13. Suitability policy

According to Article 88(1) of Directive 2013/36/EU, an institution’s management body defines, oversees and is accountable for the implementation of the governance arrangements that ensure effective and prudent management of the institution. In addition, according to Article 9(3) of Directive 2014/65/EU, the management body of an investment firm as defined in Directive 2014/65/EU (MiFID firm) defines, oversees and is accountable for the implementation of governance arrangements in a manner that promotes the integrity of the market and the interest of clients. This includes th at the institution’s suitability policy should be aligned with the institution’s overall corporate governance framework, corporate culture and risk appetite and that the processes under the policy are fully operating as intended. This also includes that the institution’s management body should adopt – without prejudice to any required shareholders’ approval – and maintain a policy for the assessment of the suitability of members of the management body.

The suitability policy should include or refer to the diversity policy to ensure that diversity is taken into account when recruiting new members.

Any changes to the suitability policy should also be approved by the management body, without prejudice to any required shareholders’ approval . Documentation regarding the adoption of the policy and any amendments thereof should be maintained (e.g. in the minutes of relevant meetings).

The policy should be clear, well documented and transparent to all staff within the institution. When developing the policy, the management body may request and take into account input from other internal committees, in particular the nomination committee where established and other internal functions, such as the legal, human resources or control functions.

Internal control functions³⁰ should provide effective input to the development of the suitability policy in accordance with their roles. Notably, the compliance function should analyse how the suitability policy affects the inst itution’s compliance with legislation, regulations, internal policies and procedures, and should report all identified compliance risks and issues of non-compliance to the management body.

³⁰ See also the EBA’s Guidelines on Internal Governance: https://www.eba.europa.eu/regulation-and-policy/internal-governance

The policy should include principles on the selection, monitoring and succession planning of its members and for re-appointing existing members, and should set out at least the following:

• a. the process for the selection, appointment, re-appointment and succession planning of members of the management body and the applicable internal procedure for the assessment of the suitability of a member including the internal function responsible for providing support for the assessment (e.g. human resources);
• b. the criteria to be used in the assessment, which should include the suitability criteria set out in these Guidelines;
• c. how, as part of the selection process, the diversity policy for members of the management body of significant CRD institutions and the target for the under-represented gender in the management body are to be taken into account;
• d. the communication channel with the competent authorities; and
• e. how the assessment should be documented.

Relevant institutions should also include within their suitability policy the processes for the selection and appointment of key function holders. The suitability policy might set out in a risk-based approach those positions that could be considered by relevant institutions as key function holders in addition to the heads of internal control functions and the CFO, where they are not part of the management body.

The management body in its supervisory function and the nomination committee where established should monitor the effectiveness of the institution’s suitability policy and review its design and implementation. The management body should amend the policy, where appropriate, taking into account the recommendations made by the nomination committee where established and the internal audit function.