What is meant by “adequate measures”' in the preamble to Section 21a(1) of the Market Abuse Decree under the Financial Supervision Act?
A financial enterprise, as defined by Section 5:68 of the Financial Supervision Act, must adopt adequate measures to prevent it from investing in prohibited companies, or granting loans to such entities. “Adequate measures” mean measures that are legally possible and that the financial enterprise can enforce unilaterally. This is certainly the case if a financial enterprise trades in its own name and account, manages a collective investment scheme itself, or, without detailed specifications, receives an explicit instruction from a client to invest in a company subject to the ban (known as an “execution only” situation).
The AFM considers that the legal phrase “adopting adequate measures” is an obligation to take action. The ban and the indicative list should be soundly embedded in the organisation. The financial enterprise has to meet the requirements for ethical and controlled operations, with internal controls designed to effectively instil the ban in the organisation. This can be achieved through internal reporting, regular assessments and the procedure for dealing with infringements.
A common and practical method is to use an exclusion list in combination with a warning system, to determine whether investments have been made or are made in prohibited companies.
The AFM employs an indicative list of companies as a tool for its supervisory activities. Self-assessments include questions from the AFM on the implementation of Section 21a of the Market Abuse Decree under the Financial Supervision Act.
The AFM stresses the imperative of checking at least once a year whether prohibited companies are ‘on the blacklist’ in the transaction and trading systems, and, if new systems are implemented, repeating the test to determine whether these companies remain ‘closed’.
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