Dutch Authority for the Financial Markets steps up supervision of investment product distribution to require consideration of taxation and other external factors

The Dutch Authority for the Financial Markets (AFM) published a supervisory reminder that investment firms must factor in relevant external conditions, including taxation, when determining the target market and distribution strategy for investment products, and will intensify oversight of this expectation. Firms should have procedures ensuring that the distribution of investment products continues to meet the objectives of the intended target market, including periodic reassessment and ad hoc review when circumstances warrant. The assessment should not be limited to product features such as risk and return, but also consider external factors such as inflation and tax rules where relevant for the target market; where a product no longer fits, firms should take appropriate action, including adjusting the target market or the distribution strategy. As an example, the AFM highlights that under the current Box 3 regime investments may be taxed more heavily than savings: for the Dutch Tax Administration’s provisional 2025 assessment, an assumed return of 5.88% is used and taxed at 36%, implying Box 3 taxation of up to 2.12% of invested assets, which could mean that a defensive investment product’s expected net return after costs is insufficient for wealth preservation or growth. The AFM also calls on firms to use its 2024 “Guidance on scenario analyses from the client perspective for the PARP standard” and will take the use of these tools into account in future compliance investigations.