The Netherlands Authority for the Financial Markets (AFM) sees increased social awareness and transparency on the part of the financial sector as necessary conditions for the restoration of faith. Pressured by society, politics and the supervisor, financial companies have made progress in putting openness, honest communication and the interests of the customer at the centre of their focus. For justified faith, however, it is necessary for society to see that the sector’s wish to put the customer first, and keep the customer first, is based on its own conviction and initiative. In the current never-seen-before situation resulting from the persistently low interest rate, valuations may have increased, but the risks have not suddenly disappeared. The sector has a constant responsibility to be proactive towards its customers.
Thus said Merel van Vroonhoven, chairman of the AFM, during the presentation of the 2014 annual report. “The sector is going through enormous change and must pull out all the stops in order to satisfy new laws and regulations and respond to technological developments and economic circumstances. In certain areas, it has clearly made progress and implemented improvements, but we are also seeing companies struggling with structures from the past and the adaptation of their own cultures and behaviours. Furthermore, we can also see that new risks have arisen and new developments have occurred since last year.”
Many of the changes and improvements were set in motion in response to the external pressures. “The sector will have to continue to take steps to keep society and politics at its side. That requires a form of persuasion that shows the right intentions. The necessary adaptation is currently still insufficiently driven by the sector itself.”
Pressure is necessary
The dossier of insurance policies with excessive charges, concerning which insurers only took action following serious insistence, and the AFM’s recent investigation into interest rate derivatives show that the intrinsic motivation for permanent change is still insufficiently rooted in financial companies. The disappointing results of the investigations into the quality of audits and the recent commotion surrounding remuneration further indicate a lack of affinity with the feelings at play in society.
Van Vroonhoven: "We are convinced that justified faith will not return before society sees, feels and experiences that the sector truly wishes to act in favour of the customer’s interest. So my message to the sector is: wake up, and listen to what society is saying. Be aware of your social role. Engage your customers in discussion even more and open all doors to critical views. Because society will simply not accept it if companies revert to pre-crisis behaviour.”
Necessity to win back faith
The AFM is currently seeing that all stimuli to take more risks are present. Due to the low interest rate, professional parties are taking more risks to achieve their desired returns. It is possible that consumers are doing the same. The never-seen-before circumstances in the financial system are raising new questions for both professionals and consumers, such as whether the risks taken are transparent and acceptable for the investor, consumer or pension beneficiary.
This also underscores the necessity for the sector to strengthen its ties with its stakeholders, and to position itself in the middle of society instead of standing at the edges. Furthermore, much effort will have to be put in properly assisting consumers in these unique times.
Van Vroonhoven: “It is necessary for companies to win back the faith of society, especially in these times of new risks. Explain to the customer what the risks of a product are, and denominate the negative scenarios as well when doing so. Make products more simple, show how you are performing. Invest in innovative technological tools that help consumers make choices. Although the primary responsibility lies with the sector, consumers of course have a responsibility as well. Come into action, give voice to your opposition and keep banks, insurers and advisors on their toes.”
Important results in 2014
In the previous year, too, the AFM’s supervision was focused on having an effect. Last year shows an improvement in the direction of honest and transparent markets, thanks in part to the AFM’s supervision. Banks and insurers have made progress in areas that the AFM monitors in connection with its supervisory duties. The clarity of customer information, for instance, was significantly improved, and financial products were adapted. However, in areas where the AFM does not yet perform systematic measurements, progress was lacking. This illustrates that the cultural change being sought is still not deeply rooted enough.
Insurers have provided the most vulnerable customers with solutions for insurance policies with excessive charges. Under pressure from the AFM, among others, the auditors recently also came up with proposals for improvement, announcing to place central focus on the public interest, on which their raison d’être is based.
The AFM has also carried out extra investigations among providers of investment bonds. At this time, the AFM has an insufficient hold on these providers, because many of them take advantage of exemptions and supervision exceptions. The AFM has therefore argued that these parties should be fully placed under its supervision; the Ministry of Finance is working on a legislative change.
The question as to whether the benchmarks used by financial companies are set in a proper manner was investigated in collaboration with DNB. The situations involving Libor and Euribor have underscored the importance of due care in internal operations as concerns benchmarks. Stricter laws and regulations and critical supervision were necessary to compel improvements in business operations, and the AFM and DNB will, in the upcoming years, be monitoring whether the implemented improvements are followed up more broadly.
31 administrative fines were issued, amounting to 7.8 million euros in total. Malicious parties, such as illegal payday loan providers, were banned from the market, and action was taken against the practice of charging a hidden (commission) fee for mediation in consumer credit. Steps were also taken against prepaid funeral service insurers who offer policies on the basis of incorrect or incomplete information.
It was a turbulent year for the supervisory council, especially as a result of the investigation into the rules governing compliance, additional positions and integrity. The AFM hopes to possess a new council with a full membership in the very near future.
The changing circumstances also have consequences for the AFM itself. In 2014, the AFM focused on professionalising itself further and increasing the transparency of its own accountability, among other things by publishing its supervision agenda and making its activities visible. The AFM is continuing along this path in 2015. It will invest in expertise in specific areas, such as the supervision of accountants, technological developments, use of data, consumer behaviour and IT. It will implement openness through such publications as the 2015 Agenda and the annual report. The AFM continues to internalise outside views by conducting discussions with stakeholders through the Advising Panel and the Consumer Panel.
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.