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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On one side, the term “relevant institutions” has been introduced in the Fit & Proper GL and makes it difficult to further differentiate between the categories of institutions that are now in scope (there are overall 6 categories: “institutions”, “CRD-institutions”, “relevant institutions”, “significant CRD-institutions”, “listed relevant institutions and listed institutions”, “consolidating credit institutions”); on the other side, the Internal Governance GL operates with the terms “significant credit institutions” and “listed CRD credit institutions”.
We recommend to review the definitions and operate with one set of definitions for both GLs.
Transitional provisions; paragraph 18
Paragraph 18 may have been useful in the “original” Joint ESMA and EBA Guidelines on the assessment of the suitability of members of the management body and key function holders, but in its amended version the provision does not make sense in our opinion. Paragraph 18 stipulates “Competent authorities should not implement Title VIII concerning the initial suitability assessment of newly appointed members of the management body and key function holders with regard to persons appointed before 30 June 2018”, although the GL cannot be applied to the time after 30 June 2018 until the publication of the Guidelines anyway (retroactively).
Moreover, we believe that the GL cannot be applied in any case before the application of the transposed CRD V (Directive (EU) 2019/878) provision as a minimum (29 December 2020) as this is the legal basis for most amendments. To ensure a proper implementation of the revised GL we advocate for a clear transitional provision in paragraph 18 which allows e.g. for a transition period of 12 months after the publication of the final text for the whole new provisions of the GL (and not only parts).
The GL on one hand stress the importance of senior management taking responsibility for ML/TF risks and on the other hand require institutions to identify a member of the management board who is responsible for compliance with the AMLD. We understand this background paragraph in the sense that the appointment of responsibility in the management board means that there is no additional responsibility in the management below the management board (apart from necessary provisions from the AMLD, e.g. AML Officer)
Reputation, honesty and integrity; paragraph 75
According to paragraphs 75 “Other adverse reports with relevant, credible and reliable (e..g. as part of whistleblowing procedures) information should also be considered by institutions and competent authorities”.
We believe the reference to whistleblowing procedures should be removed as the Fit&Proper Officer or assessing committee may not have access to this information due to the relevant provisions acc. to the Whistleblowing-Directive (Directive (EU) 2019/1937). According to Article 16 the identity of the reporting person must not be disclosed to anyone beyond the authorised staff members competent to receive or follow up on reports. This applies to any other information from which the identity of the reporting person may be directly or indirectly deduced. Therefore, using information of whistleblowing procedures cannot be executed in practice and is not necessary as any credible accusation will have consequences in the form of a criminal or administrative procedure which is then taken into account.
As a preferred option, we advocate for deleting the last sentence of paragraph 102: “Having employee representatives, where required under national law, of the underrepresented gender alone is not sufficient to ensure that the management body in its supervisory function has an appropriate gender balance”. We would like to point out that employee representatives in the management body facilitate a diverse composition of the board and we do not understand the rationale behind not accepting employee representatives for ensuring appropriate gender balance. The aim of diversity is to have an equibalanced reflection of the undertaking in the management body. Therefore, employee representatives are the most appropriate board members to address this aim, since they are elected from the staff and represent the staff according to the diversity aim.
Alternatively, in case the last sentence of paragraph 102 is not deleted, we think it should not refer to the supervisory function of the management body but rather to the management body in general (meaning both executive and supervisory function). Therefore, the last sentence of paragraph 102 should be amended as follows: The phrase “in its supervisory function” should be deleted.
The wording of the revised version of paragraph 182 “re-assess the individual or collective suitability of the members of the management body and heads of internal control functions and the CFO” is misleading as it might indicate there could be a collective suitability of key function holders. Therefore, the scope of application would be significantly extended and this would make no sense, since key function holders are not part of a board but rather act as individual persons.
Annex III – Documentation requirements for initial appointments, page 74
We advocate to amend the newly introduced requirement to document “the expected time commitment for the position as accepted by the individual” in order to clarify that only mandatory meetings of the supervisory board are sufficient for calculating the expected time commitment. Any other additional required time cannot be estimated since individual aspects, e.g. synergic effects, cannot be considered at the time of initial appointment.
Question 1: Are subject matter, scope of application, definitions and date of application appropriate and sufficiently clear?
DefinitionsOn one side, the term “relevant institutions” has been introduced in the Fit & Proper GL and makes it difficult to further differentiate between the categories of institutions that are now in scope (there are overall 6 categories: “institutions”, “CRD-institutions”, “relevant institutions”, “significant CRD-institutions”, “listed relevant institutions and listed institutions”, “consolidating credit institutions”); on the other side, the Internal Governance GL operates with the terms “significant credit institutions” and “listed CRD credit institutions”.
We recommend to review the definitions and operate with one set of definitions for both GLs.
Transitional provisions; paragraph 18
Paragraph 18 may have been useful in the “original” Joint ESMA and EBA Guidelines on the assessment of the suitability of members of the management body and key function holders, but in its amended version the provision does not make sense in our opinion. Paragraph 18 stipulates “Competent authorities should not implement Title VIII concerning the initial suitability assessment of newly appointed members of the management body and key function holders with regard to persons appointed before 30 June 2018”, although the GL cannot be applied to the time after 30 June 2018 until the publication of the Guidelines anyway (retroactively).
Moreover, we believe that the GL cannot be applied in any case before the application of the transposed CRD V (Directive (EU) 2019/878) provision as a minimum (29 December 2020) as this is the legal basis for most amendments. To ensure a proper implementation of the revised GL we advocate for a clear transitional provision in paragraph 18 which allows e.g. for a transition period of 12 months after the publication of the final text for the whole new provisions of the GL (and not only parts).
Question 3: Are the changes made in Title III appropriate and sufficiently clear?
Background and rationale; paragraph 52: Responsibility for AMLD compliance for an identified member of the management boardThe GL on one hand stress the importance of senior management taking responsibility for ML/TF risks and on the other hand require institutions to identify a member of the management board who is responsible for compliance with the AMLD. We understand this background paragraph in the sense that the appointment of responsibility in the management board means that there is no additional responsibility in the management below the management board (apart from necessary provisions from the AMLD, e.g. AML Officer)
Reputation, honesty and integrity; paragraph 75
According to paragraphs 75 “Other adverse reports with relevant, credible and reliable (e..g. as part of whistleblowing procedures) information should also be considered by institutions and competent authorities”.
We believe the reference to whistleblowing procedures should be removed as the Fit&Proper Officer or assessing committee may not have access to this information due to the relevant provisions acc. to the Whistleblowing-Directive (Directive (EU) 2019/1937). According to Article 16 the identity of the reporting person must not be disclosed to anyone beyond the authorised staff members competent to receive or follow up on reports. This applies to any other information from which the identity of the reporting person may be directly or indirectly deduced. Therefore, using information of whistleblowing procedures cannot be executed in practice and is not necessary as any credible accusation will have consequences in the form of a criminal or administrative procedure which is then taken into account.
Question 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?
Diversity policy objectives; paragraph 102 last sentenceAs a preferred option, we advocate for deleting the last sentence of paragraph 102: “Having employee representatives, where required under national law, of the underrepresented gender alone is not sufficient to ensure that the management body in its supervisory function has an appropriate gender balance”. We would like to point out that employee representatives in the management body facilitate a diverse composition of the board and we do not understand the rationale behind not accepting employee representatives for ensuring appropriate gender balance. The aim of diversity is to have an equibalanced reflection of the undertaking in the management body. Therefore, employee representatives are the most appropriate board members to address this aim, since they are elected from the staff and represent the staff according to the diversity aim.
Alternatively, in case the last sentence of paragraph 102 is not deleted, we think it should not refer to the supervisory function of the management body but rather to the management body in general (meaning both executive and supervisory function). Therefore, the last sentence of paragraph 102 should be amended as follows: The phrase “in its supervisory function” should be deleted.
Question 7: Are the changes made in Title VIII appropriate and sufficiently clear?
Suitability assessment; paragraph 182The wording of the revised version of paragraph 182 “re-assess the individual or collective suitability of the members of the management body and heads of internal control functions and the CFO” is misleading as it might indicate there could be a collective suitability of key function holders. Therefore, the scope of application would be significantly extended and this would make no sense, since key function holders are not part of a board but rather act as individual persons.
Question 8: Are the changes made in Title IX appropriate and sufficiently clear?
23. and 30. Executive Summary and 194. Guideline: Is the assumption correct, that Art 16 (2) lit (m) of the SSM Regulation is the legal basis for these points?Annex III – Documentation requirements for initial appointments, page 74
We advocate to amend the newly introduced requirement to document “the expected time commitment for the position as accepted by the individual” in order to clarify that only mandatory meetings of the supervisory board are sufficient for calculating the expected time commitment. Any other additional required time cannot be estimated since individual aspects, e.g. synergic effects, cannot be considered at the time of initial appointment.