DNB to step up enforcement of capital requirements, but will the market also receive more guidance?

12 May 2026 10 minutes

Introduction

A large proportion of financial firms in the Netherlands must ensure that their capital holdings meet the applicable solvency requirements. It is the task of the Dutch Central Bank (DNB) (and, for banks, the European Central Bank (ECB)) to exercise supervision regarding the compliance with these requirements. If necessary, DNB can enforce compliance with these solvency rules through formal administrative enforcement.

In the near future, DNB will make more frequent use of these formal enforcement measures. For several years now, it has had a specific focus on capital quality, and it has informed the market about certain aspects of the capital requirements that it frequently observes being breached in practice (see, for example, our subsequent blogs/posts – in Dutch only). Very recently, it has even adopted a formal enforcement policy on this matter (see our previous news item on this). From now on, DNB will apply formal enforcement as a matter of principle in the event of breaches: capital shortfalls identified by DNB will then result directly in the imposition of an order subject to a penalty payment. But whilst DNB is tightening the enforcement screws, the precise interpretation of the capital requirements remains very difficult for many institutions.

In general, larger institutions such as banks and insurers are well acquainted with these laws and regulations. Investment firms and fund managers have also been increasingly reminded of their obligations under the capital requirements in recent years, but for them, DNB’s precise interpretation of the capital rules is often still new. Furthermore, there is a large group of institutions which, whilst aware that their capital must be of a certain quality and sufficiently robust, are not always clear on what is required to achieve this. Think, for example, of payment institutions, electronic money institutions (EMIs), crowdfunding service providers and crypto-asset service providers (CASPs). This is also quite understandable, given that the applicable rules are highly complex and often open to multiple interpretations.

The capital requirements

The key requirements for various financial institutions regarding the required own funds (capital) are set out in, amongst other things, Sections 3:53 and 3:57 of the Financial Supervision Act (Wft) and Section 50 et seq. of the Wft Prudential Rules Decree (Bpr). In each case, the undertaking’s available own funds must at least meet a required amount calculated specifically for that undertaking.

This blog focuses specifically on which equity components can be included as available equity. For all financial undertakings with a capital requirement, the own funds components must in any event meet the same requirements to qualify as the strongest (and most loss-absorbing) capital. This is referred to as Common Equity Tier 1 (CET1) capital. It is precisely these specific rules that typically raise the most important questions.

The requirements relating to this CET1 capital are set out in an EU regulation, the Capital Requirements Regulation (CRR). Article 26 of the CRR defines what CET1 capital is and which items on the liabilities side of the balance sheet it must consist of. In short, this comprises share capital, share premium and distributable profit reserves.

Article 28 of the CRR then sets out a number of specific requirements that share capital must meet in order to be classified as CET1 capital (including share premium). The requirements set out in Articles 26 and 28 of the CRR are not always clear and are open to multiple interpretations. Consequently, the institutions with less prudential experience as mentioned earlier are particularly reliant on the explanations and interpretations provided by DNB, insofar as DNB applies specific interpretations in its supervision and enforcement. This is particularly problematic if DNB applies an interpretation for which the European Commission (EC) or the European Banking Authority (EBA) have no interpretation, or a different one, meaning that institutions cannot simply rely on EU legal sources. It is noteworthy, however, that where DNB explains certain elements of Articles 26 and 28 of the CRR, it appears to be doing so primarily in the form of isolated, separate interpretations, usually published on its website in response to issues encountered in its supervisory practice.

DNB interprets and explains, but a comprehensive guidance document is lacking

For example, last year DNB published a news item (in Dutch only) in which it urged institutions to review their intra-group claims on shareholders. The reason for this was that DNB had observed that institutions were engaging in direct financing of capital instruments by their shareholders. Pursuant to Article 28(1)(b) of the CRR and Article 8 of Delegated Regulation (EU) No 241/2014 (RTS Own Funds), capital instruments do not qualify as CET1 capital if the institution finances the shareholder (via loans or overdraft facility) and the institution cannot sufficiently demonstrate that:

the transaction is at arm’s length; and
the shareholder is not dependent on dividend payments or the sale of its holding for repayment of interest and principal.

In its press release, DNB draws the market’s attention to these provisions. Furthermore, DNB made it clear that it interprets these provisions such that dependence on dividends (see criterion (ii)) even exists if an institution offsets shareholders’ dividend rights against an intra-group claim against that same shareholder. DNB also explained the potential consequences if it is established that the institution has arranged for its own capital instruments to be financed (namely that the share capital and the associated share premium will not be recognized as CET1 capital up to the amount of the loan).

Another example concerns DNB’s observation (in Dutch only) that certain financial firms pay out dividends before the results have been approved by shareholders and (where required) before the auditor’s report has been issued. By actively drawing institutions’ attention to the consequences – undistributed profit does not count as CET1 but is instead deducted from the available CET1 capital – DNB hopes to prevent financial firms from incurring a capital shortfall due to an interim dividend payment.

I assume that institutions welcome this kind of DNB guidance and interpretation. But is it not time for DNB to publish a comprehensive overview, in which it explains to institutions in concrete terms what its expectations are regarding the composition of CET1 capital? Especially since DNB has announced it will take tougher action against capital shortfalls, it would be fair if it also made its own supervision more predictable.

In this context, DNB is already taking steps in the right direction in some areas. Consider, for example, the publicly available slides (in Dutch only) in which DNB sets out key considerations regarding quality requirements for capital instruments, or the recommendations (in Dutch only) issued in connection with capital reviews. These are absolutely useful; the downside is that these key considerations focus solely on capital requirements for investment firms and fund managers. And here too, the items are isolated, fragmented statements. In our experience, what financial firms actually need for predictability is a single coherent and comprehensive overview of the explanations and interpretations applied by DNB regarding the various requirements for CET1 capital.

Further questions regarding CRR CET1 quality requirements

There is a pressing need for such a comprehensive overview, as there are still plenty of ambiguities regarding the quality of the CET1 capital to be held that need to be resolved. This is particularly true where the quality requirements set out in Article 28 of the CRR for equity instruments are concerned. After all, share capital and share premium are only considered available CET1 capital if each of the specific requirements set out in Article 28 of the CRR is met; these requirements are open to multiple interpretations in certain respects, and there is little concrete EU guidance available on them. Furthermore, under Article 79a of the CRR, DNB may (and must) look beyond the legal reality alone and must take into account the material and economic conditions and circumstances. This could lead to unexpectedly significant consequences:

For instance, Article 28(1)(h) of the CRR stipulates that there must be no obligation on the institution to make dividend payments to its shareholders. Such an obligation need not arise solely from the existence of an agreement concluded between the shareholder and the institution. It may be the case, for example, that a decision taken at shareholder level – for example, the shareholder’s decision to enter into financing (such as in the context of a takeover) – may, in DNB’s view, place undue pressure on the institution to pay dividends to its shareholder – even if there is no legal obligation between the institution and the shareholder to pay dividends. The ultimate risk in practice is that DNB may then consider that there is a de facto obligation on the institution to make dividend payments to its shareholders and disqualify the paid-up share capital and associated share premium, meaning that it is not considered CET1 capital. It is often not clear to an institution with whom and under what conditions shareholders enter into agreements, nor does it have much influence on the decision-making process. However, it is the institution that faces the potential breach and the enforcement risk if DNB disqualifies the CET1 capital.

There is also uncertainty regarding DNB’s exact interpretation of (liquidation) preference in agreements between shareholders. In short, Article 28(1)(h) – (j) of the CRR stipulates that, in the event of liquidation, capital instruments confer a claim on the residual assets in proportion to the amount issued, without any preference. Shareholder agreements that, for example, provide for a liquidation preference, whereby certain shareholders receive payments earlier or in greater amounts than others upon liquidation, may therefore conflict with CET1 eligibility. In practice, however, such agreements are common – particularly in venture capital financing (see our previous blog on this subject) – but it is often not clear to institutions exactly where the line is drawn.

Apart from any capital requirements for financial holding companies (see our previous blog on this subject – in Dutch only) and consolidated requirements (see a previous article – in Dutch only), there are still plenty of other elements to mention where DNB’s interpretation is not immediately clear to many institutions. Consider, for example, the interpretation of the final sentence of Article 26(1) CRR (the unlimited and immediate absorption of losses), the deductions under Article 36 CRR, and the impact of call and put options on the capital held.

We therefore regularly observe that neither institutions nor their shareholders are aware of the risks mentioned above, whilst the consequences are significant (disqualification of CET1 capital leads to a capital shortfall, necessitating recovery measures such as capital injections). DNB would therefore be well advised to explain which circumstances could lead to undue dividend pressure. In recent years, the EBA has already made an attempt to do so by publishing a report, but it is not entirely clear whether DNB always follows this explanation to the letter, and whether it confines itself to that.

In conclusion

The above topics are all areas where further clarification from DNB is highly desirable. Moreover, there is no doubt that DNB is well placed to assist institutions further in meeting the capital requirements. The guidance circulated by DNB in 2024 on the calculation of the fixed cost requirement for investment firms is a good example of this. There is no reason why DNB cannot do the same for the CET1 quality requirements, in a manner consistent with the harmonizing nature of the CRR and the explanations provided by the EBA and the European Commission on this matter. It is therefore to be welcomed that DNB is preparing the market for stricter enforcement and, for that reason, is encouraging firms to start monitoring their capital planning internally now. However, enforcement should also be accompanied by a high degree of predictability. And it is precisely here that there are still gains to be made – for both DNB and financial firms. After all, to count, gains must first be sufficiently robust to qualify.