Board members have significant responsibilities related to assuring good governance and resilience of banks. Since the aftermath of the Global Financial Crisis, it has been widely recognised that a bank’s resilience and its ability to cope with and manage risks is quite linked to a strong and clear organisational structure and well-defined areas of accountability and risk management. The concept of “fit and proper” is crucial to ensure good governance and a sound and stable banking sector, and also constitutes one of the key areas of the supervisory focus under the EU framework. Suitability, fitness, and propriety of bank board members is usually monitored and assessed considering different features, such as individual characteristics, personal qualifications, educational background, professional training, experience, and time commitment, among others.
On 8 February 2022, Edouard Fernandez-Bollo participated in the Challenges for Bank Board Members online series to present the revised version of the ECB Guide for Fit and Proper Assessment which he first came to discuss in the same series a year ago.
For Martin Kaspar (Director of Board Services, PwC) and Nuno Amado (Non-Executive Chairman, BCP – Banco Comercial Português, S.A.), the two discussants of this seminar on Better Boards for Better Banks, “the new guide is reflecting many challenges currently faced by the board members” and “the process is now clearer, practical and detailed”.
Mr. Fernandez-Bollo focused in his remarks on the policy message, and the ideas behind the revision of the Guide. Non-Executive Directors sitting in banks’ boards are expected to “challenge the in-house experts and the management” to ultimately enhance the governance of the bank. Alongside the evolution of the ECB policy during the last year, criteria reflecting the increased supervisory expectations on certain topics such as climate risks, diversity and individual accountability have now been added to the assessments.
Clarification has also been brought on the topic of reassessments. While this process remains an extraordinary event (approximately 17 reassessments last year, against 2,600 FAP assessments), the ECB has reinforced its policy, focusing on individual accountability for the members of the boards. Mr. Fernandez-Bollo has warned that the ECB “don’t expect this process to be very numerous, even in the future, but wanted to give a signal that this is a possibility” especially in cases of “enhanced interactions with anti-money laundering supervisors or shortcomings in the governance”.
Another point of discussion was the difficulty to define the level of individual expertise expected of a NED. As Martin Kaspar noted, “if we take single experts for each and every topic, the board’s collective responsibility is becoming unclear”. Mr. Fernandez-Bollo concedes that the ECB “wants both individual and collective responsibility” but emphasizes that “expertise of non-executives and executives are not the same”.
The general message carried by the new Fit and Proper Guide is that the ECB expects from non-executive directors to have the abilities to challenge the governance, with an increased expertise for risks that are emerging and more diversity to enhance the global functioning of the banks.
Fit and proper assessments also constitute a core topic of the next Bank Board Academy (BBA) training Sitting on banks’ boards: suitability and better governance to be held residentially in Florence from 10-12 June 2022. This training course will offer a deep dive into the FAP guide and how it further supports suitability assessments and reassessments by both banks and supervisors. The programme will also cover issues related to board effectiveness and ongoing supervision, an overview of Boards in Europe and Culture and behaviour in boards. The level of engagement in discussions and the group exercises will equip participants with significant tools to better understand banks’ boards governance, providing a valuable learning experience and a unique space for discussion and direct dialogue between supervisors and European banks’ board members.
Maria del Carmen Sandoval Velasco
Robert Schuman Centre for Advanced Studies
Robert Schuman Centre for Advanced Studies
More information about the next BBA training can be found here.