Belgium: Banking & Finance

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This country-specific Q&A provides an overview of the legal framework and key issues surrounding banking and finance law in Belgium including national authorities, regulation, licenses, organisational requirements, supervision and assets.

This Q&A is part of the global guide to Banking & Finance.

For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/banking-finance/

  1. What are the national authorities for banking regulation, supervision and resolution in the jurisdiction?

    The system of financial supervision in Belgium is organised as a bipolar model (the so-called ‘Twin-Peaks’ model) including the National Bank of Belgium (NBB) and the Financial Services and Markets Authority (FSMA). The NBB is the Belgian supervisory authority for banking regulation, supervision and resolution. As the supervisory architecture in this regard is multilayered since the introduction of the Single Supervisory Model (SSM), the NBB shares this role with the European Central Bank (ECB) depending on the size of the institution, in accordance with Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions (SSM Regulation). The FSMA, on the other hand, supervises the Belgian financial markets. To this extent, it mainly focuses on financial products and rules of conduct.

  2. Which type of activities trigger the requirement of a banking licence?

    In accordance with Article 7 of the Belgian act of 25 April 2014 on the legal status and the supervision of credit institutions (the Banking Act) and Article 68bis of the Belgian Prospectus Act, a banking license is required when an undertaking (Belgian of foreign) intends to take deposits or other repayable funds from the public with a view of granting credit for its own account, on the Belgian territory.

  3. Does the regulatory regime know different licenses for different banking services?

    No, under Belgian law, only one banking license exists.

  4. Does a banking license automatically permit certain other activities, e.g., broker dealer activities, payment services, issuance of e-money?

    Yes, pursuant to Articles 4 and 6 of the Banking act, the activities which may be covered by a banking license include: financial leasing, payment services, issuing and administering other means of payment (e.g. travellers’ cheques and letters of credit), guarantees and commitments, certain transactions for the institution’s own account or for the account of clients, participation in securities issues and the provision of services related to such issues, advice to undertakings on capital structure, business strategy and related matters, as well as advice and services relating to mergers and acquisitions of undertakings, intermediation on the interbank market, management or advice, safekeeping and administration of securities, credit reference services, safe custody services and the issuance of electronic money. However, the activities that an undertaking intends to roll-out need to be specified in a programme of operations which has to be submitted to the NBB as part of the licensing process. Strategic addition or cessation of certain activities in the course of the life of the credit institution will have to be submitted for approval to the NBB.

  5. What is the general application process for bank licenses and what is the average timing?

    First, an application for authorization has to be submitted to the NBB and must consist of an administrative dossier which complies with the conditions laid down by the relevant supervisory authority (either the NBB or the ECB – see question 1) and which includes, inter alia, a programme of operations, the organizational structure and disclosure of links with other persons or entities. Applicants must also notify the NBB of the identity of qualified shareholders and, in the absence of such shareholders, of the twenty largest shareholders and their proportion of capital. In the meantime, and to the extent this is required, the NBB shall consult other relevant supervisory authorities. Finally, based on the opinion of the FSMA, the relevant supervisory authority shall decide on the application with regard to a) the adequacy of the credit institution’s organization and b) the professional integrity of the persons in charge.

    With regard to the timing of the application process, the Banking Act prescribes that the supervisory authority shall provide its opinion within six months after submission of the complete application package and at the latest within twelve months after receipt of the application. As applications for a full license are scarce in the Belgian market, we cannot comment on the effective average timing for the treatment of an application. The last successful application known, however, took more than a year.

  6. Is mere cross-border activity permissible? If yes, what are the requirements?

    Credit institutions under Belgian law can exercise all or part of the activities detailed above (see question 4) for which they are authorised in Belgium, on the territory of another EU member state or third country, either under the free provision of banking services regime, or through a branch. The relevant supervisory authority (either the NBB or the ECB - see question 1) shall be informed hereof and be provided all necessary information, after which it has the ability to oppose the implementation of the project.

    Conversely, EU institutions are allowed to exercise their banking activities in Belgium, albeit through the use of a branch or based on the freedom to provide services. The Belgian supervisory authority has to be notified of the institution’s intention to operate on the Belgian market by the institution’s home regulator, following which the institution is registered by the supervisory authority. Foreign institutions, however, cannot operate through free provision of services and need, at least, to establish a branch in Belgium.

  7. What legal entities can operate as banks? What legal forms are generally used to operate as banks?

    Each commercial legal entity can operate as a bank, with the exception of a private limited liability company that has been established by one person (EBVBA/SPRLU). Usually banks are structured as public limited liability companies (NV/SA) or as cooperative companies.

  8. What are the organisational requirements for banks, including with respect to corporate governance?

    The Banking Act introduced for the first time a full set of binding corporate governance rules. Regarding a credit institution’s organization, Belgium opted for a dual system in which a clear division exists between the senior management of the institution and the supervision of this management. In practice, the statutory governing body (often the board of directors) holds the general responsibility for the credit institution while all residual management powers of this statutory governing body shall be transferred to the management committee, as far as allowed by law. Within the statutory governing body, four specialised committees have to be established to strengthen the internal audit function: a) an audit committee, b) a risk committee, c) a remuneration committee, and d) a nomination committee. Each of their members shall possess the necessary knowledge, expertise and experience. Non-significant banks are excluded from the obligation to establish a remuneration committee and a nomination committee.

  9. Do any restrictions on remuneration policies apply?

    Rules on remuneration, both at group and individual level, were introduced by the Banking Act, which essentially implement the provisions of the European capital requirements directive (CRD IV). However, a stricter cap on remuneration for identified staff was introduced which limits their variable remuneration to the highest amount of 50% of their fixed remuneration or EUR 50,000, provided that this amount is not higher than their fixed remuneration. Notwithstanding European legislation, Belgium also established strict, more far reaching rules for credit institutions that have received exceptional government intervention and termination payments.

  10. Has the jurisdiction implemented the Basel III framework with respect to regulatory capital? Are there any major deviations, e.g., with respect to certain categories of banks?

    The Basel III standards and guidelines have been implemented in the European Union by the CRD IV regulatory framework. The latter, however, foresees an implementation on a phased-in basis until 2019. Certain aspects with respect to regulatory capital are therefore still open to further implementation in Belgian legislation.

  11. Are there any requirements with respect to the leverage ratio?

    The leverage ratio was initially introduced by the European capital requirements regulation of 26 June 2013 (CRR) as an observation ratio that had to be disclosed to relevant supervisory authorities. Since January 2015, credit institutions also need to publicly disclose such ratio. As part of the Basel IV/CRD V package, the European Commission has proposed a binding requirement to maintain a leverage ratio of 3%.

  12. What liquidity requirements apply? Has the jurisdiction implemented the Basel III liquidity requirements, including regarding LCR and NSFR?

    The LCR has been adopted in Belgium effective 1 January 2011, meaning that the Belgian regulator radically anticipated the phased-in approach of Article 460 CRR and imposed at once a 100% coverage of liquidity at one month under stressed circumstances.

    Similarly to the leverage ratio, the NSFR currently needs to be reported and disclosed, but no binding requirement applies. As part of the Basel IV/CRD V package however, the European Commission has proposed to render such ratio binding.

  13. Do banks have to publish their financial statements?

    In addition to general accounting regulation, a specific regime applies to credit institutions with regard to their financial statements and corresponding provision of information. First, credit institutions have to submit their financial statements to the NBB. Further specific rules regarding the publication of their consolidated financial statements, annual report and audit report are governed by Royal Decree. Second, credit institutions have to submit periodically a detailed financial statement to the relevant supervisory authority (either the NBB or the ECB – see question 1) in accordance with its respective rules. For certain categories of credit institutions, the supervisory authority can grant exemptions to both rules. Periodically, and at least four times a year, the NBB will also publish a set of totals for credit institutions.

  14. Does consolidated supervision of a bank exist in the jurisdiction? If so, what are the consequences?

    Yes, but only up to the extent defined under Book II, Chapter IV of Title III of the Banking Act (sections II and IV): only credit institutions which fit the definition of ‘parent company’ or credit institutions which themselves have as a parent company a financial holding company in a EU member state or a mixed parent financial holding company in a EU member state will be subject to consolidated supervision.

    The levels of consolidated supervision, their relationship with the supervision of individual credit institutions, the subject matter and the scope of consolidated supervision are set out in Part 1, Title II, Chapter II of the European Regulation no. 575/2013.

  15. What reporting and/or approval requirements apply to the acquisition of shareholdings in, or control of, banks?

    Supervisory approval may be required when certain thresholds are reached (10%, 20%, 30% or 50%). In any event, the aspiring new shareholder has to notify the relevant supervisory authority (see question 1) after which the supervisory authority will publish a list of ‘required information’ (on its web application). Based on the provided information, the supervisory authority will then decide on the approval.

    In addition, a notification requirement applies when a threshold of 5% is reached (which is not included in the CRD IV package).

  16. Does the regulatory regime impose conditions for eligible owners of banks (e.g., with respect to major participations)?

    Yes, following Article 19 of the Banking Act, every natural person or legal entity who, acting alone or in concert, directly or indirectly, possesses a qualified or non-voting qualifying holding in the capital of the credit institution has to be deemed ‘fit and proper as to ensure a sound and prudent policy of the credit institution’. Whether or not these conditions are met, is subject to the criteria mentioned in the aforementioned Article 19 of the Banking Act.

  17. Are there specific restrictions on foreign shareholdings in banks?

    No.

  18. Is there a special regime for domestic and/or globally systemically important banks?

    Yes, both regimes have been implemented in line with the CRD IV package.

  19. What are the sanctions the regulator(s) can order in the case of a violation of banking regulations?

    Together with possible civil and contractual sanctions on transactions that were operated in breach of financial regulation, a wild array of criminal penalties and administrative fines (Book V of the Banking Act) can be imposed.

  20. What is the resolution regime for banks?

    The regime captured under the European directive 2014/59/EU (the Bank Recovery and Resolution Directive - BRRD). The directive requires banks to prepare recovery plans to overcome financial distress. It also grants national authorities powers to ensure an orderly resolution of failing banks with minimal costs for taxpayers.

    Furthermore, the directive includes rules to set up a national resolution fund that must be established by each EU member state. All financial institutions have to contribute to these funds. Contributions are calculated on the basis of the institution's size and risk profile.

    The EU's bank resolution rules ensure that the banks' shareholders and creditors pay their share of any potential costs through a ‘bail-in’ mechanism. If that is still not sufficient, the national resolution funds set up under the BRRD can provide the resources needed to ensure that a bank can continue its operations while being restructured.

    The relevant articles of the directive were implemented in Book II, Titles IV, V, VI of the Banking Act.

  21. How are client’s assets and cash deposits protected?

    In accordance with the European directive 2014/49/EU, Belgium has implemented a deposit guarantee scheme (Book VIII of the Banking Act). In the event a credit institution would go bankrupt, the deposits held by that bank would be guaranteed up to EUR 100,000, per client, per financial institution.

    Furthermore, in the event of bankruptcy of a credit institution holding financial instruments, the owners of said held financial instruments will be protected. This protection applies to financial instruments that the client has deposited with his bank or brokerage firm. If, after deficiency of the custodian, the client can no longer recover these instruments deposited in custody, a protection scheme can be invoked for any loss. This protection for financial instruments mirrors the deposit guarantee scheme in most ways, except that it is capped at EUR 20,000, per client, per credit institution (the cap was set lower due to the abundance of other stringent regulation which provides additional guarantees in the context of financial instruments (e.g. MiFID II)). The specificities can be found in the Royal Decree of 16 March 2009 on the protection of deposits and life insurance by the Guarantee Fund for Financial Services.

  22. Does your jurisdiction know a bail-in tool in bank resolution and which liabilities are covered?

    Yes, following the European directive 2014/59/EU Belgium has implemented a bail-in tool into the new Banking Act. The bail-in tool can be found in Article 267 of the Banking Act and reflects to a large extent the Articles 43 up to 55 of the abovementioned European directive. The different liabilities covered can be found in Article 267/3, §2 of the Banking Act.

  23. Is there a requirement for banks to hold gone concern capital (TLAC)?

    Not yet, however, the minimum standard for TLAC has been agreed upon at the G20 summit in Turkey in accordance with the Basel Committee and the Financial Stability Board. It is now up to the European Commission to implement the TLAC term sheet for the Globally systemically important banks, most likely through a new ‘CRD V’ package.

  24. In your view, what are the recent trends in bank regulation?

    Bank regulation will mainly remain driven by European initiatives, including the upcoming Basel IV/CRD V package and the further completion of the Banking Union with a European deposit insurance scheme. The Belgian regulator has in the recent years adopted a protective view and implemented European rule on a strict basis (even goldplating in certain instances – see the paragraph on remuneration above). While we expect that this trend will continue as far as consumer protection and rules of conduct are concerned, the Belgian supervisor seems to have adopted a slightly more pragmatic approach over the past months, also in an effort to attract financial institutions looking into onshore certain UK activities after Brexit.

  25. What do you believe to be the biggest threat to the success of the financial sector ?

    If success is to be defined as a dynamic and innovating market for customers of financial services, the biggest threat would in our view be the risk of stifling of innovation: the investment capacity of financial institutions will be impaired by the burden of regulatory changes (CRD V as explained above, but also PSDII, MifID II etc…) and their willingness to innovate may be blunted by the fact that Fintechs are not perceived anymore as a threat, but rather as potential partners.