Periodically, one of our legal consultants briefly discusses a relevant supervisory decision of the Netherlands Authority for the Financial Markets (AFM), the Central Bank of the Netherlands (DNB) or the Dutch Data Protection Authority (AP). This is always based on three identical questions. In ‘plain language’, easy to understand even for the non-lawyers among us. This month, Marco Mulleneers reflects on a ruling by the District Court of Rotterdam of 10 May 2023 on an administrative fine imposed by DNB for failing to submit a report on time.
What was going on here?
Claimant X is the manager of an investment institution. X has to submit periodic reports to DNB, which is done through the Digital Reporting Desk (DLR), part of the My DNB digital portal since November 2022. Reports are an important source of information for DNB to assess financial firms’ compliance with prudential requirements. To manage this, the Financial Supervision Act (Wft) and lower regulations stipulate who must report what, and when. Reporting obligations also apply under other laws, e.g. on compliance with integrity requirements; these are now left aside.
In August 2019, X failed to submit a so-called ‘Quarterly Report’ on time. DNB then sent a letter to X pointing out its then ‘Enforcement Policy on Non-Timely Submission of Financial Reports’. In that letter, DNB also explained that the fining power will be used if a financial company “repeatedly” fails to submit a report on time. It follows from the Enforcement Policy that “repeatedly” means twice within a 13-month period. On 11 February 2020, X uploaded the ‘Half-Year Report’ for the second half of 2019 in the DLR, but in doing so – as shown below – did not yet submit it. After the reporting date had passed (i.e. the applicable deadline), X submitted the Half-Year Report on 17 February 2020.
DNB subsequently fined X EUR 13,750. On appeal, this fine was upheld. X appealed the decision on objection to the Rotterdam District Court.
What is the court’s verdict?
The court concluded that X had breached the Wft section on the reporting obligation and that DNB was entitled to impose a fine for that. As the considerations on this point are also relevant for other financial companies that have to report to the regulator, I will focus on them in particular.
Offence committed
DNB and X agree that 11 February 2020 was the deadline for the Half Year Report, but differ on whether the report was submitted on time. DNB disputes this. X, on the other hand, argues that the Semi-Annual Report was indeed submitted on time because it was uploaded into the DLR using e-recognition on 11 February 2020. That the submission (or: “provision” within the meaning of Section 3:72(1) of the Wft) to DNB requires completion of all steps of the DLR goes beyond what the Wft requires, according to X.
On appeal, DNB explained that merely uploading a report in the DLR is not enough. This is because at that point, the report is in the so-called user environment. Only after the user clicks the ‘Submit’ button, the report is converted into a certain data standard and received by DNB. Therefore, if that does not happen, DNB cannot yet view the report.
The court follows DNB’s explanation and considers that submitting a report requires X to click the ‘Submit’ button. The uploaded files are then actually sent and submitted to DNB. X acknowledged that on 11 February 2020, after uploading, X did not click ‘Submit’. This means the report was not submitted on time and X breached the reporting obligation under the Financial Supervision Act.
Fine could be imposed
X argues that DNB should have refrained from imposing fines on the basis of a reasonable balance of interests. This argument does not succeed. According to the court, DNB is authorised to impose a fine for the violation outlined above. In this context, it referred to the Enforcement Policy, which the Trade and Industry Appeals Tribunal had already “accepted and found reasonable” in 2017. The court further considered that in August 2019, X submitted a report late and subsequently received the aforementioned letter from DNB. Despite this warning, X submitted another late report in February 2020. In the court’s opinion, this constituted a finable offence, DNB was entitled to apply its Enforcement Policy and impose an administrative fine on X.
According to the court, the circumstances further alleged by X were insufficient reason for DNB to waive the imposition of the fine. Briefly, the circumstances were as follows:
- X argues that there was no late or incorrect reporting, but a human error. An employee did not press ‘Submit’ by mistake or out of ignorance. However, according to the court, it is up to X to “train and guide” its employees so that they know how reports should be submitted to DNB via the DLR and “set up its organisation accordingly”. That an employee apparently forgot to click on ‘Submit’ in February 2020 is for X’s account and risk, especially since X had also submitted a report late six months earlier and had been reminded of this by DNB. The fact that X has since taken measures to prevent recurrence does not alter the foregoing.
- X argues that the violation in February 2020 lasted only for a short time. This is no reason to waive a fine. Reports are subject to a deadline and this was exceeded “even if a report was submitted only one day late”. The court considered that DNB needs reports to carry out its supervisory task effectively and efficiently. What is not important here is whether supervision was actually compromised by the late submission.
Appeal well-founded after all
Virtually all the grounds X raises on appeal fail. The only point the court honours concerns the long duration of the objection and appeal phase. These lasted a total of three years in this case, which meant that the reasonable time limit was exceeded, without there being any special circumstances to justify this. Solely because of this exceeding of the time limit, X’s appeal is well-founded and the court reduces the fine imposed by 20% to EUR 11,000.
What does this teach us?
Good preparation is half the battle. Employees of financial enterprises who submit reports to DNB should be well acquainted with the DLR and its operation. The explanation of the DNB Enforcement Policy Rule on Timely Submission of Supervision Reports, applicable since 3 May 2022, states “A supervision report has not been timely submitted to DNB if it is still in draft form or has not been accepted in the DLR.” Accidentally skipping or forgetting a ‘step’ in the DLR after uploading a report results in it not being submitted. And twice not filing (on time) within 13 months can result in an administrative fine. Emphatically ‘may’, as DNB is not obliged to impose a fine. That this often does result these days can be seen from DNB’s website. On it, more than 20 fines have been published since 2018 for not submitting a prudential report on time. Some fines have also been published for other reports that were not submitted on time. The fine imposed on X was published by DNB on 13 September 2023; as the court’s decision was not appealed.
Although this ruling concerns the timely submission of reports to DNB, this applies more broadly. The AFM also requires certain financial enterprises to submit reports digitally, in that case through the AFM Portal. Whether this works better than at DNB, it is impossible to say. The fact is that the AFM’s website has not published any fines imposed for not submitting mandatory supervisory reports (on time) in recent years. Nor has the AFM – unlike DNB – published a specific enforcement policy for failure to submit reports on time.
What can Projective Group do for you?
Are you yourself facing a (proposed) fine from the AFM or DNB for (un)timely reporting or any other breach? Or are you otherwise confronted with an ‘enforcing regulator’ and do not agree with it? Our consultants will be happy to assist you. Please do not hesitate to contact us.
