WILLEMSTAD – The relationship between financial institutions and financial regulators often resembles a “forced marriage,” according to legal expert mr. dr. Karel Frielink.
Frielink made the remarks during a lecture on financial supervision at the annual post-academic course week for lawyers in Curaçao. In his presentation, he argued that the relationship between regulators and financial institutions is frequently marked by distrust, power imbalances and increasing regulatory pressure.
According to the jurist, regulators and financial institutions operate within a complex field of competing interests. Supervisory authorities aim to ensure strict compliance with financial regulations, while financial institutions must also consider operational costs, business performance and market competition.
These differing priorities can create tension and complicate the relationship between the two sides.
Frielink noted that after financial crises, public debate often focuses on the role of regulators and asks why supervisory bodies failed to intervene sooner. Weak internal governance at banks, insufficient oversight and inadequate regulatory tools have often been cited as contributing factors to past crises, including the global financial crisis of 2008.
He also pointed to several cases in the Caribbean part of the Kingdom of the Netherlands where regulators intervened when financial institutions encountered serious problems. Examples include the emergency measures taken at First Curaçao International Bank (FCIB), the winding down of Girobank and the intervention at insurance company Ennia, which has since restarted operations.
According to Frielink, these cases illustrate how complex the role of regulators can be when financial institutions face financial distress.
At the same time, distrust also exists from the perspective of financial institutions. Banks and insurers are aware that regulators possess a wide range of enforcement tools, including official directives, penalty payments and administrative fines. As a result, institutions may sometimes hesitate to openly challenge or debate decisions made by their supervisory authority.
Another point of discussion is the limited liability of regulators. In many legal systems, including those in the Caribbean part of the Kingdom, supervisory authorities are generally not held liable for damages resulting from their actions while carrying out their duties, unless there is evidence of intentional misconduct or gross negligence. According to Frielink, this means that mistakes in supervision often remain the responsibility of the regulated institution itself.
Increasing regulatory pressure also contributes to tensions within the sector. Financial institutions are facing rising compliance costs as they work to meet increasingly complex regulatory requirements. This raises questions about whether all measures remain proportionate and whether the effectiveness of certain regulations is sufficiently evaluated.
Frielink also highlighted what he described as a possible “chilling effect.” Financial institutions may be reluctant to challenge regulators through legal proceedings out of concern that doing so could damage their relationship with the supervisory authority or lead to stricter oversight in the future.
Despite these challenges, Frielink emphasized that a constructive relationship between regulators and financial institutions remains essential for maintaining a stable financial system. Transparency, open communication and professional distance between both sides are key elements in achieving that balance.