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Ban on inducements for investment firms in the Netherlands

In April 2013, the Dutch Minister of Finance consulted on the "2014 Financial Markets Amendment Decree" (the Decree), which proposed, amongst other things, the introduction of an inducement ban for investment firms.

The ban had already been much discussed at that point and the consultation version was met with criticism from various market players.

On 17 December 2013, the final version of the Decree was published. The inducement ban, as included in this final version, differs in several aspects from the consultation version; the scope of the ban has been limited to the provision of investment services to non-professional clients, and the transitional provisions have been amended. The ban entered into force on 1 January 2014.

Background ban

In March 2011, the then Dutch Minister of Finance presented an "Action Plan for the Financial Sector". It was drawn up in response to recommendations by the Parliamentary Committee of Inquiry that had investigated the causes of the financial crisis and the measures taken by the Dutch Government in response to the crisis. In this action plan the Minister announced his plan for the introduction of an inducement ban for investment firms: he felt that this would be the only way to make sure that investment firms would start acting in the interest of their clients. The Minister announced that the Dutch Government would strive for the implementation of a European-wide inducement ban during the deliberations on the revision of MiFID. When a European-wide ban however turned out to be unfeasible – at least in the short-term – the Minister took measures to establish the ban at a national level by including it in the Decree.

Scope ban

The ban is included in Section 168a of the Decree on the Supervision of the Conduct of Financial Enterprises pursuant to the Act on Financial Supervision. This Section elaborates on the general duty of care of investment firms to promote the interests of their clients and act in an honest, fair and professional manner when providing investment services or ancillary services, and to refrain from actions that are detrimental to the integrity of the market, as included in Section 4:90 of the Dutch Act on Financial Supervision.

Under the ban investment firms can no longer provide or receive any fees relating to the provision of an investment service or ancillary service to a non-professional client within the meaning of MiFID. As a result, only fees paid directly by the client to the investment firm are allowed. In addition, Section 168a includes some exceptions to the ban, but these are restricted. Exceptions include eg inducements that are necessary for the provision of the service and promotional gifts not exceeding EUR 100 per annum.

The ban applies to the following investment services (MiFID services 1, 2, 4 and 5):

  • receiving and forwarding client orders with regard to financial instruments;
  • executing orders with regard to financial instruments for the account of those clients;
  • portfolio management; and
  • providing investment advice.

In principle the ban does not apply to placement services, save only if the following two conditions are met:

  • prior to receiving the service, the client must receive full, accurate and understandable information on the existence, nature and amount of the fee, or
  • if the amount of the fee is not known
  • the manner of calculation of the fee; and
  • the inducement benefits the quality of the service and is not detrimental to the investment firm's duty to act in the best interest of the client.

These conditions were already in place and are based on the MiFID.

Finally, the ban applies to all investment firms that provide services in the Netherlands, with the exception of investment firms that are incorporated in another Member State and provide investment services in the Netherlands on a cross-border basis under a European passport.

Transitional provisions

The new Section 168a contains transitional provisions. The ban does not apply to the provision of investment services or ancillary services with respect to transactions in financial instruments other than participations in open-end investment institutions (eg structured products) that were carried out before 1 January 2014. To these services the old regime (up until 31 December 2013) is still applicable. The ban will also not apply to the provision of investment services or ancillary services with respect to transactions in participations in open-end investment institutions until 1 January 2015 if:

  • prior to receiving the service, the client receives full, accurate and understandable information on the existence, nature and amount of the fee, or
  • if the amount of the fee is not available
  • the manner of calculation of the fee;
  • the inducement benefits the quality of the service and is not detrimental to the investment firm's duty to act in the best interest of the client; and – the inducement is fully passed on to the client.
Legal and Regulatory Risk Note
Europe