News Update Financial Regulatory

1 September 2020

Since we published our last News Update, European supervisory authorities, the European Banking Authority ("EBA") and the European Supervisory Market Authority ("ESMA"), have issued a few consultation papers, guidelines and other information. Due to the summer holiday period, this News Update does not contain any relevant news updates from the Dutch and other European supervisory authorities and legislatures. Below we take a closer look at the consultation to revise the EBA and the ESMA's joint guidelines for assessing the suitability of members of the management body and key function holders. We also highlight some other consultation papers, guidelines and information issued by the EBA and the ESMA.

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EBA and ESMA - Consultation to revise joint guidelines for assessing the suitability of members of the management body and key function holders

On 31 July 2020, the EBA and the ESMA launched a public consultation on their draft revised joint Guidelines on the assessment of the suitability of members of the management body and key function holders ("the Guidelines"). The revisions reflect the amendments introduced by the fifth Capital Requirements Directive (2019/878/EU) ("CRD V") and the Investment Firms Directive ("IFD") in relation to assessing the suitability of management body members. The consultation runs until 31 October 2020.

The EBA and the ESMA emphasise that the Guidelines clarify that the knowledge, experience and skill requirements are important aspects of the suitability assessment of management body members and key function holders, as they contribute to sound governance arrangements. The Guidelines consider the changes introduced by CRD V for identifying, managing and mitigating money laundering and terrorism financing risks and independence of mind of the management body. The Guidelines provide common criteria for assessing individual and collective knowledge, skills and experience, as well as good reputation, honesty and integrity and independence of mind. Moreover, the Guidelines provide a framework for assessing the time commitment of each member of a management body. The Guidelines also confirm that being a member of affiliated companies or affiliated entities does not in itself prevent a management body member from acting with independence of mind. In addition, the Guidelines specify that it is important that the management body is gender balanced and set out how diversity is to be taken into account when selecting management body members.

The Guidelines also consider the recovery and resolution framework introduced by the Bank Recovery and Resolution Directive ("BRRD"), and provide further guidance on this. The suitability of newly appointed members of the management body and the suitability of the management body collectively are relevant as part of early intervention measures and during resolution. These require an assessment.

Finally, the Guidelines consider the 2019 legislative framework for investment firms for identifying the categories of investment firms subject to the various guidelines.

EBA and ESMA – Other publications

• The EBA launched public consultations on the use of RegTech solutions and ways to support the uptake of RegTech across the EU, the Guidelines on criteria for the use of data inputs in the expected shortfall risk measure under the Internal Model Approach, and a revision of its Guidelines on internal governance.
• The EBA also published Guidance on the impact of the Capital Requirements Regulation ("CRR") adjustments that were made in response to the COVID‐19 pandemic on supervisory reporting and disclosure.
• The EBA updated data used for identifying global systemically important institutions ("G-SIIs"), its work programme for 2020 in light of the COVID-19 pandemic and the 2021 EU-wide stress test timeline, sample and potential future changes to its framework.
• The EBA emphasised that it supports the EU Commission’s call for a more efficient and effective framework to tackle money laundering and terrorism financing, and called on financial institutions to finalise preparations for ending the transitional arrangements between the EU and UK.
• The ESMA provided an updated XML schema and reporting instructions for securitisation reporting.
• The ESMA has written to the European Commission about the review of the Alternative Investment Fund Managers Directive ("AIFMD"). The ESMA has highlighted areas to consider during this review, such as harmonising the AIFMD and UCITS regimes, delegation and substance, liquidity management tools, leverage, the AIFMD reporting regime and data use as well as harmonising supervision of cross-border entities.