EBF advisor: Blazej Blasikiewicz
Publication date: 27 January 2017
- No assessment of key function holders should be provided by Guidelines: The inclusion of this group is beyond the mandate provided by CRD IV to EBA (see Article 91.12 of CRD IV). Please refer to point 10 (“Legal basis”) as regards the scope of EBA’s mandate pursuant to the CRD IV. Article 74 of the CRD IV does not grant any power to EBA to legislate when publishing Guidelines, which would be the case if Guidelines extend the scope of the fit and proper test to other individuals than the members of the management body.
- We accept that the entities should follow the principles established in Directive 2013/36/EU of the European Parliament and of the Council, of 26 June 2013, (“CRD IV”) and be guided by some soft criteria. However, the excessive regulation proposed by the draft Guidelines would certainly hinder the entity’s capability (and right) to appoint the board members and key-function holders that it deems appropriate according to its current or future business, activities or prospects.
In this sense, we understand that the new Guidelines constitute a substantial change in the framework of the proceedings and analysis of the suitability of the holders of such positions. Although the general suitability principles set out in CRD IV remain unaltered (knowledge, skills, experience, sufficient time commitment, reputation, independence of mind, collective suitability, etc.) the Guidelines have gone too far in the detail of all of such principles.
For example, in accordance with the Guidelines, the entity would have to quantify and declare the expected time commitment per director (and even considering factors included in the Guidelines), list and explain all commercial and non-commercial activities of a proposed director, consider all the skills set forth in Annex II of the Guidelines (amongst others, leadership, stress resistance or negotiating or persuasive skills), or complete a matrix for the collective assessment crossing each director with each area of the entity’s business, strategy or risk.
- Moreover, the Guidelines contain quite a few requirements for documentation and journals, see e.g. paragraphs 40, 44, 80, 132, 138, 139, 145,146 and 149. We believe that such specific requirements for documentation should be introduced in level 1 or 2 regulation, rather than in level 3 guidelines.
- The draft of the new Guidelines also provides a clear distinction between the management and the supervisory functions of the board of directors, and requires, for the collective suitability assessment, that exhaustive detail is provided of the relationship of the knowledge, skills and experience of each director with the activities, strategies and risks of the entity. This distinction and assessment are simply not possible in unitary and hybrid boards, and would breach the regulatory framework for the board of directors in unitary and hybrid board jurisdictions.
In the unitary and hybrid board structures, directors imperatively perform, and are accountable for, all the functions assigned to the board of directors. Classifying the roles of directors within the board, as well as crossing their competences with relation to the activities of the entity, would imply that certain functions of the board are only or mainly performed by some of the directors, and that only such directors would incur in liability in relation to such functions.
The informational model and the induction and training are offered to directors to enable each one of them to duly participate in the activities of the board and in the adoption of its collegiate decisions. Consequently, the draft Guidelines should be substantially adapted to unitary and hybrid board structures, amending the distinction between management and supervisory functions, as well as the analysis of the relationship of each director with the business of the entity.
- Re-assessment should not be triggered by such a large range of events and it should be made clear it is an individual re-assessment (vs. collective assessment).
- The specific case of entities within a Group should be more taken into account and specified. Duplication of formalities and documentation required at the different levels of a Group organization should be avoided. For subjects handled by the Group, subsidiaries and regional banks should have rules allowing them to benefit from exemptions or at least lighter requirements. As a complement to proportionality principle, adaptations and flexibilities should be granted within a Group: levels of entities concerned, should be distinguished; fully owned subsidiaries should not have all the same requirements to fulfil as heads of Groups or listed entities. This should be specified in the guidelines.
- The independence criteria of the members of the management body should not be introduced in these guidelines and be left to national law or national soft law. Indeed, CRD IV does not require the members of the committees to be independent. Thus, the draft guidelines go beyond the directive on this matter.
It is adequate to align definitions in this Guidelines with definitions in the EBA Guidelines on internal governance. Furthermore, it is not clear how the ECB draft guide relates to the EBA/ESMA Guidelines on the assessment of the suitability of members of the management body. One set of principles and one uniform assessment process should be established.