Organisational framework and structure

  1. Banking Law: Article 21
  2. NBB Regulation:
  3. Relevant thematic NBB circulars:
  4. International reference documents:

Organisational framework

The statutory governing body should implement and ensure a suitable and transparent organisational and operational structure for the institution. This implies in particular that the reporting lines and the allocation of responsibilities should be clear, well-defined, coherent and duly documented. For further information on this subject, please refer to paragraphs 68 to 70 of Guidelines EBA/GL/2021/05.

Decision-making process, reporting lines and distribution of duties

The institution should have a clear, transparent and documented decision-making process and a clear allocation of responsibilities and reporting lines within its internal control framework, including its business lines, internal units and independent control functions.

The reporting lines should be clearly defined. The internal reporting should be adapted to the nature, size, complexity and risk profile of the institution, and should cover all of the institution’s activities.

When implementing the internal control framework, institutions should establish adequate segregation of duties, for example by allocating conflicting activities or supervisory and reporting responsibilities to different persons, and by establishing information barriers (Chinese walls) to prevent the transmission of certain information (e.g. through the physical separation of certain departments).

Administrative and accounting organisation

The institution should have an appropriate administrative and accounting organisation, including inter alia a control system that provides a reasonable level of assurance of the reliability of the financial reporting process.

The management committee must take, under the supervision of the statutory governing body, the necessary steps to ensure that the institution has a reliable financial and prudential reporting.

Know your structure

Directors should have a clear understanding of the institution’s legal and operational structure and of its activities, including the risks associated with the services and products offered. They must ensure that this structure and these activities are in line with the approved business and risk strategy and risk appetite. The supporting functions (secretary general, legal affairs, human resources, communication) and the independent control functions should be given all the specific information they need to properly fulfil their respective tasks.

Institutions that offer a broad range of financial services and products (banking, insurance and investment products), propose complex services and products and/or develop cross-border activities should set up adequate structures to monitor the risks associated with these activities.

Institutions that are part of a group should be able to inform their supervisory authority of the structure of the group they belong to, as well as the group’s governance and control mechanisms that apply to them. When an institution establishes within its group a large number of legal entities, their number, and in particular any interconnections and transactions between them, should not constitute an obstacle for sound governance or efficient management and supervision of the group’s risks.

For further information, please refer to paragraphs 71 to 75 of Guidelines EBA/GL/2021/05.

Complex structures and non-standard or non-transparent activities

Institutions are increasingly making use of complex service schemes and company structures in their activities (setting up complex company structures, special purpose vehicles, trust structures), be it for own account or to propose these schemes and structures to their customers. In addition, institutions often develop cross-border activities. The decision to develop activities in specific jurisdictions is driven by a range of factors and circumstances relating to strategic, commercial or financial objectives that may be legitimate. However, complex structures or foreign activities, in particular in offshore financial centres or jurisdictions devoid of transparency, may lead to financial, legal and/or reputational risks and as such may not meet prudential requirements.

In accordance with Article 21 of the Banking Law, institutions should avoid setting up complex and potentially non-transparent structures or activities. In taking their decisions, they should carry out a risk assessment to determine on the one hand whether such structures or activities could be used for money laundering, terrorist financing or other financial crimes, and on the other hand what supervisory and regulatory provisions apply to such structures or activities.

Paragraph 76 of Guidelines EBA/GL/2021/05 sets out the criteria to be taken into account by institutions in their risk assessment. Where an institution sets up complex structures or activities, the statutory governing body must understand those structures, their purpose and the specific risks associated with them, and involve the internal control functions in an appropriate manner. In any case, institutions should not set up opaque or unnecessarily complex structures which have no clear economic rationale or legal purpose or structures that could raise concerns that these might be created for a purpose connected with financial crime.

Please refer to paragraphs 76 to 82 of Guidelines EBA/GL/2021/05 for more information on this subject.

In addition, regulations on special mechanisms and fiscal prevention policy have been reviewed. The NBB has notified institutions by circular of a list of transactions and practices that must be considered “special mechanisms”. The prohibition on setting up “special mechanisms” aims to prevent financial institutions from carrying out acts that promote tax fraud by their customers and that cannot be justified within the framework of the normal and proper transactions and services provided by institutions. The NBB has also asked institutions to establish a prevention policy striving for a fiscally correct attitude in all respects and not to cooperate directly or indirectly with customers who use their services to evade their tax obligations.

 

For further information, please refer to Article 21, § 1/1 of the Banking Law, Circular NBB_2021_17 of 6 July 2021 on fiscal prevention policy and Circular NBB_2021_17 of 6 July 2021 on special mechanisms.