EBA and ESMA consultation paper on Guidelines on the assessment of suitability of members of the management body and key function holders

The European Banking Authority and the European Securities Markets Authority have opened a consultation on changes to the Joint ESMA and EBA Guidelines on the assessment of suitability of members of the management body and key function holders.

Background

The existing guidelines published in 2017 are made under MiFID II and CRD. The aim of the Guidelines is to instil good governance by ensuring that financial institutions consider whether candidates have the knowledge, qualification and skills that are required of those entrusted with the management of financial institutions. The Guidelines also seek to harmonise and improve suitability assessments within the EU financial sectors.

The main focus of the existing guidelines is on time commitments from directors, collective knowledge requirements, honesty, integrity and independence, adequacy of human and financial resources and training of the members of the management body and diversity.

Proposals

A key change to the existing guidelines is the power of competent authorities to remove members from the management body who do not fulfil the suitability requirements. In addition, further verification as to the suitability of a member should be taken when there are reasonable grounds for suspecting money laundering or terrorist financing. The updates also state that competent authorities should contact the anti-money laundering or counter-terrorist financing supervisor in the relevant Member State to obtain additional information if necessary in its assessment. Information should also be obtained from Financial Intelligence Units and/or law enforcement agencies if necessary.

The updates seek to encourage the exchange of information relevant to the assessment as to the fitness and probity of individuals by competent authorities. Where a decision has been made deciding on the unsuitability of an individual due to facts of money laundering or terrorist financing, such findings should be shared by the competent authority with the relevant anti-money laundering or counter-terrorist financing supervisor.

In summary, the primary amendments to the consultation paper are:

  1. Insertion of more specific definitions of institutions, key function holders, consolidating credit institutions and AML/CFT supervisor
  2. Insertion of money laundering and terrorist financing elements as a trigger for re-assessment of suitability of personnel and as a factor to consider at all times
  3. Clarification of where 'responsibility' sits with regard to ensuring compliance with the guidelines
  4. Clarification of what is meant by gender balance
  5. Clarification of what actions can be taken by a competent authority following findings of shortcomings
  6. Insertion of a new power for a competent authority to remove an unsuitable individual
  7. Clarification of the use of sharing of information.

What next?

Interested parties are invited to respond to eight questions relating to these changes, relating to the clarity and appropriateness of the amendments.

Once the revised Guidelines enter in to force the existing 2017 Guidelines will be repealed.

Submissions must be sent by 31 October 2020.

For more information contact Dario Dagostino, Kevin Allen and Patrick Brandt, Financial Regulation Partners or Sinéad Prunty, Financial Regulation Knowledge Lawyer.

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