Two acts of 25 October 2016 will update the legal framework applicable to investment firms to bring it in line with the "Twin Peaks" reform and to transpose recent European directives. The acts do not amount to a total overhaul of the legislation on investment services, but introduce a number of new features for stockbroking firms.
Restatement of the Act of 6 April 1995
The new Investment Services Act of 25 April 2016 (Act on access to investment services and on the status and supervision of portfolio management and investment advice firms) replaces the Act of 6 April 1995 on the status and supervision of investment firms. The legislator took the opportunity of the restatement to transpose a number of European directives.
The provisions concerning foreign investment firms included in the Royal Decree of 20 December 1995 are incorporated – without any amendments – in the Investment Services Act.
Regime for stockbroking firms incorporated in the Banking Act
There are two categories of investment firms under Belgian law: stockbroking firms, and portfolio management and investment advice firms. The main objective of the Act of 25 October 2016 relating to the status and the supervision of stockbroking firms ("Stockbroking Firms Act") is to add a new Book XII to the Banking Act of 25 April 2014, so that the rules applicable to credit institutions become generally applicable to stockbroking firms as well, including the rules pertaining to recovery and resolution measures.
The provisions of the Banking Act concerning recovery plans, measures to alleviate obstacles to resolvability and resolution instruments will only apply to stockbroking firms that are required to have a higher initial capital due to the market activities they pursue or their capacity as depositor of financial instruments, and the failing of which would represent a risk to the stability of financial markets or the economy as a whole.
New arrangements for stockbroking firms
The amendments to the Banking Act introduce certain new arrangements in relation to the supervision of stockbroking firms, especially in three areas: governance, risk management and notification obligations to the supervising authorities.
Stockbroking firms are divided into three categories on the basis of certain quantitative and qualitative criteria (number of employees, balance sheet total, annual turnover): "significant", "other" and "small" stockbroking firms. These categories exist in parallel with the other distinction – based upon the type of services offered – and made between those stockbroking firms requiring EUR 250,000 in capital at the moment of incorporation and those stockbroking firms that need to provide an increased initial capital of EUR 730,000.
"Significant" stockbroking firms are required to establish an audit committee, a risk committee, a nomination committee and a remuneration committee. Moreover, "significant" stockbroking firms are required to entrust risk management tasks to an executive member of the board of directors and to comply with the specific quantitative restrictions applying to officers who exercise external functions. "Other" stockbroking firms are required to set up audit and risk committees. There is no obligation for "small" stockbroking firms to establish specialised committees within the board of directors.
From a risk management perspective, stockbroking firms should ensure that sufficient resources are allocated to the management of all significant risks, as well as to the valuation of assets, and the use of external ratings and internal models. The risk appetite of the firm in relation to all activities should be communicated to the National Bank of Belgium. This is just one of the many notification duties imposed on stockbroking firms.
Clarification of article 72 of the Banking Act
The legislator took the opportunity of the changes to the Banking Act to correct an error in the wording of article 72 of the Banking Act, which sets out a notification procedure in the case of credit facilities extended to directors and members of the executive committee (or persons affiliated with them): following a legislative modification in December 2015, the last part of article 72 §1, first paragraph, had inadvertently been deleted. While the legislator had clearly intended to make the procedure more flexible, the French version of the coordinated text resulting from the legislative modification (erroneously) appeared to suggest that it was strictly forbidden to extend these types of credit facilities. The new amendment removes any doubts on this matter, and does not introduce any changes in relation to the provisions on financial assistance (§2).
Conclusion
The Stockbroking Firms Act entered into force on 1 December 2016. A transitional regime is organised with regard to the new obligations for stockbroking firms (e.g. the establishment of committees and the drafting of recovery plans).
The new Investment Services Act entered into force on 28 November 2016.