Update of the Fit & Proper Manual
On 20 December 2022, the National Bank of Belgium (NBB) updated its “Fit & Proper” Manual, by means of Circular 2022-34. This manual should be read in conjunction with Circular NBB_2016_31 (“The Governance circular”). It integrates the guidelines of the EBA, the SSM guide, and the regulation of the NBB of 9 November 2021 on external functions .
The Manual applies to all (re)insurers, branches & holding companies. It relates to the scope and the assessment of the individual and collective suitability of the Board Members, the effective leaders and the senior persons responsible for the independent control functions or their "liaison person" in case of outsourcing.
One of the main changes is the enlargement of the suitability assessment (“Fit & Proper”) criteria into 5 components:
- Knowledge, experience and skills,
- Professional integrity,
- Independence of mind,
- Time commitment, and
- Collective suitability.
It also emphasizes that the institutions should monitor suitability continuously, and the persons must be competent and professionally reliable at all times.
New expectations are aimed at:
- Experience and skills
- Basic Theoretical Knowledge can be learned through academic studies, graduates/courses/certifications (i.e. MBA, , ESG, DPO …) or “training on the job”. Studies in the financial sector (banking, finance and insurance), economics, law, business administration, management, IT, marketing and actuarial methods are relevant. It is useful to synthesize the knowledge of the persons involved. Profound knowledge is required for the independent control functions: Compliance, Qualified Actuary, internal audit institute…
- It is useful to develop a matrix to identify the basic theoretical knowledge in the following areas: 1. insurance, reinsurance and financial markets; 2. the regulatory framework; 3. strategic planning and understanding of corporate strategy; 4. risk management (incl. compliance and internal audit); 5. accounting and external auditing; 6. governance and internal control; and 7. interpretation of financial information and identification of material matters and appropriate controls and measures.
- Relevant work experience is defined with threshold levels for the significant insurers or the (less significant):
- CEO: 10 (5) years of recent practical experience; This experience must have been acquired in high-level management positions, not more than two years ago.
- Effective leader: 5 (3) years of recent practical experience in domains related to insurance or financial services. This experience must have been acquired in high-level management positions, not more than two years ago.
- Chairman of the Board of Directors: 10 (5) years of recent and relevant practical experience;
- Non-executive director: 3 (2) years of recent and relevant practical experience in management positions. Practical experience in the public or academic sector can also be considered relevant.
- Responsible for independent control functions or the "liaison officer": at least three to five years of recent and relevant practical experience.
- Independence of mind
- The independence of mind refers to the ability to ask questions to C-level, challenge proposals, resist group thinking; and to act with due diligence, objectivity and independence in the interests of the company and its stakeholders, after careful consideration of all available information and opinions and regardless of all kinds of external influences.
- It requires also not to be subject to conflicts of interest.
- There is a clear distinction with the term “independent director”, who in the formal sense is a non-executive director who has no connection with the shareholder and who represents the interests of all stakeholders of the company ( cfr. article 15, 94° of the Insurance Supervision Act, which contains a list of 9 criteria).
- Time commitment :
- The Articles 82, § 1 and 83, § 1 of the Insurance Supervision Act provide that all directors, executive officers and those responsible for independent control functions must devote sufficient time to the fulfillment of their duties at the company.
- Basic assumptions to develop for all mandates to be taken into account in the quantitative (number of outside functions) and qualitative assessment of the time required for the intended function.
- The BNB recommends that members of the Executive committee and senior persons responsible for control functions perform their duties full-time. If not, the institution should “explain”.
- Collective suitability:
- The board of directors and the executive committee must collectively be able to understand the activities of the company .
- The collective suitability covers at least the same areas as the individual competences, and:
- Information technology and security,
- Climate and environmental risks (ESG),
- Local, regional and global markets;
- If applicable : the risk of money laundering and terrorist financing, and the management of (inter)national groups.
- It is necessary to develop a matrix of the entire Board and the Executive Committee.
- Implement a permanent self-assessment : once a year for significant undertakings, and every two years for less significant undertakings.
- Organizational level:
- Develop a suitability and diversity policy,
- Develop the procedure for the selection, appointment, reappointment and succession planning of managers,
- Define the criteria to be used in the assessment, including the 5 above mentioned, as well as institutional specific criteria,
- Define the written internal documentation of the assessment,
- Explain the individual accountability of directors,
- Provide relevant and tailored induction and training courses to board members.
The company itself has to assess suitability on an individual and collective basis, and to inform the NBB of the outcome of its assessment. The nomination committee should actively contribute to the company's accountability in this area. The compliance function must monitor compliance with legal and regulatory suitability requirements.
If the assessment or re-assessment carried out by the company leads to the conclusion that a person is not suitable for appointment to the intended position, that person should not be appointed. If the person concerned has already been appointed, this appointment must be revoked.
The NBB assesses the suitability of persons before they actually take up their position. The NBB also carries out an assessment when facts and/or circumstances warrant it. In accordance with the principles of good administration, the NBB strives to take its decision within a reasonable period of time, preferably within 2 months. In time-consuming / complex files the NBB applies the guideline that a decision must be taken within 4 months. Negative decisions by the NBB regarding the suitability of a person should be thoroughly motivated. An appeal can be lodged with the Raad van State.
The NBB responds to signals that cast doubt on someone's suitability. These signals can be very diverse. Examples include the opening or development of criminal, civil, administrative or disciplinary proceedings, an unexpected change in business results, concerns about the business model used or about sound and controlled business operations, the expansion of activities abroad, the outsourcing of (core ) tasks, structural failure to respond to requests for information from the regulator, high staff turnover, poor administration, (repeated) violation of laws and regulations.
The NBB may accompany its approval decision with additional provisions (ancillary provisions) to remedy any shortcomings of a minor nature. They can take the form of recommendations, but also conditions or obligations. Recommendations are intended to promote best practices and point out desirable improvements. A condition is a requirement imposed on an undertaking rather than what would otherwise be a negative decision. An obligation concerns the entire company, and can be to provide for instance specific information for the ongoing assessment or to take a specific measure.