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Financial Supervision
Financial Sector Supervision
The functional model in the Netherlands
Armenia - Financial Sector Development
Peter Nijsse
29 May 2005
Financial Supervision
Presentation
1. Foundations of a supervisory system for the
financial sector
2. Financial supervision in the Netherlands
3. Useful advice for Armenia?
Financial Supervision
Design principles for a supervisory
system
Financial supervision should:
 be in line with the existing market and institutional
structure
 be ‘future proof’
 reflect ideas of policy makers on the desired market
development
 promote instead of hamper market developments
and product innovation
 be cost efficient
Financial Supervision
Aspects of financial supervision
 Macro prudential supervision (system stability)
 Micro prudential supervision
 Conduct of business supervision
 Competition policy
Financial Supervision
Prudential supervision in the EU
Integrated
Sectoral
Austria
Belgium
Denmark
Estonia
Germany
Hungary
Ireland
Latvia
Malta
Netherlands
Sweden
United Kingdom
Cyprus
Czech Republic
Finland
France
Greece
Italy
Lithuania
Luxembourg
Poland
Portugal
Slovakia
Slovenia
Spain
Source: ECB (2003 and 2004)
Financial Supervision
Supervision in the Netherlands
Different approach consequence of:
 Liberal market philosophy (requires strong
supervisors, especially in the conduct of
business area)
 High market share of financial conglomerates
and growth of cross-sector competition
Financial Supervision
Market share in 2004 (€ billion)
Banks
Insurance
Total
Total domestic
turnover
1.435
322
1.757
Turnover of
conglomerates*
832
241
1.073
Market share of
conglomerates
58%
75%
61%
Source: DNB
*
Conglomerates: ING, Rabobank, Fortis, SNS Reaal, Aegon, Eureko, Delta Lloyd Group
Financial Supervision
The Dutch Model Prior to 2002
Objectives
Systemic
Risk (Macroprudential)
Sectors
Banks
Insurance
companies
Securities firms
DNB
(Micro-)
Conduct of business
prudential
Sectoral
Crosssectoral
DNB
DNB,
PVK
and
STE
PVK
STE
(coordination
in RFT)
Non-securities
Sectoral Crosssectoral
DNB
PVK
STE
DNB,
PVK
and
STE
(coordination
in RFT)
DNB: De Nederlandsche Bank (Dutch Central Bank)
PVK: Pensioen- en Verzekeringskamer (Pension and Insurance Regulator)
STE: Stichting Toezicht Effectenverkeer (Securities Regulator)
RFT: Raad van Financiële Toezichthouders, the council for Financial supervisors (est. in 1999),
in which the supervisors coordinate their activitities, mainly on cross sectoral issues.
Securities
STE
Financial Supervision
The new model after 2002
 Cross-sector, ‘functional’ supervision
 Macro and micro prudential supervision →
Central Bank
 Conduct of business supervision → Authority for
Financial Markets
 Competition policy → Competition Authority
Financial Supervision
The New Dutch Model
Supervisory structure after September 2002
Financial Stability
Systemic Risk (Micro-)prudential
(macroRisk
prudential)
Conduct of business
DNB
AFM
Banks
Insurance
companies
Securities firms
DNB/PVK: DNB and PVK have have intensified their cooperation and will merge operations in 2004/5
AFM: Autoriteit Financiele Markten, the former STE, is responsible for the conduct of business aspects of
supervision for all financial services firms.
Financial Supervision
Why this model?
 High market concentration → macro and micro prudential
supervision closely linked
 Liberal market → Conduct of business supervision extra
important, requiring different approach and skills from
prudential supervision
 Creating the right incentives for competition policy in an
integrating EU market
Financial Supervision
Experiences in the Netherlands
 Financial sector needed some time to adjust, but
in general very positive experience so far
 Authority for Financial Markets has managed to
build up a strong reputation in a short time,
despite ‘growing pains’
 Crucial to have a strict delineation of tasks
between supervisors (licensing!)
Financial Supervision
Useful advice for Armenia?
 The optimal supervisory structure is largely dependent on
the market structure and the existing institutional setting
as well as on desired and expected future developments
 Conduct of business supervision will quickly grow in
importance when markets develop
 If allowed, conglomerates are likely to develop in a relatively
small financial market like Armenia
 Less regulation requires more (conduct of business-)
supervision
 Conduct of business supervision is ‘a different ballgame’
compared to prudential supervision
Financial Supervision
Conclusions
 Currently, emphasis in Armenia is on prudential
supervision
 Macro- and micro prudential supervision may very well
remain combined within the central bank
 For conduct of business supervision, however, you may
need a separate supervisor
 If cross sector activities develop as well as for efficiency
reasons, a functional supervisory structure is more
effective than a sectoral structure