Directors and other daily policymakers, co-policymakers, and supervisory board members of a financial undertaking must be assessed by the regulator (AFM or DNB). This is not only relevant when applying for a licence, but also when appointing a new director, policymaker, or supervisory board member. The regulator assesses, based on legal standards and the ‘Suitability Policy Rule’, whether the reliability of daily policymakers and supervisory board members is beyond doubt and whether they are suitable for the role. Only after positive assessment by the regulator can a proposed policymaker carry out policy-determining activities.
Some financial undertakings choose to announce a proposed appointment publicly while awaiting a decision from the regulator. This reservation is usually included in the press release.
AFM penalty for appointing a policymaker without approval
Recently, the AFM imposed a penalty on a financial service provider that had appointed a director without prior registration and assessment by the regulator as a policymaker. Even after the AFM expressed concerns during discussions about the company’s view that this director did not play a policy-determining role, the company failed to formally register the individual as a policymaker. The penalty decision reveals that a press release about the proposed appointment had been issued.
Key insights from the penalty decision
The penalty decision contains interesting insights, some of which are highlighted below:
- Policymakers are not just statutory directors.
A director who is not a statutory board member may still be regarded as a policymaker. This applies if they are involved in policy and decision-making related to the day-to-day operations of the company and if they exert significant influence over the company’s long-term strategy.
- Joint decision-making within the board.
An indication of a policy-determining role exists when decision-making within the board is collective, and this is recorded in the minutes. All board members are collectively responsible for decision-making.
- Representation from the board.
Attending management team meetings and meetings of the supervisory board as the sole representative of the board suggests a policy-determining role within the organisation, according to the regulator.
- Practical matters are a sign of policy-determining actions.
For example, the coordination of holidays between board members. The AFM sees this as an indication that key management tasks are being reassigned. Bringing up topics during strategic meetings also confirms a director’s significant influence on the company’s direction.
Based on the above, the AFM concluded that this director had carried out activities that determined the company’s day-to-day policy. The director was not registered as a policymaker with the AFM until eleven months after starting the role. Part of the delay was due to the financial service provider’s confusion over which assessment category applied and which forms needed to be used.
What lessons can be learned from this case?
- Assess whether a high-level management role involves policy-determining activities.
Statutory directors are not the only ones considered policymakers. What is crucial are the tasks and responsibilities of the individual in question. If some members of the management team are deemed policymakers and others are not, care must be taken to ensure that those who are not policymakers do not become involved in policy or strategic decision-making.
- Announce an appointment only after regulator approval.
An additional benefit is that in the event of a rejection, there is no need to issue a new announcement about withdrawing the candidate, avoiding any negative consequences for the individual’s and the company’s reputation.
- Follow a set procedure for changes to the board.
Ensure that the correct steps are taken in the correct order. In practice, it is often known that a policymaker must be assessed, but a clear process is lacking. Timely registration with the regulator also ensures a quicker decision, allowing the policymaker to start their role sooner.
- Act on warnings from the AFM.
The penalty decision shows that a policymaker had previously been appointed without the regulator’s approval. Take the AFM’s feedback seriously. It is wise to implement measures to prevent a recurrence. Repeating unwanted practices often leads the AFM to impose formal measures.
- Avoid confusion in the assessment process.
Due to confusion over the assessment category, incorrect forms were initially submitted. This caused delays in the registration process. Submitting incorrect or incomplete forms can result in unnecessary delays. This can easily be avoided by seeking expert guidance or contacting the AFM for clarification.
Do you have any questions about applying for a licence with the AFM or DNB, or about the assessment process? Get in touch with Projective Group. We’re happy to assist you.
