Reputation assessment to be introduced for UBOs of several regulated institutions
On 21 April 2020, the legislative proposal for the Financial Markets Repair Act 2020 (the “Proposal”) was submitted to Dutch Parliament (Tweede Kamer). The Proposal repairs deficiencies and omissions that have occurred in the implementation in Dutch law of certain pieces of European legislation in the field of financial markets. A number of proposed changes are related to the implementation of the (amended) fourth Anti-Money Laundering Directive (“AMLD”).
In accordance with the AMLD, the Proposal makes ultimate beneficial owners (“UBOs”) of trust offices, providers of services for the exchange of virtual and fiduciary currencies, providers of custodian wallets, and exchange institutions (together the “Regulated Institutions”) subject to a reputation assessment. This means that – if the Proposal is adopted by Dutch Parliament – these persons must be subject to an integrity (betrouwbaarheid) screening and a suitability (geschiktheid) screening, which relates to their reputation. The aim of this assessment is to prevent UBOs from using Regulated Institutions for money laundering, terrorist financing or other criminal purposes.
Once effective, the screening requirement will only apply to any new UBOs of the Regulated Institutions . Existing UBOs of the Regulated Institutions will not be required to be screened.
a. Integrity
The integrity requirement in the Proposal corresponds to the existing integrity requirement for policymakers and co-policymakers of financial undertakings. This means that the Dutch regulator assesses the actions, (criminal) antecedents and intentions of the (prospective) ultimate beneficial owner of the Regulated Entity before such person can assume the position, and establishes whether the integrity of the beneficial owner is beyond doubt on an ongoing basis. The degree of influence the ultimate beneficial owner has on the institution concerned is not relevant for this part of the assessment. This means that the screening requirement will also apply to UBOs holding only a minority interest.
b. Suitability
The suitability assessment deviates from the existing suitability assessment applicable to policymakers of Dutch regulated entities, as the relationship between the UBO and the Regulated Institution is fundamentally different from the relationship between a policymaker and a Regulated Institution.
The suitability assessment in the Proposal is in fact more similar to a competence screening, which in addition to the integrity test forms part of the ‘reputation assessment’ that is carried out by the Dutch Central Bank with respect to prospective holders of a qualifying holding in financial institutions (such as banks, investment firms and insurers).
The UBO needs to be sufficiently competent in the role of UBO and in the field of the (intended) activities of the relevant institution. This assessment will largely be based on:
- previous experiences of the UBO occupying the same role at other entities;
- his/her investment history;
- his/her curriculum vitae;
- his/her experience within trust offices, exchange institutions or providers.
Moreover, media coverage may be included in the assessment. As the requirements follow from the AMLD, the review focuses in particular on the prevention of money laundering and terrorist financing.
Unlike in the context of an integrity screening, the influence he/she can exercise on the Regulated Institution will be taken into account when assessing the suitability of the UBO. This means that the requirements for an UBO with a small degree of influence on the institution may be less stringent than the requirements applicable to an UBO with greater influence. The nature of the (intended) activities of the Regulated Institution will also be examined.
c. Next steps
The Proposal is currently under review in Dutch Parliament. We don’t expect the Proposal to be adopted in the short term.
