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As the CRR3/CRDVI package is a very rich set of texts, several NLs will be written to decrypt it. This second NL of the CRDVI series deals with the Fit & Proper and the modalities of licence withdrawal in case of bankruptcy

1.  A current fit& proper framework that is imprecise and incomplete

The current supervisory framework for the supervisory body as set out in the CRDV does not specify how Management bodies are to be assessed by the supervisory authorities:

  • No clear definition and framework in the CRDV.
  • Incorrect identification of key function holders by supervisors.
  • No tools available to supervisors to assess the suitability of management board members and key function holders to perform their duties.
  • A fragmented regulatory landscape, weakening the European Banking Union.

2.  Clarification of expectations of the supervisory body and key function holders

This includes ensuring greater consistency, efficiency and effectiveness in the supervision of members of the management body and key function holders. Thus, the CRDVI :

  • Clarifies the criteria to be met by the competent authorities in assessing the compliance of board members, including the timing of such assessments.
  • Defines the minimum requirements for key function holders.

In general, the CRDVI emphasises the validation/authorisation/notification regime prior to taking office. However, in order to ensure financial stability, in the case of urgent removal or replacement of members of the management body or senior management in the context of the application of early intervention measures or the implementation of resolution action by the competent authorities, the assessment of suitability may be carried out immediately after they have taken up their duties.

Finally, the new “fit and proper” ex ante assessment requirements have been calibrated to target only large financial institutions.

3.  withdrawal of a banking licence following the decision to liquidate a failed bank

The CRDVI specifies that when a bank is declared failing or is likely to fail by the competent authority or by the resolution authority, the competent authority is entitled to withdraw the banking licence. This applies in particular where the failed bank does not meet all the other conditions for resolution, i.e. presence of public interest, lack of market-based alternative to resolve the crisis.

4.  References

https://ec.europa.eu/finance/docs/law/211027-proposal-crd-5_en.pdf

Abbreviations and glossary

EBA: European Banking Authority