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Third party inducements bans in the Netherlands

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Joost Elsenburg

Counsel

Amsterdam

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10 May 2013

On 1 January 2013 the inducement rules for non-MiFID products were amended in the Netherlands by the introduction of a complete ban on third party inducements. The ban means that financial service providers are no longer allowed to receive inducements for acting as an intermediary or adviser in respect of these products.

The background to the ban is that the Dutch government wanted to break what was believed to be the strong link between the provider of a product and the intermediaries and advisers. A ban was believed to be the only way to reach a pure market model whereby the consumer and intermediary or adviser determine the reward for the service. An intermediary or adviser would then no longer receive what was said to be a perverse stimulus (in the form of third party inducements) to act in his own interests, and would be able to provide truly objective advice.

The ban applies to the following products: complex financial products (excluding MiFID products); mortgage credits; loss-of-income insurances; funeral insurances; and service provision under the national MiFID regime. Further, the ban only applies to contracts that were entered into on or after 1 January 2013.

Since several aspects of the ban constitute a general standard, the ban has raised many questions for market participants. Recently, the Netherlands Authority for the Financial Markets (AFM) provided some additional guidance and clarification on its website in response to questions raised by market participants and developments in the market:

(1) Payment constructions whereby the consumer pays the inducements via a surcharge on the interest or premium are not allowed. The AFM takes the position that the consumer must pay the inducements directly to the intermediary or adviser. Indirect inducements do not fit in with the purpose of the ban.

(2) Direct providers of financial products that fall under the ban are not allowed to waive inducements. Under the ban direct providers are obliged to charge the costs for advice with the consumer, to create a level playing field between direct providers and independent intermediaries or advisers. The AFM takes the position that waiving the inducements unjustly suggests that advice and distribution are free of charge, compromising the objectives of the ban.

In addition to this ban, the Minister of Finance announced on 3 April 2013 that he proposes to introduce a ban on third party inducements for investment firms as of 1 January 2014. The proposed ban would apply to the investment services (individual) asset management, investment advice and execution only services. Recently, the Minister had lobbied for the introduction of this kind of ban during the negotiations on the review of MiFID and MiFIR, but other Member States and the European Parliament did not support his proposal. The ban is included in the Financial Markets (Amendment) Decree 2014 that was published for consultation purposes on 3 April 2014.10 The consultation is open until 1 May 2013.