General requirements

  1. Banking Law: Articles 21, § 1, 1°, 31, 56, 168 and 333, § 1, 5°
  2. Relevant thematic NBB circulars:
  3. International reference documents:

The institution must have a transparent management structure which ensures effective and prudent management in light of the nature, scale and complexity of the risks inherent to the institution’s business model and operations.

In accordance with Article 21 of the Banking Law, as a basic rule, there must be a division at the highest level between the functions responsible for effective management and the functions responsible for the supervision thereof. The following functions must be in place:

  • the general policy function, responsible for determining general policy and strategy;
  • the management function, responsible for managing the institution’s activity; and
  • the supervisory function, responsible for supervising management.

The Banking Law provides for a sui generis governance model[1]. In credit institutions, the general policy function is entrusted to the executive and non-executive directors in the statutory governing body, the management function is entrusted to the executive directors, who sit on the management committee, and the supervisory function is entrusted to the non-executive directors, in particular (but not exclusively) to the members of the specialised committees of the statutory governing body established according to the Banking Law (audit committee, risk committee, nomination committee and remuneration committee)[2].

The institution must clearly define the responsibilities for management and the supervision of management. The management function should define the competences and responsibilities of each segment of its organisation, specify the procedures and reporting lines and monitor their application. The interaction between the management function and the supervisory function must be efficient and constructive.

 

[1] See the NBB’s 2019 Annual Report, pages 280 and 281. Notwithstanding the particularities provided for in the Banking Law due to the sui generis hybrid governance model, the ordinary law provisions of the CAC remain applicable.
[2] See Articles 27, 33 and 34 of the Banking Law.