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?
Definitions (such as CEO and Heads of Internal Control Functions) point to CRD references without corresponding concepts or underpinning regulation in IFD. This expands scope, implementing CRD concepts and requirements, in an IFD setting where similar requirements were not included by lawmakers.
Question 2: Are the changes made in Title II appropriate and sufficiently clear?
The proportionality principle is enshrined in item 24 (new). However, we do not see this reflected later on in decision powers for NCAs. Proportionate application is crucial for market makers. While all market makers are Class 2 investment firms by definition, they are often small- to -midsized enterprises, owned and managed by founders and employees. Applications of the Guidelines as if a small- to midsized market maker were a bank, without due acknowledgement of proportionality, leads to excessive burden and undesired outcomes. We will reflect specific concerns in our answers below.
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.
Item 93 h. is problematic in practice. Founders, former CEOs and members of the management body may possess skills and experience that are highly valuable to the firm. In case of a founder/owner, moving to a supervisory body is a valid reason to oversee their own company. Item 94.h and 95 may preclude suitable persons for appointment to a supervisory role. Although item 93. says that conflict of interest should be considered (which is of course valid), the cooldown period and reference to mitigation in item 95 should not preclude a bona fide appointment of founders, former CEOs or executives.
Question 4: Are the changes made in Title III appropriate and sufficiently clear?
Here it is essential to acknowledge proportionality. All market makers are by default at least classified as Class 2 firms due to the nature of their activities. Our members are often small- to -midsized enterprises, owned and managed by founders and employees. Applying Title III as if a mid-sized market maker would be a bank presents serious concerns in practice. More specifically:
Item 86 b.: market makers are often owned and managed by founders and employees. Members of their supervisory function are often professional advisors. The fact that they have personal asset-holding vehicles or arrangements is a given and not an indication of ML/TF risks or suspicions in itself. The key is non-transparent. Please consider clarifying the example: “for example, non-transparent corporate structures and legal arrangements”.
Drafting in item 93 h. is problematic in practice. Founders, former CEOs and members of the management body may possess skills and experience that are highly valuable to the firm. In case of a founder/owner, moving to a supervisory body is a valid reason to oversee their own company. Item 94.h and 95 may preclude suitable persons for appointment to a supervisory role. Although item 93. says that conflict of interest should be considered (which is of course valid), the cooldown period and reference to mitigation in item 95 should not preclude the bona fide appointment of founders, former CEOs or executives.
Question 5: Are the changes made in Title IV appropriate and sufficiently clear?
Item 116-120: in practice, the pool of available talent for appointment into a management body is limited due to the highly specialized nature of the business of our members and the often small size of market makers and the industry at large. Our members typically promote from within.
This makes setting and reaching targets particularly challenging and should not preclude appointment of otherwise suitable candidates. We fully acknowledge that the composition of the management body should be sufficiently diverse in knowledge, skills and broad experience as outlined in item 77.
Question 6: Are the changes made in Title V appropriate and sufficiently clear?
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Question 7: Are the changes made in Title VI appropriate and sufficiently clear?
Item 182/184: market makers, despite being Class 2 investment firms, are often typically small- to midsized enterprises. A full suitability assessment, and annual re-assessment, of each internal control head, in the absence of adverse experiences with such officers, seems disproportionate for our type of firms (and the annual review is inconsistent with the 2-year frequency included in item 175). There are no such (re)assessment requirements in IFD. Consider reverting applicability to relevant (CRD) institutions/large entities, and confirm/clarify that any periodic review pertains to large entities subject to 91a(2) of CRD only. Also clarify applicability to large entities only, in items 186-191.
Question 8: Are the changes made in Title VII appropriate and sufficiently clear?
Item 192/193 might expand (re)assessment procedures of non-board employees beyond the scope of IFD and these guidelines.
Please clarify in item 192 that ‘similar supervisory procedures’ should acknowledge proprotionality as outlined in Item 24.
In Item 193 consider removing the sentences starting with “Where deemed necessary...”. Otherwise, the scope gets expanded to a wide variety of employees, also in entities other than large entities. IFD has no corresponding requirement to (re)assess key function holders and Item 183 points at NCA involvement in non-board appointments for large entities only.
Question 9: Are the changes made in Title VIII appropriate and sufficiently clear?
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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?
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