It is an essential thing that every governmental territory holds its financial regulatory authority. This authority works towards the betterment for all financial enterprises, investment firms, and sectors related to public accounting. In the Netherlands, Authority of Financial Markets (also known as AFM) is an organisation responsible for all financial markets’ security. They aim to keep the marketplaces secure from risks and violations.
AFM is responsible for national financial operations. Not only for the firms, but the Netherlands Authority for the Financial Markets also works equally to gain the confidence and trust of end consumers. The organisation introduces new departments, laws, rules, and schemes that benefit those who abide by them. AFM is also fully authorised to take action against those who break the law. They supervise market sectors like investment, loans, insurance, etc. The organisation’s goal is to maintain the efficiency in operations and keep them running safely and securely.
Authority of Financial Markets – History
The Netherlands Authority for the Financial Markets was established on the 1st of March 2002. It was a successor to the Securities Board of the Netherlands. When the organisation was created under the legislation, its activities and operations expanded over a full scale—their duties involved in covering all the financial elements. Netherlands Authority for the Financial Markets took over financial products like savings, loans, investments, and took care of their security and safety.
Since the organisation’s establishment, Minister of Finance is held politically responsible for its working. But Authority for the Financial Markets remained to be an autonomous administration. It means that even though the Minister of Finance provides political power, the organisation takes all its decisions independently.
Netherlands Authority for the Financial Markets operates in the cooperation with National Bank of Netherlands – named De Nederlandsche Bank (Dutch National Bank or DNB) –, which is responsible for the monetary and business stability in the country.
Role and Responsibilities of AFM
As its name suggests, the Netherlands Authority for the Financial Markets is an institution that regulates the behaviour of the country’s financial markets. This operation includes every sector that is related to finance.
The AFM is responsible for all financial products like bank savings, insurances, loans, investments, mortgages, capital markets, asset management, pensions, accountancy, and financial reporting. Netherlands Authority for the Financial Markets regulates those parties that provide financial products (like loans, savings, insurance), and those parties that issue these products directly to the consumer.
As being a prominent and necessary part of the governmental operations, AFM also has authority over the stock exchange. It is a massive relief for consumers’ department because scams and frauds are close-to-none when a persuasive authority is looking over the matter. That is one of the main reasons why every investor should be aware of the responsibilities of the Netherlands Authority for the Financial Markets.
The AFM plays a vital role in the life of people that are involved in finance.
The authority has three main aims:
- Increasing the accessibility of the financial markets
- Smoothing up the operations in the financial markets
- Making sure that financial markets are running with full confidence
These objectives are necessary to be kept in sight because all business sectors (including the governments’) are dependent on the financial products offered by markets. Therefore, one mishap can lead to significant disruption. And the Netherlands Authority for the Financial Markets makes sure that these blunders do not happen.
How Do AFM Work?
AFM is not only responsible for professional sectors, but also provides a sense of security to the consumers. A consumer would never visit a financial market, knowing that it is not up to standard.
What AFM does is make sure that standard is maintained in all the sectors of the financial markets. The authority’s experienced staff visits and inspects these markets regularly. With the means of supervision, inspection, enforcement, and proper conduction, Authority for the Financial Markets monitors all the leads and signals that are being created in the marketplace.
These signals can be harmful or useful; the authority finds what it is from their own controlling and peacekeeping methods. If the Authority for the Financial Markets finds any mishap or law breach, it is responsible and authorised to take actions and impose sanctions. The AFM can warn the culprit publicly, place them under surveillance, and cancel their financial license.
The authority can also refuse to continue their registration – and the institution had to be shut down – or file report with the public prosecution. Authority for the Financial Markets is also given full authority to place penalty actions on the law-breaching culprits and impose hefty fines on them.
Information about AFM for Investment Firms
Financial firms or investment enterprises fall under the supervision of the Netherlands Authority for the Financial Markets. The scale of supervision mainly focuses on the maintenance of order in transparent financial market processes, the relation between the market holders, and the provision of care to the clients.
AFM’s supervision over the financial enterprises is subject to the Act on Financial Supervision (also known as Wft). This act emerged on the rulebook on the 1st of January 2007, four years after the establishment of Netherlands Authority for the Financial Markets. This act consists of six parts:
- General part
- Supervision of Financial Markets
- Market Access for Financial Enterprises
- Supervision of the Conduct of Financial Enterprises
- Prudential Supervision of Financial Enterprises
- Supervision of Clearing and Settlement Systems
The last part of the act will be added and implemented on a later date. Furthermore, The Markets in Financial Instruments Directive (MiFID) was also implanted as a part of the act and came into implement on the 1st of November 2007.
MiFID II (Markets in Financial Instrument Directive II) is a revised version of MiFID. It was established on the 3rd of January 2018. MiFID II aims to make European financial markets more transparent. The directives also work to strengthen the investor’s protection. MiFID II introduces specific rules for investment firms and trading venues that are helpful in the firm’s transparency.
It is also beneficiary for the consumer to know as much about the firm as possible before being a client there, and the firm’s transparency allows it. By introducing these laws, consumer and issuer both get confidence. All investment parties and financial managers should be well aware of this act. This act does not only guides to a lawful order of processing in firms but also protects you from any violation of the law.
The part of the Supervision of the Conduct of Financial Enterprises (fourth part) in the Act of Financial Supervision (Wft) consists of rules that all financial enterprises have to observe and abide by when they are dealing with consumers. This part of the Wft states, in short, that the provision of care and rule informing is a must for financial enterprises when they are providing their services.
Securities for Investment firms and Brokers
Netherlands Authority for the Financial Markets, being a licensed body – as stated in Wft, has set some rules and regulations for investment firms and financial enterprises.
These rules protect the business holders and customers from mishaps and law-breaking operations. The main aim of the rules and regulations is to maintain confidence in consumers, investing companies, and financial markets. Financial operations in the country must be done ethically and lawfully. That is why this rulebook is mandatory for all the parties in the market. These rules are known as Rules on Market Abuse. As its name suggests, it is a protection act for the financial markets.
The relevant rules are the following:
- Market Manipulation is not allowed.
- Insider-trading is strictly prohibited.
- Price-related information is sensitive, so it must be accurate and immediately accessible to everyone available publicly.
- Journalists, analysts, and publicists are required to abide by the rules of investments.
- Investment firms are required to report any suspicious transaction.
These rules protect the market members (investors, customers, brokers) from abuse. Similarly, the Netherlands Authority sets specific rules for the Financial Markets for different sectors and institutions.
Rules for Different Financial Service Providers
AFM released rules for the following audiences:
- AIFM / Collective Investment Schemes
- Providers of Investment Objects
- Issuers of Securities
- Audit Firms
- The Caribbean Netherlands
These professional audiences (which are mentioned above) are required to report all trading transactions to the Netherlands Authority for the Financial Markets. If the transaction is transparent, AFM provides different ways for the institutes to report even a transparent transaction directly to them. This way, secrecy and trust are maintained. These audiences gain security and confidence from the rules set by the Netherlands Authority for the Financial Markets.
Specific rules for specific audience maintain the order and safety regarding brokers, investor, financial managers, and consumers. AFM looks over the operations held at financial markets by each firm. Parties trust this authority because it is strongly backed by governmental power. With fair decision-making and ethical laws, investors and brokers feel secured and confident in their operations. These are the top tier regulatory authorities in the world today.