Projective Group’s Risk & Compliance specialists closely monitor developments in financial laws and regulations. Using our compliance software Ruler, we keep track of all current affairs. We then determine the impact of the changes and translate the developments into the daily practice of our clients.
What developments should your organisation be aware of? In our quarterly Regulatory Updates, we provide a structured overview of regulatory changes and their impact on financial institutions. In this article, we highlight a number of developments.
What laws and regulations have recently come into force?
On 1 July 2024, the DNB Good Practices: Guidance on Prudential Reporting for Investment Firms and Investment FundsManagerscame into force. This guide provides guidelines and best practices for preparing and submitting financial reports that provide insight into investment firms and institutions' solvency, liquidity and risk profile.
On 31 July 2024, the Amendment to the Wft Exemption Regulation was published in the Dutch Official Gazette. This amendment applies to payment service providers that provide only account information services (AISPs) and relates to the exemption from mandatory audits. Payment service providers must have sufficient solvency under the Wft. Account information service providers, despite being classified as payment service providers, are exempt from this requirement. With the currently published amendment to the Wft Exemption Regulation, effective from 1 August 2024, the mandatory audit for account information service providers will also lapse.
On 2 September 2024, Delegated Regulation 2023/1626 came into force, amending Article 19 of Delegated Regulation 2018/1229 concerning sanctions for central counterparties (CCPs) in case of failed settlements. CCPs must establish appropriate sanction mechanisms to pass on fines from central securities depositories (CSDs) due to failed settlements to (certain) participants. The primary goal is to ensure that CCPs do not bear the fines themselves.
On 30 September 2024, the revised AFM Policy Rule on Information Disclosure came into force. This policy rule gives market participants more insight into how the AFM deals with open standards in its supervision. Interpretations have been added and updated in the revised version of the policy rule. This applies especially to open standards such as correct, clear and not misleading.
The following developments are explained in this article:
1. Regulation on transparency and integrity of ESG rating activities
ESG ratings play a significant role in capital markets and in investors' trust in sustainable products. They help ensure the proper functioning of the EU’s sustainable finance market by providing vital information to investors and financial institutions for investment decisions, risk management, and reporting obligations.
On 13 June 2023, the European Commission proposed a regulation on transparency and integrity of rating activities based on environmental, social and governance factors. This proposal aims to improve the quality of ESG rating information by making ESG rating characteristics and methodologies more transparent and providing clarity on ESG rating providers’ activities and preventing conflicts of interest.
While the regulation imposes requirements on companies providing ESG ratings, it is also relevant to financial institutions. The final agreement between the Council and the European Parliament in February 2024 included obligations for financial institutions that disclose ESG ratings in their marketing communications. In such cases, they must provide additional information on their website and include a link to the ESG rating provider's site. The Sustainable Finance Disclosure Regulation (SFDR, EU/2019/2088) will be amended accordingly.
The regulation still requires formal approval by the Council and EP and will enter into force 18 months after its publication.
2. Cash Payments act
The Dutch Minister of Finance intends to introduce new rules for cash payments. From 26 January to 8 March 2024, the minister held a consultation on this matter, highlighting the important societal role and public interest of cash. The Cash Payment act aims to keep cash accessible, available, and affordable.
The bill includes the following measures, among others:
Major banks will be required to provide a basic infrastructure, meaning sufficient access to deposit and withdraw both euro banknotes and coins throughout the Netherlands.
Major banks must ensure that this basic infrastructure is accessible to other banks at fair and reasonable prices.
All banks must offer their account holders access to this basic cash infrastructure. Withdrawing and depositing banknotes must be free of charge for individuals, except for banks with fewer than 50,000 account holders in the Netherlands.
On 19 July 2024, the Council of State was consulted, and the bill will be further discussed in the Dutch Parliament. It is unclear when this law will come into effect.
3. Technical Standards under the Revised ELTIF Regulation
On 10 January 2024, the existing European Long-Term Investment Fund (ELTIF) regulation was amended to encourage more fund managers to use the ELTIF label. By easing the rules, the European legislator aims to promote (sustainable) long-term investments in the economy. The reason for revising the regulation is that the ELTIF label was hardly used within the EU.
ESMA has been asked to elaborate on these new rules through technical standards (RTS), covering:
Criteria for determining when the use of financial derivatives serves solely for hedging purposes.
Circumstances under which the ELTIF lifecycle is considered compatible with the lifecycle of individual assets and its redemption policy.
Criteria for determining the percentage of liquid assets an ELTIF may hold.
Conditions for using the matching mechanism.
Calculation and disclosure of costs.
These RTS were adopted by the European Commission on 19 July 2024 and will enter into force three months after publication in the EU Official Journal.
4. Amendment to the EU High-Risk Third Countries List
Annex I of Delegated Regulation 2016/1675 lists countries deemed to have a higher risk of money laundering or terrorist financing. The list is periodically updated by the European Commission. The latest update, via Delegated Regulation 2024/163, took effect on 7 February 2024.
On 14 March 2024, the European Commission proposed adding Kenya and Namibia to the list of high-risk countries while proposing the removal of Barbados, Gibraltar, Panama, Uganda, and the United Arab Emirates. The European Parliament, however, objected to the removal of Gibraltar on the list, and it is expected that the European Commission will propose a new version later in 2024.
5. AFM Supervisory Reporting Act
Plans are underway to introduce the AFM Supervisory Reporting Act, which would require financial institutions to periodically submit data to the AFM. This data would cover financial products and services offered, the nature of the services provided, and the consumers or clients involved. Specific data to be reported will be defined by royal decree.
The purpose is to enhance the AFM's data capabilities and enable data-driven supervision. The AFM has long expressed the desire to adopt data-driven supervision, as its current methods—relying on consumer signals, external sources, and ad-hoc information requests—are insufficient to systematically monitor emerging risks in financial markets.
The AFM will have the authority to enforce this reporting obligation, including issuing fines or penalties for non-compliance. The consultation on this bill closed on 30 June 2024, and responses are currently under review by the Minister of Finance. It is unclear when or if this law will be enacted.
ESG Extended
We now offer an ESG Extended service, providing clear insights into ESG regulations that may not directly apply to your financial institution but are indirectly important. For instance, if you are considering investing in a “green project,” a thorough understanding of ESG regulations can help you make informed decisions, taking the ESG impact into account.
We hope this article has given you an idea of the recent developments. Want to make sure you haven’t overlooked anything? Then you can request a tailor-made Regulatory Update (available in Dutch and English). You will then receive a comprehensive quarterly report with current affairs, legislative changes, regulatory publications and consultations. This report is fully tailored to your organisation and activities. The relevant developments are explained by our experienced consultants, and there is also an opportunity to ask questions, for example about ambiguities in the legislation.
With our Regulatory Update, you will be timely informed of upcoming legislative changes and will not be confronted with any surprises.
Our specialists discuss the possible impact on your organisation with you and help you think about possible next steps and their practical implementation. They can also help with an action plan for adapting policy and procedures, so you always remain in control. For more information, please feel free to contact us.
