EBA publishes its final Guidelines on internal governance

The European Banking Authority (EBA) published today its revised Guidelines on internal governance. The update takes into account the amendments introduced by the fifth Capital Requirements Directive (CRD V) and the Investment Firms Directive (IFD) in relation to credit institutions’ sound and effective governance arrangements, in particular with regard to gender diversity, money laundering, financing terrorist risk and the management of conflicts of interest, including in the context of loans and other transactions with members of the management body and their related parties. The final revised Guidelines will apply from 31 December 2021.

Combating money laundering and terrorist financing is crucial for maintaining stability and integrity in the financial system. Therefore, 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, 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 Directive CRD. In the same way, other transactions with members of the management body and their related parties have the potential to create conflicts of interest and, therefore, the EBA is providing guidance on how to properly manage them.

Finally, 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. In addition, institutions should monitor the gender pay-gap.

Legal basis and next steps

These Guidelines have been developed on the basis of Article 74 of Directive 2013/36/EU, which mandates the EBA to further harmonise credit institutions’ governance arrangements, processes and mechanisms across the EU.

The EBA Guidelines will apply to Competent Authorities across the EU, as well as to credit institutions on an individual and consolidated basis. Once the revised Guidelines will enter into force on 31.12.2021, the 2017 Guidelines will be repealed.