In ten years, the cost of financial supervision in the Netherlands rose 53%. To temper costs and promote the business climate, the government must reflect and co-pay, writes Jeroen van Wijngaarden in the Financieel Dagblad.
The government has a clear ambition: to improve the business location climate. Given the global competition for capital, this is certainly necessary. However, attention to the financial sector is missing from the plans. And that while the total supervisory costs of the two financial supervisors, the Authority for the Financial Markets (AFM) and De Nederlandsche Bank (DNB), have increased by no less than 53.37% over the past ten years. Those costs are borne entirely by the financial sector.
This year it became clear that the AFM was running up against its financial limits, as it is not possible to fully pass on the supervision costs to parties in the financial sector. A request therefore came from the AFM for a government contribution, specifically for 'crypto supervision' - something the Ministry of Finance has not yet agreed to.
The large increase in costs and the AFM request call for a broad rethinking of whether it is appropriate for the government to now take no financial responsibility at all for proper financial supervision.
Government contribution
Until ten years ago, the government did contribute to financial supervision by the AFM and DNB. A 2.3% budget deficit in 2014 led to the abolition of that government contribution. Since then, the sector has borne all supervisory costs itself. At the time, the government felt that a limited group in the financial sector benefits greatly from supervision.
The Council of State ruled otherwise: not only the financial sector benefits from good supervision, but also society as a whole. Good financial supervision serves the public interest. That also seems to be the reason why other supervisors, such as the Authority Consumer & Market (ACM), can count on a government contribution.
No one needs to feel sorry for the financial sector, but the motto should be "level playing field. Isn't it time to reintroduce some form of government funding? An independent advisory committee with representation from the financial industry could help.
Apart from points of principle about financing supervision, understanding how to curb cost growth itself is important. The costs of financial supervision are rising more sharply in the Netherlands than in other European Union countries. Since 2014, the fees of AFM and DNB have increased every year, by more than €60 mln and more than €110 mln in ten years, respectively. During the cabinet formation it appeared that the cost framework, in which the costs for the coming years are estimated, will increase again by €17 mln over the next four years. For the asset management sector alone, supervisory costs will rise by €8.8 mln in 2025, an increase of 41% in one year.
European benchmark
Now that European rules and European supervision are converging, it makes sense to develop a European benchmark. This would make it possible to compare both the cost level and the cost growth of financial supervision in member states. This fits in with the government's efforts to create a good business climate and a level playing field - the costs of supervision and the contribution of Dutch financial institutions to this should not be out of step with countries with a comparable supervisory model. The Netherlands wants to rise on the global lists, but is now at the top of the wrong list: cost growth.
There are several reasons for the structural increase in costs. New and more extensive European legislation, such as the crypto-legislation package Micar or ict-framework Dora, is the main reason. Yet costs in other EU countries equally affected by that legislation are rising less sharply. Previous attempts to control costs by MPs, such as the amendment De Vries (VVD) adopted in 2014 to allow costs to rise by no more than inflation, did not have the intended effect, given the steep cost increases in practice.
In any case, the quality or efficiency of the work of the regulators themselves is not to blame. The Dutch supervisors have a good name in the world. This is important, because good supervision is part of a good business climate, and that simply costs money. The only question is who should foot the bill and how much it should grow each year.
It would be precisely in the interest of a strong business climate if politicians and the financial sector tried to answer that somewhat uncomfortable question together.
