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September 26, 2017

EBA and ESMA published joint guidelines to assess the suitability of members of management bodies and key function holders. The joint guidelines will apply as of June 30, 2018 to competent authorities across the EU as well as to institutions on an individual and consolidated basis. The previous EBA guidelines on assessment of the members of the management body and key function holders will be repealed on the same date.

EBA and ESMA offer further guidance on the scope of assessments to be made, the assessment process for institutions and competent authorities, and related policies. They provide for the heads of internal control functions and the Chief Financial Officer, when they are not members of the management body, to be always considered as key function holders, and therefore, subject to the institutions' assessment. The members of the management body should have sufficient time to cover all the necessary subjects in depth, particularly the establishment of business and risk strategies and the management of the main risks. The management body, collectively, should possess adequate knowledge, skills, and experience to understand the institution's activities, including the main risks. This joint work also builds on the outcome of EBA's peer review of the EBA guidelines on the assessment of the suitability of members of the management body and key function holders of credit institutions. The joint guidelines specify the notions of (a) sufficient time commitment; (b) adequate collective knowledge, skills, and experience; (c) honesty, integrity, and independence of mind; (d) adequate human and financial resources for induction and training of members of the management body, and (e) diversity, which is to be considered in the selection process.

 

The guidelines foster more diverse management bodies and, therefore, contribute to improved risk oversight and resilience of institutions. The guidelines aim to harmonize and improve suitability assessments within the EU financial sectors and to ensure sound governance arrangements in financial institutions, in line with the Capital Requirements Directive (CRD IV) and the second Markets in Financial Instruments Directive (MiFID II). CRD and MiFID II include measures to remedy weaknesses identified during the financial crisis regarding the functioning and composition of the management body within credit institutions and investment firms and the qualifications of their members.

 

Related Link: Joint Guidelines

Effective Date: June 30, 2018

Keywords: Europe, EU, Banking, Securities, Governance, Internal Control Functions, CRD IV, MiFID II, ESMA, EBA

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