ON THE SOFA WITH JAN SIJBRAND
Changing supervision in a changing environment
ON THE SOFA
Changing supervision in a changing environment
AMBER KLOMPMAKER, REGULATORY REPORTING NIBC, AND HERMAN DIJKHUIZEN, CFO NIBC, ARE SITTING ONE AND A HALF METRES APART ON THE SOFA WITH JAN SIJBRAND. JAN IS A WELL-KNOWN PERSON AT NIBC, AS THEIR FORMER CRO AND BECAUSE, AMONG OTHER THINGS, HE WAS THE SUPERVISORY DIRECTOR AT DE NEDERLANDSCHE BANK. DURING A LIVELY CONVERSATION, THE VARIOUS WAYS IN WHICH BANKS HAVE BEEN SUPERVISED OVER THE YEARS ARE LOOKED AT FROM VARIOUS PERSPECTIVES AS WELL AS THE EXTENT TO WHICH THESE WILL BE USEFUL IN THE FUTURE.
Herman: “Jan, you worked for us as Chief Risk Officer between 2008 and 2011, has NIBC changed much since then?”
JAN: “When preparing for our meeting, I compared your annual reports for 2019 and 2010. In 2010, the bank already made a distinction between corporate and retail and you were already active in five corporate sectors. I now see two new sectors: fintech and technology. I don’t think that two changes in ten years is very substantial. With the introduction of savings products, NIBC’s funding has become more retail-focused, that’s one thing that has changed. There is also a remarkable amount of stability in the bank.”
AMBER: “Funny, I don’t see that. I have the feeling that we haven’t stood still for a moment in recent years. For example, we have achieved double-digit-growth in leasing by launching Beequip, which is now a serious alternative financing option for SMEs in the Netherlands. We are now looking for similar growth initiatives in other niche markets. That is where our strength lies. We can be more decisive than the big banks, which makes it easier to launch new initiatives like this alongside our core activities.”
JAN: “NIBC was always fast when it came to developments like this, you were close to your clients. As a result, promising initiatives blossomed quickly and things occasionally went wrong as well.”
HERMAN: “Seventy-five years is a good time to look back at what we are good at and what we want to keep in the future in order to be successful in the coming period. We have learned from what has not gone well and are building on the foundations that are good. Let us look at the role of Banking Supervision to focus on our sector and NIBC and on our role in society. Looking at this, I am very curious to see how you, Amber, experience the current supervision from De Nederlandsche Bank (DNB). This is something you have to deal with every day in your job.”
AMBER: “I find it fairly formal. My contact is limited to complying with reporting obligations. The relationship is often data-driven. We provide data to the supervisor and then they close the hatches again, as it were. Did the supervisor always work like this?”
JAN: “No, but with the advent of European supervision in 2014, things changed. DNB is traditionally ‘principle-based’, whereas the European Central Bank (ECB) is ‘rule-based’ and data-driven. So DNB supervision is not only based on rules, but also on relevant principles or established objectives. The ECB mainly monitors compliance with the rules. As a result, the relationship between the ECB and the banks is much more formal and remote. The senior management of the ECB has been in the business for a long time and often has a personal ‘principle-based’ vision. At the other levels within the ECB, the rules have to be implemented and data collected.”
HERMAN: “As an LSI (Less Significant Institution) we are, of course, under the direct supervision of DNB and indirect supervision of the ECB. I do notice that DNB used to be more autonomous in the past and now clearly performs more ECB-derived supervision. Supervision is there to keep things in check, I think that goes without saying. NIBC is the party that is being supervised and should be accountable: open, honest and transparent. For example, on the first day of the COVID-19 crisis, I suggested to our supervisor that we should call each other frequently. Liquidity has the constant attention of both DNB and NIBC. We know where things stand and share this with the supervisor. NIBC’s solvency is also very strong and we have consciously invested a great deal in this.”
JAN: “The contact you have with the supervisor also depends on the situation you are in. If things are going smoothly, you get routine supervision. In 2008, when there was a crisis, the Dutch government was prepared to issue guarantees for the funding of banks as long as they had permission from DNB. At that time things got serious for them too and a team of which I had never seen the likes before came to the bank.”
HERMAN: “We had a similar experience at the time of our Initial Public Offering (IPO). Then they delve into everything we do in great detail.”
JAN: “They take advantage of a thing like that. The supervisor can do that at any time, but it is a lot nicer for them when you really need the supervisor. They will then come up with a checklist containing at least 17 categories, which you, as the top of DNB, will also get on your desk. You can get a red, orange or green score for these categories. If you scored green for enough categories, you are given permission for an IPO. This is how it goes and this is an excellent opportunity for a supervisor to subject a bank to close scrutiny once again. And then you are done with it as a bank for a couple of years.”
Amber: “Listening to you, am I right in saying that you were more of a ‘principle-based’ supervisor?”
JAN: “Absolutely. If you are a supervisory authority such as DNB or AFM, you can supervise and intervene in illegal or damaging issues. In the Netherlands, we preferred to focus on damaging issues. If something was illegal but not damaging, it was given second priority. Conversely, if things were damaging but not illegal, we used to tackle them. The ECB sees this exactly the other way round. If something is damaging but not illegal, they are not going to do anything about it. If a violation of a rule is not laid down in law, it is not enforced. That is the difference between ‘rule-based’ and ‘principle-based’. A ‘rule-based’ approach is focused on rules and the law whereas a ‘principle-based’ approach takes a wider look at things and looks at what could go wrong.”
Amber: “And from a general perspective, what is the point of supervising the financial sector?”
JAN: “I often draw a parallel with risk management in a bank. What is the point of this? You rely on the commercial people of commerce to do the right thing, but occasionally things go wrong and then someone else has to protect the bank. That is what risk management is for. Checks and balances to ensure that the world of commerce does not get ahead of itself. That is in fact what supervision is all about as well. On the whole, banks work well, of course, but very occasionally they do not. And then the supervisor has to protect society from incidents that may come about as a result.”
“A supervisor protects society against the failure of an institution’s own checks. Yet another safeguard, but it is necessary from time to time.”
Herman: “When you look at supervision and the world around us right now, you can see the traditional banks as well as a lot of new fintechs around them. What is your take on this? I am struggling with the level playing field, how do we handle this and what is realistic.”
JAN: “We first have to wait and see how fintechs develop. It has been said for five years now that fintechs are becoming the disruptors within the world of banking, but in my opinion there has not been a great deal of disruption yet. A quite conceivable outcome would be for existing banks to incorporate the technology themselves. There is also a possibility that fintechs will be faster and more agile and that they will take over the role of banks. Or that very large other players, the Amazons and Googles of this world, embrace the fintechs and knock the banks off their throne. There are a couple of fintechs that are doing extremely well, such as Adyen. I am also noticing that successful fintechs are applying for banking licences right now. They are also under supervision. This gives them legitimacy. This way, a successful disruptor automatically becomes a bank again.”
Amber: “How is the supervision of fintechs regulated?”
JAN: “When you look at supervision, it’s about protecting society. Society expects the supervisor to keep an eye on fintechs, especially when they are getting bigger or are in danger of collapsing. So supervisors want to know what is happening there. Then you get the problem that supervisors work with specific categories of financial institutions, insurers and pension funds. In their opinion, a fintech does not meet the definition of a bank if, for example, they take deposits but do not lend any money. This means that the supervisor still needs to give some thought to the risks associated with fintechs, and that needs to be translated into a suitable supervisory framework for fintechs. Incidentally, a good fintech will see no problem in this and will apply for a banking licence. Fintechs often offer one specific product and will therefore be exempted from many reporting obligations that more traditional banks have to comply with. This process is not quite as complicated for them as it might be for other organisations. I expect there are going to be more fintechs with banking licences”.
HERMAN: “It’s a good wake-up call which shows that the world is going to look different after all.”
Jan Sijbrand's CV
Jan Sijbrand has been a member of PwC’s Supervisory Board since January 2019.
Previously, he was Managing Director at De Nederlandsche Bank from mid-2011 to mid-2018. As Supervisory Chairman, Jan Sijbrand was primarily responsible for DNB’s supervisory tasks and supervisory policy. He also fulfilled supervisory roles at the ECB (Frankfurt) and EBA (London).
From 2008 to mid-2011 Jan Sijbrand was a member of the Executive Board and Chief Risk Officer of NIBC. Prior to that he worked for ABN AMRO, Rabobank and Shell, among others.
Supervision in the Netherlands
The Nederlandsche Bank (DNB) supervises various types of financial institutions in the Netherlands, including banks, pension funds and insurers. The European Central Bank (ECB) supervises the large international banks in Europe together with DNB and other national supervisors. Currently, these total approximately 120 banks. In the Netherlands, ABN AMRO, de Volksbank, Rabobank, ING Bank, BNG Bank and NWB Bank are directly supervised by the ECB. The Netherlands Authority for the Financial Markets (AFM) supervises the way financial institutions deal with their clients.