What is fit and proper supervision?
18 March 2016 (updated 22 March 2019)
What is fit and proper supervision?
Banks’ directors must be capable of taking decisions that ensure the sound and prudent management of their banks. Such decisions safeguard, by extension, the soundness of the banking sector as a whole.
The primary responsibility for selecting suitable directors and making sure that they remain suitable lies with the banks. At the ECB we supervise this process, checking that directors are fit and proper for their role. We must prevent individuals who would pose a risk to a bank’s correct functioning from either taking on a role in the first place or from continuing in their role if a serious issue arises. The ECB therefore acts as the gatekeeper for a bank’s board of directors.
To whom does it apply?
We only take fit and proper decisions for the directors of the banks we supervise directly, i.e. significant banks under European banking supervision. For key function holders at these banks (e.g. heads of internal control functions when they are not part of the board of directors) we only take fit and proper decisions when required by national law. Fit and proper decisions for less significant banks are still taken by the national supervisors, except in the case of new bank licences.
What are the criteria that potential directors have to meet?
We conduct fit and proper assessments for newly appointed directors in accordance with the respective national laws implementing the Capital Requirements Directive. The appointees are assessed using the five fit and proper criteria set out in the Capital Requirements Directive:
|Knowledge, skills and experience||Does the candidate have the knowledge, skills and experience necessary to take on a specific role in the bank?|
|Reputation||Does the candidate have a criminal record or a history of administrative or tax irregularities? Is the candidate involved in pending legal proceedings?|
|Conflicts of interest||Directors must be able to act free of external influences when taking decisions. Does the candidate have any conflicting interests that may hinder objective decision-making?|
|Time commitment||Is the candidate able to devote sufficient time to the proposed role within the bank?|
|Collective suitability of the board||Looking at the added value of a particular candidate for the board as a whole, how does the candidate fit within its overall composition?|
How is a fit and proper assessment carried out?
To start with, the banks themselves have a responsibility to appoint suitable individuals, and must therefore have a robust process in place to select the best candidates.
Banks then submit the appointee’s file to their national supervisor (not the ECB) for a fit and proper assessment, using the relevant national form.
Once the process has started, the national supervisor will assist the ECB’s Authorisation Division and the Joint Supervisory Team (JST) responsible for the bank in reaching a joint assessment. Involving the JST is essential as it helps ensure that fit and proper decisions are in line with the overall supervision of the bank. The final decision is taken by the ECB.
So the whole process is paper-based?
Not completely. The assessment can always be discussed through informal contacts between the supervisor and the bank when preparing an appointee’s file. During the actual assessment process, we may also decide to interview the appointee to gather information to supplement the written information provided by the bank. This also provides us with an opportunity to discuss our specific expectations of the appointee’s future role.
And, of course, if we intend to object to the appointee we always give them the right to be heard.
How long does the fit and proper assessment take?
The main factor affecting the timing of an assessment is the availability of information. It depends on
- how complete the information provided by the bank is
- how fast the national supervisor can gather any additional information needed
- any delays in receiving this information, particularly in jurisdictions where the assessment is carried out after the candidates are appointed
In some jurisdictions the assessment will be suspended or interrupted pending the submission of additional information by the supervised bank. Other factors that can have a material impact on the overall processing time are the complexity of the assessment (e.g. the profile, role and position of the person being assessed) and the need to conduct an interview or a hearing.
We also respect deadlines set out in national law and encourage compliance with the four-month assessment period set out in the Joint ESMA and EBA Guidelines on the assessment of the suitability of members of the management body and key function holders.
Can a candidate take up a position before getting the green light?
The point at which the assessment procedure begins varies from country to country: banks must either apply to or notify their national supervisor once appointees have taken up their new roles, or they have to apply to the supervisor before appointees can take up their positions.
Does a favourable fit and proper decision give the appointee the right to work in any bank?
No. A fit and proper decision is taken for a specific bank and position at a given moment in time. If the situation changes, for example if the appointee moves to a different bank, a new assessment will need to be carried out.
Have you ever refused a candidate proposed by a bank?
First of all, we don’t make fit and proper decisions public. Generally, however, we don’t expect a high number of refusals as banks know the criteria that their appointees need to meet.
In addition, our decisions are not always simply positive or negative. We sometimes impose requirements on the appointee and the bank to address specific concerns; we may, for example, require the appointee to complete specific training or to relinquish a function outside the bank, or we may ask the bank to keep us informed of a pending legal proceeding.
Furthermore, fit and proper assessments are based on a due and fair process. If we have concerns regarding the fulfilment of the legal criteria by an appointee, we will share them with the bank and the individual in question. Banks and/or appointees may decide to reconsider the application if it becomes clear that the concerns cannot be fully addressed.