Effective 1 February 2017, changes to the client asset segregation obligation (vermogensscheiding) applicable to investment firms have been implemented in the Netherlands.
Effective 1 February 2017, changes to the asset segregation obligation (vermogensscheiding) to protect client funds have been implemented in the Further regulation on the supervision of the business conduct of financial undertakings (Financial Supervision Act) (Nadere regeling gedragstoezicht financiële ondernemingen Wft).
The Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten, the "AFM") consulted market parties on the amendment rounds. Based on this feedback, the AFM maintained what is known as the investors giro system (beleggersgiro) as an acceptable asset segregation system. The investors giro system segregates the clients' assets by means of a separate entity that has the administration of the assets of that investment firm's clients as its sole purpose. The AFM did add a number of conditions to the investors giro system and changed the name of the investors giro system to 'common depository' (bewaarinstelling). The AFM clarified that an investment firm that holds securities through a 'common depository' provides the service 'custody and administration of financial instruments on behalf of clients' as a ancillary service within the meaning of MiFID.
The AFM now also expressly confirms that investment firms without a banking licence can rely on the regime under the Dutch Securities Book-Entry Transfer Act (Wet op het giraal effectenverkeer, "Wge") when segregating the assets of their clients. This means that as long as the investment firm holds client funds in accordance with the requirements of the Wge, the asset segregation obligation is deemed to be complied with. In that case, the use of a bankruptcy remote custody vehicle is no longer required nor is it desirable, in the view of the AFM.
If an investment firm holds a banking licence, the requirement to segregate clients' assets is restricted to financial instruments (e.g. securities), and not to cash. Such an investment firm was already entitled to hold the financial instruments in accordance with the Wge, or with a separate securities depository (effectenbewaarbedrijf).
Investment firms that will negotiate a new agreement with their 'common depositary', should take the new conditions attached to the 'common depository' into account. Investment firms without a banking licence should decide whether or not they want to segregate their clients' assets in line with the Wge.