11.1 Conflict of interest policy in the context of loans and other transactions with members of the management body and their related parties

As part of their conflicts of interest policies for staff (Section 11) and the management of conflicts of interest as set out in paragraphs 133 and 134, the management body should set out a framework for identifying and managing conflicts of interest in the context of granting loans and entering into other transactions (e.g. factoring, leasing, property transactions, etc.) with members of the management body and their related parties.

Without prejudice to the national transposition of Directive 2013/36/EU⁴⁶ , institutions may consider additional categories of related parties to which they apply, in whole or in part, their conflicts of interest framework regarding loans and other transactions.

⁴⁶ Please also refer to Basel Core Principle 20.

The conflicts of interest framework should ensure that decisions regarding the granting of loans and entering into other transactions with members of the management body and their related parties are taken objectively, without undue influence by conflicts of interest, and are, as a general principle, conducted at arm’s length .

The management body should set out the applicable decision-making processes for granting loans to and entering into other transactions with members of the management body and their related parties. This framework may provide for a differentiation between standard business transactions⁴⁷ entered into in the ordinary course of business and concluded on normal market terms and staff loans and transactions, which are concluded on conditions available to all staff. Furthermore, the conflicts of interest framework and decision-making process may differentiate between material and non-material loans and other transactions, different types of loans and other transactions and the level of actual or potential conflicts of interest they may create.

⁴⁷ Business transactions include loans and other transactions (e.g. leasing, factoring, services in the context of initial public offerings (IPOs), mergers and acquisitions, selling and buying property).

As part of the conflicts of interest framework, the management body should set appropriate thresholds (e.g. per product type, or depending on the conditions) above which the loan or other transaction with a member of the management body or its related parties always requires the approval of the management body. Decisions on material loans or other material transactions with members of the management body that are not being concluded under normal market terms, but on conditions available to all staff, should always be made by the management body.

The member of the management body benefitting from such a material loan or other material transaction or the member who is related to the counterparty should not be involved in the decision-making.

When deciding on a loan or other transaction with a member of the management body or their related parties, before taking a decision, institutions should assess the risk to which the institution might be exposed due to the transaction.

Where loans are arranged as a line of credit (e.g. overdrafts), the initial decision and amendments thereof should be documented. Any use of such agreed credit facilities within the agreed limits should not be considered a new decision on a loan to a member of the management body or their related party. Where an amendment of a line of credit is material in line with the institution ’ s policy, a new assessment and decision should be made.

To ensure compliance with their conflict of interest policies, institutions should ensure that all relevant internal control procedures fully apply to loans and to other transactions with members of the management body or their related parties and that an appropriate oversight framework is in place at the level of the management body in its supervisory function.