Any party wanting to pursue the business of a bank in the Netherlands must hold the appropriate licence. The law defines a bank as a credit institution as referred to in Article 4 of the CRR. The CRR defines a credit institution as an undertaking the business of which is (i) to take deposits or other repayable funds from the public and (ii) to grant credits for its own account.
Below we will define the four components of the definition of a bank.
(i) The public
(i) Deposits or other repayable funds
(ii) Granting credits
(iii) For its own account
(i) The public
In order to be earmarked a bank, the institution must take deposits or other repayable funds from the public. Parties that do not fall under the term "the public" are taken to be able to assess the risks attached to financial services and products and the financial condition of the entity to which they entrust their funds.
The term "the public" was introduced with the implementation of the CRR. The term replaced the clause “outside a restricted circle, from parties other than professional market parties”. However, the concept "outside a restricted circle, from parties other than professional market parties" is still relevant pending further elaboration of the term "the public" at the European level.
When talking funds "outside a restricted circle", a restricted circle is understood to mean a circle consisting of persons or companies from which a person or company receives repayable funds. The following characteristics are necessary in order to qualify as a restricted circle:
- The circle is described in detail.
- There are predefined measurable criteria in place for joining the circle.
- There is no straightforward access to the circle.
- Lenders and borrowers already have another legal, non-financial relationship, which provides an understanding of the borrower's financial condition (e.g. a relationship governed by family, employment, or corporate law).
In order to qualify as a restricted circle, the legal relationship must already exist before the intention to take funds is announced. The restricted circle must also be in existence as long as funds are being taken. Taking funds from only one (natural) person or company is not regarded as taking funds "outside a restricted circle", as one person can never constitute a circle.
- If funds are only taken inside a restricted circle, there is no question of a bank.
Professional market parties
In addition to this, funds must be taken from other professional market operators. Professional market parties do not fall under the term “the public”. The term “professional market parties” is defined in the Wft, which states that qualifying investors are professional market parties. So in order to determine whether a party is a professional market party, the definitions of "professional market party" and "qualifying investor” are of importantance.
The Wft also defines the term “qualifying investor". The definitions of both “professional market operator” and “qualifying investor” refer to the Decree on Definitions under the Financial Supervision Act (Besluit definitiebepalingen Wft). Section 3 of this Decree designates certain legal entities, natural persons and partnerships as professional market operators.
(ii) Deposits or other repayable funds
The Wft designates deposits and other repayable funds as repayable funds. These are funds that must at any time and for any reason whatsoever be paid back. The nominal amounts to be paid back must also be known beforehand. Examples include lending money and issuing bonds. Funds attracted by issuing shares do not qualify as repayable funds, as there is no obligation to pay back the nominal amount.
The following categories are not earmarked as repayable funds:
- Paper vouchers and casino chips
- Advance payments on specific purchase transactions
- Postponement of payment for specific purchase transactions
- Funds given as part of a specific instruction for onward payment to a third party
However, if the period between the onward payment instruction and the third party's receipt of the funds exceeds five calendar days, the funds qualify as repayable funds.
(ii) Granting credits
Granting credits involves providing nominal repayable funds to others for the purpose of benefit. The benefits to the lender or a related party must be "in money's worth".
(ii) For its own account
Credits must be granted for the lender's own account. This means that the institution granting the credit takes on the financial risk of this lending operation itself. If a party receives a profit- or loss-related compensation for the granting of credits, this party also acts "for its own account".