3.4.5 The Joint EBA and ESMA Guidelines 2017

The Joint EBA and ESMA Guidelines on suitability, issued in September 2017, aim to harmonize and improve suitability assessments within the Member States.1 Collective suitability criteria and criteria such as ‘diversity’, ‘sufficient time’ and ‘independence of mind’ are explained in greater detail.

Independence of mind means the capacity to exercise objective and independent judgement and to act objectively, critically and independently. This requirement should be assessed without taking into account the proportionality principle, in other words regardless of the scale and complexity of the institution and the specific role and function. The existence of conflicts of interests that may impact the independence of mind should be identified and, if possible, mitigated.

Also, as a matter of good practice and taking into account the proportionality principle, there should be a sufficient number of independent non-executive members on the board to ensure effective oversight of the board and challenge its decisions.

The guidelines further state that members of the management body should uphold high levels of integrity and honesty and should act in line with high standards of conduct. They should possess the required knowledge and expertise, and the right skills to fulfil their role and function. An annex to the report lists the skills that may possibly be needed.2 Members of the management body are also expected to be able to contribute to the implementation of an appropriate culture, corporate values and behaviour within the institution.3 This expands the test to include more qualitative requirements and elements of a fairly subjective nature (skills, culture and behaviour).The Joint Guidelines have been applicable since June 2018.

It may be concluded that since the financial crisis a robust and extensive set of suitability requirements has been put in place for members of the management body and key function holders in credit institutions and investment firms. The recent amendments to CRD IV (“CRD V”) nor the new prudential regime for investment firms (“IFR/IFD”) bring fundamental changes to this framework.