Update financial and corporate law

The beginning of a new year is a great moment for an overview of recent developments in the law. In this overview we inform you about some important developments in corporate law and financial law that took place around the turn of the year being:

• revised European Shareholder Rights Directive (SRD II);
• registration requirement with DNB for crypto service providers;
• entry into force of the Act on the Resolution of Mass Claims in a Collective Action (WAMCA);
• binding woman’s quota for listed companies; and
• best practices for managers of alternative investment funds.

SRD II
On 1December 2019 SRD II was implemented in the Dutch Civil Code (DCC). SRD II is the result of a European Action Plan for enhanced involvement of shareholders and sustainability of companies. The European Commission noticed certain shortcomings in the field of corporate governance for listed companies. There is a lack of long-term involvement of shareholders and of transparency between investors and companies. Therefore, shareholders must be given a greater participation in the remuneration policy and transactions with related parties.

Below we provide a brief overview of the parts of SRD II that have entered into force since 1 December 2019.

• Remuneration policy
  A listed company must have a remuneration policy for executive directors and supervisory directors which must be approved by the general meeting. The law contains a list of topics that must be discussed in the remuneration policy (Article 2:135a paragraph 6 DCC). The policy must make clear how public acceptance is taken into account. The works council has the right to render advice.
   
• Remuneration report
  From 1 December 2019 onwards, a listed company must prepare a separate remuneration report each year. The remuneration report replaces several existing reporting obligations on remuneration. The report is the responsibility of the board under the watchful eye of the supervisory board.
   
• Related party transaction
  The Implementation Act also adds provisions to the DCC (Sections 2:167-170) regarding approval and notification requirements for related party transactions, being material transactions not entered into in the context of the ordinary course of business or under normal market conditions. New rules aim to protect shareholders against the possible adverse consequences of related party transactions, by increasing the transparency in these transactions. From 1 December 2019 onwards, the entry into of related party transactions is subject to approval of the supervisory board and related party transactions must be published upon the entering into.

Crypto services: Registration requirement with DNB
Until now, providers of crypto services fell outside of the ambit of any regulation. EU legislators and supervisors considered this undesirable due to anonymous nature of crypto services which makes them susceptible to financial economic crime. Following the implementation of the Fifth Anti-Money Laundering Directive (EU 2018/843) into Dutch law on 10 January 2020, crypto service providers are required to register with the Dutch Central Bank (DCB) and will be subject to ongoing integrity supervision. DCB assesses whether providers of crypto services meet the requirements set by the Dutch Anti-Money Laundering and Terrorist Financing Act. In addition, providers of crypto services must conduct client surveys, monitor transactions and report unusual transactions to the Dutch Financial Intelligence Unit.

WAMCA

Until WAMCA came into force, there was no possibility to claim collective monetary damages on top of the establishment of collective responsibility. WAMCA amends the existing regulation from Article 3:305a DCC and adds Article 1018b-m of the Dutch Code of Civil Procedure (DCCP), introducing the possibility to claim collective damages. At the same time, the bar for claiming collective damages is raised and safeguards have been included to prevent abuse of the collective action.

Binding women’s quota for listed companies

The pursuit for gender diversity in the composition of the executive board and supervisory board of listed companies has been a hot item on the political agenda for some time. On 3 December 2019, the House of Representatives (Tweede Kamer) passed a motion requesting the government to oblige listed companies to include at least 30% women in their supervisory boards.

Best practices for managers of alternative investment funds

In 2017, the Netherlands Authority for the Financial Markets (AFM) carried out an investigation of 12 managers of investment funds whose license to manage an investment fund was legally converted into a license as referred to in the AIFM Directive (EU 2011/61) with effect of  22 July 2014. This research showed substantial room for improvement with regard to the sound conduct of business, governance and the segregation of assets. As a result of this investigation the AFM published a number of best practices. In principle, fund managers must comply with these best practices though on the basis of “comply or explain”. Below a brief overview of the AFM’s best practices.

• Appeal to the principle of proportionality
  The principle of proportionality means that it is possible to deviate from certain obligations as long as the objective of the law is achieved. Best practice now stipulates that a fund manager who appeals to this principle of proportionality, must provide sufficient reasons taking into account the nature and objective of the relevant legal requirement.
   
• Board composition of the management organization
  Best practice is that the day-to-day policymakers of the manager have a seat on the (statutory) board. The (statutory) board of the manager comprises natural persons and not legal persons.
   
• Internal supervision on the board of the management organization
  Best practice in this regard a clear and balanced governance structure whereby distinction must be made between on the one hand management and management support tasks, and on the other hand management supervision. Furthermore, a fund manager who proceeds to set up an internal supervisory body should seek to align this with the regulation on the Supervisory Board in Book 2 DCC.
   
• Formation employee participation
  The AFM considers the notes that co-determination in decisions of the fund manager is not well implemented. Best practices are (i) a fund manager organizes such co-determination (e.g. by investment committees) formally through advisory or veto rights, in such a manner that the fund manager's responsibilities are not affected (ii) a fund manager who establishes participatory bodies referred to in point (i) is responsible for the preparation of (internal) regulations regarding inter alia the duties, accountability, remuneration and dismissal of the members of such a body.
   
• Right to agree with subdelegation
  A fund manager must always be able to certify the entire delegation structure by means of  objective arguments and to check whether the (sub) delegation conditions have been met. It is therefore inappropriate to agree to subdelegation in advance. Best practice is that a fund manager reserves the right to agree to any subdelegation of activities by a fund manager's delegate or subdelegate at the time of commencement of those activities.