Response to consultation on draft Joint ESMA and EBA Guidelines on the assessment of the suitability of members of the management body and key function holders
Question 1: Are subject matter, scope of application, definitions and date of application appropriate and sufficiently clear?
We refer to the comments by the German Banking Industry Committee which we fully support.
Question 2: Are the changes made in Title II appropriate and sufficiently clear?
We refer to the comments by the German Banking Industry Committee which we fully support.
Do you have any views on the provisions regarding these independence criteria? Please explain any aspects that may influence the effectiveness, clarity, or implementation of these independence criteria across different business models/types of institutions.
We refer to the comments by the German Banking Industry Committee which we fully support. Additionally, we would like to highlight the following:
From our point of view, the provisions regarding “independent” members of the management body in its supervisory function should be reconsidered fundamentally, as there appears to be no sufficient legal basis in the CRD for imposing requirements of formal independence of members of the management body in its supervisory function. The concept is also in conflict with basic principles and structures of the cooperative banking model.
Doubts regarding the legal basis
Article 91 CRD requires members of the management body to act with “independence of mind”. However, the CRD does not establish a requirement that members of the management body in its supervisory function must formally qualify as “formally independent” according to the predefined criteria set up in the Joint Guidelines. The distinction between “independence of mind” and formal “independence” is expressly acknowledged by the EBA itself in the Joint Guidelines.
While “independence of mind” refers to the ability of a member to exercise objective judgment, critically challenge decisions, and act free from undue influence, the concept of formal “independence” introduces additional structural and relationship-based criteria that are not contained in Art. 91 CRD. Here, the CRD does not provide a legal basis for requiring that a certain part of the members of the management body in its supervisory function meet formal independence criteria, nor does it empower the EBA to define extensive categories of “non-independent” members.
Similarly, Article 88 of the CRD does not provide a legal basis for requiring a certain number of independent members in the management body in its supervisory function. The only provision that hints at this, albeit very limitedly, is Article 88(1)(e) CRD, which states that the Chair of the management body in its supervisory function within an institution shall not simultaneously exercise the functions of a chief executive officer within the same institution. However, this is a specific provision that only addresses one instance that may be qualified as a lack of formal independence. In fact, the CRD only addresses one specific situation that must be avoided, without referring to the concept of formal independence more generally. This clearly shows that the CRD deliberately avoids setting up any such general requirements.
Additionally, the concept of formal independence is difficult to distinguish from real conflicts of interest. The latter is a concept rooted in the CRD with which banks are familiar and which they deal with through mitigation measures. In contrast, lacking formal independence seems to be in a vague grey area before an actual conflict of interest, and its identification and handling are difficult for practitioners to understand, especially since 'formally non-independent' members are not unacceptable per se. Therefore, a clear-cut solution would be to simply stick to handling actual conflicts of interest and refrain from the vague concept of formal independence, which would also contribute to the simplification of the prudential framework.
After all, there is no basis on which to demand the formal independence of members of the management body in its supervisory function. If the EU legislator had intended to impose quantitative or qualitative requirements regarding formally independent members of the management body in its supervisory function, such requirements should have been established explicitly in Level I legislation. It is not appropriate for such far-reaching governance requirements to be introduced through Level III guidance. Consequently, neither the German transposition of the CRD nor the German supervisory authority, BaFin, established any requirement for formal independence.
Conflict with basic principles and structures of the cooperative banking model
Furthermore, the proposed approach creates significant practical and legal difficulties for cooperative banks. In Germany, members of the management body in its supervisory function of a cooperative bank are legally required to be members of the cooperative itself. This membership relationship may already conflict with the concept of formal independence as currently formulated in the Joint Guidelines. As a result, the Joint Guidelines risk creating a structural conflict with the legal and governance framework applicable to cooperative banks. An explicit exemption for cooperative banks should therefore be included in the Joint Guidelines (e.g., in Paragraph 102). Such an exemption should be free of any thresholds.
Similarly, the specific governance structure of cooperative banking networks must be duly recognized. Cooperative banking groups are based on mutual ownership, mutual support, and mutual oversight between affiliated cooperative institutions. These structures are not incidental but constitute an essential and well-established element of the cooperative banking model.
This issue becomes particularly evident in cases where members of the management body in its supervisory function of one cooperative bank are appointed precisely because they hold executive positions within another cooperative institution belonging to the same network. For example, a member of the management body in its supervisory function of a larger institution which provides services to other members of a cooperative banking network may simultaneously serve as a management board member of a local cooperative bank that is itself a member of that larger institution and benefits from the larger institution’s services. Such interlocking governance arrangements are essential for ensuring effective oversight, sector expertise, and alignment within cooperative banking networks. The fact that such persons might not qualify as formally “independent” under the criteria set out in the Joint Guidelines does not impair their ability to act with independence of mind. On the contrary, these governance structures are specifically designed to ensure effective peer oversight and sector-specific control mechanisms within the cooperative network. Requirements for formal independence, if any, should therefore not restrict or undermine these structures, but should instead foresee exemptions for these specific circumstances. Again, such exemptions should be free of any thresholds.
For these reasons, the EBA and ESMA should reconsider whether formal independence criteria are appropriate at all under the current legal framework of the CRD. At a minimum, explicit exemptions and clarifications should be introduced for cooperative banking structures and intra-network mandates within cooperative banking groups.
Question 4: Are the changes made in Title III appropriate and sufficiently clear?
We refer to the comments by the German Banking Industry Committee which we fully support.
Question 5: Are the changes made in Title IV appropriate and sufficiently clear?
We refer to the comments by the German Banking Industry Committee which we fully support.
Question 6: Are the changes made in Title V appropriate and sufficiently clear?
We refer to the comments by the German Banking Industry Committee which we fully support.
Question 7: Are the changes made in Title VI appropriate and sufficiently clear?
We refer to the comments by the German Banking Industry Committee which we fully support.
Question 8: Are the changes made in Title VII appropriate and sufficiently clear?
We refer to the comments by the German Banking Industry Committee which we fully support.
Question 9: Are the changes made in Title VIII appropriate and sufficiently clear?
We refer to the comments by the German Banking Industry Committee which we fully support.
Question 10: Are the changes made in Title IX appropriate and sufficiently clear?
n/a
Question 11: Are the changes made to Annex 1 and Annex II appropriate and sufficiently clear?
We refer to the comments by the German Banking Industry Committee which we fully support.
Question 12: Is the table on scope of application of the Joint Guidelines appropriate and sufficiently clear?
We refer to the comments by the German Banking Industry Committee which we fully support.