Response to consultation on Joint ESMA EBA Guidelines on suitability of management body
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ECB Guidelines
The ECB is currently consulting stakeholders on a draft Guide on the same topic. Given that the ECB is a competent authority that must comply with the EBA Guidelines, the ECB draft Guide on fit and proper assessments essentially functions as an interpretation and elaboration of the EBA Guidelines on suitability. In this respect, we very much value the close cooperation between the two institutions.
Rather than starting to consult only following the release of the final EBA guidelines, the ECB released its draft Guide at the same time as the ECB with an earlier deadline to respond. Although we appreciate that this matter must be addressed first and foremost with the ECB, in order to ensure consistency of rules and legal certainty for supervised institutions, we ask the EBA to urge the ECB to hold off finalising the draft Guide until after the release of the final EBA guidelines.
Rights of appointees
We are concerned that the Guidelines do not cover rights of appointees, such as the right to be heard and the right to a statement of reasons. We believe that the EBA cannot rely on national administrative law and that the EBA in its supervisory capacity must promote consistent standards and treatment of appointees across the Union. We therefore ask the EBA to include in its Guidelines the rights guaranteed by the EBA on p.25 of its draft Guide on Fit and Proper. In addition, we urge the EBA to guarantee confidentiality and non-publicity of the assessment process and final decision.
We welcome the detailed criteria set by the EBA draft Guidelines. Application of the principle of proportionality is extremely important. Smaller organisations should not be treated the same way as large systemically important financial institutions.
The EBA also provides that significant institutions should have more sophisticated policies and processes, while in particular small and less complex institutions may implement simpler policies and processes. In this respect, it would be helpful to receive more specific information or examples from the ECB of such “simpler policies and process”. For now, the EBA only sets out that only significant institutions are obliged to create a nomination committee, will be subject to a suitability assessment for their heads of internal control functions and the Chief Financial Officer, and can be asked to forward their appointees to the relevant supervisor for an interview.
The draft Guidelines list “type of clients” as a criterion to be taken into account for the purpose of the application of the principle of proportionality. In addition to a clarification as to what exactly the EBA means with “type of clients”, we would also welcome more details as to which type of clients would call for more proportionality. We stress that retail clients and SMEs should be afforded the highest level of proportionality.
If the EBA does decide to introduce a system of ex ante assessment by default, we insist that the ECB and national supervisors shall give all decisions in writing as soon as they have made a final decision. Without such guarantee, many – if not all – institutions would end up having to wait for the entire four months until they know whether their appointee has been approved or not. In practice, this means that these institutions may have to keep on board additional applicants to ensure that the General Assembly will still be able to choose another candidate in case of a negative decision. This becomes even more problematic where ex ante assessment periods are extended by supervisors. In all cases, smaller firms will be affected the most.
Another example would be a national framework where the term of office of Board members is limited (e.g. to one year), and where shareholders elect the Board members at the General Assembly. Ex ante assessments would in such a case be virtually impossible to implement. This is the case in Sweden.
Question 2: Are the subject matter, scope and definitions sufficiently clear?
The scope of application of the Guidelines is not sufficiently clear. We ask the EBA to clarify that those institutions that fall within the scope are (1) credit institutions and (2) financial institutions at consolidated level, as confirmed by the EBA at their hearing on 5 January.ECB Guidelines
The ECB is currently consulting stakeholders on a draft Guide on the same topic. Given that the ECB is a competent authority that must comply with the EBA Guidelines, the ECB draft Guide on fit and proper assessments essentially functions as an interpretation and elaboration of the EBA Guidelines on suitability. In this respect, we very much value the close cooperation between the two institutions.
Rather than starting to consult only following the release of the final EBA guidelines, the ECB released its draft Guide at the same time as the ECB with an earlier deadline to respond. Although we appreciate that this matter must be addressed first and foremost with the ECB, in order to ensure consistency of rules and legal certainty for supervised institutions, we ask the EBA to urge the ECB to hold off finalising the draft Guide until after the release of the final EBA guidelines.
Rights of appointees
We are concerned that the Guidelines do not cover rights of appointees, such as the right to be heard and the right to a statement of reasons. We believe that the EBA cannot rely on national administrative law and that the EBA in its supervisory capacity must promote consistent standards and treatment of appointees across the Union. We therefore ask the EBA to include in its Guidelines the rights guaranteed by the EBA on p.25 of its draft Guide on Fit and Proper. In addition, we urge the EBA to guarantee confidentiality and non-publicity of the assessment process and final decision.
Question 4: Do you agree with this approach to the proportionality principle and consider that it will help in the practical implementation of the guidelines? Which aspects are not practical and the reasons why? Institutions are asked to provide quantitative and qualitative information about the size, internal organisation and the nature, scale and complexity of the activities of their institution to support their answers.
We strongly agree with the EBA that the principle of proportionality applies throughout the assessment process, ensuring a differentiated approach to the assessment procedure or the application of suitability criteria, where assessment will come down to an individual analysis and supervisory judgement by the national competent authority.We welcome the detailed criteria set by the EBA draft Guidelines. Application of the principle of proportionality is extremely important. Smaller organisations should not be treated the same way as large systemically important financial institutions.
The EBA also provides that significant institutions should have more sophisticated policies and processes, while in particular small and less complex institutions may implement simpler policies and processes. In this respect, it would be helpful to receive more specific information or examples from the ECB of such “simpler policies and process”. For now, the EBA only sets out that only significant institutions are obliged to create a nomination committee, will be subject to a suitability assessment for their heads of internal control functions and the Chief Financial Officer, and can be asked to forward their appointees to the relevant supervisor for an interview.
The draft Guidelines list “type of clients” as a criterion to be taken into account for the purpose of the application of the principle of proportionality. In addition to a clarification as to what exactly the EBA means with “type of clients”, we would also welcome more details as to which type of clients would call for more proportionality. We stress that retail clients and SMEs should be afforded the highest level of proportionality.
Question 12: Are the guidelines with regard to the timing (ex-ante) of the competent authority’s assessment process appropriate and sufficiently clear?
We would like to draw the EBA’s attention to the especially disproportionately detrimental and anti-competitive impact this would have on smaller firms. In this respect, we highlight also that transition from the current ex post to ex ante assessments is neither required nor mandated by the Capital Requirements Directive IV.If the EBA does decide to introduce a system of ex ante assessment by default, we insist that the ECB and national supervisors shall give all decisions in writing as soon as they have made a final decision. Without such guarantee, many – if not all – institutions would end up having to wait for the entire four months until they know whether their appointee has been approved or not. In practice, this means that these institutions may have to keep on board additional applicants to ensure that the General Assembly will still be able to choose another candidate in case of a negative decision. This becomes even more problematic where ex ante assessment periods are extended by supervisors. In all cases, smaller firms will be affected the most.
Question 13: Which other costs or impediments and benefits would be caused by an ex-ante assessment by the competent authority?
During its hearing on Friday 13 January, the ECB mentioned that ex ante assessment can have different applications in different countries – either that the candidate cannot be appointed, or occupy the relevant position, until the final decision of the relevant supervisor. This is only one of many examples that confirms that because of the differing legal corporate governance frameworks, the introduction of ex-ante assessment cannot have a neutral impact across the EU.Another example would be a national framework where the term of office of Board members is limited (e.g. to one year), and where shareholders elect the Board members at the General Assembly. Ex ante assessments would in such a case be virtually impossible to implement. This is the case in Sweden.