On 6 November 2020, the Dutch Minister of Finance published for consultation a new act providing for Dutch payment institutions, e-money institutions and investment firms to use segregated payment accounts as a new means of safeguarding customer funds.

A new means of safeguarding customer funds

The introduction of a segregated payment account is aimed at addressing the shortcomings experienced with the method currently used by many Dutch financial institutions to segregate customer funds: the customer funds foundations (stichting derdengelden). Although commonly used in the Netherlands, a customer funds foundation is little known abroad. This complicates cross-border transactions, particularly as foreign parties sometimes refuse to pay to the foundation given their uncertainty that it discharges their debt to the financial institution. A foundation is also relatively costly and complex.

The proposal resolves these issues and also aligns Dutch law with the practice in other countries. The proposal is similar to the 'safeguarding account' that already exists for payment institutions and e-money institutions the United Kingdom. In the UK, such safeguarding accounts are subject to a statutory regime that provides that claims of payment services users are to be paid from the institution's asset pool in priority to all other creditors and that, until all the claims of payment services users have been paid, no right of set-off or security right may be exercised in respect of the asset pool, except in relation to fees and expenses of the bank incurred in operating the account.

Details of the proposal

The use of segregated payment accounts will be subject to a number of criteria: the account may only be used for the designated purpose of segregating customer payments, it must be held by a Dutch bank, it must be clear from the name of the account that it is it is held for the purpose of segregating customer payments, and the financial institution must ensure adequate administration of the segregated assets.

The proposal must be embedded in law, as it requires an exception to the general principle laid down in the Dutch Civil Code on the basis of which a creditor can recover his claim against all the assets of the debtor. Pursuant to the proposed exception, the segregated assets will only be able to be used to satisfy claims of the third parties whose funds are administered on the account and claims of the bank relating to the operation of the account.

The segregated payment account will be an alternative to, rather than a replacement of, the existing options for safeguarding customer funds, such as the above-mentioned customer funds foundation. Payment institutions and other financial institutions can, therefore, continue to use such methods, if they wish to do so.

Conclusion and next steps

The proposal will provide a welcome simplification to the operation of many Dutch financial institutions, in particular payment and e-money institutions. It is also supported by both Dutch regulators, the Dutch Authority for the Financial Markets (AFM) and Dutch National Bank (DNB). The draft act of which the proposal forms part, the Financial Markets Amendment Act 2022 (Wijzigingswet financiële markten 2022), remains open for consultation until 18 December 2020. It will be submitted to the Dutch Parliament during the course of 2021 and will be adopted, and likely enter into force, in 2022.