3.3.3 Independence of mind

A distinction should be made between (i) independence of mind and (ii) “formal” independence within the meaning of the definition of “independent director” in the supervisory laws relevant to this chapter. 

3:57 With regard to the first concept (independence of mind), any person who acts as a director, senior manager or person responsible for an independent control function must be able to make conscientious, objective and independent decisions in the interest of the institution and its stakeholders, after having carefully weighed all available information and opinions, and independently of any external influence. 

3:58 With regard to formal independence, please refer to the criteria set out in the supervisory laws (see for example Article 3, 83° of the Banking Law). These criteria refer to those in paragraph 89 of Guidelines EBA/GL/2021/06. This qualification is granted to certain non-executive directors whose task is to represent all of the institution’s stakeholders and to supervise management, in particular by participating in specialised committees of the statutory governing body[1].

3.3.3.1 Independence of mind and conflicts of interest

3:59 Directors, senior managers and persons responsible for independent control functions must be able to make their own decisions in a sound, objective and independent manner. Independence of mind is demonstrated by the character and conduct of the person concerned and may be affected by conflicts of interest.

3:60 Thus, the institution must assess whether or not the person subject to the suitability assessment: 

  1. has the necessary behavioural skills, including:
    1. courage, conviction and strength to effectively assess and challenge the proposed decisions submitted to him/her;
    2. the ability to ask questions and express divergent opinions; and
    3. the ability to resist groupthink;
  2. is likely to face conflicts of interest that could impede his/her ability to perform his/her duties with the necessary independence and objectivity.

3:61 Given the risk of conflicts of interest, the Banking Law stipulates that the statutory governing body should establish governance mechanisms to prevent such conflicts. In this regard, please see Article 62, § 2 et seq. of the Banking Law, which relates to the exercise of external functions[2], and Article 72 of the same Law, which relates to loans, credits and guarantees to managers, shareholders and related persons[3]. 

3:62 Guidelines EBA/GL/2021/06 provide that consideration should be given to at least the following factors that could create actual or potential conflicts of interest[4]:

  1. economic interests (e.g. shares, other ownership rights, holdings and other economic interests in the institution’s counterparties, intellectual property rights, loans granted by the institution to a company owned or controlled by members of the statutory governing body);
  2. personal or professional relationships with the owners of qualifying holdings in the institution;
  3. personal or professional relationships with staff of the institution or entities included within the scope of prudential consolidation (e.g. close family relationships);
  4. other employments and previous employments in the recent past (e.g. within the past five years);
  5. personal or professional relationships with relevant external stakeholders (e.g. being associated with material suppliers, consultants or other service providers);
  6. membership in a body or ownership of an entity with conflicting interests; and
  7. political influence or political relationships.

3:63 In the same vein, conflicts of interest can be classified into 4 types: (i) personal, (ii) professional, (iii) financial and (iv) political conflicts of interest.

3:64 The institution should identify the actual or potential conflicts of interest of the person concerned, in accordance with its conflict of interest policy, and assess whether or not these conflicts are material.

3:65 With regard to the materiality of a conflict of interest, please refer to Guidelines EBA/GL/2021/06 and Article 72 of the Banking Law for conflicts of interest that may arise from loans, credits and guarantees granted to members of the statutory governing body and persons associated with them[5].

3:66 All actual and potential conflicts of interest, whether material or not, on the part of the statutory governing body, senior management or a person responsible for an independent control function must be adequately discussed, documented, decided on and duly managed by the competent body[6] (i.e. the necessary measures should be taken). The persons concerned should abstain from voting on any matter which places them in a situation of conflict of interest.

3:67 If a material conflict of interest has been identified, the institution should (i) perform a detailed assessment of the situation; (ii) decide which mitigating measures it will take based on its internal conflicts of interest policy; and (iii) decide which measures it will take to prevent the conflict of interest, if it cannot adequately mitigate or manage it. 

3:68 The institution should inform the NBB of any actual or potential conflict of interest, whether material or not, that may impact the independence of mind of a member of the statutory governing body, of a senior manager or of a person responsible for an independent control function, and communicate the mitigating or preventive measures taken (“conflict of interests statement”):

  • If the conflict of interest has been deemed non-material, the institution should explain why, as part of the suitability assessment;
  • If the conflict of interest has been deemed material, the institution must provide the NBB with at least the following information: (i) a description of the conflict of interest identified, (ii) a description of the assessment performed within the institution, (iii) the institution’s conclusion as to the mitigating or preventive measures taken, and (iv) the reasons for the adequacy of those measures.

3:69 For further information on conflicts of interest, please refer to Guidelines EBA/GL/2021/06.

3.3.3.2 Independence of mind versus formal independence

3:70 As mentioned above, independence of mind should not be confused with the notion of formal independence within the meaning of Article 3, 83° of the Banking Law and other supervisory laws. An independent director in the formal sense is a non-executive director who has no link with the shareholder and who represents the interests of all the institution's stakeholders. The supervisory laws generally require the presence of one or more independent directors in the specialised committees of the statutory governing body[7].

3:71 The concept of independence is defined in the supervisory laws (see for example Article 3, 83° of the Banking Law). These laws contain a list of criteria that must be met to be considered independent in the formal sense. However, the institution also has the possibility to demonstrate to the NBB that, although not all criteria are met, the independence of the person concerned is not compromised (in accordance with the “comply or explain” principle)[8].

3:72 In practice, the NBB’s decisions on the suitability of the person concerned and its decisions relating to compliance or justification of non-compliance with the independence criteria set out in the supervisory laws are usually taken simultaneously. However, it cannot be excluded that these two decisions are taken separately when the issue of independence also concerns the ongoing monitoring of governance.

[1] Regulation (EU) No 909/2014 (CSDR) does not contain a specific rule on the formal independence of directors of central securities depositories, but it is recommended that these institutions take into account the information published by ESMA on this subject (including Q&As) and that they clarify in their governance memorandum how they apply these criteria concretely. 

[2] See also the Royal Decree of 8 February 2022 approving the Regulation of the National Bank of Belgium of 9 November 2021 on the exercise of external functions by managers and persons responsible for independent control functions of regulated companies, as well as Communication NBB_2022_19 on the same subject.

[3] See also Circular NBB_2017_21 on this subject.

[4] Regulation (EU) No 909/2014 (CSDR) does not specifically define the concept of conflicts of interest for central securities depositories. In this respect, please refer to the requirements set out in the ESMA RTS 2017/392.

[5] Pursuant to Article 72 of the Banking Law, only loans, credits and guarantees exceeding EUR 500,000 are to be considered as material. For further information, please refer to Circular NBB_2017_21. 

[6] The competent body to manage conflicts of interests is (i) the management committee for senior managers (if there is no management committee, the statutory governing body) and (ii) the statutory governing body for non-executive directors and responsible persons for independent control functions.

[7] See in particular Article 28 of the Banking Law, which stipulates that credit institutions which are required to set up an audit committee, a risk committee, a remuneration committee and a nomination committee must ensure that at least one independent director sits on each of these committees. Furthermore, the majority of the members of the audit committee must be independent.

[8] In this case, the institution must submit a request for derogation together with the fit & proper form of the director concerned, in which it justifies the validity of this request. The NBB decides whether or not to grant this derogation as part of its governance supervision.