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The AFM and DNB improve fit and proper assessment further to Ottow Committee's recommendations

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Letter

Financial institutions in the Netherlands broadly acknowledge the importance that prospective members of their management and supervisory boards are assessed. Well-reasoned assessment is perceived as an important instrument to enhance the sector's learning capacity. The ‎Ottow Committee has put forward several proposals aimed at improving and fine-tuning fit and proper assessments to allow the supervisory authorities to fulfil their statutory mandates even better.

For example, the AFM and DNB should communicate more transparently about their assessment procedures. The Committee's report also contains several useful recommendations for preserving and better safeguarding careful decision-making, fostering diversity in the financial sector and making assessment procedures more efficient and effective.

Financial institutions also have an important role to play. They have a shared responsibility for fostering diversity in the financial sector and making assessment procedures more efficient.

In the view of the AFM and DNB, these are the key conclusions from the report that the Ottow Committee presented on Tuesday 13 December (see Utrecht University press release in Dutch). In the Committee's opinion, the supervisory authorities "adequately fulfil their statutory duties" in assessing members of management and supervisory boards.

Fit and proper assessment

Since the financial crisis, changes have been made to assessments of prospective and incumbent members of management and supervisory boards of financial institutions in the Netherlands. The applicable requirements, initially in terms of expertise, but later referred to as suitability, were fleshed out, and the legislator also introduced assessments for members of supervisory boards and, subsequently, for other officers at financial institutions. Higher-quality management and supervision is considered a key element in preventing new crises.

Each year, around 2,500 initial assessments are performed, 96% of which result in a positive outcome. In addition, between ten and twenty re-assessments take place, assessing incumbent members of a management or supervisory board again if there are "reasonable grounds" to do so.

The Committee

The AFM and DNB have commissioned an independent external committee to study the structure of and approach to fit and proper assessments of management and supervisory board members of Dutch financial institutions. Headed by Professor Annetje Ottow, the Committee also comprised Professor Janka Stoker and Jan Hommen.

Follow-up

Over the past eighteen months, the AFM and DNB have taken significant steps to strengthen and enhance fit and proper assessment procedures.
The Ottow Committee's report offers a solid foundation for the AFM and DNB on which to build their follow-up actions. In a detailed letter to the Dutch Minister of Finance (in Dutch), the AFM and DNB have listed these actions.

To improve the transparency of the process, more and better quality information will be made available to candidates before and during the assessment procedures. The AFM and DNB will also provide more elucidation as to how they are safeguarding careful decision-making. They will also launch a pilot project to define the role of the outside senior adviser in more detail.

It emerges from the Committee's report that financial institutions believe they are not being given enough room to increase diversity in the boardroom. The Committee recommends that financial institutions make greater efforts to improve diversity, using the room they are given to select candidates they find most suitable, even if those candidates do not have a long-standing financial background. To encourage this, the AFM and DNB will communicate more clearly that candidates with non-financial backgrounds may be nominated and will specify the related requirements.

Assessment procedures will be made more efficient by further digitising the application for assessment, using an online platform, and the assessment's completion.
Likewise, further steps will be considered aimed at supporting institutions in taking their responsibility for nominating suitable candidates. The Committee recommends that institutions analyse the composition of their present and future management and supervisory boards in terms of competence, experience and any desirable supplementary knowledge or experience.

A further recommendation is that institutions submit a fully and accurately completed application document to the AFM and DNB, showing clearly who they nominate and why. This could speed up the process and ultimately make it less burdensome.

International developments

As cited in the report, international developments will have an increasingly significant impact. European harmonisation is intensifying, as evidenced by the present consultation round of the EBA and the ESMA about new guidelines on suitability assessments and the ECB's consultation. The AFM and DNB welcome this development. As emerged earlier from the EBA Peer Review Report on suitability, Dutch assessment procedures are considered as good practice, and the proposed European assessment procedures are largely in line with the current Dutch take on assessments.

For more information, please contact AFM press officer Marieke Ziedses des Plantes at +31 6 2159 7012, or DNB press officer Martijn Pols at +31 20 524 2272 or +31 6 524 96 432.

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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