Chapter 7: Supervision in NL Flashcards
What is sectoral supervision
separate regulatory authorities are established for each sector
* DNB - supervises banks
* Financial Markets Authority (AFM) - supervises insurance companies and pension funds
What is a functional supervision model
Supervision based on functions (AKA “twin peaks model”)
* Prudential supervision - done by DNB with the ECB
* Market conduct supervision by AFM
What is prudential supervision by the DNB
Supervision of non-system banks:
* Ensure low inflation
* Ensure safe/secure processing and payments
* Regulate integrity of FIs through Systemic supervision, solvency & liquidity monitoring, granting licenses, supervision of M&A activity
What is sytemic supervision via DNB
- Supervision of systm of FISs to ensure stability of financial system
- System banks fall under ECB supervision (incl. ING, ABN, Rabo)
- is to prevent risks
What is Solvency and liquidity monitoring
DNB oversees solvency position and liquidity of banks
* bank must have enough equity to cover unexpected losses
* enough liquid funds to cover withdrawals of money by customers
* Necessary since banks prefer not to have liquid funds
What is involved in granting licences
DNB (in collab with ECB) is involved in granting banks licences in NL
Banking licence under conditions of:
* expertise and trustworthiness
* Control struvture
* Adequate operational management
* Minimum # of members of supervisory board
* Minimum equity
* Solvency and liquidity
What is involved in supervision of takeovers/aquisitions
DNB/ECB is responsible for carying out supervision of takeovers in banking AKA “proposed aqcuisitions of qualified holdings”
What is the Financial Supervision Act
(AKA “wft”)
Regulates the supervision of almost the entire financial sector in NL.
Includes a set of rules and regulations for financial markets
What is Market conduct supervision by AFM
AFM responsible for market conduct in banking sector:
* Financial services
* Capital Markets
Market Conduct Financial Services
AFM ensures financial services are given consideration for customer interests (obligation of due care)
Banks must be reliable and ethical
Info to customers must be correct and not misleading
Market Conduct Capital Markets
AFM ensures CM are operated fairly/efficiently:
* Supervision of Market abuse
* Ensure banks disclose price-sensitive info
* Enforces rules for issuing securities/public takeover bids
What is Information provision
AFM makes sure info provided by banks is accurate and not misleading
Bank must draw up a key investor info document for complex financial products for proper understanding of risk / return
What is Obligation of Due Care
WFT assumes that there is inequality between bank and customer
* Customer will be the weaker party
* Bank needs to complete due care in interest of customer and not take advantage
* Bank must consider customer’s financial position, knowledge/expertise, investment objective, risk appetite
What is prohibition on insider trading
WFT contains a prohibition on insider trading
* Insider trading
* Disclosure of insider info to 3rd party
AFM is responsible for enforcing
What is prohibition of Market manipulation
AFM is responsible for enforcing prohibition of:
* inaccurate/misleading information
* transations where financial instrument price is artificially high
* transation based on deception
* misinformation about price of financial instrument
