Fit & proper

General

According to Article 19 of the Banking Law, members of the management body, senior managers and persons responsible for the independent control functions of credit institutions must at all times meet the fitness and propriety criteria required for their role.

Although it is in the first place up to the institutions themselves to select suitable persons and to retain them, the fit and proper assessment is part of the prudential supervision. According to Articles 60 and 61, proposed appointments should previously be notified and submitted for approval to the supervisory authority.

The manual on assessment of fitness and propriety indicates how the legal "fit & proper" provisions are implemented by the supervisory authority and how the fit & proper assessments will be carried out. Both content and form of the assessments are addressed.

Senior management

The term "senior management" is important in the context of the legal fit & proper provisions.

"Senior management" refers to the group of persons, whether or not members of the management body, whose function within the institution implies that they have a direct and decisive influence on the activities at the highest level.

Thus the senior management consists of the members of the management committee and the persons at a hierarchical level immediately below that of the management committee (the so-called MC-1 level), as far as these persons can have a direct and decisive influence on the management of all or certain activities of the institution.

Where, in accordance with Article 26 of the Banking Law, the institution has no management committee as a result of a derogation authorized by the supervisory authority, "senior management" shall be understood to mean the persons that take part in the management of the institution at the highest level, i.e. the executive members of the management body and persons who, without having the capacity of member of the management body or administrator, are qualified as senior managers by the institution, due to the direct and decisive influence they can exercise over the management of all or certain activities of the institution.

Furthermore, the supervisory authority considers that the managers of the EEA branches of credit institutions governed by Belgian law are also part of the senior management (see Article 1, 11° of the Regulation of the National Bank of Belgium of 6 December 2011 on external functions exercised by managers of regulated undertakings). This position is enshrined in Article 86 of the Banking Law.

The persons responsible for the independent control functions are not considered to be senior managers in the exercise of these functions, because these functions require independence, and this independence is incompatible with the decision-making power which is intrinsic to the activities of the institution. However, as they have a significant influence on the management of the institution, they are considered as key function holders within the meaning of EBA/GL/2017/12.

It is up to the institution itself to decide who will be part of the senior management. For some years already, the supervisory authority has been advising the management committee or, in the absence of a management committee, the management body, to draw up a list, by formal decision (that takes into account the effective decision-making concerning its activities), of the names or functions of the persons who, without being members of the management body, are qualified as senior managers.

Although all senior managers must have the qualities laid down in Article 19 of the Banking Law, the appointment in credit institutions which have a management committee, of senior managers who are not members of the management committee or of the management body, must not be previously notified and submitted for approval to the supervisory authority. In specific terms, this concerns the persons at a hierarchical level immediately below that of the management committee, who have a direct and decisive influence over the management of all or certain activities of the institution (DC-1 level). These persons shall also be considered as key function holders as defined in EBA/GL/2017/12 and must of course have the qualities required from senior managers pursuant to Article 19 of the Banking Law. It is in the first place up to the credit institution itself to ensure that this is the case. However, compliance by these persons with the said requirements is not subject to prior approval by the supervisory authority pursuant to Article 60 of the Banking Law, but is verified in the context of the on-going supervision of the institution. This approach reflects the concern to focus the reinforcement of the supervision, as regards the managers, on the persons that take part in the management of the institution at the highest level and are members of its bodies.

Staff members of the institution

Although the legal fit and proper provisions refer to individual assessments of a certain scope of persons, it is obvious that this topic should also be addressed from the point of view of the requirement of an appropriate organization and adequate internal control for the institution as a whole. For example, a proper recruitment, assessment and training policy for the entire staff of an institution is considered to be an element of sound governance.