Enhanced scrutiny of trust offices and forthcoming amendments to the Dutch Trust Offices Supervision Act
Enhanced scrutiny of Dutch trust offices will affect any bank that operates a Dutch trust office or deals in transactions involving a Dutch trust office as corporate service provider because the timing of the transaction could be affected by the increased supervision from the Dutch Central Bank (De Nederlandsche Bank, DNB). Dutch banks who operate accounts for companies managed by trust offices are reconsidering their acceptance policies of such companies.
The Dutch Trust Offices Supervision Act 2018 (Wet toezicht trustkantoren 2018, Wtt 2018) will amend and replace the current Dutch Trust Offices Supervision Act (Wet toezicht trustkantoren, Wtt). This proposal has not yet been adopted but is anticipated to enter into force in 2018. It will affect clients of trust offices because:
- there is a new definition of ultimate beneficial owner;
- there are stricter know your customer requirements; and
- there are tougher penalties for breach – which may mean that trust offices will be more inclined to err on the side of caution on know-your-client requirements.
The new legislation comes against a backdrop of an increased focus by the DNB of trust offices over the past three years, resulting in the following publications and inquiries by the DNB:
The Regulation on Sound Operational Management 2014 (Regeling integere bedrijfsvoering Wet toezicht trustkantoren 2014) in October 2014, effective 1 January 2015.
A thematic examination of systematic integrity risk analyses (SIRAs) of financial institutions and trust offices. According to the thematic examination, 80%1 of the reviewed companies did not comply with the applicable rules and regulations, which led to the publication of DNB’s good practices for SIRAs in August 20152.
An inquiry in September 2016 to investigate the quality of the audit function within trust offices.
The DNB’s publication of its good practices for transaction monitoring by trust offices (October 2016).
Further inquiries announced by DNB for 2017 include an inquiry into the compliance with the Sanctions Act (Sanctiewet 1977), an inquiry into the facilitating of aggressive tax planning or client anonymity, and a follow-up on the examinations started in the previous years with regard to SIRAs.3
Compliance procedures in connection with client acceptance and continued monitoring of clients and transactions have become more burdensome and time consuming, both for trust offices and their clients.
Statistics published by DNB4 show that between 1 July 2015 and 30 June 2016, the number of licensed trust offices decreased by 20%, and the number of companies serviced by Dutch trust offices decreased by 3,000. 2017 figures show that this trend has not yet come to an end and that the number of trust offices, companies serviced by them and ultimate beneficial owners and politically exposed persons involved in these companies continues to decrease.5
In the aftermath of the Panama papers, a committee of inquiry from the Dutch House of Representatives has been established and is currently examining how the Dutch trust sector functions. After the first initial hearings, the public prosecution service concluded that the DNB has a lot of work ahead of it before its supervision of the trust sector reaches the required level.
Banks that operate a trust office should consider that requirements imposed by the DNB to operate a trust office will become more and more time consuming to implement, while the risk of reputational damage has increased due to the focus on the sector over the last few years. Banks that are working on transactions in which a trust office is engaged (eg to fulfil the role of trustee director) should take into account in the transaction time line that trust offices will need more information and more time to complete their compliance procedures. Banks who operate accounts for companies managed by trust offices will be aware of the regulatory and reputational risks associated with the operating of such accounts and should take care to bring their compliance procedure in respect of these clients in line with the relevant laws and regulations and supervision guidelines as published by the DNB.
1. Publication Open Boek Toezicht on DNB website on 17 August 2015.
2. Publication on DNB website on 17 August 2015.
3. Publication on DNB website on 29 November 2016.
4. Publication on DNB website on 30 March 2017.
5. Publication on DNB website on 23 May 2017.
This case summary is part of the Allen & Overy Legal & Regulatory Risk Note, a quarterly publication. For more information please contact Karen Birch – email@example.com, or tel +44 20 3088 3710.