1 Role and responsibilities of the management body

In accordance with Article 88(1) of Directive 2013/36/EU, the management body must have ultimate and overall responsibility for the institution and defines, oversees and is accountable for the implementation of the governance arrangements within the institution that ensure effective and prudent management of the institution.

The duties of the management body should be clearly defined, distinguishing between the duties of the management (executive) function and the supervisory (non-executive) function. The responsibilities and duties of the management body should be described in a written document and duly approved by the management body. All members of the management body should be fully aware of the structure and responsibilities of the management body, and of the division of tasks between different functions of the management body and its committees.

The management body in its supervisory function and in its management function should interact effectively. Both functions should provide each other with sufficient information to allow them to perform their respective roles. In order to have appropriate checks and balances in place, the decision-making within the management body should not be dominated by a single member or a small subset of its members.

The management body ’s responsibilities should include setting, approving and overseeing the implementation of:

• a. the overall business strategy and the key policies of the institution within the

term financial interests and solvency;

• b. the overall risk strategy, the institution ’s risk appetite and its risk management framework and measures to ensure that the management body devotes sufficient time to risk and risk management issues;
• c. an adequate and effective internal governance and internal control framework, as defined in Title V, that:

• d. the amounts, types and distribution of both internal capital and regulatory capital to adequately cover the risks of the institution;
• e. targets for the liquidity management of the institution;
• f. a remuneration policy that is in line with the remuneration principles set out in Articles 92 to 95 of Directive 2013/36/EU and the EBA guidelines on sound remuneration policies under Articles 74(3) and 75(2) of Directive 2013/36/EU¹³ ;
• g. arrangements aimed at ensuring that the individual and collective suitability assessments of the management body are carried out effectively, that the composition and succession planning of the management body are appropriate, and that the management body performs its functions effectively¹⁴ ;
• h. a selection and suitability assessment process for key function holders¹⁵ ;
• i. arrangements aimed at ensuring the internal functioning of each committee of the management body, when established, detailing the:

• j. a risk culture in line with Section 9 of these guidelines, which addresses the institution ’s risk awareness and risk-taking behaviour;
• k. a corporate culture and values in line with Section 10, which foster responsible and ethical behaviour, including a code of conduct or similar instrument;
• l. a conflict-of-interest policy at institutional level in line with Section 11 and for staff in line with Section 12; and
• m. arrangements aimed at ensuring the integrity of the accounting and financial reporting systems, including financial and operational controls and compliance with the law and relevant standards.

¹³ EBA guidelines on sound remuneration policies

¹⁴ See also the joint ESMA and EBA guidelines on the assessment of the suitability of members of the management body and key function holders.

¹⁵ See also joint ESMA and EBA guidelines on the assessment of the suitability of members of the management body and key function holders.

When setting, approving and overseeing the implementation of the aspects listed in Paragraph 22 the management body should aim at ensuring a business model, governance arrangements, including a risk management framework that take into account all risks. When taking into account all risks, institutions are exposed to, institutions should take into account all relevant risk factors, including environmental, social and governance risk factors. Institutions should consider that the latter may drive their prudential risks, including credit risks, e.g. via risk factors related to the transition to a sustainable economy or external physical climate-related events that may affect debtors, market, liquidity, operational risks and also reputational risks, e.g. via social and governance risk factors, e.g. in the context of outsourcing arrangements¹⁶ . Such risks include, e.g. legal risks in the area of contractual or labour law, risks related to potential human rights violations or other ESG risk factors that may affect the country where a service provider is located and its ability to provide the agreed service levels.

¹⁶ See EBA report on ESG risk management and supervision published under the CRD Art. 98(8) for a description of EBA’s understanding of ESG risks, transmission channels, and recommendations for arrangements, processes, mechanisms and strategies to be implemented by institutions to identify, assess and manage ESG risks.

The management body must oversee the process of disclosure and communications with external stakeholders and competent authorities.

All members of the management body should be informed about the overall activity, financial and risk situation of the institution, taking into account the economic environment, and about decisions taken that have a major impact on the institution ’s business.

A member of the management body may be responsible for an internal control function as referred to in Title V, Section 19.1, provided that the member does not have other mandates that would compromise the member ’ s internal control activities and the independence of the internal control function.

The management body should monitor, periodically review and address any weaknesses identified regarding the implementation of processes, strategies and policies related to the responsibilities listed in Paragraphs 22 and 23. The internal governance framework and its implementation should be reviewed and updated on a periodic basis taking into account the proportionality principle, as further explained in Title I. A deeper review should be carried out where material changes affect the institution.