- SUPERVISION NEWSLETTER
Fit and proper: increasing understanding by consulting the public
16 November 2021
The ECB is committed to increasing the transparency of European banking supervision. To this end, on 15 June it launched a public consultation on the revised Guide to fit and proper assessments and the new Fit and proper questionnaire.
The guide and its publication serve several purposes. Among other things, the guide seeks to explain in detail the policies that are applied when assessing the suitability of individual members of the management bodies of directly supervised banks. It also aims to reinforce and explain the enhanced supervisory expectations regarding the collective suitability of bank boards and the individual accountability of their members. Moreover, it outlines the process for reassessing board members in cases where new facts emerge that may affect their suitability. The new fit and proper questionnaire has been revised to foster further convergence of fit and proper supervision across countries participating in European banking supervision. It will make the process more efficient too, as it ensures that banks provide complete and accurate information at an early stage. In addition, the questionnaire now covers gender diversity and the climate-related knowledge of bank boards.
On 15 July the ECB held a virtual public hearing on the guide and questionnaire for interested parties. The Vice-Chair of the ECB’s Supervisory Board, Frank Elderson, chaired the meeting and was joined by Elizabeth McCaul, ECB representative to the Supervisory Board. Following a short presentation, the panel took part in a question and answer session with the 180 online participants. A popular subject was the new concept of individual accountability within the collective body, whereby each board member has a duty to challenge decisions that might put a bank at risk, even if the respective topic does not fall within the specific mandate of the individual board member.
The public was invited to send written comments on the guide and questionnaire by 2 August. Over 700 separate comments were received from 16 respondents, mainly banking federations but also some individual banks. Approximately half of these comments were requests for clarification, while others led to changes in the guide and questionnaire. For example, some respondents argued that asking an appointee to declare their total assets and loans when assessing potential conflicts of interest was unnecessary and that this sensitive information should not be required. The ECB agreed with the respondents and found that the information was rarely processed in practice. The guide was amended accordingly and also to apply the principle of proportionality – now only asking for information that is absolutely necessary. In addition, many respondents argued for a maximum time frame for adopting a fit and proper decision by aligning national laws. The ECB welcomes this suggestion from the industry and agrees that a harmonised and uniform approach is desirable across all countries participating in European banking supervision. However, there is currently no harmonised time period in national law. Nevertheless, the ECB seeks to ensure that all appointments are processed within four months, in accordance with the European Banking Authority’s guidelines on suitability.
Colleagues in the ECB’s Fit and Proper Division, together with supervisors from the Nationale Bank van België/Banque Nationale de Belgique, the Banco de España, the French Prudential Supervision and Resolution Authority (Autorité de contrôle prudentiel et de résolution), the Banca d’Italia, the Malta Financial Services Authority and the Banco de Portugal are currently processing and responding to the comments received. A feedback statement containing a summary of the comments and answers will be published together with the final guide and questionnaire in December 2021.
The ECB is committed to greater transparency and accountability. The public consultation on the draft guide and questionnaire and their forthcoming publication enable the industry to better understand how fit and proper assessments are conducted. The feedback from interested stakeholders has improved the overall quality of the guide and questionnaire and has therefore helped to raise the bar for fit and proper assessments. Specifically, a better understanding of the criteria and expectations should enable banks to improve the quality of their fit and proper submissions. Moreover, the guide and questionnaire (as well as the simplified submission process through the banking supervision portal) should make the assessment process more efficient. Overall, the fit and proper consultation exercise proved to be an important milestone on the path to enhanced transparency in European banking supervision.