Response to consultation on draft Joint ESMA and EBA Guidelines on the assessment of the suitability of members of the management body and key function holders

Question 1: Are subject matter, scope of application, definitions and date of application appropriate and sufficiently clear?

We consider the effectiveness of banks and investment firms’ boards (hereafter “entities”) as a key qualitative aspect of corporate governance. We also acknowledge that current regulations on the suitability assessment for directors respond to many weaknesses highlighted in the past and aim at strengthening the ability of boards to address future challenges. So, we welcome the draft Joint Guidelines and the considerable effort made to ensure a consistent and robust framework for suitability assessments across the Union. 

Nevertheless, we see an urgent need to simplify how corporate governance rules are designed and the proportionality they require are enforced, to allow flexibility and to consider the resources available to small and specialized entities, such as many investment firms in selected countries. The regulatory framework remains highly complex and fragmented, as illustrated by the European landscape, which includes CRD VI, MiFID II, Regulation (EU) No 1024/2013, the EBA/ESMA Guidelines on suitability, and the EBA Guidelines on internal governance (EBA/GL/2021/05). The Italian framework is even more articulated, drawing on the Legislative Decree No. 385/1993, MEF Decree No. 169/2020, Bank of Italy Circular No. 285/2013, the Corporate Governance Code, and antitrust legislation.

Within this framework, with specific reference to the contents of the “Draft Joint ESMA and EBA Guidelines on the assessment of the suitability of members of the management body and key function holders under Directive 2013/36/EU and Directive 2014/65/EU”, our review of the above-mentioned Guidelines has identified a number of key issues and potential areas for reflection, as outlined in our comments on the individual questions.

With regard to the scope of application, we appreciate the effort to embed the principle of proportionality and to accommodate the diversity of entities within scope, including credit institutions, investment firms and third-country branches. However, we would respectfully suggest that certain aspects of the drafting could benefit from further refinement, in order to address a potential tension between the clear affirmation of the principle of proportionality at a general level and its full and consistent application to investment firms.

As far as Title I is concerned, it appropriately makes proportionality dependent on size, internal organisation, nature, scale and complexity. Regarding investment firms, however, the current drafting appears to place particular emphasis on regulatory categorisation and predefined carve-outs in the practical application of proportionality. In this respect, it may be helpful to clarify that the classification of different types of investment firms is intended to inform the proportionality assessment, without replacing the need for a genuinely entity-specific evaluation in the light of the particular characteristics of the firm concerned.

With regard to Title VII (§19), the statement that investment firms not directly subject to Directive 2013/36/EU are nonetheless subject to the “same suitability requirements” as CRD entities may be read as going further than the differentiated structure of the draft otherwise suggests. In our respectful view, that formulation risks attenuating the logic of proportionality, particularly for MiFID-only firms. A more calibrated formulation, such as a reference to equivalent or commensurate suitability expectations, applied having regard to the relevant legal basis and risk profile, would, in our view, better reconcile supervisory convergence with legal contexts.

The issue appears to be particularly significant in the Italian context. The domestic legislative framework governing the activities of investment firms (Testo Unico della Finanza D.Lgs. 58/1998) has recently been revised, and the categories of investment firms have been redefined, including entities which do not, strictly speaking, appear to fall within the notion of supervised entities. In the absence, at this stage, of the secondary implementing framework, the adoption of which has been entrusted to the competent authorities, a number of material interpretative and operational difficulties remain unresolved.

As regards key function holders, the scoped exclusions applicable to class 3 investment firms appear to embody a welcome and proportionate distinction. Nevertheless, some of the more general narrative passages of the draft could perhaps benefit from closer alignment with the detailed scope provisions, in order to avoid any possible impression that the relevant framework applies uniformly across all investment firms, and to ensure that the position of class 3 firms is clearly understood by firms and competent authorities alike. In this respect, the impact assessment helpfully explains the policy rationale for extending the key function holder framework to non-CRD investment firms. That rationale is understandable from the standpoint of continuity and consistency of supervisory practice. Nevertheless, since Article 9 of MiFID refers to Articles 88 and 91 CRD, but not expressly to Article 91a, it may be useful to state that the extension of the key function holder framework to non-CRD investment firms is grounded in robust governance expectations under Article 26 of Directive 2019/2034/EU.

Finally, we would respectfully note that the discussion of Policy issue 3 in the cost-benefit analysis may create some internal confusion, as one option appears to be retained while another is subsequently identified as the preferred approach. This is likely attributable to the current drafting stage. Even so, as the point is directly relevant to the role of competent authorities in relation to entities other than large entities, including investment firms, it would seem desirable to clarify this aspect before finalisation, so as to ensure full interpretative consistency.

Overall, we respectfully submit that the final Guidelines would benefit from a clearer articulation that: (i) proportionality in the case of investment firms should remain genuinely entity-specific; (ii) alignment with the CRD framework should not be expressed in terms that obscure differentiated treatment where the text otherwise provides for it; (iii) the legal and policy basis for extending key function holder assessments to non-CRD investment firms may be usefully restated; and (iv) the final Guidelines and the accompanying impact assessment should be aligned in their treatment of entities other than large entities. In our view, these targeted refinements would materially strengthen the operational usability, without in any way detracting from its supervisory objectives.

Some minor comments relate to the following points: The different categories of addressees mentioned in Paragraphs 9, 10 and the definitions in Paragraph 19 could be clearly indicated and described, with references to the relevant directives provided in footnotes, in order to enhance readability of the Guidelines. 

In Paragraph 11 of the Section “Background and rationale”, the Guidelines state that “Even when the CEO is not part of the entity’s governing body or bodies in accordance with national company law, they are always a member of the management body.”  Consistently with other sections of the Guidelines, the last part of the sentence should be rephrased as “they always belong to the management function of the management body”, because in such circumstances the CEO it is not an official member of the body itself. 

Finally, with regard to the date of application of the Guidelines, the deadline of 31 December 2026 might be reconsidered, in light of the time and effort required for entities to fully comply with the revised framework. The process would require, in our opinion, at least six months. We therefore suggest rephrasing Paragraph 20 of Section 3 (Implementation) as follows: "These Guidelines apply 6 months after the publication of all translations of the Guidelines, but not later than 31.12.2026”, i.e. avoiding a specific reference to December 2026, unless the final version is made available by the end of June 2026.

Additionally, the Guidelines should specify whether, once the final version enters into force, a re-assessment of the current management bodies of the addressees must be carried out, or, conversely, whether the new Guidelines will apply from the first renewal of the boards and key function holders' positions.

Question 2: Are the changes made in Title II appropriate and sufficiently clear?

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Do you have any views on the provisions regarding these independence criteria? Please explain any aspects that may influence the effectiveness, clarity, or implementation of these independence criteria across different business models/types of institutions.

With regard to the provisions on independent and non-executive members of the management body, we would like to offer a few considerations. First, we agree with point (j) of Paragraph 100 (which is not subject to amendment), establishing a maximum tenure of 12 years for independent members. In some jurisdictions, however, such as Italy, this limit has been reduced to 9 years through national provisions.

In our view, it would be desirable to align the maximum tenure at 12 years across all euro area countries. Since the Guidelines already set 12 years as the reference standard, allowing individual jurisdictions to apply stricter national limits, such as the 9-year threshold in force in Italy, results in an uneven playing field among entities operating across different Member States.

This inconsistency may place banks subject to shorter tenure limits at a disadvantage, by more severely constraining the pool of eligible candidates and limiting boards’ ability to retain directors who have accumulated valuable institution-specific knowledge. Empirical and academic evidence suggests that director effectiveness tends to increase over time as familiarity with the firm, its risk profile and its organisational complexity deepens, while excessively short tenure caps may interrupt this learning curve and reduce the board’s monitoring effectiveness.

In this respect, a moderately longer tenure contributes to reducing informational asymmetries between the management body and senior management: directors who have accumulated firm-specific knowledge are better positioned to scrutinise executive decisions, identify emerging risks, and provide informed and independent challenge. A tenure limit of 12 years can therefore strike a more appropriate balance between the need for periodic renewal and the benefits of continuity and expertise.

For these reasons, we would encourage the Guidelines to explicitly clarify that the 12-year maximum tenure should prevail over more restrictive national provisions, in order to ensure a genuine level playing field across all euro area jurisdictions and to fully achieve the harmonisation objectives that underpin the Guidelines themselves.

With regard to the provision under point (b) of Paragraph 99 (not subject to amendment), which allows boards of institutions other than significant ones to have only one independent director as a minimum, we do not agree with this approach. In our view, a single independent member does not ensure a sufficient “critical mass” to effectively perform the role expected of independent directors.

Independence within the board is not only an individual attribute but also a collective function, which benefits from interaction, mutual support, and the ability to form well-grounded and balanced judgments. Having only one independent director may limit the capacity to challenge management, reduce the diversity of independent perspectives, and increase the risk of isolation. For these reasons, we believe that the minimum number of independent members should be set at two, even for less significant institutions. A single independent member would, in practice, be insufficient to cover the broad range of competencies and expertise that the Guidelines themselves require management bodies to possess collectively. Moreover, a minimum of two independent members would ensure that independent directors can constitute a majority within board committees, thereby enhancing the effectiveness and credibility of oversight at the management body level. 

We are mindful that the position set out above, requiring a minimum of two independent members even for less significant institutions, goes beyond the proportionality threshold established by the draft Guidelines, and we wish to address this tension explicitly.

The principle of proportionality, as articulated in the Guidelines and as we have consistently supported throughout this response, allows regulatory requirements to be calibrated to the size, complexity, and risk profile of the entity concerned. We fully endorse this principle and its application across the majority of the suitability framework.

However, we submit that proportionality has an inherent limit: it cannot be applied in a manner that reduces a governance mechanism to the point where it can no longer fulfil its intended function. Independence of the management body is not simply a quantitative requirement, it is also a qualitative governance safeguard whose effectiveness depends on the ability of independent members to interact, deliberate, and collectively challenge executive decisions. A single independent director, however qualified, cannot replicate this dynamic. The critical mass necessary for independence to operate as a genuine oversight mechanism requires, at a minimum, more than one individual.

In this sense, the two-member minimum we propose should not be read as an exception to proportionality, but rather as a definition of its floor, e.g., the point below which further scaling of the requirement would defeat its very purpose. Just as proportionality does not permit the elimination of capital requirements for small institutions on the grounds that they are less complex, it should not permit the reduction of board independence to a level at which it becomes functionally inoperative.

Conversely, we agree with the provision that allows competent authorities not to require independent directors in specific cases, such as wholly owned entities within the same Member State and certain investment firms that meet the criteria set out in Directive (EU) 2019/2034.

In these situations, the group’s governance structure and the degree of control exercised by the parent entity may reduce the need for a separate layer of independence at the subsidiary level. Introducing independent directors in such contexts could lead to a formalistic approach that does not necessarily enhance governance effectiveness.

Therefore, we consider this flexibility appropriate, as it allows competent authorities to apply a proportionate approach, taking into account the specific characteristics, size, and risk profile of the entity.

Question 4: Are the changes made in Title III appropriate and sufficiently clear?

1. With regard to Paragraph 50, while we fully support the principle that entities should monitor the time commitment of members of the management body, we would welcome further clarification on how this provision should be implemented in practice, particularly with respect to the recording obligation.

The requirement to record time commitment raises a number of questions about what such recording should entail in practice. Attendance at meetings and preparation time may lend themselves to more straightforward tracking; however, other indicators referenced in the provision, most notably active involvement, are inherently qualitative in nature and do not easily translate into measurable or recordable metrics. It is unclear, for instance, what specific behaviour or conduct would qualify as evidence of active involvement, and how entities would be expected to document this in a consistent and verifiable manner.

We would therefore suggest that the Guidelines provide more granular guidance on the methodologies and criteria to be used when assessing and recording these aspects, particularly those of a qualitative nature. This would serve a dual purpose: on the one hand, it would assist entities in designing proportionate and effective internal monitoring frameworks; on the other hand, it would help clarify the expectations of regulators and supervisors in this area, thereby reducing uncertainty and promoting convergence in supervisory practices across jurisdictions.

2. With regard to the Number of Directorships (Paragraphs 53 – 61), the analysis of the Guidelines highlights a potential lack of clarity and a risk of inconsistent application where individuals hold mandates across multiple jurisdictions, with the concrete possibility of a proliferation of divergent interpretations by national competent authorities.

While the Guidelines establish a principles-based framework for fit and proper assessments, they do not set out precise and harmonised rules for cross-border situations. This is particularly evident in relation to the assessment of time commitment, where significant discretion is left to national authorities in applying the “sufficient time” criterion, in counting mandates, and in assessing the relevance of positions held abroad. The Guidelines provide general indications, such as the relevance of mandates in non-EU entities, the aggregation of mandates within the same group as a single mandate, and the treatment of qualifying holdings within the same group as one additional mandate, but they do not offer specific guidance to clarify, for instance, whether a position in a large non-EU bank or in a financial institution subject to a markedly different regulatory framework should be assessed in the same way as an EU mandate or with a differentiated “weight”.

More broadly, it should be noted that even the notion of “qualifying holding” may vary significantly between EU and non-EU legal frameworks. As a result, different competent authorities could attribute a higher burden to non-EU mandates or conversely treat them as equivalent to non-executive roles. A similar reasoning applies to positions in non-profit organisations: while their activities in Europe may be relatively limited, in several non-EU jurisdictions their operational scope can be significantly broader, and their governance structures are often less formalised than under EU frameworks. Consequently, the actual effort required from board members may differ substantially compared to European standards, depending on the jurisdiction in which the entity operates.

Under this approach, it is conceivable that different supervisory authorities across jurisdictions may reach divergent conclusions regarding the acceptability of a given combination of mandates. This could lead to situations in which the same individual is deemed suitable in some jurisdictions and unsuitable in others, despite the underlying criteria being derived from the same Guidelines. Indeed, while the Guidelines identify relevant assessment factors, such as the size, complexity and geographical footprint of the entity, they do not establish common minimum criteria, harmonised thresholds, or binding examples for cross-border cases.

With specific reference to the role of competent authorities, Title VII, Paragraph 27 of the Guidelines addresses cooperation among authorities, providing for information exchange and mutual consideration. However, it does not envisage any form of binding coordinated assessment, mutual recognition of fit and proper decisions, or the designation of a lead authority for cross-border cases.

In light of the above considerations, it may be appropriate to reflect on the following potential amendments or additions to the Guidelines:

• to include, in Title II or Title VIII, a provision stating that: “When assessing time commitment and the number of directorships, positions held across different jurisdictions should be evaluated on the basis of a common set of criteria, irrespective of national specificities, unless material differences in responsibilities and risk exposure can be demonstrated”;
• to introduce, in a dedicated Annex to the Guidelines, a set of non-binding practical examples illustrating the assessment of EU and non-EU mandates, roles within complex groups, and positions in entities characterised by different governance models;
• to complement Title VIII (Assessment of suitability by competent authorities) by providing that, where mandates are held across multiple Member States, competent authorities should share their assessments of time commitment and give enhanced consideration to prior evaluations, moving towards an inter-authority “comply or explain” principle.

3. In Paragraph 69, a new knowledge requirement has been introduced, under letter j. (“the ability to present their views, discuss strategies and business objectives”). We consider this skill different from the hard ones listed above, and closer to a soft skill. For the sake of homogeneity, in our opinion it should be included in Annex II of the Guidelines rather than in the list under Paragraph 69. The same applies to the new letter j. of Paragraph 77 (“experience in implementing a culture of probing and challenging MB decision”).  With regard to these two abilities, as well as the broader set of soft skills included in Annex II, the Guidelines could further clarify how entities are expected to conduct an adequate assessment of individual suitability.

4. We would also like to highlight that Paragraph 77 lists 14 distinct areas of knowledge and expertise. While we fully acknowledge the importance of these competencies within bank boards, several of them appear highly specific. This raises a practical concern: does this imply that a board should include at least as many members as the number of listed skills, with each individual covering a distinct area? In our view, this interpretation would be neither realistic nor desirable. Board effectiveness should rely on the collective suitability of its members, with individuals contributing complementary and, where appropriate, overlapping competencies. An overly granular or prescriptive approach risks leading to a “box-ticking” exercise and may unduly constrain board composition, especially in light of the already stringent suitability requirements and limited pool of qualified candidates.

A more flexible interpretation focused on the overall balance of skills at board level, would better support effective governance while preserving proportionality.

Additionally, the explicit reference in Paragraphs 72 and 77 to understanding the “impacts created in the short, medium and long term, taking into account ESG factors” expands the scope from “risks” to “impacts”, aligning with CRD VI and the new EBA Guidelines on ESG risks and the concept of double materiality within a three‑horizon approach.

However, the Guidelines do not provide guidance on how entities should weight the three ESG pillars (environmental, social and governance) when assessing the management body’s collective knowledge and competence.

Given the heterogeneity of business models and risk profiles across institutions and given the proportionality principle, we therefore suggest clarifying that

1. the weighting should reflect the institution’s specific risk profile and business model and
   1. proportionality allows different weightings for different business models. 

Such clarification would support institutions in designing competence matrices, training programmes and suitability assessments that are both proportionate and aligned with supervisory expectations.

Moreover, considering that the assessment methodology can evolve over time, for the sake of clarity, it would be useful to clarify also that a qualitative assessment would be accepted, providing that the institutions support it with explanatory notes and/or tools (e.g., a dashboard). This would ensure a sound and pragmatic approach to supervisory expectations. 

5. Paragraph 36 of the Section “Legal Basis” and Paragraphs 103-105 provide that entities should ensure that members of the management body in their supervisory function are suitable for their roles, regardless of whether the entity could or could not influence the selection process and appointment of such members. Entities should assess the suitability of the respective members and address any suitability concerns promptly. Entities should refer to all suitability requirements as set out in these Guidelines when performing such assessments and when they address any suitability concerns. 

The practical effectiveness of these provisions ultimately depends on the availability of adequate operational tools, a mature institutional culture, and the possibility of establishing a constructive and timely dialogue with supervisory authorities.

The revised wording helpfully clarifies what follows:

• the responsibility of the entity is independent of its ownership structure and autonomous from the appointment process, thereby harmonising the underlying principle across all types of actors involved in the banking and financial system;
• suitability deficiencies must be identified promptly, in close connection with the evolving context and market in which the entity operates, so as to ensure full awareness at the time of deliberation and the sustainability of a long-term vision. That said, the constraints governing the continuous updating of the required competency matrix should be more clearly defined;
• the reference to "all suitability requirements as set out in these Guidelines" ensures a holistic approach to the requirements and competencies of directors and key function holders. However, the new concept of ongoing fit and proper assessment can only function effectively if supported by a continuous monitoring framework for the required competency map, which should be formally established. Consideration could be given to developing system-level guidance on emerging competency areas and topics;
• the strong emphasis on governance culture as a substantive responsibility makes it necessary for entities to adopt robust internal processes for the continuous monitoring of suitability, including board self-assessment and peer review mechanisms;
• the role of structured governance, based on management bodies with fully adequate competencies, in safeguarding the stability of the financial system as a whole.

Several aspects, however, warrant further clarification:

• The disconnect between the obligation imposed on the entity to assess the suitability of its members and its potential inability to influence board composition. Where an entity lacks the power to affect appointments, the primary corrective tool appears to remain the referral to the competent authority.
• Significant operational challenges should also be acknowledged, arising in particular from:
  • the assessment of members not appointed by the entity itself. For individuals appointed by third parties, full cooperation in gathering the necessary information may be desirable but cannot always be assumed, particularly in the early stages of a mandate or where conflictual dynamics exist within the management body. The Guidelines should also address how entities are expected to manage situations in which they are unable to complete the required assessments;
  • the obligation to "promptly address" suitability deficiencies, which may give rise to tensions within the management body itself, especially where the individual deemed unsuitable holds significant influence within the board or maintains close ties with a controlling shareholder. Managing such situations requires a level of institutional maturity and functional independence that cannot be taken for granted across all entities. Appropriate protective measures should be introduced, including legal safeguards for the internal functions called upon to issue a negative assessment;
  • the design and implementation of training measures aimed at maintaining the ongoing suitability of competencies. A number of issues remain unresolved: in which cases and to what extent can training address identified deficiencies; what characteristics should training programmes have to be considered effective; how should participation be monitored and documented; and what is the entity's liability in the event of non-delivery or non-attendance. These activities require investments, networks, and expertise that not all entities possess. Furthermore, training programmes aimed at developing competencies relevant to strategic management do not appear to fall easily within the remit of the functions currently responsible for training, which tend to focus primarily on operational skills.
• The concept of "promptly" in the context of corrective measures (Paragraph 103 specifies “six to twelve months or sooner”) should be more precisely defined, so as to prevent overly broad interpretations from generating divergent approaches across entities. Clarification is also needed on what constitutes a valid "prompt address" tool, particularly where statutory constraints on board composition, reflecting the voting rights of shareholders, may prevent the entity from removing an unsuitable member appointed by a third party. Similarly, minimum criteria and guidance should be established for determining what training interventions can be considered effective in remedying identified competency gaps, also with a view to avoiding potential misallocation of resources.
• While for significant institutions under the direct supervision of the ECB, the suitability assessment is already embedded in a formal fit and proper process with the supervisory authority, less significant institutions may face substantial investment requirements in terms of processes, competencies, and tools. These should be clearly calibrated to the principle of proportionality, which does not appear to be reflected in the current formulation of the relevant provision.

Question 5: Are the changes made in Title IV appropriate and sufficiently clear?

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Question 6: Are the changes made in Title V appropriate and sufficiently clear?

A systematic review of the Guidelines, with specific reference to the treatment of diversity, highlights potential cross-border inconsistencies in their application. The relevant provisions combine a principle-based approach, references to national legislation, and a strong emphasis on gender balance, compared to other dimensions of diversity, such as educational and professional background, age, and geographical origin, which are nonetheless identified as relevant criteria for the composition of the management body.

The treatment of diversity is inherently complex, also due to the current regulatory landscape across EU Member States and broader societal dynamics. The Guidelines address an area that is not fully harmonised at EU level and remains significantly influenced by national company law, labour markets, and cultural and demographic factors. In addition, the provisions are largely principle-based and non-prescriptive: they set out general principles (e.g. benefits, objectives, and links with governance), but do not establish binding operational rules.

The Guidelines may also give rise to a degree of conceptual ambiguity. On the one hand, diversity is explicitly not considered an individual suitability criterion; on the other hand, it is required to be taken into account in the selection and composition of the management body (as stated, inter alia, in Paragraph 50 of the “Rationale and objective of the Guidelines”), in line with Directive 2013/36/EU, which provides that diversity should form part of the criteria for the composition of management bodies. However, the Guidelines do not offer practical solutions for addressing potential trade-offs, for example, between enhancing diversity and maximising the individual suitability of board members, or between ensuring board continuity and achieving gender balance. As a result, competent authorities may adopt different approaches, ranging from requiring enhanced justification where a candidate does not contribute to diversity, to treating diversity considerations as ancillary.

A further aspect concerns the strong emphasis on gender balance compared to other diversity dimensions. While diversity is defined broadly (including generational, professional, geographical, and educational aspects), only gender balance is addressed in a detailed manner, with quantitative targets, disclosure obligations, and reporting requirements. Other dimensions remain largely unmeasured, non-comparable, and difficult to verify. Consequently, some authorities may consider the full spectrum of diversity criteria, while others may focus almost exclusively on gender balance. As already noted in relation to the assessment of multiple directorships, this may lead to situations where the same institution or group is deemed “adequately diverse” by one authority and “insufficiently diverse” by another, without any formal breach of the Guidelines.

Finally, there is a potential risk that the principle of neutrality with respect to governance models (e.g. one-tier, two-tier, etc.), remains largely formal. While the Guidelines explicitly state such neutrality, they do not sufficiently acknowledge that the effective ability to influence diversity depends on the specific governance model and related factors, such as board size, shareholder powers, and the degree of separation between governing bodies.

In light of the above considerations, it may be useful to reflect on possible enhancements to the Guidelines, including:

• the introduction of a dedicated Annex providing non-binding examples of how diversity can be addressed in small boards, in cross-border groups, and under different governance models;
• the identification of practical approaches to achieving diversity over time, not only ex ante—for instance, by embedding diversity objectives within succession planning, particularly where market conditions or structural constraints make immediate alignment difficult.

With regard to Paragraph 119, we welcome the introduction of a proportionate approach for non‑significant institutions and in particular for those with a small management body (< 5 members). However, the current wording may lead to confusion between diversity as a broad concept and gender balance as a legally mandated quantitative objective.

Although this may seem obvious, the reference to “qualitative targets” should be explicitly referred to non‑gender diversity dimensions including skills, professional background, age, geographical origin and perspectives (indeed in EU legislation, gender balance is the only diversity dimension for which quantitative targets are explicitly required). 

For gender balance, the institution must still demonstrate efforts toward balanced representation, even if a numerical target is not feasible in very small boards, as stated in par. 118.

We also suggest clarifying that the proportionality measure in Paragraph 119 should apply only where both conditions are met: 

1. the institution is non‑significant and
2. the management body has fewer than five members. 

We welcome the substantive approach adopted in Paragraphs 103-105, which aims at ensuring the suitability of members of the management body in its supervisory function regardless of the formal structure of the appointment process. However, we note a regulatory misalignment arising from the comparison between those Paragraphs and Paragraph 143, which transposes the exemption clause provided for in the last sub-Paragraph of Article 88(2) of Directive 2013/36/EU (CRD). This misalignment risks generating legal uncertainty, inconsistent application across jurisdictions and, in some cases, a practical inability to effectively implement the requirements set out, in the absence of an adequate normative and operational framework.

The European banking governance framework faces a profoundly heterogeneous institutional reality that reflects the structures, legal orders and cultural traditions of different Member States, and encompasses various situations in which an entity fully meets the requirements of Article 91(14) CRD as connected to Paragraph 103 of the Guidelines: members of the supervisory body are appointed by entities over which the institution has no formal competence in the selection process. In EU primary law, the same situation of external appointment of members of the supervisory body appears to be governed in a divergent manner by two distinct provisions.

• Article 91(14) CRD acknowledges the existence of systems in which appointment is carried out by elected bodies or other institutional actors, and is connected to the regulatory rationale of Paragraph 103 of the Guidelines, which does not provide for entities to be exempted from all suitability obligations solely on the grounds that the appointment originates externally. Instead, it requires the adoption of compensatory mechanisms (safeguards) to ensure suitability.
• The last sub-Paragraph of Article 88(2) CRD introduces an explicit exemption clause: where, under national law, the management body does not have competence in the process of selecting and appointing its members, the section on governance, and by extension the provisions on suitability, does not apply, as also reflected in Paragraph 143 of the Guidelines.

In order to ensure legal certainty for entities, we consider an explicit clarification to be necessary, given that entities may find themselves faced with an interpretive dilemma with opposite consequences: applying Paragraph 103 and thereby risking interference, even if unintentional, with the prerogatives of the appointing body; or applying Paragraph 143 and thereby risking being found non-compliant with suitability obligations in the event of an inspection or supervisory review.

As a general matter, we consider it of fundamental importance that the final text of the Guidelines include a provision that clearly and unambiguously clarifies the relationship between the two sets of provisions, precisely distinguishing the situations to which each applies.

In order to give operational effectiveness to the suitability process from the perspective of sound and prudent management, we would find it useful to define a minimum core of irreducible obligations, applicable also in cases where Paragraph 143 operates to exempt the entity from the application of the governance section. These could include, for example: the obligation for the entity to notify the competent supervisory authority of situations in which the composition of the supervisory body presents suitability concerns; the obligation to put in place compensatory organisational measures in situations where the concerns cannot be remedied in a timely manner; and the obligation to formally document the assessment carried out and its conclusions, also for the purpose of transparency vis-à-vis the supervisory authority.

Situating the above provisions also within the application of the proportionality principle, the Guidelines should explicitly set out the manner in which the intensity of the suitability obligations defined in Paragraph 103 should be calibrated according to the potentially varying degree of involvement of the entity in the appointment process, including the situation of total non-involvement, in which the exemption clause of Paragraph 143 would apply.

Finally, in support of the concrete and effective implementation of the obligations under Paragraph 103, and with a view to preventing any implication of interference with the institutional prerogatives of the appointing body, we suggest that the Guidelines provide for the adoption of formal cooperation protocols between entities and appointing bodies, covering the acquisition by the entity of the information necessary for the suitability assessment and the procedures to be followed in the event that suitability concerns are identified.

Question 7: Are the changes made in Title VI appropriate and sufficiently clear?

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Question 8: Are the changes made in Title VII appropriate and sufficiently clear?

Paragraph 173 c) provides that when re-assessing the individual or collective performance of the members of the management body, particular consideration should be given to the performance of the roles and duties set out in the individual statements by the members of the management body. The Guidelines might further detail criteria and methodologies which could be used to carry out such an assessment, and what concrete evidence could support the final judgment on the individual performance of directors. 

A further consideration regards Paragraph 175, concerning the frequency and conduct of the suitability re-assessment. Paragraph 175 distinguishes between two types of re-assessment: (i) the periodic re-assessment, to be carried out at least annually (significant entities) or at least every two years (non-significant entities), and (ii) the event-driven re-assessment, triggered by specific new facts or circumstances.

The Paragraph also provides that where there are no new facts or circumstances to be considered, the reassessment may be limited to establishing this fact, and that where a reassessment is triggered by a specific event, entities may focus the reassessment on that situation or event.

While these clarifications are welcome, it is not entirely clear whether the simplified approach, i.e., limiting the reassessment to establishing the absence of new facts, applies to the periodic reassessment as well, or only to the event-driven one. As drafted, the two sentences appear in sequence but without an explicit link, which may give rise to interpretive uncertainty.

It is therefore suggested to clarify that, in the context of a periodic reassessment, where no new facts or changed circumstances have arisen since the last assessment, entities may limit the reassessment to formally establishing this fact, without being required to conduct a full reassessment.

Question 9: Are the changes made in Title VIII appropriate and sufficiently clear?

The revised version of Paragraph 216 states that “competent authorities should use, as appropriate, supervisory findings from reviews of entities.” In this respect, we would like to highlight that such findings are often subject to appeal and may not be final. A general reference to all supervisory findings arising from inspections and other reviews could therefore be unduly penalizing for supervised entities. We would accordingly recommend rephrasing Paragraph 216 to clarify that only definitive findings, i.e., findings following a final decision, should be taken into account. The Paragraph could be revised as follows: “216. Competent authorities should use, as appropriate and where findings can be considered definitive, supervisory findings from reviews of entities.”

Question 10: Are the changes made in Title IX appropriate and sufficiently clear?

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Question 11: Are the changes made to Annex 1 and Annex II appropriate and sufficiently clear?

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Question 12: Is the table on scope of application of the Joint Guidelines appropriate and sufficiently clear?

We welcome the scope of application table introduced in Paragraph 10 of the draft Joint Guidelines, which represents a meaningful step forward in clarifying the regulatory perimeter and identifying the relevant subcategories of entities subject to the Guidelines, including large entities, significant entities, investment firms of classes 1, 2, and 3, and third-country branches.

Nonetheless, the current table format may pose practical readability challenges, particularly for entities that fall into more than one category simultaneously. In such cases, determining the precise set of provisions applicable to a given entity requires cross-referencing multiple rows and columns of the table, which may give rise to interpretive uncertainty and inconsistent application across jurisdictions.

We therefore invite ESMA and EBA to complement the scope of application table with a visual reference tool, such as a flowchart or a matrix, that clearly illustrates, for each type of entity, which sections and provisions of the Guidelines apply, and under what conditions. Such a tool would materially enhance the operational usability of the Guidelines, reduce the risk of misapplication by entities and competent authorities alike, and support consistent supervisory convergence across the Union.

We note that this is not a substantive concern regarding the scope provisions themselves, which we consider appropriately calibrated, but a drafting suggestion aimed at improving the accessibility and practical implementability of the final Guidelines.

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