EBA and ESMA publish final guidance on fit and proper requirements

The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) published today their revised final joint Guidelines on the assessment of the suitability of members of the management body and key function holders. These Guidelines take into account the amendments introduced by the revised Capital Requirements Directive (CRD V) and the Investment Firms Directive (IFD), and their effect on the assessment of the suitability of members of the management body, in particular with regard to money laundering and financing terrorism risks, and gender diversity. The joint final Guidelines will apply from 31 December 2021.

Combating money laundering and terrorist financing is essential for maintaining stability and integrity in the financial system. Uncovering involvement of credit institutions and investment firms in money laundering and terrorist financing might have an impact on its viability and the trust in the financial system. In this context, the final joint Guidelines clarify, in line with CRD V, that assessing the knowledge, experience and skill requirements include identifying, managing and mitigating money laundering and financing of terrorism risks, as these aspects are part of the assessments of the suitability of members of the management body and key function holders.

In addition, a gender balanced composition of the management body is of particular importance. Institutions should respect the principle of equal opportunities for any gender and take measures to improve a more gender balanced composition of staff in management positions so as to ensure a more gender balanced pool of candidates for positions within the management body.

The joint Guidelines also take into account the recovery and resolution framework introduced by the Bank Recovery and Resolution Directive (BRRD) and provide further guidance in this regard. As part of early intervention measures and during resolution, the suitability of newly appointed members of the management body and the management body collectively are relevant and require an assessment. The Guidelines provide further details on how the exchange of information between resolution authorities and competent authorities should work.

Finally, the joint Guidelines take into account the new legislative framework for investment firms adopted in 2019 by the Investment Firms Regulation (IFR) and IFD, for the identification of the investment firms subject to the various guidelines.

Legal basis and next steps

The joint Guidelines have been developed according to Article 91 (12) of the CRD and Article 9 of the revised Markets in Financial Instruments Directive (MiFID 2).

The joint revised Guidelines will apply to Competent Authorities across the EU, as well as to institutions on a solo and consolidated basis as of31.12.2021, when the 2017 joint Guidelines will be repealed.