What does the AFM have in store for asset managers in the Netherlands?

What is this about?

On 16 January 2020, the Dutch Authority for the Financial Markets (AFM) published its Agenda for 2020 which identifies the trends in the financial sector and the key risks the AFM will focus on this year.

Which parties should care?

The Agenda is relevant for all financial market participants. However, this note focusses on the points relevant for asset managers (including investment firms, banks, AIFMs and UCITS management companies).

What should they do?

Asset managers should take note of the supervisory priorities announced by the AFM.

The AFM points out that the market for asset management is changing immensely and is growing more and more, increasing its role in the Dutch capital markets. In addition, asset managers and custodians often use third-party service providers for (financial) administration, but also for core functions such as risk management and back-office tasks. This increases outsourcing, management, and concentration risks.

Considering this fragmented market, the AFM expects asset managers:

• to keep a grip on controlled and sound business operations in the
  chain;
• to employ a future-proof business model which enables them to
  adequately respond to (technological) developments; and
• to be able to anticipate and respond to European legislation and
  changing demands due to social and economic changes.

To achieve its objective of ensuring a sustainable asset management business model and securing investor protection, the AFM has identified a properly functioning chain of asset management parties as a supervisory priority, resulting in the following activities for the AFM:

• identifying major outsourcing risks and mitigating these through
  active supervision;
• improving its view on asset managers’ conduct by gaining insight into
  role of custodians by conducting studies;
• researching firms’ cost structures; and
• through studies, gaining insight into the impact of sustainability
  issues on the business operations of asset managers.

When does this become relevant?

The Agenda is set for the year 2020, meaning that the AFM’s activities listed above can commence any time now.

Any further thoughts?

The AFM further notes that they will be paying attention to sustainability in their general supervisory activities. Investment funds and institutional investors contribute to the transition towards more sustainability by emphasising ESG factors in business operations. Furthermore, both the supply of and demand for sustainable investment products and services are increasing, and sustainability aspects are more often taken into account in investments decisions. The Agenda mentions the following sustainability-related supervisory activities:

• scrutinising claims of sustainable investing to mitigate greenwashing
  risks;
• attending to (international) sustainability issues impacting asset
  management and capital markets;
• monitoring the impact of sustainability issues on financial stability;
• studying integrated reporting;
• checking the provision of information on sustainable investment
  products and services to assess whether this information is accurate,
  clear and not misleading; and
• entering into conversations with international ESG benchmark parties
  and influencing related prospective regulation.

The Agenda is available here (in Dutch).