Dutch Regulation: Dutch central bank bares its teeth
It certainly set tongues wagging in the Dutch pensions industry – De Nederlandsche Bank (DNB), the financial regulator, declared Joanne de Graaff, a professional trustee, “unfit” for duty. On her CV, the industry veteran failed to mention she had once sat on the board of the Pensioen Coöperatie, an initiative to help pension funds achieve the benefits of scale, which went bust in 2009. And while acknowledging the omission had been a “stupid mistake”, she stresses that the DNB had found no evidence of wrongdoing at the organisation. She also wonders whether the regulator’s decision had anything to do with her “outspoken” views on supervision. Last year, De Graaff described mandatory set phrases within the so-called uniform pension statement (UPO) as “backward”.
Similarly, in the summer of last year, the DNB forced Jan van Walsem, chairman of the €5bn pension fund for the painting sector, to step down. According to Van Walsem, who had been at the helm for 12 years, the regulator had been unhappy with his pension fund’s decision to appoint two external directors and increase the involvement of external advisers, rather than establish an “expensive” management office. “The DNB,” he said at the time, “believes I have been insufficiently compliant”.
Over the last four years, more than 50 applicants have failed ‘reliability checks’ for various positions at Dutch schemes, according to the DNB’s own figures. As a rule, the regulator does not comment on individual cases. Yet, in an apparent attempt at damage control, it recently put out a statement explaining that it rejects only those candidates who have omitted “important” information on their CVs, as opposed to those who have merely forgotten something. It also notes the seriousness of any omission, as well as the “attitude, explanation and response” of the applicant.
There is no proof De Graaff and Van Walsem were the victims of hard feelings. But an industry insider has suggested that oversensitivity – which “always accompanies these sorts of checks” – might also have played a role in the DNB’s decisions. The applicants’ behaviour could certainly have been the decisive factor, but public criticism was also likely to ruffle a few feathers.
The fear of antagonising the DNB, seemingly locked away in its ivory tower, is strong. There is a very real belief that any criticism might lead to the premature end of one’s career. And now that the watchdog has shifted the accent in its board member criteria from expertise to suitability, there is even more uncertainty.
The watchdog’s approach also reflects its ongoing shift away from principles-based supervision since the financial crisis. Allowing greater responsibility for individual institutions should not be confused with light-touch regulation. Its supervisory plans for 2010-14 included greater attention to governance, behaviour and culture, and, for the subsequent four years, it has further increased its focus on integrity, professionalism and expertise. On a separate occasion, the DNB’s director of legal affairs concluded that self-regulation in the sector had been a failure.
The DNB’s muscle flexing is understandable to a certain extent. It does not want more institutions going bust on its watch, as happened with local bank DSB and Icelandic bank Icesave, which had been licensed by the regulator. Nor does it want another scandal such as it had with the mis-selling of overpriced, insurance-linked savings products in the mid 2000s.
However, its rather tough stance has annoyed many, particularly since it issued pensions insurer Delta Lloyd with a €22.5m fine and ordered it to sack its CFO for using “confidential DNB information” for derivatives deals – something the company claimed was already in the public domain. But, in this case, the company chose to fight back. Indeed, it achieved a court order, which prevents the regulator from publishing its punishment before the court reaches a final verdict. On the regulatory front, it would appear, the climate in the Netherlands is beginning to change.