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Governance (banking procedures)

Persons effectively running the undertaking and members of governing bodies

Appointment or renewal of appointment of persons “effectively running” the undertaking

You have been appointed as the person “effectively running” a credit institution, a finance company, an investment firm other than a portfolio management company, a payment institution or an electronic money institution,
or
your appointment as the person effectively running a credit institution, a finance company, or an investment firm other than a portfolio management company has been renewed,

Your appointment or renewal of appointment must be ratified by the competent authority (ACPR or the European Central Bank (ECB) in the case of credit institutions on the list of major credit institutions under direct ECB supervision). These rules also apply to financial holding companies, combined financial holding companies and parent companies of finance companies.

Applicable regulations

Obligation to disclose an appointment or renewal of appointment

When appointing or renewing the appointment of a person called on to take charge of the effective running of the business of the institution, the institution must notify the ACPR of this appointment, providing the information required for the authority to assess the fitness, propriety, knowledge, experience and availability of the person in question.

Credit institutions, finance companies and investment firms (other than portfolio management companies) that publish their resolutions in the legal gazette (BALO) may ask the ACPR to give its opinion on any proposed appointment or renewal of appointment of senior managers.

The position of person effectively running the undertaking may not be held if the person in question has been sentenced for one of the offences listed in Article L.500-1 of the Monetary and Financial Code. Senior managers who are the subject of such sentences must cease their activity within one month of the date when the court decision becomes final. The fact that a person is not subject to the disqualification provided for under this article shall not prevent the competent authority (ACPR or ECB) from assessing compliance with the propriety criterion required for persons effectively running an institution.

Rules that must be complied with at all times

The institution must ensure that:

  • at least two people are in charge of effectively running the business of the institution;
  • the nature and scope of the functions performed by each person effectively running the undertaking enable that person to have a comprehensive and in-depth view of the whole business and related risks;
  • persons effectively running the undertaking comply with applicable regulatory requirements at all times.

 

Criteria for reviewing appointments and appointment renewals
The regulations require several criteria to be reviewed.  

Number of people “effectively running” the undertaking
At least two people must be in charge of effectively running the undertaking
except, as the case may be, at hybrid payment institutions, electronic money institutions as well as at investment firms subject to certain conditions, notably relating to size.

The function of person effectively running the undertaking is performed in a public limited company with a board of directors by the chief executive officer and one or more deputy chief executive officers. If the specific situation of an institution prevents the appointment of a deputy chief executive officer, the reasons for this must be explained to the ACPR and a senior executive staff member must be appointed as the second person effectively running the undertaking and given the necessary powers by the board of directors to effectively run the business of the institution. In a public limited company with a supervisory board, the function of person effectively running the undertaking is performed by all the members of the management board. In other forms of companies, it is performed by people performing functions equivalent to those of the people effectively running the business of public limited companies as mentioned above.

Scope of powers assigned to people effectively running the undertaking
Reporting institutions must ensure that their governance system distinguishes clearly between oversight and effective management functions in order to separate these functions and promote sound and effective risk management
. In this setting, persons effectively running the undertaking should play an active part in managing all of its activities, risks and resources. Similarly, persons effectively running the undertaking but who are not corporate officers should be assigned sufficiently broad powers that are "equivalent" to those of corporate officers by the supervisory body.

In this regard, to ensure continuity in the effective running of the institution in all circumstances, each person effectively running the undertaking must be able to take all necessary decisions in the event that one of them is away or somehow incapacitated.

Furthermore, instances where the functions of chief executive officer are combined with those of chairman of the board of directors of a credit institution, a finance company or an investment firm other than a portfolio management company, should be the exception. The chairman of the board of directors, who is responsible for running the work of the board, has additional responsibility in terms of oversight functions, which, except where the competent authority gives express authorisation to combine these functions with those of chief executive officer, precludes him or her from additionally performing the role played by a person carrying out tasks that the chairman is supposed to oversee. Institutions that wish to request an exemption from this principle must send the ACPR a properly reasoned application, which will be reviewed by the college of the competent authority with regard in particular to criteria relating to size, nature of activities, international presence and ownership structure.

Fitness, propriety, knowledge and experience
Persons in charge of the effective running of the undertaking must meet, at all times, the fitness, propriety, knowledge and experience requirements needed to perform their functions. Furthermore, members of the management board or any person responsible for the effective running of the business of the undertaking must collectively meet the knowledge, fitness and experience requirements needed to understand all of the institution’s activities, including the main risks.

Every senior manager must demonstrate the honesty, integrity and independent thinking needed to run the institution in a sound and prudent fashion. Any risk of a conflict of interest must be precisely identified and addressed by suitable preventive measures.

Availability of persons effectively running the undertaking
Persons effectively running the undertaking must devote sufficient time to the performance of their functions within the institution.

The availability of persons effectively running the undertaking is assessed with regard to the activities of the institution. Accordingly, to make its assessment, the competent authority must have exhaustive information about all offices and professional functions, including salaried positions, that occupy the majority of the time of persons effectively running the undertaking.

Persons effectively running the undertaking who perform management or oversight functions in other institutions or commercial businesses must specify the organisational approach taken to ensure that they discharge their responsibilities in full. In this regard, details should be provided on the division of time allocated to each office or function.

Furthermore, rules on holding combined directorships apply if the total consolidated or social assets of the reporting institution exceed EUR 15 billion or if the institution has significant importance because of its internal organisation or the nature, scale or complexity of its activities.  

Senior managers must live close to the main offices of the business. In the case of smaller entities that are part of a banking group, if one of the senior managers does not live locally, he or she should belong to the same business line or be the manager for the zone in which the entity is located and travel there regularly.

In terms of combining offices, the senior managers of a payment institution or electronic money institution are subject to the ordinary law provisions contained in the Commercial Code.

Procedure

Notification

Credit institutions, finance companies, investment firms other than portfolio management companies, payment institutions and electronic money institutions must notify the ACPR of appointments and renewals of appointments of persons effectively running the undertaking (cf. by completing the form for persons effectively running the undertaking).

Notifications concerning appointments or renewals of appointments of persons effectively running institutions affiliated with a central institution are performed by the latter.

Notification must be provided within 15 days following an appointment or renewal of appointment at a credit institution, finance company, investment firm other than a portfolio management company, financial holding company, combined financial holding company or parent company of a finance company and within five business days in the case of a payment institution or electronic money institution.

Review by the ACPR

After receiving the notification, ACPR staff may be led to request additional clarification or documents from reporting institutions.

The notification will be subject to a decision by the competent authority (ACPR or ECB, as applicable). The institution will be informed of the decision. If the authority plans to challenge an appointment or renewal of appointment, an adversarial procedure is established following the procedures set out in the applicable legislation so that the institution and the natural person in question can present their observations.

Review period
A period of two months is allocated for the review following receipt of a complete package; for institutions providing investment services, this period is extended to three months, since the Autorité des marchés financiers has one month in which to carry out its own review.

Appointment or renewal of appointment of members of a supervisory body (board of directors, supervisory board or body performing equivalent oversight functions)

Credit institutions, finance companies and investment firms other than portfolio management companies must notify the ACPR of the appointment or renewal of appointment of members of their supervisory bodies: these appointments or renewals must be ratified by the ACPR or by the ECB in the case of credit institutions on the list of major credit institutions under direct ECB supervision).

The appointment or renewal of appointment of members of the governing bodies of financial holding companies, combined financial holding companies and the parent companies of finance companies do not have to be notified to the ACPR. However, the ACPR may challenge such persons’ continued appointment if they no longer meet the applicable fitness and propriety requirements

Applicable regulation

Obligation to disclose an appointment or renewal of appointment

When appointing or renewing the appointment of a member of the supervisory body of a credit institution, finance company or investment firm other than a portfolio management company, the undertaking must notify the ACPR of this appointment, providing the information required for the authority to assess the fitness, propriety, knowledge, experience and availability of the person in question.

Credit institutions, finance companies and investment firms (other than portfolio management companies) that publish their resolutions in the legal gazette (BALO) may ask the ACPR to give its opinion on any proposed appointment or renewal of appointment of members of their board of directors, management board or supervisory board.

The position of supervisory body member may not be held if the person in question has been sentenced for one of the offences listed in II of Article L.500-1 of the Monetary and Financial Code. Supervisory body members who are the subject of such sentences must cease their activity within one month of the date when the court decision becomes final.

Criteria for reviewing appointment and appointment renewals

Assessments by the ACPR or ECB are based on several criteria.

Independence of the supervisory body with respect to effective management

To ensure effective oversight of the undertaking’s management, instances where the functions of chief executive officer are combined with those of chairman of the board of directors of a credit institution, a finance company or an investment firm other than a portfolio management company, should be the exception.

The chairman of the board of directors, who is responsible for running the work of the board, has additional responsibility in terms of oversight functions, which, except where the competent authority gives express authorisation to combine these functions with those of chief executive officer, precludes him or her from additionally performing the role played by a person carrying out tasks that the chairman is supposed to oversee.

Institutions that wish to request an exemption from this principle must send the ACPR a properly reasoned application, which will be reviewed by the college of the competent authority with regard in particular to criteria relating to size, nature of activities, international presence and ownership structure.

Fitness, propriety, knowledge and experience

Members of the board of directors, supervisory board or any body performing equivalent oversight functions at a credit institution, finance company or investment firm other than a portfolio management company must meet, at all times, the fitness, propriety, knowledge and experience requirements needed to perform their functions.

Furthermore, they must collectively have the requisite knowledge, fitness and experience in the areas of banking and financial markets, legal and regulatory requirements applicable to the undertaking, its governance system, including internal control, strategic planning and implementation, risk management and accounting and financial information.

Any member of the supervisory body of an institution must demonstrate the honesty, integrity and independent thinking needed to assess and, if need be, offer effective criticism of management decisions, and to ensure effective oversight and monitoring of these decisions and requested corrective measures. In this respect, any risk of a conflict of interest must be precisely identified and supervised.

Availability of members of governing bodies

Members of supervisory bodies must devote sufficient time to the performance of their functions within the body.

The availability of members of the supervisory body is assessed with regard to the size and complexity of the institution’s activities.

In addition, to make its assessment, the competent authority must have exhaustive information about all offices relating to management or supervisory functions exercised in other entities and professional functions, including salaried positions (mentioning those held within the undertaking), elected offices or appointments held in associations of any sort, that occupy the majority of the time of supervisory body members. In this regard, details should be provided on the division of time allocated to each office or function.

Furthermore, rules on holding combined directorships apply if the total consolidated or social assets of the reporting institution exceed EUR 15 billion or if the institution has significant importance because of its internal organisation or the nature, scale or complexity of its activities.

In terms of combining offices, the members of the supervisory body of a payment institution or electronic money institution are subject to the ordinary law provisions contained in the Commercial Code.

Procedure

Procedure

Notification

Credit institutions, finance companies and investment firms must notify the ACPR of appointments and renewals of appointments of members of their governing body by completing the form covering appointments of members of governing bodies

Notifications concerning appointments or renewals of appointments of members of the governing bodies of institutions affiliated with a central institution are performed by the latter.

Notification must be provided within 15 days following an appointment or renewal of appointment at a credit institution, finance company or investment firm other than a portfolio management company, and within one month in the case of a payment institution or electronic money institution.

Review by the ACPR

In the case of credit institutions, finance companies and investment firms other than portfolio management companies, ACPR GS staff may, after receiving the notification, be led to request additional clarification or documents from the undertaking.

The notification will be subject to a decision by the competent authority (ACPR or ECB, as applicable). The institution will be informed of the decision. If the authority plans to challenge an appointment or renewal of appointment, an adversarial procedure is established following the procedures set out in the applicable legislation so that the institution and the natural person in question can present their observations.

Review period

A period of two months is allocated for the review following receipt of a complete package; for institutions providing investment services, this period is extended to three months, since the Autorité des marchés financiers has one month in which to carry out its own review.

Updated on: 11/05/2018 10:01