Administrative fine for ABN AMRO for insufficient records of activities related to SME interest rate derivatives

In 2013, the AFM investigated the services related to interest rate derivatives provided by banks to SME's, which were not qualified as professional investors. The AFM requested ABN AMRO to provide five SME client files. ABN AMRO failed to keep sufficient records of its services in four of those files, which constitutes a violation of Section 35, first subsection, of the Decree on Conduct of Business Supervision of Financial Undertakings under the Wft (BGfo). The violation was committed in the period from 21 October 2010 to 10 January 2013.

Insufficient records kept

The AFM has been able to establish that ABN AMRO did not act exclusively for its own account when concluding interest rate derivatives, but that it provided an investment service to entrepreneurs.

The AFM has also concluded that it is highly likely that ABN AMRO also issued advice to the relevant entrepreneurs. The files provided several indications that this was the case. However, the bank failed to keep sufficient records, which means that the AFM is unable to determine with certainty whether ABN AMRO actually issued advice concerning interest rate derivatives when it actually performed the activities stated in these files.

The fact that ABN AMRO failed to keep sufficient records in the interest rate derivatives files that were investigated means that it is impossible for the AFM to determine to what extent ABN AMRO complied with legislation and regulations.

Keeping records is important for proper supervision

The law provides that sufficient records must be kept when providing investment services and when performing investment activities in order to make the AFM's supervision possible. Firstly, it is necessary that a file shows the exact nature of the activities involved for each transaction.

Investment firms are subject to several duties of care when providing investment services, such as carrying out orders for the account of the client and issuing advice. Investment firms are subject to a duty of care that is significantly less strict when performing investment activities, because this involves two equal parties. It is especially important for banks, where various services and activities are generally performed under the same roof, to prevent uncertainty concerning the nature of the work involved. This also makes it clear with which duties of care a bank has to comply.

Records are not only important for the purpose of supervision; a complete file is also important for the institution and the clients. They must also be able to reconstruct how the work was performed.

Reassessment of interest rate derivative files by the banks

Enforcement by the AFM is aimed at the banks and it does not directly alter the position of the clients. That is why the banks are performing a reassessment of all outstanding SME interest rate derivatives at the insistence of the AFM. It concerns banks that were involved in the AFM investigation into the services in the field of interest rate derivatives for SME's from 2013. A meeting with the relevant client has to be conducted if the client file proves to be incomplete. This will allow clients where possible to provide the information that is lacking.

An incomplete file does not necessarily mean that a client has sustained a loss, because the interest rate derivative may be a suitable product. However, the AFM expects that the client is offered an appropriate solution if there is a loss for the client and the bank is unable to determine on the basis of the file whether such is attributable to the bank or the client.

The banks have committed that they will offer clients an appropriate solution where possible before the end of this year. The AFM supervises this process and its outcome.

Interested parties can submit the AFM's judgment contained in the decision to the courts for review. If you have questions or complaints, you can contact the AFM's Financial Markets Information Line: 0800 - 5400 540 (free of charge).