Amsterdam maturing as a financial jurisdiction
By A Paris – The outlook for growth in the Amsterdam financial services industry is optimistic, driven by the Brexit fallout, an increased need for political stability and access to a diversified support eco-system which can help alternative asset managers thrive.
Players in Amsterdam have demonstrated their resilience as they look to seize opportunities for growth and expansion in an uncertain environment driven by the Covid-19 pandemic and other macro-economic factors.
During the early days of the pandemic, in a webinar organised by the Dutch Fund and Asset Management Association (Dufas) and PwC, Patrick Heisen, partner PwC Netherlands said: “Now we’ve reached a point to navigate the landscape of risks and opportunities. In order to do so, we need to have more insights in where the crisis will hit the sector.”
Although the industry has held up well over the course of the pandemic, in its Trend Monitor 2021, the Dutch Authority for Financial Markets (AFM) notes: “The Dutch asset management sector has come through the turbulence in good shape, partly due to the implementation of extraordinary liquidity instruments.” The authority also warns: “Renewed market turbulence could also lead to higher margin requirements for outstanding derivatives, causing ‘fire sales’ in illiquid markets. It remains important that fund managers prepare for this and implement the right liquidity instruments in good times.”
With this prudence in mind, new fund launches have continued. Birgitte van den Broek, Managing Director CSC Netherlands, comments: “Investors are looking for yield and other ways to invest. This is one of the reasons we have seen many new managers launching funds in asset classes like technology, venture capital and loans. Even in the pandemic we are seeing growth, with funds attracting investors at a rapid pace.”
As regulators globally raise the scrutiny of financial jurisdictions, the Netherlands is also boosting its supervision in this regard. In view of this, the AFM published practical guidance for investment firms and fund managers to assess and improve their compliance function.
Lawyers Roderik Boogaard, Martijn Schoonewille and Susanne Langenberg, from Loyens & Loeff, write: “The report describes in detail 5 levels of maturity of the compliance function in order to enable an investment firm or manager of an investment fund to self-assess its level.
“In the report, there is a clear call-for-action for all investment firms and managers of investment funds to assess the maturity level of their compliance function and determine where improvements can be made.”
Throughout the pandemic, the AFM kept a tight grip on compliance with the Anti-Money Laundering and Anti-Terrorist Financing Act (Wet ter voorkoming van witwassen en financieren van terrorisme, Wwft), and the Sanctions Act, although it temporarily suspended numerous investigations and requests for information.
In its Trend Monitor for 2021, the AFM declares it, “has intensified its monitoring of the abuse of the financial sector for criminal purposes,” and vows it, “will continue to devote attention in its Wwft supervision to how companies carry out their customer due diligence, monitor transactions and report unusual transactions.”
“This also illustrates regulators’ and supervisory authorities’ unwavering focus on compliance with integrity rules,” notes Dutch law firm Finnius, in its outlook for 2021.
The strength of oversight in the jurisdiction can provide managers an added layer of integrity which in turn is beneficial when looking to raise assets.
“We can expect regulation to become more stringent and therefore onerous. If a manager wishes to set up in the Netherlands, their business model needs to be relevant and adaptable to future requirements. They also need to ensure they partner with the right providers to ensure their trading and operational structures are robust and resilient,” outlines Delphine Amzallag, Global Director Prime at ABN AMRO Clearing Bank.
Another area of known value in the Dutch market is the focus on sustainability and environmental, social and governance (ESG) investing. As this approach becomes ever more mainstream, Dutch players find themselves on the front foot. In fact, several new sustainable investment funds were launched in 2020, including Robeco’s two low carbon fixed income strategies and Actiam’s enhancement of their passive ESG range.
However, as the March deadline for initial compliance with the EU’s Sustainable Finance Disclosure Regulation (SFDR) looms, the focus on these matters is sharpened. Finnius outlines: “The SFDR will impact the business of fund managers in various ways and, in principle, is relevant for all investment funds, regardless of whether they are presented as sustainable.”
The AFM has also added to the debate around ESG. Together with the French regulator, the Autorité des marchés financiers (AMF) and later joined by the European Fund and Asset Management Association (Efama), the AFM has proposed a European regulatory framework for providers of sustainability-related services. The Dutch regulator states: “It could become one of the key measures of the European Commission’s renewed sustainable finance strategy.
“The proposed framework is aimed at preventing misallocation of investments, greenwashing, and ensuring investor protection. It includes requirements on transparency on methodologies, management of conflicts of interest, internal control processes, and enhanced dialogue with companies subject to sustainability ratings.”
This call came after Dutch pension funds, which are some of the most sophisticated institutional investors in the industry, claimed asset managers engage in greenwashing. In a survey carried out by a Dutch pension publication, six in 10 pension funds agree some asset managers do this.
According to a survey by KPMG, which included 100 respondents from the Netherlands, 41 per cent of institutional investors report a significant amount of greenwashing in the hedge fund industry.