Following a consultation in the summer of last year, the ECB, on 8 December 2021, has published a revised version of its Guide to fit and proper assessments ("Guide") and an updated fit and proper questionnaire ("Questionnaire"). The new version will replace the existing guide and questionnaire dating back to May 2018 and 2016 respectively.

The updated Guide aims to provide greater transparency on the policies, practices and procedures adopted by the ECB’s Banking Supervision Division with respect to fit and proper assessments. It strives to harmonise the assessment approach and to ensure a level playing field for banks within the Single Supervisory Mechanism (SSM), while respecting Joint ESMA and EBA Guidelines on suitability, EBA Guidelines on internal governance and the idiosyncrasies of applicable national law. While the Guide is not legally binding, the ECB expects institutions to duly consider the Guide in their internal suitability assessments and, given that the ECB itself will follow the Guide of course, banking institutions, for all practical purposes, will generally have to follow suit.

The scope of the Guide is rather broad in that it covers fit and proper assessments, not only of members of the management body, but also of supervisory bodies of significant institutions (namely credit institutions, large investment firms and (mixed) financial holding companies). In addition to board members, key function holders (i.e. the CFO and heads of internal control functions where they are not part of the management body and, where identified by institutions on a risk-based approach, other key function holders) and managers of significant institutions' branches established in other EU Member States fall within the perimeter of the Guide.

The assessments are carried out in accordance with the five fit and proper criteria set forth in the Capital Requirements Directive IV: (1) reputation, (2) experience, (3) conflict of interest and independence of mind, (4) time commitment and (5) collective suitability.

Within this framework, the updated Guide makes numerous suggestions, three of which are highlighted here:

  • First, the Guide proposes to give closer consideration to major supervisory findings that may impact a candidate's suitability. Even if the candidate has no direct responsibility for such findings, they will be held individually accountable for good management and adequate decision-making jointly with other board members. This approach shall incentivise managers to thoroughly review, rather than to blindly rely on, decisions prepared by their peers;

  • Second, the Guide encourages ECB supervised institutions which, under national law, are only subject to an ex post assessment regime of their managers, to file their fit and proper applications before making appointments. This is to allow the ECB to review a candidate's fitness and probity prior to their appointment becoming effective; and

  • Finally, fitting well within the broader ESG agenda of European lawmakers and institutions, the ECB proposes to consider knowledge and experience regarding climate-related and environmental risks in its assessment of a candidate's individual suitability, and gender diversity in its assessment of a management body's collective suitability.