Response to eBA and ESMA launch consultation to revise joint guidelines for assessing the suitability of members of the management body and key function holders
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EAPB considers that the Guidelines should reflect the fact that rules concerning the suitability of owner elected board members are directed at the owner and offer guidance on how suitability is to be reviewed and enforced with respect to board members in a way consistent with national company law and corporate governance regimes. Similar issues arise when the applicable company law regimes require that a certain number of Board Members be elected democratically by the employees. Competent authorities in Member States which have such laws on employee representation, should be offered guidance to provide clarification on how institutions should enforce suitability standards on Board Members elected by employees, and address to what extent derogations from the ordinary suitability criteria would be appropriate in light of the national rights of employees to elect representatives of their choice.
According to paragraph 146 (c), as part of the assessment of the suitability of individual members of the management body, institutions are to gather information on the independence of mind of the assessed individual. The requirement is very broad and it would be difficult to prove that this information has been gathered. It is difficult to imagine how this article would be implemented in practice. EAPB asks for a clarification regarding the kind of information an institution is expected to base its assessment on.
From the guidelines, it appears that the institution upon a decision of unsuitability towards one of its key function holders might be required to terminate a labor contract unilaterally and immediately, an act which under some national laws is allowed for only in exceptional circumstances. As the substantive rules on labor law and administrative procedure varies between Member States, EBA and ESMA should guide the national competent authorities on how financial institutions are to comply with such a decision, while also respecting rights and procedural requirements under national labor legislation. National authorities should also be guided on what procedural rights and obligations of the financial institution and the key function holder personally in an appeals process initiated by the institution and the person, including how to respect the right to be informed of the basis for the unsuitability decision, the right of contradiction, the protection against self-incrimination etc., if relevant.
Question 1: Are subject matter, scope of application, definitions and date of application appropriate and sufficiently clear?
N/AQuestion 2: Are the changes made in Title II appropriate and sufficiently clear?
N/AQuestion 3: Are the changes made in Title III appropriate and sufficiently clear?
N/AQuestion 4: Are the requirements in section 12 sufficiently clear; are there additional measures that should be required to ensure that diversity is appropriately taken into account by institutions and that the principle of equal opportunities for all genders is appropriately reflected?
N/AQuestion 5: Are the changes made in Title VI appropriate and sufficiently clear?
EAPB notes that the suggested changes to the Guidelines fail to address the issue of responsibility for assessing and reviewing the suitability of Board Members elected by shareholders or other owners. The Guidelines (and provisions of the relevant directives and regulations) as currently written are primarily directed at the financial institutions as such. The institutions as such are under national corporate governance structures not in a position to enforce any assessment of the suitability of its own Board Members, however, as these are elected by the owners through the general assembly or equivalent body, would in any case also lack the competences to carry out any decisions on suitability under national company law. The abovementioned problem seems particularly relevant in the case of financial institutions that are owned by national governments, as restrictions on the owner’s authority might imply the binding of public authority.EAPB considers that the Guidelines should reflect the fact that rules concerning the suitability of owner elected board members are directed at the owner and offer guidance on how suitability is to be reviewed and enforced with respect to board members in a way consistent with national company law and corporate governance regimes. Similar issues arise when the applicable company law regimes require that a certain number of Board Members be elected democratically by the employees. Competent authorities in Member States which have such laws on employee representation, should be offered guidance to provide clarification on how institutions should enforce suitability standards on Board Members elected by employees, and address to what extent derogations from the ordinary suitability criteria would be appropriate in light of the national rights of employees to elect representatives of their choice.
Question 6: Are the changes made in Title VII appropriate and sufficiently clear?
It is our understanding that the term “management body” encompasses the “management body in its management function” and the “management body in its supervisory function”. The revised paragraph 152 demands that institutions should assess whether the management body through its decisions has demonstrated a sufficient understanding of ML/TF risks and how these affect the institution’s activities, and has demonstrated appropriate management of these risks, including corrective measures where necessary. Despite the fact that a definition of the term “institution” is provided in the document, EAPB asks for a clarification of the term in this specific context because we consider that an assessment of the management body in its management function and the management body in its supervisory function by the institution itself as critical. To our understanding, it should be only the management body in its supervisory function that supervises the management body in its management function and thereby evaluates management measures applied.According to paragraph 146 (c), as part of the assessment of the suitability of individual members of the management body, institutions are to gather information on the independence of mind of the assessed individual. The requirement is very broad and it would be difficult to prove that this information has been gathered. It is difficult to imagine how this article would be implemented in practice. EAPB asks for a clarification regarding the kind of information an institution is expected to base its assessment on.
Question 7: Are the changes made in Title VIII appropriate and sufficiently clear?
The suggested changes to the Guidelines elaborate on the competence of national authorities to issue suspensions to persons that are found to be unsuitable (paragraph 194). While EAPB supports these additions to the Guidelines in principle, in our view that the Guidelines should also guide national authorities om how to handle the implications of such decisions to ensure consistency with relevant employee rights under national labor law, which according to section 13 of the Guidelines are to be respected by the institutions.From the guidelines, it appears that the institution upon a decision of unsuitability towards one of its key function holders might be required to terminate a labor contract unilaterally and immediately, an act which under some national laws is allowed for only in exceptional circumstances. As the substantive rules on labor law and administrative procedure varies between Member States, EBA and ESMA should guide the national competent authorities on how financial institutions are to comply with such a decision, while also respecting rights and procedural requirements under national labor legislation. National authorities should also be guided on what procedural rights and obligations of the financial institution and the key function holder personally in an appeals process initiated by the institution and the person, including how to respect the right to be informed of the basis for the unsuitability decision, the right of contradiction, the protection against self-incrimination etc., if relevant.