Response to consultation on Guidelines on internal governance (revised)
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As regards structuring principles, one can wonder about the number as well as the frequency of production of new standards. (2nd version relating to the guidelines of governance, articles 88 to 95 of the CRR, guidelines relating to the suitability, remuneration packages…)
The definition of Senior management as provided for in CRDIV is missing and should be clarified. On the contrary these Guidelines introduce the notion of key function holders which is not use in CRDIV and therefore such a notion shall be deleted from the guidelines.
- it sets a logical model of balance of rights and powers plus the separation of functions between the executive and supervisory functions.
- it fosters a co-responsibility towards the regulator as to what consequences might flow from the deployment of the strategy
But other “concepts” appear to be less clear, even basically incoherent: the principle dictating that the strategy must be established by the executive body is, de facto, a bias. Item 17, p 15, of the draft Directive requires that the roles and responsibilities between the two components of the management body must be clearly defined and distributed. It should belong to each institution to specify how its strategy is designed, defined, approved and controlled and shall not interfere with the general allocation of competences in accordance with national company law.
More specifically, we propose to highlight the following items:
P16, §19-g: No formal comment. If applied, a side effect of this practice will be a standardization of the management bodies’ profile.
P17, §20 Please specify: is the text targeting the whistle blowing like processes?
P17, §23: The management body in its supervisory function cannot only « challenge » the bank’s strategy. They are the owners’ representatives. At minimum, they have to settle guidance to the executives.
A balanced process could be set as follows:
1 Guidance 2 Definition 3 Approval 4 Monitoring
SUP EXE SUP EXE/SUP
P25, §25: Wording is not very explicit. Should we understand that EBA recognises that the Head of the Management Body in its Supervision function is acting as some kind of « primus inter pares » within the management body as whole.
P19, §32: Wording is not very explicit: « its decision making should not be dominated by a member or a small set of members ». We don’t understand what could be the implication for the management body in its executive function.
The status of independent board Members within cooperative establishments should justify a specific paragraph, either in the Internal Governance Guidelines and/or that of “Suitability”;
In any case, the independence criteria should be left to national law of soft law.
- that it has to be a “joint” document where the Board gives its guidelines for its drafting
- that it is written and developed by the executive body,
- that it must be formally approved by the supervisory body
P29, §75: In line with proportionality principle, please specify that this provision does not impose that all the organizations schemes have to be the same ones providing each organization is sufficiently documented so that a comprehensive view can be established on consolidated basis. In a co-operative group, a single charter would be inappropriate
P32, §88-89: If the review of the existence of a framework should hardly raise difficulties, the deployment of an intrusive control device is likely raise questions with respect to the French regulation framework (CNIL, in particular)
Question 1: Are the guidelines regarding the subject matter, scope, definitions and implementation appropriate and sufficiently clear?
Please consider our preliminary comments in our attached document.As regards structuring principles, one can wonder about the number as well as the frequency of production of new standards. (2nd version relating to the guidelines of governance, articles 88 to 95 of the CRR, guidelines relating to the suitability, remuneration packages…)
The definition of Senior management as provided for in CRDIV is missing and should be clarified. On the contrary these Guidelines introduce the notion of key function holders which is not use in CRDIV and therefore such a notion shall be deleted from the guidelines.
Question 2: Are there any conflicts between the responsibilities assigned by national company law to a specific function of the management body and the responsibilities assigned by the Guidelines, in particular within paragraph 23, to either the management or supervisory function?
The exercise of the role of “management body” is a major issue although certain “principles” appear clearly in their intents:- it sets a logical model of balance of rights and powers plus the separation of functions between the executive and supervisory functions.
- it fosters a co-responsibility towards the regulator as to what consequences might flow from the deployment of the strategy
But other “concepts” appear to be less clear, even basically incoherent: the principle dictating that the strategy must be established by the executive body is, de facto, a bias. Item 17, p 15, of the draft Directive requires that the roles and responsibilities between the two components of the management body must be clearly defined and distributed. It should belong to each institution to specify how its strategy is designed, defined, approved and controlled and shall not interfere with the general allocation of competences in accordance with national company law.
More specifically, we propose to highlight the following items:
P16, §19-g: No formal comment. If applied, a side effect of this practice will be a standardization of the management bodies’ profile.
P17, §20 Please specify: is the text targeting the whistle blowing like processes?
P17, §23: The management body in its supervisory function cannot only « challenge » the bank’s strategy. They are the owners’ representatives. At minimum, they have to settle guidance to the executives.
A balanced process could be set as follows:
1 Guidance 2 Definition 3 Approval 4 Monitoring
SUP EXE SUP EXE/SUP
P25, §25: Wording is not very explicit. Should we understand that EBA recognises that the Head of the Management Body in its Supervision function is acting as some kind of « primus inter pares » within the management body as whole.
P19, §32: Wording is not very explicit: « its decision making should not be dominated by a member or a small set of members ». We don’t understand what could be the implication for the management body in its executive function.
Question 3: Are the guidelines in Title I regarding the role of the management body appropriate and sufficiently clear?
The concept of independence of independent board Members is meant to leave space for different interpretations, so extreme that a significant “shareholder” could be isolated and not able to participate to the implementation of the strategy of its own company.The status of independent board Members within cooperative establishments should justify a specific paragraph, either in the Internal Governance Guidelines and/or that of “Suitability”;
In any case, the independence criteria should be left to national law of soft law.
Question 4: Are the guidelines in Title II regarding the internal governance policy, risk culture and business conduct appropriate and sufficiently clear?
P28, §70: Internal governance policy: Taking into account the essential/strategic nature of the document, it would be advisable to specify:- that it has to be a “joint” document where the Board gives its guidelines for its drafting
- that it is written and developed by the executive body,
- that it must be formally approved by the supervisory body
P29, §75: In line with proportionality principle, please specify that this provision does not impose that all the organizations schemes have to be the same ones providing each organization is sufficiently documented so that a comprehensive view can be established on consolidated basis. In a co-operative group, a single charter would be inappropriate
P32, §88-89: If the review of the existence of a framework should hardly raise difficulties, the deployment of an intrusive control device is likely raise questions with respect to the French regulation framework (CNIL, in particular)