Suitability and integrity within a three-tier system: how the Netherlands regulates non-financial misconduct

We've published a podcast episode on the Netherlands' approach to non-financial misconduct and whistleblowing in financial services firms. Click here to listen (and subscribe with your favourite podcast app). 

This is the latest in our podcast series on global approaches to non-financial misconduct and complements our publication reviewing the approach in 12 key jurisdictions - you can find the publication and all episodes here.

It's thought-provoking to consider differences between the UK individual accountability regime and those in other places. Some key points to note from the Dutch perspective:

• In the UK there are requirements for fitness and propriety. The Dutch equivalents are suitability (which is specific to the role in question) and integrity. Interestingly, an integrity assessment is role-agnostic, so no re-assessment will take place if the individual switches positions or even firms, unless facts or circumstances relevant to that individual's integrity have changed.
  
  
• In the UK there is a two-tier system of approval and certification. Senior Managers require pre-approval by the regulator, whilst Certified Persons require certification by their firm. The Dutch approach has three tiers.
  
  
  • For the day-to-day policy-makers (e.g. management board members/executive directors/supervisory board members and non-executive board members): pre-approval by the regulator is required.
    
    
  • For "second-tier" senior management (i.e. those responsible for employees performing work that may materially impact the firm's risk profile such as those in risk, compliance, legal and audit): integrity screening is a joint effort of the firm and the regulator, with the firm submitting its integrity assessment to the regulator and the regulator conducting its own supplementary integrity screening. Suitability screening is the firm's sole responsibility (though the regulator can conduct suitability screening if necessary).
    
    
  • For "integrity-sensitive" positions (i.e. those with authority that presents a substantial risk to sound business operations): firms conduct their own integrity screenings and the regulator is not involved. These positions don't have an explicit suitability requirement, though well-controlled firms will only appoint suitable individuals. This category is closest to the UK's Certified Persons category.

Within this framework, non-financial misconduct will usually be relevant to an assessment of an indivdual's integrity. Examples of releavnt conduct may include tax fraud or a serious criminal assault. But it may also impact on an assessment of an individual's suitability. For example, sexual harassment that occurs in the workplace may be relevant to integrity (insofar as it pertains to character necessary to work within a firm that enjoys Dutch society's trust) but also to suitability - for example, the conduct may constitute evidence that the perpetrator is unable to discharge the obligations of a senior compliance role.