EBA and ESMA revised the joint guidelines on the assessment of the suitability of members of the management body and key function holders. In addition, EBA revised the guidelines on internal governance and on sound remuneration policies. The guidelines on internal governance and fit-and-proper assessments take into account the amendments introduced by the revised Capital Requirements Directive (CRD5) and the Investment Firms Directive (IFD) while the revised guidelines on sound remuneration policies incorporate amendments introduced by CRD5. The ESMA-EBA joint guidelines and the EBA guidelines on internal governance consider amendments with respect to gender diversity and money laundering and financing terrorism risks. The guidelines on sound remuneration policies consider amendments related to institutions’ sound remuneration policies and the requirement that remuneration policies should be gender-neutral. All three guidelines will apply from December 31, 2021.
Joint guidelines on fit-and-proper requirements. These joint guidelines take into account the recovery and resolution framework introduced by the Bank Recovery and Resolution Directive (BRRD) and provide further guidance in this regard. As part of early intervention measures and during resolution, the suitability of newly appointed members of the management body and the management body collectively are relevant and require an assessment. The guidelines provide further details on how the exchange of information between resolution authorities and competent authorities should work. The guidelines clarify, in line with CRD5, that assessing the knowledge, experience, and skill requirements include identifying, managing, and mitigating money laundering and financing of terrorism risks, as these aspects are part of the assessments of the suitability of members of the management body and key function holders. In addition, the guidelines 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, to ensure a more gender-balanced pool of candidates for positions in the management body. The joint guidelines also consider the new legislative framework for investment firms for the identification of the investment firms subject to the various guidelines. Annex I to the guidelines presents 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.
Guidelines on internal governance. These guidelines clarify that identifying, managing, and mitigating money laundering and financing of terrorism risk is part of sound internal governance arrangements and credit institutions’ risk management framework. The revised guidelines further specify and reinforce the framework regarding loans to members of the management body and their related parties. Those loans may constitute a specific source of actual or potential conflict of interest and, therefore, specific provisions have been explicitly included in the CRD. Similarly, other transactions with members of the management body and their related parties have the potential to create conflicts of interest and, therefore, EBA is providing guidance on how to properly manage them. Also, in line with the requirement to have a gender-neutral remuneration policy, the revised guidelines provide new guidance on the code of conduct to ensure that credit institutions take all necessary measures to avoid any form of discrimination and guarantee equal opportunities to staff of all genders; institutions should monitor the gender pay-gap. Annex I to the guidelines specifies the aspects that institutions should consider when developing an internal governance policy.
Guidelines on sound remuneration policies. These guidelines stipulate that institutions have to apply sound remuneration policies to all staff and specific requirements for the variable remuneration of staff whose professional activities have a material impact on their risk profile (identified staff). The revised guidelines specify all those requirements, along with the waivers, that apply to institutions based on their total balance sheet and to staff with a low variable remuneration. The waivers only apply to the deferral arrangements and payout in instruments. The revised guidelines also clarify how the remuneration framework applies on a consolidated basis to financial institutions that are subject to a specific remuneration framework (for example, firms subject to the IFD, the Undertakings for Collective Investment in Transferable Securities Directive or UCITS, and/or the Alternative Investment Fund Managers Directive or AIFMD). The sections on severance payments and retention bonus have been also revised, based on the supervisory experience regarding cases of where such elements have been used by institutions to circumvent requirements regarding the link to performance or the maximum ratio.
- Press Release on Guidelines on Fit-and-Proper Criteria
- Guidelines on Fit-and-Proper Criteria (PDF)
- Press Release on Governance Guidelines
- Guidelines on Internal Governance (PDF)
- Press Release on Remuneration Guidelines
- Guidelines on Remuneration Policies (PDF)
Keywords: Europe, EU, Banking, Securities, Governance, CRD5, BRRD, Suitability Assessment, IFD, Operational Risk, Basel, Remuneration, Fit and Proper Assessments, ESMA, EBA
Previous ArticleCSSF Issues Several Regulatory Updates for Banks in Past Month
The Australian Prudential Regulation Authority (APRA) found that Heritage Bank Limited had incorrectly reported capital because of weaknesses in operational risk and compliance frameworks, although the bank did not breach minimum prudential capital ratios at any point and remains well-capitalized.
The Office of the Superintendent of Financial Institutions (OSFI) released the annual report for 2020-2021.
The Australian Prudential Regulation Authority (APRA) published, along with a summary of its response to the consultation feedback, an information paper that summarizes the finalized capital framework that is in line with the internationally agreed Basel III requirements for banks.
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) issued a consultative report focusing on access to central counterparty (CCP) clearing and client-position portability.
The Australian Prudential Regulation Authority (APRA) released the final Prudential Practice Guide on management of climate change financial risks (CPG 229) for banks, insurers, and superannuation trustees.
The European Banking Authority (EBA) Single Rulebook Question and Answer (Q&A) tool updates for this month include answers to 10 questions.
The European Commission, or EC, finalized the Implementing Regulation 2021/2017 with respect to the benchmark portfolios, reporting templates, and reporting instructions for the supervisory benchmarking of internal approaches for calculating own funds requirements.
The European Commission (EC) has adopted a package of measures related to the Capital Markets Union.
The European Council adopted its position on two proposals that are part of the digital finance package adopted by the European Commission in September 2020, with one of the proposals involving the regulation on markets in crypto-assets (MiCA) and the other involving the Digital Operational Resilience Act (DORA).
The Prudential Regulation Authority (PRA) is proposing, via the consultation paper CP21/21, to apply group provisions in the Operational Resilience Part of the PRA Rulebook (relevant for the Capital Requirements Regulation or CRR firms) to holding companies.