Response to consultation on Joint ESMA EBA Guidelines on suitability of management body
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This goes e.g. for the suitability policy (section 98), “induction and training policy” (section 85-91). Specific requirements for documentation can be found in e.g. section 40, 44, 80, 132, 138, 139, 145 and 146. We question, whether it is mandated to introduce such extensive, detailed requirements for institutions in guidelines instead of binding regulation that has been approved on a political level.
Section 44 states that “Institutions should keep record of all external professional, political and other functions and relevant activities exercised by the members of the management body”. In general, we think it is problematic to register political functions (also from a data protection point of view). Furthermore, it relates to activities that can take place in the member of the management body’s spare time which ought to be outside the scope of these guidelines.
Section 39 that lists criteria to be taken into account when assessing sufficient time commitment also contradict the CRD IV’s provisions on the calculation of the number of directorships (referred to in section 52-53 of the CP). The level 1-provisions state that directorships in charities, not-for-profit-organizations etc. are not to be counted. To set up a requirement in the guidelines to keep track of time spent on directorships not counted in order to assess time commitment on the directorships counted erodes the intention of the level 1-regulation.
Furthermore we find that the guidelines should take into consideration that members of the management body serve for different reasons and therefore all individual members cannot – and should not – hold the exact same qualifications. In addition to this it is important to stress that the members of the management body in its supervisory function act collectively. This should be taken into account before imposing strict requirements on each individual member.
With regard to key function holders, the ex-ante assessment is by no means feasible, as the institution would have to wait 3-6 months for the competent authorities to assess a candidate for a position that should not be left vacant (hence the term “key function”). We note that key function holders are by definition not a part of the management body and that the CRD IV article 91 (which is the basis for the mandate) only mentions the management body. We find that assessment of key function holders should therefore not form part of the guidelines.
The existing EBA guidelines leave it up to competent authorities to choose between ex-ante or ex-post assessment. This approach accommodates differences in the management structure, including election of members of the management body by shareholders/general assembly. It is important to bear in mind that in some institutions - e.g. some financial co-operatives - persons are allowed to decide to run for membership of the management body shortly before a general assembly.
It is by no means desirable for institutions that an ex-ante assessment of candidates up for election for the management body should take between 3 to 6 months. The possibility of performing an ex-post assessment should therefore be maintained in the guidelines in order to accommodate different management structures.
Even though it is common practice that competent authorities can take part in meetings of the management body in some member states, we find that this should not form part of the guidelines. The reason being that for other member states with different supervisory traditions this is a completely new requirement, which gives rise to a lot of uncertainty.
First of all, there is the question of the role of the competent authority in the meetings. Are they to intervene if controversial decisions are made? And if they do not intervene, should this be regarded as consent? How often should the competent authority participate in meetings in order to gain insight into the collective and individual suitability of the management body? Does it concern both meetings of the management board in its management function and its supervisory function?
Given that this is uncovered territory in several member states, we find that this requirement should only be introduced on a national level and with sufficient explanation and guidance for the competent authority and management.
Question 2: Are the subject matter, scope and definitions sufficiently clear?
Overall, the guidelines introduce a large number of new requirements for procedures, policies and documentation. To a great extent these requirements are new inventions not fore-seen in the level 1-regulation such as the CRD IV, nor in the level 2-regulation.This goes e.g. for the suitability policy (section 98), “induction and training policy” (section 85-91). Specific requirements for documentation can be found in e.g. section 40, 44, 80, 132, 138, 139, 145 and 146. We question, whether it is mandated to introduce such extensive, detailed requirements for institutions in guidelines instead of binding regulation that has been approved on a political level.
Question 6: Are the guidelines with respect to the calculation of the number of directorships appropriate and sufficiently clear?
There is no question in the consultation paper regarding “sufficient time commitment”, but we would nevertheless like to comment on it.Section 44 states that “Institutions should keep record of all external professional, political and other functions and relevant activities exercised by the members of the management body”. In general, we think it is problematic to register political functions (also from a data protection point of view). Furthermore, it relates to activities that can take place in the member of the management body’s spare time which ought to be outside the scope of these guidelines.
Section 39 that lists criteria to be taken into account when assessing sufficient time commitment also contradict the CRD IV’s provisions on the calculation of the number of directorships (referred to in section 52-53 of the CP). The level 1-provisions state that directorships in charities, not-for-profit-organizations etc. are not to be counted. To set up a requirement in the guidelines to keep track of time spent on directorships not counted in order to assess time commitment on the directorships counted erodes the intention of the level 1-regulation.
Question 7: Are the guidelines within Title II regarding the notions of suitability appropriate and sufficiently clear?
In some member states, the regulation prescribes that the employees shall elect among themselves a member of the management body in its supervisory function. This member has the same rights, duties and responsibilities as the other members of the management body. But given the nature of their appointment, they will most likely often have other qualifications than the other members. And in most cases they will not fulfill the criteria listed in section 54-62 as well as the other requirements for members of the management board in the guidelines.Furthermore we find that the guidelines should take into consideration that members of the management body serve for different reasons and therefore all individual members cannot – and should not – hold the exact same qualifications. In addition to this it is important to stress that the members of the management body in its supervisory function act collectively. This should be taken into account before imposing strict requirements on each individual member.
Question 12: Are the guidelines with regard to the timing (ex-ante) of the competent authority’s assessment process appropriate and sufficiently clear?
The guidelines introduce an ex-ante assessment of suitability combined with a time period of 3-6 months available to the supervisor to complete its assessment. This can hamper the efficient functioning of the institutions as the recruitment process can drag on.With regard to key function holders, the ex-ante assessment is by no means feasible, as the institution would have to wait 3-6 months for the competent authorities to assess a candidate for a position that should not be left vacant (hence the term “key function”). We note that key function holders are by definition not a part of the management body and that the CRD IV article 91 (which is the basis for the mandate) only mentions the management body. We find that assessment of key function holders should therefore not form part of the guidelines.
The existing EBA guidelines leave it up to competent authorities to choose between ex-ante or ex-post assessment. This approach accommodates differences in the management structure, including election of members of the management body by shareholders/general assembly. It is important to bear in mind that in some institutions - e.g. some financial co-operatives - persons are allowed to decide to run for membership of the management body shortly before a general assembly.
It is by no means desirable for institutions that an ex-ante assessment of candidates up for election for the management body should take between 3 to 6 months. The possibility of performing an ex-post assessment should therefore be maintained in the guidelines in order to accommodate different management structures.
Question 15: Are the guidelines within Title VII regarding the suitability assessment by competent authorities appropriate and sufficiently clear?
In section 171 it says that ”Competent Authorities may”…”participate as observer in meet-ings of the management body in order to assess the effective functioning of the management body.”Even though it is common practice that competent authorities can take part in meetings of the management body in some member states, we find that this should not form part of the guidelines. The reason being that for other member states with different supervisory traditions this is a completely new requirement, which gives rise to a lot of uncertainty.
First of all, there is the question of the role of the competent authority in the meetings. Are they to intervene if controversial decisions are made? And if they do not intervene, should this be regarded as consent? How often should the competent authority participate in meetings in order to gain insight into the collective and individual suitability of the management body? Does it concern both meetings of the management board in its management function and its supervisory function?
Given that this is uncovered territory in several member states, we find that this requirement should only be introduced on a national level and with sufficient explanation and guidance for the competent authority and management.