The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) published their revised final joint guidelines on fit and proper requirements (the revised Guidelines) on 2 July 2021 (please see this link).
The revised Guidelines establish further harmonised criteria for the suitability of the members of the management body and key function holders and take into account the amendments introduced by the revised Capital Requirements Directive (CRD V) and the Investment Firms Directive (IFD), and their impact on the assessment of the suitability of the members of the management body. The revised guidelines focus in particular on the risks of money laundering and terrorist financing (ML/TF), and gender diversity.
In the revised Guidelines, the EBA and ESMA note that institutions should take measures and establish policies to ensure that gender balance is taken into account when selecting candidates for management positions. Institutions should aim at an appropriate representation of all genders within the management body.
Competent authorities are responsible for ensuring compliance with anti-money laundering requirements and have an important role to play in identifying and addressing weaknesses in institutions' Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) systems and controls. Against this background, the EBA and ESMA note that institutions and competent authorities should be aware of the negative effect on an institution’s safety and soundness that could result out of a possible involvement of a member of the management body and/or a key function holder in ML/TF or of the institution being unwilling to take robust action to manage the risk of the institution’s involvement in ML/TF.
The revised Guidelines clarify that the ability to understand ML/TF risks will be part of the assessment of the collective suitability of the members of the management body and the assessment of key positions. Furthermore, competent authorities will assess whether there are reasonable grounds to suspect that ML/TF is being or has been committed or attempted or that the risk thereof could be increased by a member of the management body and/or key function holder.
The revised guidelines apply in principle to credit institutions, investment firms and (mixed) financial holding companies, but practice shows that the guidelines are also considered by competent authorities, such as the Dutch Central Bank, when assessing the suitability of members of the management body and key positions of other financial institutions, such as insurers.
Together with the revised Guidelines, the EBA has published its final guidelines on internal governance (link). In line with the revised Guidelines, the EBA guidelines take into account the changes introduced by CRD V and the IFD with respect to sound an effective governance arrangements, in particular with respect to gender diversity, ML/TF and the management of conflicts of interest involving members of the management body and their related parties.
The revised Guidelines and EBA guidelines on internal governance will apply from 31 December 2021.
