EBA and ESMA issue final revised guidelines on governance

How will the new guidelines and enhanced supervisory expectations impact your governance set-up?

Banking alert | 27 September 2017


In their pursuit of resolving weaknesses revealed during the financial crisis, the EBA and ESMA have published revised guidelines regarding the governance of EU banks. By doing so, they address one of the top priorities of the Single Supervisory Mechanism and a key element of the Supervisory Review and Evaluation Process. The EBA guidelines on internal governance focus on the harmonisation of internal governance processes within the EU. On the other hand, the joint ESMA & EBA guidelines on the Assessment of the Suitability of Members of Management Body and Key Function Holders highlight the importance of a thorough evaluation of the management body.

Sound management of financial institutions is crucial to maintain the level of trust in the financial system. Furthermore, it has proven to be fundamental in the effective remediation of crisis situations. Setting up a structure that could compromise the transparency of the institution has to be justified by an economic and lawful purpose and should not prevent supervisory authorities from fulfilling their duties.

Risk culture

A well-defined risk management framework has to be set up in line with the risk appetite and profile of the institution. The Risk Appetite Framework (RAF) establishes a system of limits and controls per risk category that an institution is exposed to as driven by its business model.  The RAF is developed by the management body, who then supervises the business units’ adherence on a day-to-day basis. It is essential that the risk appetite is consistent and commensurate with a bank’s business strategy, and is implemented across the institution.

In order to ensure compliance with the guidelines, a conflict of interest policy and internal whistleblowing procedures should also be set up. Additionally, the guidelines set out detailed requirements specifically for the second and third line of defence.

Information flow

Each committee should have an assigned role and ensure appropriate information flow between the committees, the management and the regulators. All required information should be provided without undue delay in order to ensure effective decision-making.

Suitability of Board Members

The amended guidelines aim to align the existing guidelines with new requirements introduced under CRD IV and MiFID II. Under the revised guidelines, the National Competent Authority is required to evaluate all members of the management body. In order to achieve this, the EBA provides a set of common criteria to assess management on an individual- as well as a collective basis. The aforementioned criteria consist of:

  • Knowledge
  • Integrity
  • Skill
  • Independence of mind
  • Experience
  • Time Commitment
  • Reputation
  • Diversity
  • Honesty


Specifically, the result of the assessment should determine the foundation of necessary, ongoing training and development programmes for members of the board. 

How we can help

Both sets of guidelines enter into force on 30 June 2018. In your pursuit of compliance we can offer the following services:

  • Gap Analysis on policies and procedures. Our Gap Analysis Tools are used to assess compliance along the 8 governance work-blocks specified in the EBA SREP Methodology
  • Board evaluation service. We can assist you in conducting the collective suitability assessment in line with the revised guidelines, and in particular in interpreting the results of the assessment. Furthermore, our approach to board evaluation incorporates a number of alternative techniques, such as reviewing board documentation and sitting in board meetings to assess board dynamics. Additionally, we can challenge board members through interviews and the execution of case studies.
  • Board training. We offer training on a range of risk and regulatory topics. Our training menu will be designed based on knowledge gaps identified in the collective suitability assessment as well as any other areas of interest identified by the board.
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