18 July 2012

EBF response: EBA Consultation on draft Guidelines on assessment of suitability of members of management body and key function holders

The EBF makes the following observations with the aim of ensuring consistency, clarity of understanding and practical application of the future final Guidelines. It is also important to have a strong focus on proportionality.

For many provisions, the EBF also notes a strong overlap with the EBA Guidelines on Internal Governance, and questions whether it would not be more suitable to amend them instead of creating new rules. In addition, many local supervisory authorities already have their own local requirements in place. Consequently, the EBF assumes that, where there are conflicting interests, some local direction will be provided by national supervisory authorities or variations in requirements recommended. Finally electing members of the management body in its supervisory function is also a fundamental right of shareholders (and sometimes employees’ representatives) and therefore any interference or regulatory oversight should be carefully assessed.

The EBF’s main concerns are:

• Firstly, the EBF is very much concerned about the extension of the draft Guidelines to "key function holders", the level below the board which comprises a group of people to be defined by the credit institutions. The draft Guidelines do not explain why such expansion is needed, nor do they specify any legal basis (the wording ‘broader in scope than the mandate’ in para III.2 adds doubts about the legal basis). The EBF is concerned not only by the disproportionate broadening of the potential constraints and burdens associated with the application of the future final Guidelines but also by the potential breach of the fundamental principle that authorities should act within the mandate assigned to them by the legislator. The risk is indeed that the legal basis of the draft Guidelines would not only be challenged by banks (which may be less the case) but also by employees suing their bank’s employers (which may be more frequent). In conclusion, the competence for assessing the suitability of key function holders should stay with the credit institution (see also answer regarding question 2).
• Secondly, another main concern of the EBF is the sequencing proposed by the draft Guidelines, which in its opinion, does not reflect the reality. The different stages of the assessment process in which the competent authority will intervene are not, in the EBF’s view, clear enough. In its understanding, it is indeed requested that the credit institutions start with a self-assessment, a comprehensive process, and documentation requirements. In reality, banks would reach out informally to the regulator and review the candidate and requested criteria, before starting the paperwork. It would therefore appear more realistic to invite banks to liaise with the competent authority as early as possible.
• Thirdly, EBF members are also concerned by the high requirements regarding experience and education, which may not take into account sufficiently other criteria such as the diversity of views and experiences.

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