Pursuant to Section 3:88 of the Financial Supervision Act (Wet financieel toezicht – Wft), external auditors are under a duty to notify the competent authorities of prudential incidents or indications of such incidents. The notification duty applies to external auditors of investment firms having their registered office in the Netherlands and providing investment services in the Netherlands, to UCITS having their registered office in the Netherlands, to UCITS managers having their registered office in the Netherlands, to investment funds having their registered office in the Netherlands and to investment fund managers having their registered office in the Netherlands.
If the investment firm, investment fund/investment fund manager or UCITS/UCITS manager qualifies as a public-interest entity, external auditors are also subject to a notification duty pursuant to Articles 7 and 12 of Regulation (EU) 537/2014. Article 7 deals with a situation in which the external auditor suspects that irregularities, including fraud with regard to the financial statements of the audited entity, may occur or have occurred, and the audited entity refuses to investigate the matter and take appropriate action following the auditor's request to do so. While Section 3:88 of the Wft only concerns prudential matters, Article 12 of Regulation (EU) 537/2014 also addresses “a material breach of the laws, regulations or administrative provisions which lay down, where appropriate, the conditions governing authorisation or which specifically govern pursuit of the activities of such public-interest entity” and/or “a material threat or doubt concerning the continuous functioning of the public-interest entity” and/or “a refusal to issue an audit opinion on the financial statements or the issuing of an adverse or qualified opinion”.
First, pursuant to Section 3:88(1) of the Wft, an auditor auditing the annual financial statements of an investment firm, an investment fund/investment fund manager or a UCITS/UCITS manager, or the financial statements of a financial enterprise having its registered office in the Netherlands as meant in Section 3:72(1) or (3) of the Wft, must promptly notifyDNB of each and any circumstance that has come to their knowledge in the course of the audit which may be:
a. contrary to the duties laid down in the prudential part (Part 3) of the Wft or
b. jeopardises the existence of the financial enterprise.
Second, pursuant to Section 3:88(2) of the Wft, an auditor auditing the financial statements of a financial enterprise having its registered office in the Netherlands as meant in Section 3:72(1) or (3) of the Wft, must promptly notify DNB of each and any circumstance that has come to their knowledge in the course of the audit and which would lead to the auditor not issuing its opinion regarding the truth and fairness of the statements or to make qualifications.
This second duty of notification exclusively applies to investment firms and not to investment funds/investment fund managers and UCITS/UCITS managers. Pursuant to Section 3:72(7) of the Wft, we may require that an investment firm's or manager's financial statements are accompanied by an external auditor’s opinion regarding their truth and fairness. However, the external auditor of an investment fund/investment fund manager or UCITS/UCITS manager does not need to do so, pursuant to Section 133 of the Bpr:
"(...) De Nederlandsche Bank sets rules establishing which statements are to be included in the external auditor's audit, on the understanding that a manager, by submitting annual financial statements accompanied by an auditor's report, effectively complies with the obligation referred to in Section 3:72(7) of the Wft. (…)”.
Both notification duties correspondingly apply to external auditors which in addition to the audit of the financial enterprise's annual financial statements also audit the annual accounts or financial statements of a person linked to the financial enterprise in a formal or factual governance structure (based on Section 3:88(3) of the Wft).
Based on these notification duties, the external auditor is not required to conduct any other work than the work to be conducted under the engagement to audit the annual financial statements. This implies that the focus of an external auditor's work is not on a systematic check of compliance with all relevant statutory and regulatory requirements. The audit of a financial enterprise's annual financial statements focuses on the truth and fairness of these statements, which does not necessarily mean that all circumstances of interest to supervisory authorities are actually reported to them in time.
The notification duties for external auditors are subject to the following procedural requirements and safeguards. Pursuant to Section 3:88(5) of the Wft, DNB will allow the financial enterprise to be present when the external auditor makes its notification or provides its information. Pursuant to Section 3:88(6) of the Wft, external auditors that make a notification or provide information to DNB are not liable to any damage or loss caused to third parties, unless it is made plausible that, considering all facts and circumstances, the external auditor should not have made the notification or provided the information.
Duty to provide information
Section 136 of the Bpr specifies the information that external auditors must provide to DNB for the purpose of supervision of the investment firm.
It concerns the following information:
a. the auditor's report to the management board and supervisory board
b. the management letters
c. other correspondence between the external auditor and the financial enterprise directly related to the opinion regarding the truth and fairness of the financial enterprise's annual accounts, and,
d. at DNB's request, an explanation of the information referred to under items a-c.
Note 1: Section 136 of the Bpr refers to the external auditor as meant in Section 3:88(2) of the Wft, i.e. the external auditor that audits the financial statements. However, the external auditor of an investment fund/investment fund manager or UCITS/UCITS manager will not provide an opinion regarding the truth and fairness of the financial statements as a rule, pursuant to Section 133 of the Bpr.
Note 2: The external auditor of an investment fund/investment fund manager or UCITS/UCITS manager provides this information to the Dutch Authority for the Financial Markets (AFM), which is the primary competent supervisory authority, pursuant to Section 4:27(4) of the Wft in conjunction with Section 107(1) of the Decree on Business Conduct Supervision of Financial Enterprises (Besluit gedragstoezicht financiële ondernemingen Wft).
Section 137 of the Bpr includes a number of further procedural requirements and safeguards. If an external auditor intends to provide information about a financial enterprise to DNB as meant in Section 136 of the Bpr, it must inform the enterprise of its intention to do so. The financial enterprise may also decide to provide this information to DNB itself. In that case, the financial enterprise must inform the external auditor. It is then the external auditor's responsibility to ascertain that DNB has received the information and that their contents do not give it any reason for providing them itself. If the external auditor provides information to DNB in writing, it must promptly send a copy of this information and, if applicable, of the accompanying letter, to the financial enterprise.
Where to report incidents/make notifications
You can contact the supervisors of investment firms, investment funds/investment fund managers or UCITS/UCITS managers directly at email@example.com to report any prudential incidents or suspected incidents. We will process your notification confidentially.