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AFM: Strengthening financial stability demands a targeted effort from supervisors

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"The AFM wishes to contribute to strengthening the stability of the financial system, to reducing uncertainties and to increasing confidence in the financial system and the individual financial institutions." This is written by Ronald Gerritse, chairman of the Netherlands Authority for the Financial Markets, in the 2012 Budget. "This demands a targeted effort together with other supervisors in the Netherlands and Europe."

The 2012 Budget contains the plans for the new year. The AFM intends, inter alia, to strengthen supervision of the capital markets in order to protect retail investors interests. The supervisor observes that complexity is increasing in these markets, for example as a result of the growth of automated trade. This is why, inter alia, supervision focusing on market abuse will be intensified.

The AFM will continue to emphasise the need for financial institutions to place the central focus on the interest of the client. In 2012, it will devote special attention to capital accumulation and advice in respect thereof. "The consumer must be enabled better to gain insight into his needs and the possibility of achieving objectives. It must also be clear what constitutes sound investment solutions."

Managing directors have to be able to guarantee that the financial institution complies with the requirements of careful client handling. The AFM, together with De Nederlandsche Bank, will lay down all formal measures that have been imposed on a company in an "Managing Director Monitor". This may lead to a reassessment of the suitability of the executive and supervisory directors.

The amount and risks of pensions have to become more transparent, according to the AFM. "Pension participants have to be able to count on a pension that corresponds with their justified expectations. The quality of an information document has to be accurate, timely and clear."

Themes

The AFM has selected nine themes for 2012. These are not entirely new themes, but they are ordered differently and some of the emphasis within the themes has shifted:

  • Product providers will place the central focus on the interest of the client.
  • The quality of financial services will improve.
  • Capital accumulation products and advice in respect thereof will be improved.
  • The amount and risks of pensions will become more transparent.
  • Managing and supervisory directors of financial institutions assume their responsibility.
  • The quality of information in the capital markets will be improved.
  • Trade and infrastructure will remain honest and consistent.
  • Severe integrity violations will be dealt with efficiently and quickly.
  • The quality of international supervision will be promoted.

Risk declaration

The AFM prefers to be mainly present where the risks are greatest. The 2012 Budget contains a risk declaration containing the market risks identified by the AFM, but which it is unable to prevent or control sufficiently, inter alia as a result of insufficient legal powers.

The starting point is that market parties themselves are responsible for complying with the rules. The AFM focuses on preventing and combating undesirable conduct and promoting desirable conduct. "The AFM is always concerned with actual, material improvement and not with formalities."

Cooperation

Strengthening cooperation with De Nederlandsche Bank is high on the agenda. "The financial crisis has shown once again how significant system risks in the markets can be. These risks in the fields of conduct and prudential supervision are related and be in line with each other. This applies at the level of both individual companies as well as the financial system."

Consultation

"As AFM we are always open for discussion on   our role as supervisor and how we perform that role, particularly in relation to others", writes Ronald Gerritse in his foreword. "Supervision is matter of balance. People sometimes say we are too much on the side of the legislator or the entrepreneur. This is not the intention of the AFM. As a supervisor, we do not just work within the legal boundaries, but we also contribute to legislation, for example by means of the ‘legislative letter’. As a supervisor, we consider room for entrepreneurship, but we also offer - and often upon request - more clarity concerning (open) legal standards."

Key figures

The net supervision costs rise slightly, from 77.2 in the 2011 Budget to 78.7 million euros in the 2012 Budget. The AFM deploys additional staff for the extra work. The renewal of supervision therefore also leads to an expected growth of the number of employees.

The renewal of supervision concerns, inter alia, the intensification of the supervision focusing on market abuse. The AFM will also prepare for the upcoming supervision of alternative investment funds, such as hedge funds. And the supervision of financial institutions requires an additional effort as a result of the termination of the cooperation with Stichting Financiële Dienstverlening.

The consequences of increasing the exemption limits for investments from €50,000 to €100,000 have not yet been incorporated in the budget. This also applies to the accelerated checking of the suitability of supervisory directors of major banks and insurance companies.
   

The AFM is committed to promoting fair and transparent financial markets.

As an independent market conduct authority, we contribute to a sustainable financial system and prosperity in the Netherlands.

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