www.pwc.com The Netherlands – Banking Gateway to Europe How to obtain a Dutch banking licence? Publication by PwC Januari 2011 At PwC in the Netherlands over 4,500 people work together from 12 offices and from three different perspectives: Assurance, Tax & HRS and Advisory. We provide industry-focused assurance, tax and advisory services and search for surprising solutions, not only for national and international companies but also for governmental and societal organizations. ‘PwC’ is the brand under which member firms of PricewaterhouseCoopers International Limited (PwCIL) operate and provide services. Together these firms form the PwC network. Each firm in the network is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. 2 PwC Content Preface 4 1. Introduction 2. Tax regime 10 3. Banking licence application 12 4. After authorisation 16 5. Registering a branch 20 6. Trends and developments 22 7. PwC 24 1.1 1.2 1.3 1.4 2.1 2.2 2.3 2.4 3.1 3.2 4.1 4.2 4.3 6.1 6.2 6.3 6.4 Banking landscape in the Netherlands Definition of a bank Role of Dutch supervisors Competitive advantages of the Netherlands Dutch corporate income tax VAT Payroll taxes Other taxes Time path and steps to be taken From preparation phase to the start of activities Regulatory requirements Annual accounts Tax reporting requirements Payment Services Directive De Larosière report Future of banking report by PwC Changes to corporate income tax 2010 6 6 7 8 8 10 11 11 11 12 12 16 17 17 22 22 22 22 The Netherlands – Banking Gateway to Europe 3 Preface Dear reader, With this publication, we aim to present applicants abroad an overview of both the Dutch banking landscape and the requirements for obtaining a banking licence in the Netherlands. This publication can serve as a first exploration if you have the intention of becoming active in the Dutch banking sector. In the past, banks in the Netherlands were traditional companies with large numbers of branches spread across the country. Today, there seems to be a tendency towards more efficient banks with only a limited selection of products and services offered to a dedicated group of clients. In addition to this tendency, we predict, as a result of borders disappearing, a consolidation of local banks in the medium term, which will then register their head office in the country with the best (financial) market. The Netherlands stands out as an excellent financial market. It has long been an attractive destination for international businesses. An extensive double tax treaty network, solid supervisors and the mature infrastructure are just a few reasons why it is attractive. In addition, the public and private sectors have joined forces within the Holland Financial Centre Foundation to simplify regulatory and tax infrastructures and to promote the Netherlands as a favourable and a well-positioned country within the EU. We would be pleased to help you navigate the Dutch financial market. If you have any questions after reading this publication please let us know. Yours sincerely, Gert-Jan Heuvelink Dutch Financial Services Leader Amsterdam, 15 December 2010 4 PwC 1. Introduction In the past years, we have assisted our clients in obtaining a banking licence in the Netherlands. this publication, please contact one of your PwC advisors or one of the PwC contacts listed on page 23. international context. Secondly, mediumsized and smaller players, including niche banks. With this publication, we aim to serve the many parties interested in obtaining a banking licence. To provide more information on the Dutch banking sector and on how to obtain a banking licence, this publication provides an overview of the Dutch retail banking landscape and the players active in this sector, such as supervisors. 1.1 Banking landscape in the Netherlands The banking landscape in the Netherlands was fairly stable until 2007. From that time, a number of new parties entered the Dutch market, in part also making use of the so-called European Passport facility. These parties predominantly entered the market via internet platforms for raising money on the savings market, since the Netherlands has traditionally been a country of savers. These parties have used an aggressive strategy where previously unusually high interest rates were offered. Furthermore, this publication contains a general overview of the requirements set by both the Act on Financial Supervision (Wet op het financieel toezicht) (the “AFS”), and the Dutch Central Bank (the “DNB”), that are applicable in order to obtain a banking licence in the Netherlands. In this context, this publication includes contributions from a tax, audit and regulatory compliance perspective. Should you wish to discuss the possibilities of obtaining a banking licence after reading Some general characteristics of the Dutch banking landscape are, to name a few important ones: • We are well known as savers. Almost all households have at least one savings account. • We have one of the highest rates of internet penetration into households, as a result of which the ‘internet banking’ model has grown rapidly in the past 10 years. • We have the tax benefit of mortgage interest deduction, as a result of which all banks offer a wide range of mortgage products. The banking landscape in the Netherlands is, by and large, divided into two categories. First of all, a number of large players, which are also active in an At the moment of writing this publication, the banking sector is under a lot of pressure. Some banks had to be nationalised whilst others needed a capital increase or other forms of help from the Dutch government. Until now, there has been no clarity as to the direction the banking sector will take. It is a very dynamic sector and much still needs to change in the years to come. Banks will have to adjust their strategy in order to reduce costs, modernise their business, simplify and reduce complexity, better integrate their processes and systems and better connect the various parts of their business. Furthermore, the supervision of the banking sector will become stricter in the years to come. At the European Union level, we have already seen the initiatives of the De Larosiere committee, which has made proposals for new EU legislation. Basel III has already been announced and further regulatory reform measures may be expected shortly. The Netherlands – Banking Gateway to Europe 5 At a national level, the Dutch government recently appointed an advisory committee to assess the future of banking. This Maas committee, named after its chairman Cees Maas, the former CFO of ING Bank, has published a report with recommendations to ensure sustainable and safe banking in the Netherlands. The recommendations in the report concentrate on governance structures and risk management, policies on reward, the supervision of banks in the Netherlands and the future of banking in the Netherlands. The recommendations of the Maas committee are being adopted in a code for the banking sector. The code will be developed by the banking sector in cooperation with the Ministry of Finance and will complement the existing Corporate Governance Code. The code is based on the ‘comply or explain’ principle and its key elements are, amongst others: • Introduction of a cap on variable remuneration components for bank employees; • Putting the client first as an essential condition for the continuity of a bank; • Variable remuneration components of bank directors may not exceed the amount of 100% of the annual fixed salary; • Introduction of a moral-ethical oath/ statement for all bank employees; and • Bank employees will have to undertake ongoing education in order to ensure that they have sufficient expertise (including obligatory banking exams). The code came into effect on 1 January 2010 and a Monitoring Committee has been appointed to monitor the implementation of this code by the banks. The first results of this Monitoring Committee may be expected in the autumn of 2010. 1.2 Definition of a bank In order to determine whether a licence as a bank is necessary in the Netherlands, it has to be analysed if the activities of a company qualify as such. 6 PwC A bank needs to be distinguished from an electronic money institution. An electronic money institution is: “A party, not being a bank, whose business it is to obtain the disposal of funds in exchange for which electronic money is issued with which payments can be made, also to parties other than the party issuing the electronic money” Since this publication only deals with banks and their licence requirements, we will not further discuss electronic money institutions. The legal definition of a bank is: “A party whose business it is to obtain the disposal of callable funds from others than professional market parties beyond a restricted circle, and to extend loans at its own expense” state. If they have met all applicable obligations of that Member State for carrying out their services to another Member State, they will not have to apply for a licence in the Netherlands since they can make use of the so-called ‘European Passport’ facility. Please see also chapter 5. Another exception may apply if a company does not qualify as a bank but as a finance company, in which case a banking licence will not be required. The reason for this is that a finance company does not meet all the requirements of the definition of a bank. There are two types of finance companies that may be relevant in this respect: 1. A finance company that only obtains the disposal of callable funds from professional market parties and/or from within a restricted circle. This means that it in order to operate as a bank it is required that all the elements of this definition have been met, meaning that: a) there has to be an activity of both obtaining disposal of callable funds and of extending loans at one’s own expense, b) this has to be the professional business of the company, c) the callable funds have to be obtained from others than professional market parties, and d) the callable funds have to be obtained from beyond a restricted circle. If a company meets all the criteria of this definition, a banking licence will be in principle required, unless an exception to the licence requirement applies. One exception to these licence requirements may apply to banks that have their seat in a state that is a member of the European Union or from the European Economic Area (a “Member State”) and that have received a banking licence from the competent authority of that particular In this case the finance company does not meet the criteria of the definition of a bank and is therefore not required to apply for a banking licence. 2. A finance company that obtains the disposal of callable funds from others than from professional market parties (outside a restricted circle) by means of issuing securities. In such a case the finance company is exempt from banking licence requirements if the parent company of the finance company (or its bank) provides for a financial guarantee for the obligations resulting from having at its disposal the callable funds, and if the finance company puts out at least 95% of its total balance sheet within the group of which it forms part. In some cases a finance company voluntarily applies for a banking licence. A reason for this may be that companies which are under supervision can on average obtain the disposal of callable funds at a cheaper rate than those not being under supervision. If the purpose or factual activities of a finance company are for a large part to receive means from non-residents and payments to non-residents, it has to report itself to the DNB as a special financial institution, the so-called “BFI”. The DNB may then decide which of these finance companies it wishes to appoint as a reporter. When appointed as a reporter, the finance company will need to report data, such as balance sheet totals, to the DNB. The reason is that the DNB collects monthly and annual data on cross-border transactions with non-residents and positions in foreign assets and liabilities in order to have a clear view on the payment balance of the Netherlands. 1.3 Role of Dutch supervisors There are two supervisory authorities active in the Dutch financial sector, the Dutch Central Bank, the “DNB” (De Nederlandsche Bank N.V.) and the Netherlands Authority for the Financial Markets, the “AFM” (Autoriteit Financiële Markten). This is the result of a change of the supervision model in 2002 in which sector-based supervision was replaced by function-based supervision. This is currently divided into prudential supervision (DNB) and supervision of market conduct (AFM). This is also referred to as the “Twin Peaks” model. The AFM is responsible for supervising the operation of the financial markets. This means that the AFM supervises the market conduct of the entire financial market sector: savings, mortgages, investments, insurances and loans. By supervising the market conduct of the financial markets, the AFM aims to make a contribution to the efficient operation of these markets. The DNB is responsible for prudential supervision and is the supervisor that grants banking licences. Prudential supervision addresses the question as to whether participants in the financial markets can rely on their contracting parties being able to meet their financial obligations. The purpose of prudential supervision is to ensure the financial soundness of financial institutions and to contribute to the stability of the financial sector. Prudential supervision comprises solvency and liquidity supervision designed to verify that the financial institutions can always meet their payment obligations. The supervision aims to reduce the risk of bankruptcy, although this risk can never be entirely excluded in a market economy. Prudential supervision also includes supervision of the scope and composition of insurers’ technical provisions for the performance of their insurance obligations. Being the central bank of the Netherlands, the DNB is also responsible for systemic supervision. The purpose of systemic supervision is to ensure the stability of the financial system as a whole. Prudential supervision is connected with systemic supervision because it contributes to the stability of the financial sector, while the information it provides about the financial soundness of financial institutions is important to effective systemic supervision. 1.4 Advantages of The Netherlands for banks There are a number of advantages for setting up a bank in the Netherlands. 1.4.1 General The Netherlands has a favourable strategic geographical location as it is positioned centrally in Europe and can therefore be seen as the gateway to Europe. In addition to this strategic position, the Netherlands has one of the largest ports of the world in Rotterdam with easy access to countries such as Germany, Belgium and France. The Dutch public is a solid workforce, very well educated, and multilingual. At the time of writing this publication, at 4.8% the Netherlands had one of the lowest unemployment rates in the EU and as mentioned before, the Dutch public is known for its high percentage of savers. Furthermore, the Netherlands has a favourable financial infrastructure with a long tradition in the field of banking, retirement management, pension funds, investments and insurance products. There is also a solid financial infrastructure, including a very efficient payment structure, with the Euro as its official currency, and where monetary platforms such as PIN, Chip and e-payments are setting the tone. In addition, the Netherlands has a well-known stock exchange in Amsterdam which is part of NYSE Euronext. Finally, the Netherlands has a very sophisticated internet infrastructure, including fibre networks, which means that there is one of the highest internet penetration rates in the world (91% of all households has access to the internet). The government in the Netherlands is committed to maintain and improve, where necessary, its flexible and state-of-the art financial infrastructure (supervision, legal and tax legislation) to accommodate both national and international investments. For this purpose, the government and the supervisors, together with organisations from the financial sector have set-up the Holland Financial Centre initiative (‘HFC’). The objective of the HFC initiative is to ensure that the Dutch financial sector remains strong, open and able to compete internationally in today’s fast globalising economy. 1.4.2 Tax From a tax perspective, the Netherlands is well-known for its extensive network of tax treaties it has concluded with other countries. This exceptionally large International Double Taxation Treaty network substantially reduces withholding taxes on foreign dividend, interest and royalty payments between treaty countries and the Netherlands. From a tax perspective, the Netherlands is also attractive because of its relatively low statutory corporate income tax rate The Netherlands – Banking Gateway to Europe 7 of 25%, with possibilities to further reduce the effective tax rate. There is also the general possibility to conclude tax rulings in order to agree on the Dutch tax treatment of Dutch banking operations with the Dutch tax authorities in advance. Dividends and capital gains are exempt under the so-called participation exemption regime. The Netherlands also has an attractive regime for taxation of foreign branch profits. Further there is no Dutch withholding tax on interest and royalties, there is a 30% tax ruling for expatriates in order to reduce personal income taxes, and the Netherlands does not impose any Dutch capital tax or stamp duties. 1.4.3 Legal From a legal point of view, the Netherlands has flexible company laws and incorporates the legal concept of freedom of contract. Furthermore, the legal system is based on non-discrimination. The Dutch Government has concluded a vast number of international trade and investment contracts in order for imports and exports to function as efficiently as possible. In addition, the legal infrastructure is wellestablished with large international law, audit and consulting firms present. Moreover, the Netherlands has solid and cooperative supervisors in various fields; not only the AFM and the DNB in the financial sector, but also, for example, the Dutch Competition Authority (Nederlandse Mededingingsautoriteit) which oversees any anti-competition practices or monopolies in the market. It can be said that there are good working relationships between the Dutch and foreign supervisors as well as between regulated entities and supervisors. In addition, both the AFM and DNB licence application process are transparent, orderly and efficient. Both institutions also have a cooperative approach towards new entrants. 8 PwC 2. Tax regime income is calculated with reference to the (banking) functions performed by the branch in the Netherlands. The functions performed in the Netherlands should therefore be carefully analysed before starting operations. Depending on the functions of the branch, different remuneration methods are possible. If the branch merely carries out auxiliary activities for its headoffice, taxable income can generally be calculated on a cost-plus basis. It is possible to approach the tax authorities before commencing operations and agree upon the method of calculating the taxable income of the branch. A bank operating in the Netherlands is subject to different types of taxation. It is therefore important to structure the operations of the bank as tax efficiently as possible in order to reduce the tax burden. This tax structuring is usually done during the exploration phase. In this paragraph, we will provide a high level summary of the most important Dutch tax aspects which should be taken into account when incorporating a Dutch banking business. We will discuss: 1. Dutch corporate income taxes (“CIT”) 2. Value Added Tax (“VAT”) 3. Payroll taxes 4. Other taxes 2.1 Dutch corporate income tax • For Dutch CIT, the following items are relevant to the tax structure of a Dutch bank. The Dutch corporate income tax rate is currently 25% for profits exceeding EUR 200,000. For profits below EUR 200,000, the tax rate is 20%(rate for 2011). Operations structured through a Dutch legal entity (NV) or branch A Dutch legal entity is in principle subject to Dutch CIT on its Dutch banking profits. However, the following considerations are relevant: • • A Dutch legal entity is subject to CIT over its worldwide profits. However, a full exemption is available for profits of foreign branches and foreign subsidiaries owned by the legal entity. Tax losses of foreign branches are in principle tax deductible, although recapture rules do apply. If it is decided to structure the operations via a branch, taxable Dutch tax law contains transferpricing guidelines governing transactions between group companies. Transactions between the Dutch banking legal entity with group companies should therefore be priced similar to transactions between third parties (the ‘arm’s length’ principle). The Dutch transfer pricing rules require that Dutch taxpayers have documentation available supporting the at arm’s length character of the pricing with respect to transactions between group companies. Tax efficient capital structure In order to determine the most optimal mix between capital and debt funding the following considerations are relevant: • In general, interest payments on loans, bonds, debentures and other debts of the company are fully deductible as normal business expenses. Case law and particular legal provisions, however, prevent interest deduction in a number of situations, such as thin capitalisation rules and rules • • potentially limiting interest deductions on intra-group loans. It should therefore be carefully analysed as to whether all interest paid by the Dutch legal entity would be tax deductible. In the case of a branch that carries out ordinary banking activities it would be necessary to allocate equity of the head office to the branch for tax purposes. Since the capital allocation could have a significant impact on the effective tax rate of the Dutch branch, the allocation method should be carefully considered. Tax efficient structuring via, amongst others, hybrid debt is possible. Tax Grouping If the group structure of the bank comprises more than one Dutch legal entity / branch, it may be tax efficient to form a so-called fiscal unity between these companies. The fiscal unity option allows companies within a group to file a consolidated tax return. The main benefit is that losses from one company can be set off against profits from another company. In addition, assets can be transferred within the group without potential gains being subject to Dutch CIT. Ownership of foreign branches and foreign subsidiaries structured via a Dutch entity Due to its full tax exemption for branches and subsidiaries of a Dutch legal entity and the large Double Taxation treaty network, the Netherlands is a perfect location for holding foreign banking activities. • The Netherlands provides a full tax exemption on foreign branch profits and foreign subsidiaries (if certain conditions are met). Tax losses of foreign branches are in principle tax deductible from the Dutch taxable profits, although recapture rules do The Netherlands – Banking Gateway to Europe 9 • apply. Furthermore, via the structuring of foreign operations it would be possible to benefit from the exceptionally large Double Taxation Treaty (DTT) network that substantially reduces withholding taxes on dividend, interest and royalty payments (often to 0%) between treaty countries and the Netherlands. 2.2 VAT The Netherlands withholds VAT on fees paid for the delivery of goods and services against a rate of 6% or 19%. However, most services provided by banks are exempt from Dutch VAT. Before starting the banking operations, it should be carefully analysed as to whether this VAT exemption is indeed applicable. As a result of this exemption, the recovery of VAT incurred is limited and if significant amounts of VAT are incurred this can result in significant costs. To recover any incurred VAT, it is firstly necessary to attribute input VAT directly to taxable, exempt and non-business supplies as far as possible. For a bank that makes both taxable and exempt supplies, the standard method of recovering any remaining VAT incurred is, in principle, to apply the ratio of the value of taxable supplies to total supplies, which for most banks is considerably low. However, it should be noted that there are ways to optimise the VAT recovery ratio of a bank. Furthermore, the Dutch Ministry of Finance has issued a resolution (Bankenresolutie) proposing ways in which banks should deal with a number of VAT issues they may face. Since a 19% VAT burden is a significant cost, many Dutch banks optimise their VAT recovery rates. Transactions between head office and a branch are exempt from VAT. 2.3 Payroll taxes The Dutch banks should withhold payroll taxes and social security premiums on the 10 PwC salaries paid to their employees. The payroll taxes are based on progressive rates which range from 32% to 52%. There are specific facilities for foreign employees in order to reduce their Dutch payroll tax, the so-called 30% regulation. Furthermore, most companies offer a tax efficient old-age pension plan, a collective health insurance and a tax-friendly saving scheme. 2.4 • Other taxes International tax aspects The Netherlands has an exceptionally large Double Taxation Treaty (DTT) network that substantially reduces withholding taxes on dividend, interest and royalty payments (often to 0%) between treaty countries and the Netherlands. The Dutch commitment to international and bilateral commerce is evidenced by the fact that the Netherlands has signed taxation treaties with more than 90 countries around the world. In the absence of a tax treaty, the double taxation relief through the Royal Decree for the Avoidance of Double Taxation may be applicable. Furthermore, the Netherlands has implemented the EU Parent/ Subsidiary Directive, the EU merger Directive and the EU Interest & Royalty Directive, reducing international taxes on cross-border transactions. • Withholding taxes A dividend withholding tax of 15% is levied on dividend distributions made by Dutch tax resident corporations. The dividend withholding tax is often reduced to nil under applicable tax treaties or the EU Parent-Subsidiary Directive. There is no Dutch withholding tax on interest or royalties. • Capital taxes/ stamp duties In the Netherlands, there is no capital tax or stamp duty. • Real Estate transfer taxes The Netherlands withholds 6% tax on the transfer of Dutch real estate. This tax is calculated based on the purchase price of the Dutch real estate. 3. Banking licence application If a company intends to set up a bank in the Netherlands, it will be required to apply for a banking licence with the DNB, unless such a licence has already been granted in another Member State. The DNB has to authorise the bank to operate in the Netherlands. This follows from the AFS in which it is also stated which legal requirements must be fulfilled in order to be granted a banking licence. The DNB will, amongst others, assess whether the proposed design and operational effectiveness of processes and procedures of the bank comply with these requirements, and whether the bank will not destabilise the financial system or harm the trust in the financial sector of the Netherlands. Step I Preparations Step II Draft businessplan Step III Meeting with DCB 3.1 Time path and steps to be taken received the information requested. If no or insufficient supplementary information is received within the period specified by the DNB, the DNB may decide not to consider the licence application request. Based on our experience a total time path of nine to twelve months for the whole licence application should be taken into account from first considering a banking licence until the start of banking activities. In this chapter, a step-by-step overview is provided of all steps that have to be taken into account to apply for a banking licence with the DNB. A time path stating which step should be taken at which moment together with an indication of how much time each step will take is also included. The DNB has an official term of thirteen weeks to decide to grant the licence after receipt of the licence application file. However, as soon as the DNB requests more data or information as a supplement to the application file, this period of thirteen weeks shall be extended until the DNB has Step IV Prepare application Step V Risk Management Step VI Declaration of no objection Step VII Submit licence application Step VIII decision by DCB Step IX Start activities Meeting with DNB Identification key-drivers and show stoppers Discuss drafts with DNB Start activities? Submit licence application Draft business plan Month 1 Decision by DNB Month 2 Month 4 Month 6 Month 9 Month 11 Prepare programme of activities Compose licence application file Declaration of no objection Risk Management and compliance procedures Max. 13 weeks The Netherlands – Banking Gateway to Europe 11 3.2 From preparation phase to the start of activities Step I Preparation phase During the preparation phase, it is necessary to draft a project plan outlining the different steps that need to be taken and milestones to be achieved. The project plan should also include the duration of each step, the resources needed and a time plan in order to ensure that the deadlines set will be met. Time: This phase will take approximately two weeks. Step III Meeting with DNB Before sending in the licence application, we advise to meet with the DNB in order to inform them about the plans of setting up a new bank, the business plan and the intentions of filing a licence application. This is not mandatory, but it helps the preparations of the licence application file and the communications with the DNB. In such a meeting the DNB will provide feedback which enables anyone applying for a licence to gain insight in the process of the licence application from a DNB perspective. A business plan is part of the licence application process and it may be necessary to revise it after the first meeting with the DNB (see Step III). The table below gives an indication of the topics that should be addressed in the business plan: After discussing the business plan with the DNB, the applicant must analyse outstanding issues, key drivers and “show stoppers” which are important during the process of the licence application, and it must amend the business plan in accordance with the remarks from the DNB. After having done so, it is customary to arrange for a second meeting with the DNB to finalise the discussions on this topic. If the DNB sees no objections regarding the amended business plan and submission of the licence application, the applicant can continue with the preparations for the licence application. Time: This phase will take approximately six weeks. Time: This phase will usually take between six to eight weeks. Step II Draft Business Plan The second step is to draft the business plan and ascertain that it is up-to-date and ready to share with the DNB. The business plan will be the starting point for a conversation with the DNB in relation to the licence application. Step IV Prepare application file After the meetings with the DNB, it is now time to prepare the application file keeping in mind the topics discussed with the DNB. In this phase, the required documentation and information can be drawn up and compiled in order to prepare the application file. The following documents need to be prepared and filed: 1. Licence application form, completed in full. This version is available on the website of the DNB. 2. Certified copy of the articles of association of the legal entity that wishes to obtain the bank licence. 3. An overview of proposed activities that the bank wishes to perform in the Netherlands. The entity has to determine which activities as set out in the Banking Directive 2006/48/EC, it wants to perform, for example: –– Lending, including, inter alia: consumer credit, mortgage credit –– Issuing of payment cards (e.g. credit cards) –– Guarantees and commitments –– Trading for own account or for Topic: Contents: Summary Summary of the chapters/ topics mentioned below Objective & Strategy Why a bank in the Netherlands? What is the strategy? Which clients are targeted? Principal business activities Information on the bank’s proposed activities and the outcome of any market research investigations for setting up a new bank in the Netherlands Introduction of new products The bank’s procedure for introducing new products, such as: • Who decides on or approves new products? • What does a proposal for a new product entail? • Evaluation of the new product, after it has been released. Funding strategy How is funding raised for the bank? I.e. shareholders, other banks, non-financial institutions, etc. Operational control What key processes will the bank have? What departments (i.e. compliance, risk management, Internal Audit, IT, HR) will the bank have and what will be their role? The board What is the composition of the Board of Supervisory Directors? What is the composition of the Board of Managing Directors? What are their responsibilities? Financial Forecast This chapter contains all financial information, including forecasts for the next three years. Examples are profit & loss statements, cash flow, growth in interest expenses, etc. 12 PwC account of customers in financial instruments, –– such as shares and options –– Participation in securities issues –– Portfolio management and advice 4. Integrity Test Forms: the legal entity applying for the bank licence will need to appoint a Supervisory Board, comprising at least three members, and a Board of Directors comprising at least two members. The members of the Board of Directors will need to reside in the Netherlands. Both the members of the Supervisory Board and the Board of Directors are subject to the “expertise test” and the “trustworthiness test” by the DNB. The expertise test examines whether the prospective appointee’s education and experience related to banking activities is sufficient. The trustworthiness test assesses the integrity of the prospective members. 5. Policies to secure sound operations: A. Description for prevention of conflicts of interest There have to be policies that describe the measures to be taken in order to prevent: a. conflicts of interest; b. any involvement of the bank or its staff that is in violation of the law, or criminal offences which may affect the public’s confidence in the bank or in the financial markets; c. confidence in the bank or in the financial markets from being damaged because of its clients; and d. the bank or its employees from performing any acts that are considered to be contrary to generally accepted standards and may seriously damage confidence in the bank or in the financial markets. This is an open norm regarding negligent or careless behaviour which can damage the confidence in the bank or in the financial markets. B. Description for IT environment In addition to the policies describing the prevention of conflicts of interest, the applicant needs to explain to the DNB how it will plan and implement its IT environment. Because banks rely heavily on IT, the DNB wishes to ensure that the bank has a well-controlled IT environment that adequately supports its business processes. For this purpose the DNB requests an IT risk assessment being prepared and an analysis of the functional system requirements to support the bank’s business processes, as follows: –– General IT Risk Assessment Banks are required to perform an assessment of the most important risks with respect to the intended IT environment. The DNB stresses the importance of identifying the most important risks for which strong controls are vital, and which risks are considered acceptable and would thus not consume management time and resources. Examples of relevant areas to be covered would be the IT strategy, systems security, programme development, change management and IT resilience. An option would be to use a generally accepted framework for IT governance, such as CobIT (Control Objectives for IT) as a reference, which provides practical guidance on implementing a balanced set of IT General Controls. –– Functional application requirements The licence applicant should be able to perform an assessment demonstrating to what extent the functionality of its application infrastructure will support its business processes. The DNB prefers a party to completely administer its business processes and activities within its applications to avoid the use of end-user solutions or even a hard-copy administration. The DNB requires applications to be robust and complete with controls that cover the main risks in the business processes. The applicant should be able to provide an overview of these processes. This overview would have to include requirements based on risks within the generic business processes and external compliance requirements, identified by an assessment of applicable laws and regulations. 6. Control structure: the control structure description should at least contain information on the organisational structure (i.e. an organisational chart) and a description of the major shareholder(s). The DNB assesses this information since the proposed organisational structure may not obstruct the supervisory activities of the DNB. 7. Internal control description: the internal control description provides an overview of the business operations and the internal controls of the bank. It must at least include a clear and adequate organisational structure, a clear and adequate division of roles and responsibilities, an adequate recording of rights and obligations, clear reporting lines and an adequate system for the provision of information and for communication. The legal requirements for the content of the internal control description are principle-based and not precisely and exhaustively described in the AFS. It is up to the bank to design and describe its business operations and internal controls in such a way that it demonstrates to be in control. 8. The bank’s own funds, the expected solvency and liquidity, and ICAAP: an audit statement by an external accountant registered in the Netherlands regarding the opening balance sheet will be sufficient to prove The Netherlands – Banking Gateway to Europe 13 the existence of the bank’s own funds. In order to set up a bank, the legal entity will need to have a minimum of own assets of EUR 5 million. Furthermore, an ICAAP description will have to be set up. The ICAAP is a process description to ensure that adequate provision is made for holding internal capital in relation to the risk profile of the new bank. For solvency aspects, a description must be made of the manner in which the new bank will calculate its solvency. The bank has to make a choice out of three methods, as prescribed by the AFS. All three methods have to be calculated and explained in the licence application. Step V Risk Management An important step is the design and preparation of a description of the procedures with regard to the compliance, risk management and internal audit functions. Every bank is required to have a separate compliance, risk management and internal audit function, and the DNB will look closely at the design and description of each of these functions. For each function, a policy and a description of the operating procedures need to be submitted to the DNB. The policies and descriptions are part of the internal control system of the bank and can be submitted together. It is not necessary to prepare and submit each policy and description separately. Time: one to three months. If the bank also intends to provide certain investment services, such as portfolio management for individuals, additional documentation needs to be drawn up, including, amongst others: –– In case the bank will act as depository for financial instruments or money belonging to clients: a description of the measures taken in order to safeguard the rights of the clients to the financial instruments or money and the use of the financial instruments and the money for own account of the bank (asset separation). –– A description of the policy regarding the conflicts of interest which is in compliance with the requirements set out in the Markets in Financial Instruments Directive (“MiFID”). The MiFID requirements are applicable when providing investment services and more extensive requirements apply to the conflicts of interest policy for banks that also provide investment services. Time: approximately three to six months. 14 PwC Step VI Submit Declaration of No Objection Any entity or person who has a qualified (share or voting) participation in the bank, i.e. more than ten percent interest or control, needs to obtain a declaration of no objection (“DNO”) from the DNB. The DNO will be issued on the basis of the outcome of an assessment of the participating interest. The DNB assesses, amongst others, who is holding the interest or control, whether there are any conflicts of interest, how much authority this person has in the bank and whether this person is trustworthy. The DNB also assesses whether the participating interest in question results in the formation of a financial group which by its structure and activities presents an excessive risk for the stability of the financial sector. The DNO needs to be submitted along with the licence application or shortly afterwards. Several documents need to be submitted together with the application form for the DNO: 1. documents evidencing the financial position of the applicant or holder of a qualifying holding; and 2. documents evidencing the integrity of the applicant (e.g. an integrity form). The DNB has thirteen weeks to decide upon the application for a DNO. However, if the DNB asks for additional information, this period will be suspended until the DNB receives the required additional information. Time: this step will normally take thirteen weeks. Step VII Submit licence application file The application file must be submitted in hard copy to the DNB. As of this date, the official term of thirteen weeks will start. It is important to have people available to be able to answer any questions the DNB may have and to prevent the process from falling behind schedule. Time: this step will normally take at least thirteen weeks. Step VIII Start activities As soon as the licence to operate as a bank has been received, the bank is allowed to start its banking activities. Please note that as a licensed bank the continuous supervision of the DNB will apply, in cooperation with the AFM. This means continuous compliance with the requirements from, amongst others, the AFS. 4. After authorisation Once a banking licence has been granted by the DNB, the new entrant may start its activities in the Netherlands. One of the consequences of performing activities as a bank in the Netherlands is that there is a continuous obligation to comply with a large set of reporting and regulatory requirements as stated in the AFS. A general outline of these requirements is presented below. Regulatory requirements are included in the AFS and in secondary regulations, e.g. the Regulation on Statements of Financial Undertakings under the Wft (Regeling staten financiële ondernemingen). The Decree on the Implementation of the Basel II Capital Accord, the new capital accord for banks (Basel II), has been put into effect for the European Union (EU). The supervision of banks in the Netherlands is based on the three-pillar approach set by the Basel Committee: • • • Pillar 1: the minimum capital requirements per risk type: credit risk, market risk and operational risk; Pillar 2: the internal processes for risk management and for the calculation of the internal capital requirements, the economic capital and how the supervisor views these internal processes: supervisory review; and Pillar 3: requirements for the disclosure of key financial data as calculated for pillar 1. 4.1 Regulatory requirements 4.1.1 Pillar 1: FINREP/COREP The statements to be provided by a bank to the DNB include: Balance sheet and profit and loss information as well as additional financial information for the supervision to demonstrate compliance with the Section Prudential supervision of financial undertakings of the AFS; • Other information for the supervision to evidence compliance with the rules with regard to solvency, maintaining balance sheet items and off-balance sheet items, and liquidity. • The reporting framework consists of financial reports (FINREP), risk reports (COREP) and other reports as defined in the Regulation on Statements of Financial Undertaking under the Wft (e.g. liquidity, interest rate risk, country risk). Depending on the approach applied (standardised or Internal Ratings-Based (IRB)), different sets of reports must be submitted to the DNB, usually once per month. Once a year most reporting forms have to be accompanied by a statement regarding the fair presentation, issued by an external auditor. The DNB has laid down rules specifying which statements the auditor must include in the audit. 4.1.2 Pillar 2: Internal Capital Adequacy Assessment Process (‘ICAAP’) and Supervisory Review and Evaluation Process Pursuant to the AFS, a bank should have robust, effective and comprehensive strategies and processes in place which it uses to monitor and ensure on a continuous basis that the size, composition and distribution of its own funds are proportionate to the size and the nature of its current and possible future risks. These strategies and processes, hereinafter referred to as the ‘ICAAP’ (Internal Capital Adequacy Assessment Process), will be evaluated periodically by the DNB. Key to this evaluation, also referred to as the ‘SREP’ (Supervisory Review and Evaluation Process), is the dialogue between the bank and the DNB. 4.1.3 Pillar 3: Disclosures Pillar 3 requirements are also incorporated in the AFS. Pillar 3 aims to improve market discipline through effective public disclosure to complement requirements for Pillar 1 and Pillar 2. Pillar 3 disclosures are public disclosure requirements around capital structure, capital adequacy and risk measurement. In general, Pillar 3 disclosures cover the following aspects from both a qualitative and quantitative perspective: • • • • • • • • • Scope of application of the capital adequacy framework; Capital Structure and Capital Adequacy; ICAAP strategies and processes under Pillar 2; Credit Risk; Securitisation; Market Risk; Equities; Interest Rate Risk in the Banking Book; and Operational Risk. 4.1.4 Other requirements Deposit guarantee scheme The deposit guarantee scheme protects individuals and small entities from losing the assets that they have deposited at their bank. If a bank is supervised by the DNB, it must participate in the Dutch deposit guarantee scheme. The deposit guarantee scheme is established for the situation in which a bank is no longer able to fulfil its payment obligations towards its deposit The Netherlands – Banking Gateway to Europe 15 holders. The deposit guarantee scheme guarantees a maximum level of protection of EUR 100,000 per account holder. Organisational aspects Specific changes in organisational aspects of a bank need to be reported to the DNB. In case new directors or new supervisory board members are to be appointed, the bank has to inform the DNB of this intention upfront. New directors will have to be screened on trustworthiness and expertise prior to the start of their activities. The screening is performed by the DNB. If after approval of the DNB the information on which the DNB based a past decision has changed, this information should be provided to the DNB immediately. In such a case, the DNB will reassess the expertise and trustworthiness. Other changes in the organisational structure of the bank which need to be reported to the DNB are, amongst others, the name and address of the bank, its statutory seat, statutory name, and trading name(s), its registration number at the Chamber of Commerce; any changes to the corporate by-laws; as well as changes to the control structure and if applicable, the addresses of branch offices. Finally, the DNB should be notified immediately in case of incidents endangering the sound business operations of the bank. Requirements pursuant to the Act on the prevention of money laundering and the financing of terrorism An important obligation in the prevention of money laundering and the financing of terrorism is the obligation to report unusual transactions to the Financial Intelligence Unit, the FIU. Informing the FIU has to take place within 14 days after discovering the unusual transaction. Private investments transactions Employees, directors and supervisory board members are subject to detailed regulations regarding private investment transactions and the handling of price- 16 PwC sensitive information. These regulations must prevent conflicts of interest, the unauthorised use of price-sensitive information and trading with pricesensitive information. Should the bank also be a listed company, certain people within the bank who qualify as insiders will then need to report their transactions in the bank’s listed financial instruments to the AFM. In the situation in which inside information relates to the bank itself as an issuing institution, the bank must directly disclose such information by sending out a press release, and report the inside information to the AFM. Furthermore, the inside information must be published on the bank’s website. Should the bank have a reasonable suspicion that any client transaction in financial instruments is being performed under the influence of inside knowledge, the bank should inform the AFM immediately about this suspicion. 4.2 Annual accounts The legal provisions relating to the preparation, filing and audit requirements for financial statements of a bank are set out in Book 2, Part 9 of the Dutch Civil Code (Burgerlijk Wetboek). In accordance with the AFS, a bank having its registered office in the Netherlands shall provide the DNB within six months after the end of the financial year with the annual accounts, the annual report and the other information referred to in Book 2 of the Dutch Civil Code. The accounts also have to be published by filing them at the relevant Chamber of Commerce. The annual accounts of a bank have to be accompanied by a statement regarding the fair presentation, issued by an external auditor. The format and content of company accounts are set out in Book 2 of the Dutch Civil Code. The annual accounts can be prepared either in Dutch GAAP or IFRS as adopted by the EU. For Dutch GAAP, in addition to the Civil Code, models for the balance sheet and the profit and loss account have been provided by General Administrative Order, in conformity with the relevant EU Directives. Additional requirements are set out in the Dutch Accounting Standards (Richtlijnen voor de jaarverslaggeving), judicial precedence or, if applicable, IFRS. The principal requirement for annual accounts is that they are prepared in accordance with generally accepted accounting principles and provide an overview enabling a wellfounded opinion to be formed on the legal entity’s assets, liabilities and results and, insofar as the financial statements permit, of its solvency and liquidity. 4.3 Tax reporting requirements A bank which is active in the Netherlands, irrespective of being established here or being a branch from a foreign bank, has to fulfil tax compliance obligations towards the Dutch tax authorities. Please find the most important Dutch tax compliance requirements below. Tax returns Banks are required to file a corporate income tax return on an annual basis. The corporate income tax returns must be filed electronically. An estimation form declaring expected taxable income also has to be filed during the financial year. VAT returns and wage tax returns must also be filed on a monthly or quarterly basis. Tax Assessments After receiving the tax return, the tax inspector issues an assessment. In addition, preliminary assessments are normally issued and payable during the fiscal year on the basis of an estimation of the expected taxable income. The corporate income tax is payable after receiving an assessment. Preliminary assessments will be set off against the final tax liability. Some other taxes are payable upon self-assessment (e.g. VAT, dividend withholding tax and wage withholding tax). Interest If the tax due exceeds the preliminarily assessment, interest becomes payable upon assessment. The accrual period of the interest is from the mid-year until the date of the corporate income tax assessment. With respect to wage withholding tax, VAT and some other taxes, the accrual period starts at different dates, but generally when the taxes are due. Advance Pricing Agreements The Advance Pricing Agreements (APA) and the Advance Tax Rulings (ATR) system of the Dutch tax authorities offer the opportunity to agree in advance with the Dutch tax authorities on the tax aspects of certain transactions. Tax rulings are often agreed for banking operations in order to agree on the Dutch taxable base of foreign banks. The Netherlands – Banking Gateway to Europe 17 5. Registering a branch • • • A branch is a physical location without legal personality in another country from the one in which the company is established. In this chapter, an overview will be provided of the relevant steps for a bank that intends to open a branch in the Netherlands from outside the EU as well as from the Netherlands in other Member States or in countries outside the EU/EEA. I From a Member State into the Netherlands For banks established in other Member States, it is possible to open a branch in the Netherlands. In order to start a branch, it is a precondition for the bank to have a licence from its home state supervisor and to have applied for the European passport. This European passport is a notification system for executing services from one Member State to another one within the EU/EEA. The European passport includes only those activities which are permitted pursuant to the licence as provided by the supervisor of the bank’s home state. II From outside the EU/EEA into the Netherlands It is possible for banks established in countries other than EU/EEA countries to open a branch in the Netherlands. A precondition is that this bank has a licence as a bank from the supervisor in the country in which it is established. In addition, the bank has to apply for a licence in the Netherlands. This licence application is comparable to the regular licence application as described above, 18 PwC although the requirements for obtaining a licence as stated above mostly relate to the (board members of the) branch and only to a lesser extent to the statutory office of the bank in its home state. A licence may be granted by the DNB if the applicant demonstrates that it will comply with a number of provisions related to the branch, such as requirements for, amongst others, expertise and trustworthiness of the board members of the branch, as well as with respect to the solvency and liquidity of the branch. Furthermore, the applicant has to send a statement from the home supervisor to the DNB, evidencing that this supervisor has approved the opening of a branch in the Netherlands. III From the Netherlands into other Member States Once a bank has obtained a licence to carry out banking activities in the Netherlands from the DNB, it is a possibility to carry out activities from an office in a Member State by means of a branch. Please note that it is possible to request the approval from the DNB together with the licence application, but also at a later stage after the licence has already been granted. A Dutch bank that intends to start a branch in other Member States has to obtain prior approval from the DNB. Amongst others, the following information has to be provided to the DNB prior to opening the branch: • the name of the Member State in which it wishes to be active; • the (future) address of the branch; • activities that the bank intends to carry out from the branch; the names and addresses of the persons that will carry out the daily management of the branch; a description of the intended policy concerning the sound conduct of business; a description of the design of the operational management concerning the sound and controlled conduct of business. The DNB will inform the applicant within two months after receipt of the application of conditions, if any, that are applicable to the branch. In the event that the DNB approves the application, the DNB will notify the supervisory institution of the country in which the branch is to be established of its decision. This DNB will also enclose financial information of the applicant in the notification. The branch can start to deploy its activities two months after the conditions, if any, have been met. IV From the Netherlands to countries outside the EU/EEA If a Dutch bank intends to establish a branch outside the EU/EEA, the procedure that will need to be followed is in principle the same as described above. The main difference is that Dutch law does not state any rules on the co-operation between the DNB and the supervisory institution of the country where the branch is intended to be established. This is because the European Passport facility is not valid outside the EU/EEA. It is very well possible that countries outside the EU/EEA have their own rules, including the requirement to obtain a local licence. For registering a branch in these countries, it is relevant to look at the national laws of that specific country. 6. Trends and developments A number of EU Directives and other local tax and regulatory initiatives have recently been implemented or are about to be implemented into the laws of the Netherlands and which may impact on the banking landscape in the Netherlands. The following is not intended to be exhaustive, but provides a high-level overview of what is about to change in the near future. 6.1 Payment Services Directive The PSD was implemented in the AFS on 1 November 2009. The Payment Services Directive (“PSD”) provides the legal foundation for the creation of an EU-wide single market for payments. The PSD aims at establishing a modern and comprehensive set of rules applicable to all payment services in the European Union. The objective of the PSD is to make cross-border payments as easy, efficient and secure as ‘national’ payments within a Member State. The PSD also seeks to improve competition by opening up payment markets to new entrants. At the same time the Directive provides the necessary legal platform for the Single Euro Payments Area (SEPA). For banks, PSD has the following consequences: a. Adaptation of contracts with clients b. New rules on the provision of information to clients c. Adaptation of transactions (faster, by number, without crediting to an account) d. Adaptation of rates: PSD prescribes rates that are based on the actual costs of the transaction The Netherlands – Banking Gateway to Europe 19 6.2 De Larosière report The financial crisis has sparked a new sense of urgency with regard to regulatory reform. A number of prominent reports have been published on the subject, such as the De Larosière report of the EU, the Turner report in the United Kingdom and the report of the Maas Commission in the Netherlands. These papers all set forth numerous recommendations on how to ensure greater stability in financial markets and how to prevent a financial crisis of such gravity from occurring again. It is expected that in 2010 and 2011, the European Commission will further elaborate on the following issues: • • • • • • Harmonisation of the definition of Pillar 1 capital; Harmonisation of liquidity regulation and supervision; Strengthening of supervisory oversight of risk management; Supra-national European supervisory structures, both micro- and macroprudential; Supervision of cross-border financial institutions by colleges of supervisors; New directives on remuneration. How these matters will materialise remains to be seen. It can be safely said, however, that the political decisions to be taken in the next few months will have far-reaching consequences for banks and how they will run their business. 20 PwC 6.3 Future of banking report by PwC The Future of Bankongis PwC’s reaction to the current financial crisis. It advises banks to take a number of measures necessary to face the current problems. Many of these measures are not new, but necessary. They should be executed on a timely basis and in the right order to be fully prepared for the future. To be able to start building on a steady and profitable future, banks need fundamental solutions for the long-term. This is especially important now since otherwise the future economic stability may be damaged by the short-term crisis management of today. Thinking about the future of the banking sector leads to a number of questions. How will banks earn money in the future? How will banks deal with risk management? Or with capital and liquidity requirements? Is the business model still suitable for the targets set? And who is responsible for governance? Based on these questions, the report highlights five important points of interest: strategy, business models, capital, risk, regulation and governance; and people and rewards. The report highlights the potential bottlenecks and possible actions to be taken for these four areas in order to be successful in the long-term. Should you wish a copy of this report, please do not hesitate to contact us. 6.4 Changes to corporate income tax 2010 The Dutch Ministry of Finance has made several changes to the Dutch Corporate Income Tax Act for 2010. In order to give the Dutch investment climate an extra boost, further improvements are now introduced. The measures contain in particular improvements with regard to the fields of financing and investing through the Netherlands. With effect from 1 January 2010, the participation exemption regime has been simplified. Furthermore, the innovation box has been improved, resulting in a 5% taxation of all profits stemming from licensed R&D activities. 7. PwC No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means – electronic, mechanical, photocopies, recording or otherwise – without prior permission of PricewaterhouseCoopers. For more information or assistance, please contact Jasper van der Poel. Tel.: +31 (0) 88 792 4996 Email: [email protected] PwC provides sector-specific services in the fields of Assurance, Tax & HRS and Advisory. Our objective is to help our clients improve their operational agility – not only as a service provider but also as a business partner. We give practical advice, identify opportunities and suggest innovative solutions: with a resultdriven focus and often from a surprising perspective. We do this with some 4,800 colleagues in the Netherlands and more than 155,000 people in 153 countries around the world. We serve large national and international companies as well as governments, not-for-profit organisations and private companies. ‘PwC’ refers to the network of participating member firms of PwC. Each member firm is a separate and independent legal entity. This publication was exclusively prepared as a general guideline for relevant issues, and should not be interpreted as professional advice. No one should act solely on the basis of the information contained in this publication without obtaining further professional advice. No explicit or implicit statement is made or guarantee offered in respect of the correctness or completeness of the information contained in this publication and, insofar as permitted by law, PricewaterhouseCoopers, its affiliates, employees and representatives accept no liability or responsibility whatsoever for the consequences of any action or omission made by anyone on the basis of the information contained in this publication or for any decision based on that information. PwC in the Netherlands includes a large banking group. This group consists of amongst others - audit, tax and compliance professionals with fundamental knowledge of the banking sector. Recent projects of the banking group include full project management on licence applications, the audit of an opening balance and of annual accounts of new entrants to the Dutch banking sector, compliance advice as well as advice on the necessary information to be provided to customers. Furthermore, we assisted in the organisation and implementation of the compliance function, and we advised on the optimal tax structuring of various local and foreign banks wishing to start a new bank in the Netherlands. These are only some examples of what we can do for our clients. The following persons are part of the Dutch PwC banking group. We invite you to contact them if you have any questions after reading this publication: The Netherlands – Banking Gateway to Europe 21 22 PwC Contact Audit Rogier van Adrichem Partner [email protected] +31 (0)88 792 5166 Advisory Martin Eleveld Partner [email protected] +31 (0)88 792 4997 Tax Remco van der Linden Partner [email protected] +31 (0)88 792 7485 IT/SAS 70 Stefan Verweij Director [email protected] +31 (0)88 792 5446 The Netherlands – Banking Gateway to Europe 23 © 2010 PricewaterhouseCoopers Advisory N.V. (KvK 34180285). All rights reserved.
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