In an effort to ensure that financial firms have active, engaged management, European regulators are consulting on updates to the suitability requirements for senior personnel at banks and investment firms.
On Wednesday, the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) launched a joint consultation on revised guidelines for assessing the suitability of firms’ top managers and other key personnel.
In the wake of the financial crisis, European policymakers adopted requirements that aimed to combat some of the weaknesses in the functioning of firms’ management that were exposed by the crisis — including a lack of accountability, which led to excessive risk taking, and ultimately the collapse of several major industry firms.
“Weaknesses in corporate governance, including inadequate oversight by and challenge from the supervisory function of the management body in a number of credit institutions and investment firms, have contributed to excessive and imprudent risk-taking in the financial sector which has led in turn to the failure of individual entities and systemic problems,” the regulators noted in their consultation.
In response, regulators have sought to strengthen the role and responsibilities of firms’ management to protect investors, consumers and market integrity — including through regulatory guidelines that are intended to enhance and harmonize the assessment of management’s suitability, and to bolster firms’ governance arrangements.
Now, the regulators are proposing revisions to the current edition of that guidance, which was adopted in 2021, including proposals to simplify and streamline the guidance to “reduce administrative burden and provide greater flexibility and clarity for institutions and supervisors.”
The revised guidance also aims to strengthen links between the suitability requirements and the anti-money laundering framework.
The deadline for submitting comments on the consultation is May 25. The regulators are also holding a public hearing on April 15 to solicit feedback.