Joint ESMA and EBA Guidelines on the assessment of the suitability of members of the management body

Status: Final (awaiting translation into the EU official languages)

The draft Guidelines aim at further improving and harmonising suitability assessments within the EU financial sectors and so ensure sound governance arrangements in financial institutions.”

EBA and ESMA provide guidance to assess the suitability of management body members and key function holders

EBA and ESMA provide guidance to assess the suitability of management body members and key function holders

26 September 2017

The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) have published their joint Guidelines to assess the suitability of members of management bodies and key function holders. These Guidelines aim to harmonise and improve suitability assessments within EU financial sectors, and to ensure sound governance arrangements in financial institutions in line with the Capital Requirements Directive (CRD IV) and the Markets in Financial Instruments Directive (MiFID II). The Guidelines highlight the importance for institutions to consider whether candidates have the knowledge, qualification and skills necessary to safeguard proper and prudent management of the institution. The Guidelines also foster more diverse management bodies and, therefore, contribute to improved risk oversight and resilience of institutions. 
 
CRD and MiFID II include measures to remedy weaknesses identified during the financial crisis regarding the functioning and composition of the management body within credit institutions and investment firms and the qualifications of their members. When appointing members of the manage¬ment body, institutions should ensure that the members have the reputation, knowledge, experience and skills necessary to safeguard proper and prudent management of the insti¬tution. 
 
These joint Guidelines specify the notionsof (a) sufficient time com¬mitment, (b) adequate collective knowledge, skills and experience, (c) honesty, integrity and independence of mind, (d) adequate hu¬man and financial resources for induction and training of members of the management body and (e) diversity, which is to be considered in the selection process. 
 
In particular, the members of the management body should have sufficient time to cover all the necessary subjects in depth, in particular the establishment of business and risk strategies and the management of the main risks. The management body, collectively, should possess adequate knowledge, skills and experience to understand the institution's activities, including the main risks. In this respect, the Guidelines provide a non-manda¬tory tool, covering all relevant areas of knowl¬edge and experience that should facilitate the assessment of its collective suitability. 
 
Additionally, the Guidelines provide further guidance on the scope of assessments to be made, the assessment process for institutions and competent authorities, and related poli¬cies. They provide for the heads of internal control functions and the Chief Fi¬nancial Officer, when they are not members of the management body, to be always considered as key function holders, and therefore, subject to the institutions' assessment. 
 
This joint work also builds on the outcome of the EBA's peer re¬view of the EBA guidelines on the assessment of the suitability of members of the management body and key function holders of credit institu¬tions . 
 

Legal basis and next steps 

These Guidelines have been developed according to Article 91 (12) of Directive 2013/36/EU (CRD) and Article 9 of Directive 2014/65/EU. 
 
The joint Guidelines will apply as of 30 June 2018 to competent authorities across the EU, as well as to institutions on an individual and consolidated basis. The previous EBA Guidelines on the assessment of the members of the management body and key function holders will be repealed on the same date. 
 

Press contacts:

Franca Rosa Congiu

E-mail: press@eba.europa.eu - Tel: +44 (0) 207 382 1772

EBA and ESMA consult on assessing the suitability of banks and investment firms members of the management body and key function holders

EBA and ESMA consult on assessing the suitability of banks and investment firms members of the management body and key function holders

28 October 2016

The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) launched today a consultation on Guidelines on the Assessment of the Suitability of the Members of Management Body and Key Function Holders (the Guidelines). The draft Guidelines aim at further improving and harmonising suitability assessments within the EU financial sectors and so ensure sound governance arrangements in financial institutions.  
 
Weaknesses in corporate governance  are widely acknowledged to have been one of the underlying causes of the financial crisis where inadequate oversight by, and challenge from, the management body in a number of credit institutions and investment firms contributed to excessive and imprudent risk-taking in the financial sector. In order to address those weaknesses, the EBA and ESMA have issued jointly these Guidelines in accordance with the new requirements introduced under the Capital Requirements Directive (CRD) and the Markets in Financial Instruments Directive (MiFID II). 
 
The draft Guidelines:
  • provide common criteria to assess the individual and collective knowledge, skills and experience of members of the management body as well as the good repute, honesty and integrity, and independence of mind of members of the management body;
  • require members of the management body to commit sufficient time to perform their duties and specify how the number of directorships held by members of the management body  should be counted, for significant institutions; 
  • set out how different aspects of diversity, educational and professional background, age, gender and geographical provenance should be taken into account in the recruitment process; and
  • highlight the importance of induction and training to ensure the initial and ongoing suitability of members of the management body, and call for institutions to establish training policies and to allocate appropriate financial and human resources to induction and training.
The consultation closes on 28 January 2017 and a public hearing in London will take place on 5 January 2017 from 14:00 to 17:00 UK time. 
 

Legal basis and next steps

These draft Guidelines have been developed according to Article 91 (12) of Directive 2013/36/EU (CRD) and Article 9 of Directive 2014/65/EU.
 
These Guidelines take also into account the results of the EBA peer review of the Guidelines on the assessment of the suitability of members of the management body and key function holders of credit institutions, published on 22 November 2015.
 
The joint Guidelines will apply to Competent Authorities across the EU, as well as to credit institutions and investment firms. Once the revised Guidelines are enforced, the previous EBA Guidelines on the assessment of the suitability of the management body and key function holders from 2012 will be repealed.
 
Competent Authorities across the EU will be expected to implement the Guidelines by mid-2017. 
 

Press contacts:

Franca Rosa Congiu

E-mail: press@eba.europa.eu - Tel: +44 (0) 207 382 1772