The definition of the concept of fitness (see Introduction, point 1.2) shows that the term covers a number of areas, including appropriate knowledge and experience, skills and professional behaviour. These three components are complementary, and an analysis of each of them helps to give an overview of a particular person’s fitness. For instance, a person who has the knowledge required for a given position but who is unable to pass it on and generate it within the institution is not fit.

3.4.2.1 Appropriate knowledge and experience

By “knowledge” we mean everything that a person knows, everything that s/he has learned. In theory knowledge can be learned, for instance, by studying, training or “on the job”. The term covers both theoretical knowledge and knowledge acquired in practice.

Irrespective of the specific knowledge and experience which may be required for a given position (see point 3.4.2.3), the NBB expects persons subject to the suitability assessment to have knowledge and experience in:

• the regulatory context and legal requirements which apply to the institution;
• the effective activities of the institution and the financial markets;
• the management of an institution, and more particularly:
  • the strategic planning and understanding of an institution’s business strategy;
  • risk management (identification, assessment, follow-up, monitoring and mitigation of an institution's main risks);
  • financial reporting and supervision;
  • team management;
  • assessing the effectiveness of steps taken by an institution with a view to the creation of effective governance, oversight and controls;
  • the interpretation of financial information about an institution and, on this basis, the identification of key issues and appropriate controls and measures.

The presence of appropriate knowledge and experience may be demonstrated by the successful completion of relevant training and the availability of relevant work experience.

“Relevant training” should be interpreted in the widest sense. In addition to the obtaining of (university) diplomas, “on the job” training and in-company training courses should also be taken into account.

Special attention should be paid to the level and nature of education completed and to the relevance of the content in relation to the financial sector. As a general rule, training courses dealing with the banking, financial and insurance sector, economics, law, business management, general management, IT, marketing and quantitative methods may be considered to be relevant.

By “relevant professional experience”, we mean any experience which has been acquired in a working environment and which, in terms of content, shows similarities or has points in common with the type of institution and/or the type of position which the person in question holds or wishes to hold.

In order to determine the extent to which any previously held positions contribute to the existence of “relevant professional experience” or, on the contrary, prevent this, the following factors need to be taken into consideration:

• the level of the positions held;
• whether these positions were held within a single institution or group;
• the length of time over which the experience was acquired (how long the position[s] was [were] held);
• the nature, complexity and organisational structure of the institution at which a position was held;
• the number of subordinates.

The relevant work experience of the directors to be assessed (and, where appropriate, senior managers and branch managers) is in principle assessed by the NBB on the basis of the different thresholds defined in the SSM Guide, which vary according to the function concerned (CEO, chairperson of the board of directors, director, executive director). If these thresholds are reached, it is presumed that the person concerned has sufficient work experience, unless there is evidence to the contrary. However, as indicated in point 3.4.2.3, in applying the thresholds, the NBB will also take into account the nature, size, complexity, risk profile and organisational structure of the institution in which the person concerned operates. On that basis, the NBB may, for certain institutions, use a minimum of five years' professional experience as the standard threshold level. In the case of smaller institutions, a period of three years' relevant work experience may be sufficient.

For responsible persons of independent control functions and other persons subject to a suitability assessment, the relevant work experience, taking into account the nature, size, complexity, risk profile and organisational structure of the institution, should in principle cover a period of at least three^[1] to five years.

The holding of several short-term positions (for instance temporarily standing in for another person) does not allow an automatic conclusion to be drawn that there is relevant professional experience over a sufficient period of time. In addition, given the speed at which changes can take place in the financial world, the training and experience need to be relatively recent. In this respect, one should also refer to what is provided for the various functions in the SSM Guide.

If the aforementioned thresholds are not met, the person concerned may still be considered suitable, provided such suitability is sufficiently substantiated and motivated by the institution.

Without prejudice to the principles laid down in this handbook, the specific fit and proper requirements on the part of responsible persons of the compliance function are provided by the NBB regulation on the fitness of the responsible persons for the compliance function (Article 2). The specific requirements are as follows:

• at least three years' relevant work experience;
• holding a master's degree (unless exemption based on practical experience and knowledge);
• passing an examination with an institution whose examinations have been recognised by the NBB and the FSMA and, from the moment of passing the examination, participating in a training programme at a training institution recognised by the FSMA, on the advice of the NBB, with a minimum duration of 20 hours every three years.

In order to permanently comply with the knowledge requirement, responsible persons of the compliance function participate from their appointment in a training programme with a minimum duration of 40 hours every three years. The requirements with regard to continuing education are further explained in the information memorandum annexed to the aforementioned regulation and to communication FSMA_2018_05 of 8 May 2018 on permanent training for compliance officers.

3.4.2.2 Skills

“Skills” refer to what an individual is capable of doing. They help the person in question to behave in a specific way in certain situations (for instance in negotiation processes or when taking a decision). In principle, skills can be learned, just like knowledge. Knowing which skills are important for a given position is a question which the institution must first of all answer. It is important here to take account of the variables which are explained below (see below in point 3.4.2.3).

Annex II to Guidelines EBA/GL/2017/12 contains a non-exhaustive list of relevant skills that institutions should take into account in their suitability assessment.

The aim is not that the supervisory authority should assess individual skills. Rather, the assessment will look at the way in which the institution has taken the “skills” component into account in its own internal process of evaluating the applicant (for instance by organising assessments). The “skills” component can also be discussed at an interview (see point 3.6.4). This component will not be tested separately by the NBB in the case of small institutions, except where facts or circumstances would be reasonable grounds for doing so.

3.4.2.3 Variables in the assessment of “appropriate knowledge and experience” and “skills”

When assessing these two components, a certain degree of proportionality must always be taken into account. The principle of proportionality manifests itself in the taking into account of a number of variables when carrying out the assessment, although this does not necessarily mean that the person in question is not fully fit. On the other hand, the application of variables in each specific case allows an assessment to be carried out which is tailored to the situation and circumstances. This also means that a person who is deemed to be fit for a given position at a given institution will not automatically be fit to hold another position, whether at the same institution or not.

In addition to the specific applications of proportionality already set out in points 3.4.2.1 and 3.4.2.2, the following two variables must also be borne in mind:

a. The characteristics of the institution

Each institution can be distinguished by its own nature or business market, its size or scale, its complexity, its risk profile and its organisational structure. Due to this diversity, similar positions held at different institutions do not necessarily require the same level of knowledge, experience and skills.

The institution’s nature and business market are components which are particularly decisive for the content of the knowledge required in terms of services, products and markets.

The institution’s size or scale may refer to a number of aspects, e.g. the number of workers, the assets for which an institution is responsible, etc.

An institution's complexity and risk profile influence the specific level of fitness required, in the sense that a complex organisational structure or a high risk profile require very well developed fitness within a wide range of areas.

b. The (planned) position to be held by the person in question

As has already been mentioned above, it is the institution which is best placed to determine what knowledge, experience and skills are required for a given position at the company. The NBB expects the institution to carry out this exercise thoroughly, and analyses the responsibilities relating to a given position and the knowledge, experience and skills which are particularly required as precisely as possible. For this purpose, the institution must review the position’s specific activities, without attaching any importance to the formal job title. In certain cases, the legislation also lays down requirements (for instance with regard to members of the audit committee).

Here, as an illustration, are a few examples of these variables:

• when assessing the skills of an applicant for the position of Chief Risk Officer (CRO), special attention must be paid to the independence of his or her judgement and to how influential the interested party can be in the taking of decisions within the institution;
• when assessing the skills of an applicant for the position of chairman of the statutory governing body, the emphasis should be first and foremost on suitability for acting as chairman and for strategic management work;
• the (assessment of) of a director’s fitness varies depending upon whether the position to be held is executive or non-executive. In theory a non-executive director needs less detailed and practical knowledge than an executive director, but it is all the more important for him or her to be able to test the way that the executive directors are managing the company;
• with positions operating at the level of a parent company, in order to have the necessary overall understanding of all of the group’s activities, fitness in relation to the activities both of the parent company and of all the subsidiaries will be needed. This does not necessarily mean that people employed by a parent company must have a detailed knowledge of the activities of all of the subsidiaries.

3.4.2.4 Professional behaviour

“Professional behaviour” relates to observable behaviour, whence, in day-to-day activities, come the standards and values involved in engaging in the profession. More particularly this is the behaviour require

ed in order to guarantee adherence to the regulations applicable to the financial sector and, more broadly speaking, in order to protect the interests of both the institution and its customers, counterparts, counterparties and other stakeholders, along with the community as a whole. Professional behaviour must come from the person him or herself, but it is also determined by the environment in which the person operates (especially in terms of professional ethics and institutions’ own internal codes of conduct).

To a certain extent, professional behaviour is learned, mainly through experience. As a general rule, we can consider that a person behaves professionally if there are no hints to the contrary. If the person in question has, in the past, been in contact with the supervisory authority, this prior relationship plays a role.

In terms of “professional behaviour”, we need to look first of all at independence and secondly at the amount of time invested.

a. Independence and conflicts of interest

Institutions must have in place an appropriate policy for identifying, reporting, managing and preventing conflicts of interest. Unless expressly provided otherwise by law, having a conflict of interest does not necessarily mean that a person subject to a suitability assessment is not suitable. In order for a conflict of interest to arise, it must be material and not, or only insufficiently, manageable. For the specific assessment of such conflicts of interest and how they can be managed, please refer inter alia to the guidelines and recommendations set out in the Governance Handbook, in the SSM Guide and in Guidelines EBA/GL/2017/12.

Without prejudice to the above and the provisions of general company law as far as conflicts of interest are concerned, in terms of “independence,” a distinction can be made between (i) independence of mind, (ii) the independence required for the purposes of preventing or managing conflicts of interest, and finally (iii) independence within the meaning of Article 526ter of the Companies Code (“formal independence”) or of Guidelines EBA/GL/2017/12.

As far as the first concept (independence of mind) is concerned, any person who holds a directorship is deemed to be able to make a conscious decision, objectively and independently, in the interests of both the company and its stakeholders, after having carefully weighed up all the information and opinions available, and independently of any outside influence. ­Assessment thereof must take into account the criteria and requirements set out in §§ 82 to 87 of Guidelines EBA/GL/2017/12.

With regard to the second concept (prevention and management of conflicts of interest), reference can be made to the obligations and commitments that these persons must comply with on the basis of the legal provisions concerning the exercise of external functions^[2], relating to strategic goals, corporate values and policy on conflicts of interest set out in the circular on internal governance^[3], and the manner in which all this is translated into the institution's internal policy on conflicts of interest.

For the banking sector, we can further refer specifically to the chapter on conflicts of interest in the Governance Handbook for the Banking Sector, and to the obligations and undertakings which these persons are bound to adhere to on the basis of on the one hand Article 62, § 2 et seq., of the Banking Law and, on the other hand, Article 72 of the Banking Law concerning loans, credits and guarantees to leaders, shareholders and affiliated persons, as explained in NBB Circular_2017_21.

Finally, as regards 'independence', reference should be made to the criteria set out in Article 526ter of the Companies Code, on the one hand, and to the guidelines and criteria set out in §§ 88-93 of Guidelines EBA/GL/2017/12 concerning the concept of 'independence', on the other hand. In this respect, it should be noted that the independence requirements laid down in the Banking Law differ from those laid down in §§ 91-93 of Guidelines EBA/GL/2017/12 on the following two points:

• the list of criteria laid down in Article 526ter of the Companies Code is less exhaustive in certain respects, since it does not repeat all the criteria laid down in Guidelines EBA/GL/2017/12; however,
• in contrast to the legally required independence criteria laid down in Article 526ter of the Companies Code, non-fulfilment of one of the independence criteria laid down in § 91 of Guidelines EBA/GL/2017/12 does not automatically mean that the person concerned can no longer be regarded as independent. In accordance with § 92 of Guidelines EBA/GL/2017/12, the institution still has the possibility to argue to the supervisory authority that - despite the fact that not all criteria were met - the independence of the person concerned was not compromised.

To the extent that Guidelines EBA/GL/2017/12 lay down additional independence requirements on top of those required provided for in Article 526ter of the Companies Code, these additional requirements should be considered as (recommended) good practice (i.e. application on the grounds of the so‑called “comply or explain” principle), rather than as a formal legal requirement. In this respect, the institution should be mindful of the basic principle that not only the letter but also the spirit of the law must be respected: the formal criteria on legal independence aim to guarantee effective independence of the directors concerned in their day-to-day functioning. However, if the institution were to become aware of elements which might potentially compromise that effective independence, it should examine those elements and, where appropriate, justify why it considers that the ability of the person concerned to make an objective and balanced assessment and take independent decisions is not affected.

Therefore, as a result of the introduction of the EBA guidelines, there are now two forms/levels of 'independence':

• being "formally independent" within the meaning of the Banking Law and Article 526ter of the Companies Code. (i.e. 'legal independence'): in cases where the Banking Law explicitly requires formal independence, the director concerned must meet the conditions set out in Article 526ter of the Companies Code, and compliance with certain additional independence criteria set out in § 91 of Guidelines EBA/GL/2017/12 may be considered as (recommended) good practice;
• independence' within the meaning of Guidelines EBA/GL/2017/12 (i.e. 'independence in accordance with the EBA Guidelines'): this concerns directors who meet the requirements set out in §§ 91-93 of Guidelines EBA/GL/2017/12.
  For example, if a director, in their capacity as supplier or client of the institution, has had with this institution, in the past financial year, a significant business relationship^[4] within the meaning of Article 526ter of the Companies Code, this person cannot be regarded as "legally or formally independent" within the meaning of the Banking Law. However, that person may still qualify as 'independent’ in accordance with the EBA Guidelines' if it can be demonstrated that the person’s ability to make an objective and balanced assessment and take independent decisions is not affected by the significant business relationship that existed during the past financial year.

In this respect, it should be noted that independence 'in accordance with §§ 91-93 of the EBA Guidelines' may provide a relevant answer in specific situations where, as good practice, additional prudential independence expectations are put forward which would go beyond what is required by the Banking Law.

For example, if the EBA guidelines^[5] recommend for certain institutions that the majority of the members of the risk committee should be independent, this can be addressed by having one formal independent director within the meaning of Article 526ter of the Companies Code, supplemented - as a matter of good practice - by additional directors who are 'independent in accordance with §§ 91‑93 of the EBA Guidelines'.

Finally, it should also be noted that it is the responsibility of the institution to verify that all the above formal independence criteria are met.

b. Amount of time invested

All directors and senior managers should be able to devote sufficient time to the performance of their duties in the institution[6]. This also applies in periods of sharply increased activity, such as reorganisations, crisis situations, mergers, etc. Guidelines EBA/GL/2017/12 provide that institutions shall document the roles, tasks and required skills of the different functions within the statutory governing body, including the expected time to be devoted to each function. Institutions may require the persons concerned to confirm that they will effectively abide by the time commitment proposed by the institution.

In this context, particular attention should also be paid to the cumulation of functions, which may not only lead to conflicts of interest on the part of the person concerned, but may also have an impact on the time devoted to the institution's directorship.

Therefore, institutions are required to draw up an internal policy on external functions. In doing so, account must also be taken of qualitative and quantitative restrictions as set out in Article 62 of the Banking Law (and the relevant external guidance of the NBB), and the NBB Regulation and Circular on exercise of external functions by managers of regulated companies.

As far as quantitative restrictions are concerned (insofar as they apply), the Banking Law determines the maximum number of directorships an executive or non-executive director can take up. For the purposes of this calculation, the aggregation of different mandates exercised within the same group shall be subject to the specific rules laid down in Article 62, § 9, of the Banking Law, which differ from those set out in this respect in Guidelines EBA/GL/2017/12.

In addition to the number of board mandates, the use of time is also influenced by a number of other factors specific to the person concerned or the institution, such as, for example, the size and complexity of the institution's activities, its geographical proximity and travel time associated with the performance of the position, etc. In this respect, it is recommended to take into account at least the factors set out in Guidelines EBA/GL/2017/12.

Reference is also made to the explanation of time commitment provided in the SSM Guide and the information to be provided by the institution to the supervisory authority in this context (see point 3.6.3.1).

3.4.2.5 Track record

For the purposes of the fitness assessment, attention will also be paid to relevant precedents, e.g. the question of whether, in an institution in which major financial problems have been found and which have led to intervention by the public authorities, the person (i) holds or has held a position which requires a suitability assessment, or (ii) significantly influences or has influenced policy, or (iii) owns or has owned a significant interest.

3.4.2.6 The collective composition of the institution’s statutory governing body

In principle, an assessment of fitness always deals with an individual. However, when the assessment relates to a directorship (whether executive or not) on a body made up of a number of persons, account must also be taken of the composition and operation of the statutory governing body as a whole. This means that there must be checks on whether the fitness within the body made up of a number of persons is sufficiently guaranteed with this person, in view of his or her knowledge and specific experience, skills and professional behaviour.

Here are a few examples as an illustration:

• When a director leaves, his or her successor must have the appropriate additional fitness (for the purpose of the collective assessment) according to the new composition of the statutory governing body. If this is not the case, the supervisory authority will ask the institution how it plans to address this deficiency in terms of fitness.

  If there is no satisfactory answer, the supervisory authority will hold the institution accountable. Where applicable, this may mean that a new applicant is unable to be accepted onto the statutory governing body. It may also mean that one or more persons who hold positions are not sufficiently fit, due to the statutory governing body’s new composition and distribution of tasks.

  The institution must address this deficiency either by extending the fitness of the remaining directors or by appointing a new director who has the specific fitness required.

• Within a statutory governing body, specific knowledge and skills may vary from one person to another. For instance, a CEO must be able to offer critical opinions about the work of the CFO, which requires a certain degree of knowledge of this field, but the CFO must obviously be able to show more specific (financial) knowledge.
• The lack of specific knowledge and experience on the part of a person within a body made up of a number of people does not necessarily lead to a refusal, provided that other people within the body are able to make up for this deficiency. Nevertheless, each member must have a certain basic knowledge of the fields listed in point 3.4.2.1), as each member holds the same degree of responsibility.

One should remember in this respect that institutions have a legal obligation to inform the NBB of any distribution of tasks between members of the statutory governing body and of any significant changes thereto.

Guidelines EBA/GL/2017/12 further clarify the cases in which the institution should (re)assess the collective suitability of the statutory governing body, and what the attention points should be in the context of such exercise. They also provide guidance on the instruments that can be used for this purpose. On this last point, reference is made in particular to Annex I to the Guidelines, which provides a model for a matrix to assess collective suitability. As indicated in § 151 of the Guidelines, institutions may also choose to adjust the proposed matrix according to the proportionality or speciality criteria set out in Title I of the Guidelines or to develop their own appropriate method in line with the criteria on collective suitability set out in the Guidelines.

Both the SSM Guide and Guidelines EBA/GL/2017/12 provide further clarification on the information and motivation (including self-assessment and statement thereon) to be provided by the institution to the supervisor regarding the assessment of collective suitability.

^[1] See Article 2, § 1, 1°, of the NBB regulation of 6 February 2018 on the fitness of the responsible persons for the compliance function.

^[2] See also the Royal Decree of 20 June 2012 approving the regulation of the National Bank of Belgium of 6 December 2011 on exercise of external functions by managers of regulated companies and Circular PPB-2006-13-CPB-CPA of 13 November 2006 on exercise of external functions by managers of regulated companies.

^[3] Circular PPB-2007_6_CPB-CPA / Prudential Expectations on financial institutions’ corporate governance. This circular applies to stockbroking firms.

^[4] As regards the requirement of absence of any 'significant business relationship', the significant nature of the relationship should be assessed both from the perspective of the institution and of the individual concerned. From the latter point of view, the fact that the person has a commercial relationship with the financial institution concerned prevents that person from qualifying as an independent director within the meaning of Article 526ter of the Companies Code, with the exception of those cases in which only a limited number of financial basic products are involved (e.g. a current account, a savings account, supplementary group insurance, compulsory insurance for fire/vehicle, etc.), and they were concluded at arm’s length.

^[5] See also in this respect Guidelines EBA/GL/2017/11 on internal governance.

^[6] See inter alia Article 62, § 1, of the Banking Law.