How should the mandates be counted in a situation where one person is an active board member in several connected (through IPS, group or qualified holdings) credit institutions and the privileged counting of mandates shows different results depending on the perspective from which the mandates are counted? Especially how the mandates should be counted where there is more than one notifying institution, in particular where the institutions are connected through qualified holdings? How should such a situation be resolved in cases where different competent authorities (in more than one Member State and / or the ECB) are involved?
Article 91(3) of Directive 2013/36/EU (CRD) stipulates that one person may hold one executive directorship with two non-executive directorships or four non-executive directorships.
Article 91(4) of Directive 2013/36/EU (CRD) sets out that certain positions, held at the same time, in specific constellations may be counted as one mandate. The following mandates should count as one mandate:
a) Executive or non-executive directorships held within the same group
b) Executive or non-executive directorships held within:
i) institutions which are members of the same Institutional Protection Scheme (IPS) provided that the conditions set out in Article 113(7) of Regulation (EU) No 575/2013 re fulfilled; or
ii) undertakings (including no-financial entities) in which the institution holds a qualifying holding.
However the provisions in Article 91(4) CRD IV and the corresponding provisions in the Joint EBA/ESMA Guidelines on the assessment of the suitability of members of the management body and key function holders (EBA/GL/2017/12) do not contain a solution for the case that the result differs depending on the point from which the mandates are counted.
This issue can be observed in the following situations:
1) Institution A holds a qualifying holding in institution B.
One person holds the position of an executive director in institution A and at the same time the person is a non executive director in institution B. In addition this person has two further non-executive directorships (C and D).
In the case that the privileged counting is done from the perspective of institution A, the person would not infringe the mandate limitations of Articles 91 (3) and (4) CRD IV.
However, in the case that institution B notifies the competent authorities, the result for the same person with the same amount of positions and under the same circumstances would be different. While the person holds the same number of mandates, the limits set out in Article 91(3) CRD IV would not be observed. This results from the fact that Article 91(4) CRD IV only allows privileged counting to be applied from the perspective of the institution that holds the qualifying holding. The preferred counting rule does not apply from the perspective of the institution in which the qualifying holding is held. The situation could be further complicated in the case that institutions are located in different Member States.
2) Institutions E and F are both members of an IPS. But they are not connected via a group structure.
Institution E has a qualifying holding in entities G, H, I, J and K, while institution F has a qualifying holding in entities G and H.
One person holds an executive directorship in both institutions (E and F) and non-executive directorships in all five entities (G, H, I, J, K).
Hence if the counting is done from the perspective of institution E the person would be in line with Articles 91(3) and (4) CRD IV having two mandates, while from institution’s F point of view the person would hold five mandates.
These two examples therefore demonstrate that if one person holds a mandate in various institutions counting from a different perspective could lead to a contradictory result, even though it is the same person, and the number of directorships does not change and the circumstances are the same. Article 91 CRD IV and its counting rules do not supply an adequate solution for such situations.
In our view, the following ways exist in dealing with different results when applying privileged counting:
-> The counting of mandates should be done from the perspective of the notifying institution. If several institutions notify the appointment of the same person, the mandates should be counted from the perspective that allows the observance of the regulatory provisions. This should especially be the case where the institutions are subject to supervision by different competent authorities (i.e. where more than one Member State is involved), which would otherwise lead to an unsatisfactory result. In such situations a common approach should be agreed upon.
-> If the notifying institutions are interlinked through an IPS or group structure and their qualifying holdings partially overlap, only the ones that are held by all institutions, in which the person holds a mandate, may be recognised for the privileged counting. In case no. 2 this would mean that only the mandates held in entities E and F would count as one mandate.
-> The counting of mandates should be applied from a general perspective, taking into account the whole situation. However this could lead to a situation which is not in line with the CRD IV, since the privileged counting for indirect qualifying holdings would be permitted.
Article 91 of Directive 2013/36/EU (CRD) limits the number of directorships for a director who has a mandate in a significant institution. All institutions have to comply with this requirement and should therefore verify if their members of the management body comply with this limitation. In order to ensure that the result is the same for all institutions concerned, the situation has to be assessed from the point of view of the director considering that the overall time devoted to his/her functions remains unaltered regardless of the assessment perspectives under which the number of directorships is assessed.
Consequently, institutions assessing the situation should consider all firms where the director holds a directorship and count them. In line with Article 91 CRD, all directorships held within a group should count as one single directorship; the same applies for institutional protection schemes.
According to Article 91(4)(b)(ii) of Directive 2013/36/EU (CRD), as further specified by pararaph 53 of EBA/GL/2017/12, “all directorships held within undertakings in which the institution holds a qualifying holding, but which are not subsidiaries included within the same group, count as a single directorship”. That single directorship in qualifying holdings counts as a separate single directorship, i.e. the directorship held within the same institution and the single directorship in its qualifying holdings together count as two directorships.
Where a director holds mandates in two groups with “overlapping” qualifying holdings the counting should be considered that results in the lowest number of directorships in the same way as in the situation set out in paragraph 55 of the joint ESMA/EBA GL on the suitability of members of the management body and key function holders (EBA/GL/2017/12).
In case 1) directorships in A and in B shall count as two different directorships (and not one), one executive and the other one non-executive. Therefore, the total number of directorships held (1 executive and 3 non-executive) would be above the limits set out by the CRD (1 executive and 2 non-executive) and would require approval as an additional directorship.
In case 2) the two executive directorships held within the IPS should count as one executive directorship. The non-executive directorships held in the qualifying holdings of institution E in the firms G, H, I, J, K should count as one additional directorship. It is not necessary to count the qualifying holdings G, H again in the context of institution F as the counting that results in the lowest number of directorships should be taken into account. However, where two institutions, that are members of an IPS, hold qualifying holdings in different entities (i.e. entities that are not also a qualifying holding of the other institution), the qualifying holdings of each institution shall be counted separately as one additional mandate.
The competent authority that is responsible for the group/institution, where the directorship is to be taken up should closely coordinate with other national competent authorities as the time commitment of that director within other institutions might be affected.