AFM establishes that an offence has taken place, it can impose an administrative fine on the offender. Its powers to do this are based on various acts of parliament, most notably the:
- Financial Supervision Act ['Wet op het financieel toezicht', or 'Wft'],
- Pensions Act ['Pensioenwet'],
- Consumer Protection (Enforcement) Act ['Wet handhaving Consumentenbescherming'], and
- Audit Firms (Supervision) Act ['Wet toezicht accountantsorganisaties'].
The basic principle of the Wft is that all administrative fines are, ultimately, to be published, unless publication is or could be in conflict with the supervision to be exercised by the AFM regarding compliance with the Wft. The timing of publication depends on the offence. An administrative fine for a serious offence (category 3, or if the offence is so designated by law) has to be published without delay, meaning within five business days after the date on which the decision to impose an administrative fine has been notified to the offender. During these five days, the party concerned can apply for provisional relief.
Apart from administrative fines, the AFM can take a number of other measures in response to offences against regulations. These measures may include:
- instructive conversation on compliance with standards
- warnings
- public warnings
- notices
- orders for incremental penalty payments
- withdrawals or limitations of licence
- referrals to the Public Prosecution Service
- submission of disciplinary complaints (against an external auditor)