Introduction

1.1 Background

In accordance with the various supervisory laws, directors, members of the management committee, responsible persons of independent control functions and senior managers of financial institutions must be assessed as being fit and proper.

Although it is incumbent first and foremost upon the financial institutions themselves to select and retain the right people, the suitability assessment is part of the prudential supervision carried out by the National Bank of Belgium (hereinafter “NBB”) and, where applicable, the European Central Bank (hereinafter “ECB”).

The subject of suitability has become highly topical over the last few years due inter alia to the severe financial crisis which broke out in 2008 and led to an increased need to guarantee that financial institutions are managed as soundly as possible. A process involving thinking about this subject has emerged and various steps have been taken at international, European and national level.

In the meantime, a number of these initiatives have culminated in regulatory or policy documents which need to be applied nationally. It is therefore appropriate to have a certain form of codification in order to provide a clear overview of the whole situation.

1.2 General background

In the aftermath of the financial crisis, the need to ensure good governance in financial institutions has been a key issue. A debate on this subject has emerged, both internationally and nationally, about the criteria for the suitability of persons who assume responsibility at the highest level at financial institutions. Indeed, it is essential that financial institutions have the right people in the right places in order to guarantee their integrity and smooth operation and that such people are fit and proper

In this respect, the NBB, as a prudential supervisory authority, decided in 2013 to improve the framework of its suitability policy, by publishing a circular. By and large, the principles contained in that circular remain relevant and are therefore upheld and integrated into this handbook.

For prudential supervision purposes, the concept of suitability covers two aspects. It can be seen from the point of view of the requirement for “adequate organisation and internal control” for the institution as a whole (“collective suitability”), as well as for the individual assessments of a precisely determined scope of people (“individual suitability”).

This handbook focuses mainly on the second aspect of supervision of suitability, although in various places it also refers to the first aspect, for instance as far as the collective composition of the statutory governing body, conflicts of interest within the institution and the ongoing nature of the suitability obligations are concerned.

There are two assessment standards which lie at the heart of this handbook: fitness and propriety, collectively referred to as “suitability”.

A person is considered to be an expert (fit) for a specific position when s/he has knowledge and experience, skills and the professional behaviour required for the position in question.

Propriety relates to a person's honesty and integrity. A person is considered to be professionally honourable (proper) if there is no evidence to the contrary and nor is there any reasonable doubt about the person’s good reputation, meaning that one can consider that the person will perform the task entrusted to him or her honestly, ethically and with integrity.

The suitability assessment is based on the following principles:

  • The concepts of fitness should be understood in a broad sense in determining whether a person has the right qualities for a given function: a person is suitable only if he/she has the necessary qualities and characteristics to perform adequately all the duties and obligations associated with that function.
  • A structured framework within the institutions is needed to assess the suitability of members of the management committee, directors, responsible persons of independent control functions and senior managers. This framework must be applied consistently.
  • The NBB or, where applicable, the ECB, as prudential supervisor, shall have its own power of appreciation to assess the suitability of such persons. This power of appreciation must be exercised properly, on the basis of correct factual information, leading to a correct assessment and a well-founded decision.
  • The individual and collective suitability of these persons should be a constant concern for both the institution and the supervisor.

In this handbook, the NBB wishes, among other things:

  • to clarify what it means by the concepts of fitness and propriety as defined in the legislation. On this basis, the institutions may further determine the particulars of their own suitability assessments;
  • to set out clearly what it expects from the institutions in terms of individual and collective suitability assessments;
  • transparently communicate its suitability policy in order to streamline the suitability assessments as much as possible, both in terms of content and procedure;
  • Where appropriate, provide further clarification on how other relevant European and international regulations and policies should be integrated into the suitability assessment. In this context, the role of the ECB is also further clarified, where appropriate.

In the end, the handbook also aims to raise awareness among persons to be assessed as to the fact that they have an extremely important role to play in helping to ensure that the institutions fulfil their obligations. They need to be aware of both their duties and their social responsibilities, and to reflect this awareness in the way that they go about their work.

1.3 Methodology

The handbook consists of 5 chapters and is intended to bring together all applicable policy documents relating to suitability (European regulations, Belgian legislation, preparatory parliamentary work, regulations, circulars, international standards, etc.) and, where necessary, to clarify them. In addition, the handbook provides guidance on topics that are not as such the subject of specific policy documents. Furthermore, any policy documents that are not dealt with in this handbook naturally remain applicable; likewise, the handbook does not affect the competences of other supervisory authorities (e.g. the FSMA) as regards suitability.

The handbook does not in any way replace the underlying policy documents. Any changes to the latter will result in an amendment of the handbook. As this is in principle an online publication, the handbook is intended to evolve as time goes without the need to change the reference and name each time, as is the case for circulars, for example. However, any changes will always be brought to the attention of the institutions. In addition, they will be clarified in a separate section, with an indication of the date of adjustment.

The handbook is structured around the scope ratione personae: Chapters 2, 3 and 4 each contain an overview of those legal texts and policy documents on fitness and propriety that are relevant to the financial institutions concerned. The terms used in the handbook shall have the same meaning as that assigned to them in the relevant sectoral legislation. For the sake of clarity, the following is a summary of the most common key terms used in this handbook:

Financial institutions (hereafter also referred to simply as institutions): the generic term for companies which are subject to supervision by the NBB (or, where applicable, the ECB) which fall within the scope of one or more parts of this handbook.

Independent control functions: the transversal functions internal audit, compliance, risk management, and the actuarial function in the insurance sector.

Directors: all members of the statutory governing body of a financial institution, both the executive and non-executive directors, who together decide upon the company’s general policy and strategy (general policy function).

Executive directors: members of the statutory governing body involved in senior management of the company (management function). This includes inter alia the following persons: any member of the statutory governing body who is a member of the management committee or to whom the daily management within the meaning of Article 525 of the Companies Code is delegated.

Non-executive directors: members of the statutory governing body who supervise the management (supervisory function).

Senior managers: the group of persons, whether or not directors, whose function within the institution implies that they exercise at the highest level a direct and decisive influence at the highest level on the management of the company’s activity[1].

Small institution: an institution which employs no more than 25 people, including the members of the statutory governing body, at the time of the assessment of suitability.

For each type of financial institution, the following issues are addressed in the handbook: (i) Scope of application; (ii) Delimitation of responsibilities for the suitability assessment; (iii) Guidelines on fitness and propriety standards; (iv) Assessment of suitability by the financial institution; (v) Assessment of suitability by the supervisor. The annexed handbook also contains the standard forms for the assessment of suitability as drawn up by the NBB.

[1] See also the explanation of the concept of “senior management” in the circular on outside employment (circular PPB-2006-13-CPB-CPA of 13 November 2006 on exercise of external functions by managers of regulated companies), especially as regards the recommendation to that effect of drawing up a list of persons who must be classified as senior managers on the basis of a formal decision.