Question ID:
2018_4286
Legal Act:
Directive 2013/36/EU as amended by Directive (EU) 2019/878 – CRD5
Topic:
Internal governance
Article:
3
Paragraph:
1
Subparagraph:
9
COM Delegated or Implementing Acts/RTS/ITS/GLs:
Not applicable
Article/Paragraph:
Not applicable
Type of submitter:
Competent authority
Subject Matter:
Interpretation of the concept of senior management laid down in Article 3(1)(9) of CRD IV
Question:

Does the concept of “senior management” foreseen in Article 3(1)(9) of CRD IV refer to members of the management body in executive functions or does it refer to persons at an hierarchical level immediately below that of the management body in executive functions (i.e., the so-called MB-1 level), as far as these persons are involved in the day-to-day management of the institution?

Background on the question:
The concept of “senior management” is interpreted in different ways. While some Member States understand that it refers only to members of the management body in executive functions, others understand that it refers to persons at an hierarchical level immediately below that of the management body in executive functions (i.e., the so-called MB-1 level), as far as these persons are involved in the day-to-day management of the institution.
 
The doubts around this concept increase when comparing the European Central Bank Opinion dated 8 November 2017 (CON/2017/46) with the decision issued by the General Court of the European Union referring to the Joined Cases T-133/16 to T-136/16 (Caisses régionales de crédit agricole mutuel Alpes Provence, Nord Midi-Pyrénées, Charente-Maritime et Brie Picardie v European Central Bank), dated 24 April 2018. While in the Opinion, the ECB supports the introduction of certain amendments to the concept of senior management in order to clarify the distinction between management body and senior management, in the decision mentioned above the General Court seems to conclude that senior managers correspond to executive members of the management body.
Date of submission:
24/09/2018
Published as Final Q&A:
26/04/2019
EBA Answer:

According to Article 3, point 7, of CRD IV management body "means an institution's body or bodies, which are appointed in accordance with national law, which are empowered to set the institution's strategy, objectives and overall direction, and which oversee and monitor management decision-making, and include the persons who effectively direct the business of the institution”.

According to Article 3, point 9 of CRD IV “senior management' means those natural persons who exercise executive functions within an institution and who are responsible, and accountable to the management body, for the day-to-day management of the institution.
 
Recital 5 of Commission Delegated Regulation (EU) No 604/2014 explains that “Members of the management body have the ultimate responsibility for the institution, its strategy and activities and therefore are always able to have a material impact on the institution's risk profile. This applies both to the members of the management body in its management function who take decisions and to members of the supervisory function who oversee the decision making process and challenge decisions made”. Recital 6 lays out that “the senior management and senior staff responsible for material business units, for management of specific risk categories such as liquidity, operational or interest rate risk, and for control functions within an institution are responsible for the day-to-day management of the business, its risks, or its control functions. This includes the responsibility for making strategic or other fundamental decisions on the business's activities or the control framework applied. The risks taken by the business and the way they are managed are the most important factors for the institution's risk profile”.
 
On the basis of the above, the definition of the senior management does not exclude that a member of the management body would belong to the senior management and vice-versa. On the contrary, as confirmed by the ruling in Joined Cases T-133/16 to T-136/16 of the General Court of the EU, only members of the management body who are also part of the senior management of the credit institution may be appointed as ‘persons [who] effectively direct the business of the institution’.
 
As mentioned in Delegated Regulation (EU) 604/2014 senior management is responsible for the day-to-day management of the business, its risks, or its control functions. This includes the responsibility for making strategic or other fundamental decisions on the business' activities or the control framework applied.
 
The term therefore also covers persons at hierarchical level below that of the management body, as far as these persons exercise executive functions and are responsible for the day-to-day management of the institution.
 
To conclude, the term “senior management” in CRD IV includes natural persons who exercise executive functions within an institution and who are responsible, and accountable to the management body, for the day-to-day management of the institution and it is not limited to refer to only persons who are members of the management body in its management function (executive directors), but includes also persons at a hierarchical level immediately below that directly report to the management body in its management function.
 
Disclaimer:
 
This question goes beyond matters of consistent and effective application of the regulatory framework. A Directorate General of the Commission (Directorate General for Financial Stability, Financial services and Capital Markets Union) has prepared the answer, albeit that only the Court of Justice of the European Union can provide definitive interpretations of EU legislation. This is an unofficial opinion of that Directorate General, which the European Banking Authority publishes on its behalf. The answers are not binding on the European Commission as an institution. You should be aware that the European Commission could adopt a position different from the one expressed in such Q&As, for instance in infringement proceedings or after a detailed examination of a specific case or on the basis of any new legal or factual elements that may have been brought to its attention.
Status:
Final Q&A