Fitness and Propriety


Fitness and Propriety

The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) published their joint Guidelines to assess the suitability of members of management bodies

In June 2018 the joint Guidelines to assess the suitability of members of management bodies (MB) and key function holders (KFH) issued by EBA and ESMA will come into force. These Guidelines aim to harmonise and improve suitability assessments within EU financial sectors, and to ensure sound governance arrangements in financial institutions in line with the Capital Requirements Directive (CRD IV) and the Markets in Financial Instruments Directive (MiFID II).

Previous speeches made the European Regulators have flagged the issue around inconsistency in fit and proper assessments across EU Member States and the need for harmonization. The introduction of common criteria will require banks in the EU countries to revisit their framework for assessing both individual and collective competencies of members of their MB.

The Guidelines highlight the importance for institutions to consider whether candidates have the knowledge, qualification and skills necessary to safeguard proper and prudent management of the institution. The Guidelines also foster more diverse management bodies and, therefore, contribute to improved risk oversight and resilience of institutions. Furthermore, EBA and ESMA guidance highlight the importance of the individual and collective suitability of board members.

The guidelines for assessment of suitability of the MB and KFH cover the following areas:

  • Provide common criteria to assess the individual and collective knowledge, skills and experience of members of the MB as well as the good repute, honesty, integrity, and independence of mind of members of the MB;
  • Require members of the MB to commit sufficient time to perform their duties and call for firms to consider the wider time commitments of MB members outside the firm;
  • Comply with the limits on the number of directorships held by members of the MB as set out in CRD IV;
  • Set out how different aspects of diversity, educational and professional background, age, gender, and geographical provenance should be taken into account in the recruitment process;
  • Highlight the importance of induction and training to ensure the initial and ongoing suitability of members of the MB; and
  • Call for institutions to establish training policies and to allocate appropriate financial and human resources to induction and training.

Institutions are therefore required to establish training policies and to devote appropriate financial and human resources to induction and training. Members of the board should have sufficient time to acquire, maintain and enhance their knowledge and skills – through additional courses or seminars.

Deloitte can help you:

  • Develop requirements and specifications for key roles for recruiting purposes for managerial roles;
  • Perform a gap analysis and assist in the remediation of governance, organizational structure and documentation;
  • Advise in gap remediation regarding committee composition to ensure collective suitability;
  • Develop a tailored training program to ensure individual suitability;
  • Develop and deliver non-executive managerial courses - cross-training programs for various levels and various departments; computerized training programs and evaluation tests;
  • Develop and deliver workshops, case studies, “train the trainer” workshops to empower internal departments to internalize the initiative;
  • Develop awareness campaigns on regulation, professional ethics and conduct, risk culture and behaviors;
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