Frequently asked questions ban on inducements for investment firms - Exceptions

Frequently asked questions - Ban on inducements for investment firms - Exceptions

What is the reason for this exemption?

It is usually not possible to convert existing financial instruments such as structured products into similar instruments with no kick back fee. Most of these instruments have fixed and usually short terms to maturity, and the costs have been charged at the time of purchase. The AFM therefore expects to see a transition to a service without kick back fees for financial products within a foreseeable time period.

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Why are professional parties not covered by the ban on inducements?

Professional parties are considered to have sufficient knowledge to understand investment services provision. They also have sufficient counterweight to be able to negotiate a favourable charging structure. Another reason for the exemption is that professional parties operate internationally. Since the ban on inducements applies only in the Netherlands, this could harm the competitive position of Dutch investment firms.

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What is the definition of a professional party according to the ban on inducements?

Professional parties are defined as professional investors and eligible counterparties. These groups of investors are assumed to have sufficient knowledge and experience to be able to independently assess the risks associated with financial instruments and investment services These investors are thus granted a lower level of protection than retail investors.

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What does the AFM think about qualifying investors as professional counterparties?

In its assessment of whether an investment firm is complying with the ban on inducements, the AFM focuses on the facts of the situation and sees through constructions designed to circumvent the ban - including in cases where an investment firm classifies investors as professional as a matter of course.

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According to the letter of the law, investment firms may not pay or receive commissions with effect as of 1 January 2014. However, most of the invoicing and collection of commissions earned in the fourth quarter of 2013 will take place in the first quarter of 2014. Is this allowed?

The AFM states that collection of commissions earned in 2013 in 2014 Q1 is allowed. The ban on inducements is intended to stop commissions as of 1 January 2014 and collection of fees in 2014 Q1 relates to services provided prior to 1 January 2014. In any case, this only applies to lead commissions and return commissions, because a transitional regime will apply for kick back fees until 1 January 2015.

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