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    EBA and ESMA Consult on Guidelines to Assess Suitability of Management

    July 31, 2020

    EBA and ESMA are proposing to revise the joint guidelines for assessing the suitability of members of the management body and key function holders. The proposed revisions reflect the amendments introduced by the fifth Capital Requirements Directive (CRD5) and the Investment Firms Directive in relation to the assessment of the suitability of members of the management body. The draft joint guidelines also take into account the recovery and resolution framework introduced by the Bank Recovery and Resolution Directive (BRRD) and provide further guidance in this regard. The joint EBA and ESMA guidelines will apply to competent authorities across EU as well as to institutions on a solo and consolidated basis. The consultation runs until October 31, 2020 and the finalized guidelines are expected to enter into force six months after their publication.

    EBA points out that uncovering any involvement of credit institutions and investment firms in money laundering and terrorist financing can have an impact on the viability and trust in the financial system. In this context, the proposed revisions to the joint guidelines clarify that the knowledge, experience, and skill requirements are important aspects in the fit and proper assessment of members of the management body and key function holders, as they contribute to identifying, managing, and mitigating money laundering and financing of terrorism risks. The proposed revisions to the guidelines also clarify that being a member of affiliated companies or affiliated entities does not in itself represent an obstacle for a member of the management body to acting with independence of mind. The guidelines further specify that a gender-balanced composition of the management body is of particular importance. Institutions should respect the principle of equal opportunities for any gender and take measures to improve a more gender-balanced composition of staff in management positions. Annex I to the guidelines presents instructions and template for suitability matrix to assess the collective competence of members of the management body. The Annex has been amended to include compliance with the requirements related to anti-money laundering and combating of terrorist financing, but stays otherwise unchanged. 

    In accordance with the requirements introduced by the Capital Requirements Directive (2013/36/EU)—as amended by CRD5 (2019/878/EU)—and the revised Markets in Financial Instruments Directive or MiFID II (2014/65/EU), the joint guidelines of EBA and ESMA cover the notions of suitability and the assessment of suitability by institutions and competent authorities. Overall, the guidelines apply to all institutions, independent of their governance structures (unitary board, dual board, or other structures), without advocating or preferring any specific structure as set out in the defined scope of application. The guidelines specify that all institutions have to assess the members of the management body. Competent authorities should ensure that credit institutions, financial and mixed financial holding companies, and investment firms comply with these guidelines. Institutions that are subject to CRD also have to assess all key function holders that have a significant influence over the direction of the institution under the overall responsibility of the management body. For significant "CRD" institutions, competent authorities should assess the heads of internal control functions and the chief financial officer (CFO), where they are not members of the management body. 

     

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    Comment Due Date: October 31, 2020

    Keywords: Europe, EU, Banking, Securities, Governance, CRD, BRRD, Guidelines Suitability Assessment, IFD, Operational Risk, Basel, EBA, ESMA

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