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Suitability of members of the management and supervisory bodies and key function holders

It is the institutions’ responsibility to ensure their sound and prudent management, adopting a healthy, responsible and prudent attitude towards the risks involved in their activities.

Institutions must guarantee that the members of their management and supervisory bodies and their key function holders permanently comply with the suitability requirements envisaged by law for the exercise of their functions.

Banco de Portugal and the European Central Bank control the suitability of the members of the management and supervisory bodies and the key function holders of the entities they supervise directly. This control is mainly preventive and aims to ensure that the members of the management and supervisory bodies permanently provide guarantees of sound and prudent management of the supervised institutions.

In the case of credit institutions considered significant under the Single Supervisory Mechanism (SSM), the fit and proper assessment of the members of the management and supervisory bodies and key function holders is jointly undertaken by Banco de Portugal and the European Central Bank. The final decision is the responsibility of the Governing Council of the European Central Bank. 

The fit and proper control undertaken by Banco de Portugal and the European Central Bank does not preclude the responsibility of supervised institutions. These institutions have the legal obligation to ensure ongoing compliance with requirements relating to reputation, professional qualification and experience, independence, and time commitment established by law and regulated by Banco de Portugal, both when selecting persons for the institutions’ bodies – also taking into account the collective composition – and throughout their respective terms of office. 

Members of the management and supervisory bodies

It is the responsibility of the institutions to ensure that the members of their management and supervisory bodies and key function holders permanently comply with the following suitability requirements in the exercise of their functions: reputation, professional qualification and experience, independence of mind and management of conflicts of interest, and time commitment.

Verifying the suitability requirements envisaged by law (reputation, professional qualification and experience, independence, and time commitment) of the members of the management and supervisory is primarily the responsibility of the supervised institution and, within the scope of their supervisory activities, of Banco de Portugal or the European Central Bank.

In institutions receiving public funds, the State is also responsible for promoting the assessment of the members it appoints to the management or supervisory body.

Key function holders

Institutions must ensure that all staff members are suitable for the positions they occupy. 

It is the responsibility of the supervised institutions to verify the reputation, professional qualification and experience, independence, and availability requirements of key function holders.

In particular, it is the responsibility of institutions to identify the directorships whose holders, while not belonging to the management or supervisory bodies, perform tasks with significant influence in the management of the credit institution. It is also the responsibility of institutions to approve the policy for selecting and assessing key function holders as regards the suitability requirements envisaged by law. 

The following are considered key function holders:

  • persons with responsibility for the risk management functions; 
  • persons with responsibility for the compliance functions;
  • persons with responsibility for the internal audit functions;
  • other functions that may be considered influential by the institution;
  • other functions that may be considered influential by Banco de Portugal.

It is the responsibility of institutions to ensure an effective identification process of key function holders. Non-identification of key function holders in addition to those set out by law may pose a risk to the institution. 

At any time, Banco de Portugal may undertake a new suitability assessment of key function holders if it believes that their assessment by the credit institution was clearly insufficient or if justified by any supervenient circumstances.

Selection and assessment policy and assessment report

Institutions must have a policy that clearly identifies the procedures to be followed when they select and assess, initially and permanently, the suitability of the members of the management and supervisory bodies and key function holders, under the applicable legal requirements (reputation, professional qualification and experience, independence, and time commitment).

The results of the suitability assessment of the members of the management and supervisory bodies and key function holders must be included in a report to be submitted to Banco de Portugal under the authorisation process to exercise functions or if justified by any supervenient facts.

Supervenient facts

Credit institutions must permanently check for and communicate to Banco de Portugal any supervenient facts, as soon as they learn of them, that may affect the reputation, professional qualification and experience, independence or time commitment requirements for the authorised person.

Supervenient facts must be communicated to Banco de Portugal under the same terms as for reporting facts when presenting the authorisation request to perform tasks.

Institutions must also communicate to Banco de Portugal the measures they intend to take, if any, given the facts presented. They must communicate, in particular, if they intend to reassess the persons’ suitability; if so, they must furthermore inform Banco de Portugal of the result of that reassessment, by submitting the corresponding reassessment report.

Persons subject to authorisation

The following 'eligible persons' are subject to Banco de Portugal's authorisation to exercise their functions and to the respective authorisation process:

  • all members of the management and supervisory bodies of the entities subject to Banco de Portugal's supervision, irrespective of the governance structure adopted; 
  • managers of branches of credit institutions having their head office in Portugal and established in European Union Member States; 
  • managers of branches of credit institutions having their head office in Portugal and established in third countries; 
  • managers of branches or representative offices located in Portugal of credit institutions that are not authorised in other European Union Member States.

The authorisation process to exercise functions and its subsequent special registration procedure apply to all members of the management body, including non-executive members, and to the alternate members of management and supervisory bodies.

Authorisation to exercise functions

The performance of tasks by eligible persons is subject to the authorisation of Banco de Portugal or the European Central Bank.

It is the responsibility of institutions to ensure that eligible persons meet the suitability requirements envisaged by law.

There are two types of authorisation process:

  • authorisation;
  • prior authorisation.

In the authorisation process the institution requests authorisation for the exercise of functions of eligible persons after these are appointed to exercise the functions in question. 

In the prior authorisation process the institution requests authorisation for the exercise of functions of eligible persons before these are appointed to that purpose. Prior authorisation expires if the corresponding special registration is not subsequently requested of Banco de Portugal.

In any case, the taking up of the new term of office may only occur following authorisation by Banco de Portugal or the European Central Bank.

Starting the process

The authorisation process to exercise functions starts with a request for that purpose submitted to Banco de Portugal by the institution in question. This request must be accompanied by the information and documentation referred to in Instruction of Banco de Portugal No 12/2015.  

The authorisation request does not have to be presented within a given time-frame by persons exercising functions for the first time in supervised institutions and those who exercise a new function in a supervised institution (i.e. persons designated ex novo). However, these persons may only begin exercising functions after obtaining authorisation.

In the case of reappointments – i.e. in situations where the eligible person continues to exercise functions in the same role as before – the authorisation request to exercise functions must be presented within 15 working days of the reappointment’s decision date.

Institutions submit these requests and annexed documentation through BPnet, Banco de Portugal’s extranet for operational communication with supervised institutions, as established in Instruction of Banco de Portugal No 7/2016. 

Analysis of the process

The request submitted by the institution to Banco de Portugal for authorisation to exercise functions must be accompanied by the information and documentation referred to in Instruction of Banco de Portugal No 12/2015.

When the application or documentation submitted contains insufficiencies or irregularities which can be remedied by the persons concerned, these will be given notice that they are required to do so within a reasonable time limit, failing which authorisation will be refused.

Banco de Portugal may request all information it deems necessary to analyse the process adequately. The institution must deliver it within the time-frame established for that purpose by Banco de Portugal, failing which authorisation will be refused for lack of documentation.

Banco de Portugal has a 30-day period to decide on the suitability of eligible persons. This time-frame is interrupted if Banco de Portugal asks the interested parties for documentation it deems necessary for analysis of the process, and starts again after receipt of said documentation.

When the formal analysis of the authorisation process to exercise functions is concluded, Banco de Portugal assesses the eligible persons, considering in particular the following legal suitability requirements:

  • reputation;
  • professional qualification and experience;
  • independence;
  • time commitment.

Banco de Portugal also verifies the formal independence of most members of the institutions’ supervisory body, including that of its chair.

Banco de Portugal’s assessment is autonomous as regards the institution’s assessment and also comprises the collective composition of the management and supervisory bodies, with regard to the professional qualification and experience, as well as time commitment. 

Conclusion of the process

Once the analysis of the process is completed, Banco de Portugal or the European Central Bank notify the institution of their decision to authorise or refuse the exercise of functions by eligible persons, within 30 days of the date on which they receive the last document from the institution.

Changes of members of the management and supervisory bodies and renewals are deemed to be authorised if Banco de Portugal or the European Central Bank do not react within 30 days of the date of receipt of the corresponding properly filed request or, if supplementary information has been requested, within 30 days of receipt of such information.

Refusal of authorisation on grounds of lack of reputation or insufficient professional qualification and experience, independence or time commitment will be communicated by Banco de Portugal or the European Central Bank, to the persons concerned and the credit institution, in compliance with the rules established in Código do Procedimento Administrativo (the Administrative Procedure Code) regarding prior hearings of interested parties, or under the applicable EU legislation.

With regard to prior authorisation requests, the conversion of prior authorisation into special registration must be requested within 60 days of the authorisation date, failing which the granted authorisation expires.

The authorisation for the exercise of functions is a prerequisite for eligible persons taking up office and for final registration of appointment of a member of the management and supervisory bodies in the commercial register.

Legal suitability requirements

A. Suitability

It is the responsibility of institutions to permanently ensure that the members of their management and supervisory bodies and key function holders exercising functions in the institution are fit and proper for exercising functions in the financial system.

For these purposes, suitability may be defined as one’s good name / good reputation, integrity or honesty: a fit and proper person is trustworthy, i.e. objectively appears to adopt in his/her personal and professional life ethical behaviours, consistent with the institution’s sound and prudent management. 

These behaviours must signal in particular any aspects which show the person’s ability to make wise and judicious decisions, or a tendency to meet obligations punctually or to behave in a manner compatible with the maintenance of market confidence.

The suitability assessment is always an individual assessment to which the principle of proportionality does not apply. 

To assess the suitability of a given person, the institution must, based on the most comprehensive information on the personal and professional behaviour of the person assessed, make a prognosis as to his/her ability to ensure the institution’s sound and prudent management.

The prognosis leads to a prudential risk analysis. For that purpose, the institution must collect the relevant evidence and assess the danger it presents in the event of the person assessed adopting behaviours that do not ensure the institution’s sound and prudent management. Should the institution believe that this is a real possibility based on concrete evidence, it must consider that the suitability requirement is not met.

The Legal Framework of Credit Institutions and Financial Companies lists, non-exhaustively, relevant evidence for a suitability assessment:

  • evidence that the member of the management and supervisory body has not acted in a transparent or cooperative manner in his/her relationships with any national or foreign supervisory or regulatory authority; 
  • refusal, withdrawal, cancellation or termination of the registration, authorisation, acceptance or licence for the exercise of any commercial, business or professional activity by a supervisory authority, professional body, or entity with similar functions, or removal from a post in a public entity; 
  • the reasons behind any dismissal, cessation of employment or removal from a post requiring a special confidence relationship; 
  • prohibition, by a judicial authority, supervisory authority, professional body or entity with similar functions, from acting in the capacity of member of the board or manager of a corporation constituted under civil or commercial law or performing any functions therein; 
  • inclusion of mentions of default in the central credit register, or any other similar register, by the competent authority for the purpose; 
  • financial or corporate results obtained by corporations managed by the person in question or where the said person has been the holder of a qualifying holding, taking especially into account any proceedings regarding the recovery, winding up or liquidation, and the manner in which the person concerned has contributed to the situation leading to such proceedings; 
  • personal insolvency, regardless of the respective qualification; 
  • civil, administrative or criminal proceedings, as well as any other circumstances that, depending on the specific case, may have a significant impact on the financial soundness of the person in question; 
  • declaration of insolvency, in Portugal or abroad, of the member of any corporate body or of a company controlled by the said person or in which he or she had been a member of the board, a director or a manager de jure or de facto or a member of the supervisory body; 
  • accusation, indictment or conviction, in Portugal or abroad, for crimes against property, falsification and falsity, crimes against the achievement of justice, crimes committed in the exercise of public functions, tax crimes, crimes specifically related to the exercise of financial and insurance activities and the use of means of payment and also crimes foreseen in the Commercial Companies Code; 
  • the accusation or conviction, in Portugal or abroad, for breach of legal rules governing the activity of credit institutions, financial companies, pension fund management companies as well as rules governing the securities market and insurance or reinsurance activity, including insurance or reinsurance intermediation activity; 
  • failure to comply with disciplinary, ethical or professional conduct rules, within the scope of regulated professional activities; 
  • facts that may have led to the judicial dismissal, or judicial confirmation of dismissal for cause, of members of the management and supervisory bodies of any commercial company; 
  • actions undertaken as member of the board, director or manager of any commercial company that may have determined a conviction for damage caused to the company, its members, social creditors or third parties.

In addition to the facts described and others of a similar nature, the institution must include in its judgement all and any circumstances it may legally take knowledge of, which, due to their seriousness, frequency or any other relevant characteristics, allow a prognosis of the guarantees provided by the person in question of sound and prudent management of the credit institution.

The suitability assessment must not be mistaken for a judgment in an administrative offence proceeding or a criminal proceeding. The question arising in the suitability assessment is not whether a person acted in a certain way, so as to establish if he/she must be sanctioned/punished. What is in question is, given the existing evidence regarding the person’s past behaviour, whether there is a risk of this person not ensuring a sound and prudent management of the institution in the future. 

A negative suitability assessment is not a sanction, rather a prudential measure to safeguard the institutions’ sound and prudent management and hence the integrity and stability of the financial system. The aim of this assessment is to prevent the institution from assigning functions with an impact on its management to persons at risk of not ensuring sound and prudent management, due to non-fulfilment of the following requirements: the person’s ability to make wise and judicious decisions, or a tendency to meet obligations punctually or, more generally, to behave in a manner compatible with the maintenance of market confidence.

The existence of a criminal or administrative offence proceeding against a given person is relevant evidence for suitability assessment purposes and, as such, the institution’s assessment must include appraisal of this evidence. 

Within the authorisation processes, Banco de Portugal makes an autonomous assessment of the suitability of eligible persons. For that purpose, it takes into consideration information provided by the eligible person (by means of the questionnaire annexed to Instruction of Banco de Portugal No 12/2015) and the information obtained or received by Banco de Portugal, directly or through other public entities. The exchange of information between the financial supervision authorities is particularly relevant to this process.

In its suitability assessment, Banco de Portugal takes into account the above criteria that result from the national law, interpreted in accordance with the Constitution of the Portuguese Republic and European Union law, including the applicable Guidelines of the European Banking Authority (EBA).

According to EBA Guidelines, the suitability requirement of a member of the management and supervisory body is deemed to be met if there are no reasoned doubts nor documentation suggesting otherwise. A member of the management and supervisory body is considered not to meet the suitability requirement when his/her personal or professional conduct raises material doubts as to his/her ability to guarantee the credit institution’s sound and prudent management.

B. Professional qualification and experience

With due consideration to the principle of proportionality, institutions must ensure that the members of their management and supervisory bodies and their key function holders possess the skills and qualifications needed to perform their tasks, thus guaranteeing the institution’s sound and prudent management.

The skills and qualifications in question may be acquired through:

  • academic qualification or specialised training that is appropriate for the directorships they are to occupy;
  • professional experience of a duration and level of responsibility compatible with the credit institution's characteristics, complexity, size and risk exposure.

The previous training and experience must be relevant to allow the holders of those directorships:

  • to understand the functioning and activities of the institution;
  • assess the (financial and non-financial) risks to which the institution is exposed, particularly the risks that are more directly related to the task performed, and autonomously and critically analyse and decide on the issues they face.

The non-executive members of the management and supervisory bodies must possess the skills and qualifications to assess critically the decisions taken by the management body and to supervise this body's function effectively.

According to EBA Guidelines (EBA/GL/2012/06), the non-executive members of the management and supervisory bodies must have sufficient experience to enable them to provide constructive challenge to the decisions and effective oversight of the management function. They must also be able to demonstrate that they have, or will be able to acquire, the technical knowledge necessary to enable them to understand the activities of the credit institution and the risks that it faces sufficiently well. 

The EBA recommends that particular consideration be given to the level and profile of the education and whether it relates to banking and financial services or other relevant areas.

With regard to professional experience, the EBA considers that the members of the management and supervisory bodies must have gathered practical and professional experience in a management position over a sufficiently long period and with a high degree of responsibility. 

It is good practice for the institution to define the tasks to be performed specifically by each member of its management and supervisory bodies, weighing the respective responsibilities and its integration into imposed or optional committees or commissions and, based on this definition, establish the minimum requirements of professional qualification and experience that the respective member must have.

Collectively, the management and supervisory bodies must possess adequate knowledge, skill and experience.

In application of the principle of proportionality, a possible lower individual qualification may be superseded by the collective composition of the body as a whole, without prejudice to a set of minimum skills and qualifications for the full exercise of the functions in question.

Given the principle of proportionality, institutions must place at the disposal of the members of their management and supervisory bodies and key function holders internal or external training means allowing them to address any gaps in relevant knowledge or skills and/or update them, given the evolution of relevant issues for the exercise of their functions, notably as regards their knowledge of the institution where they are performing the tasks.

C. Independence

The members of the management and supervisory bodies and key function holders must exercise their functions with independence of mind.

To ensure independence of mind – and independence in appearance – of the members of the management and supervisory bodies and key function holders, the institution must apply a robust policy of conflicts of interest that allows it to continuously assess:

  • the existence of real or potential conflicts of interest;
  • the materiality of any real or potential conflicts of interest detected;
  • the possibility of applying measures to mitigate the risks underlying the real or potential conflicts of interest in question, such that a third party may not put into question the impartiality and objectivity of analysis and decision-making at the institution.

In assessing this requirement, all situations liable to affect the independence of mind of the members of the management and supervisory bodies are to be taken into account, including:

  • directorships the person concerned occupies or has occupied in the credit institution in question or in another credit institution; 
  • consanguineous relationships or similar, or professional or economic relationships that the person concerned has with other members of the management or supervisory bodies of the credit institution, its parent undertaking or its subsidiaries; 
  • consanguineous relationships or similar, or professional or economic relationships that the person concerned has with a person who has a qualifying holding in the credit institution, its parent undertaking or its subsidiaries.

Institutions must be able to identify to Banco de Portugal the conflicts of interest detected and explain why they consider that a certain conflict of interest is material or non-material, as well as the suitability of the measures used to mitigate the risks underlying real or potential conflicts of interest.

Independence of mind and independence in appearance must not be mistaken for formal independence, as envisaged, for example, for most members of the supervisory body, including its chair, of public interest entities, or for an appropriate minimum number of members of the management body of investment fund management companies.

D. Time commitment

Institutions must ensure that the members of the management and supervisory bodies and key function holders are able to commit enough time to fully perform their tasks.

For that purpose, they must ascertain how much time is deemed essential for performing the tasks in question, considering the functions inherent in each position, and making sure that the persons in question actually have and devote the time needed to exercise their functions. The (minimum) time commitment must be set out beforehand when the position in question is described.

Institutions must take into consideration the actual time commitment of the person in question, considering all and any situation that occupies his/her time, including for example the accumulation of directorships in other entities, but also any other situation that takes actual time from the full performance of tasks.

Without prejudice to the foregoing paragraphs, significant institutions for the purposes of the CRD IV and the CRR, must take into account, in their assessment, that the members of their management and supervisory bodies are prohibited from accumulating more than one executive directorship with two non-executive directorships, or four non-executive directorships.

For these purposes, a single directorship shall be understood as executive or non-executive directorships on the management or supervisory bodies of credit institutions or other entities which are included in the same perimeter of supervision on a consolidated basis or in which the credit institution has a qualifying holding.

The quantitative limit of directorships that can be accumulated does not apply to the members of the management and supervisory bodies of institutions benefiting from extraordinary public financial support and appointed in the context of such support.

The quantitative limit of directorships that can be accumulated excludes the directorships held in entities whose principal corporate object is the performance of non-commercial activities, except if, due to their nature and complexity, or the size of the respective entity, there are serious risks of conflicts of interest or lack of availability for the performance of the function in the institution.

The European Central Bank or Banco de Portugal may authorise the members of the management and supervisory bodies of significant institutions for the purposes of the CRD IV and the CRR to accumulate one additional non-executive directorship.

E. Majority of formally independent members in the supervisory body

Institutions’ supervisory bodies must comprise a majority of formally independent members, including their chair. 

To qualify as formally independent members, the persons in question must meet a set of criteria envisaged by law for that purpose, related to the absence of a relationship between the member of the management body and a given interest group specific to the institution and the absence of a situation that hampers the respective impartiality in analysis and decision-making. 

The legal provision of a formal independence requirement, associated with the internal supervisory function, aims to:

  • promote impartiality in the person’s analysis and decision-making, preventing cases of risk of undue influence (i.e. the interference of third party interests in analysis and decision-making, with prejudice to the interests that the person in question has the fiduciary duty to protect);
  • promote impartiality in analysis and decision-making of the body in which the person in question intends to perform or performs tasks;
  • promote third-party confidence in impartial analysis and decision-making of the person subject to the requirement and body in which he/she performs tasks.

The legislator has not exhaustively listed a series of criteria to gauge the formal independence of the members of the supervisory body. Rather, it envisaged two open and indefinite criteria that must be gauged in the light of the specific case’s material circumstances, i.e.:

  • link to a company’s specific interest group;
  • absence of situations that hamper impartiality in analysis and decision-making.

Jointly with these criteria, the law establishes that the following lack formal independence:

  • holders or those acting in the name or on behalf of holders of a qualifying holding equal to or higher than 2% of the institution’s share  capital;
  • those who have been re-elected for more than two consecutive or non-consecutive terms of office.

 

Accumulation of directorships

Banco de Portugal may oppose the members of the management or supervisory bodies of credit institutions performing management or supervisory functions in other entities if it deems that the accumulation is liable to hamper the performance of the functions already entrusted to them, in particular, where there are serious risks of conflicts of interest or because it results from lack of availability for the performance of the function.

In its assessment, Banco de Portugal considers the specific circumstances of the case, the specific requirements of the directorship and the nature, scale and complexity of the institution’s activities.

In the case of directorships to be held in an entity subject to Banco de Portugal’s supervision, the power of opposition is exercised within the scope of the authorisation process for the performance of the functions. 

In any case, institutions must declare the intention of the persons concerned to Banco de Portugal at least 30 days before the date foreseen for the taking up of the new functions. Should Banco de Portugal not issue its decision within this period, it is understood that it does not oppose the accumulation of directorships.

It is the responsibility of institutions to prove that the intended accumulation does not hamper the interested person’s performance of functions in the institution. For that purpose, institutions must analyse the request in question with the documentation set forth in Instruction of Banco de Portugal No 12/2015:  

  • a complete report of all the roles performed by the interested party, indicating those which involve day-to-day management tasks;
  • indication of the main business of the entities where functions are exercised, in the event of such entities not being subject to registration with Banco de Portugal;
  • detailed indication of any shareholding interest which may exist between the entity/entities where functions are exercised and that/those where the new functions are to be exercised;
  • where relevant, the minutes of the meeting of the management body of the entity subject to Banco de Portugal’s supervision, in which the interested party exercises functions, proving that the above body is aware of the planned accumulation of functions; 
  • all the documentation needed for the assessment aiming at confirming that the accumulation will not hamper the performance of the functions already performed by the person in question, namely due to the non-existence of serious risks of conflicts of interest, or due to the fact that the intended accumulation does not establish the lack of availability to perform functions in the institution subject to Banco de Portugal's supervision.

The members of the management and supervisory bodies of significant institutions for the purposes of the CRD IV and the CRR are prohibited from accumulating more than one executive directorship with two non-executive directorships, or four non-executive directorships. The European Central Bank or Banco de Portugal may authorise one additional non-executive directorship.

Registration process

Once the respective authorisation to exercise functions has been granted, the special registration of eligible persons with Banco de Portugal must be requested by the institution concerned within 30 days of the date on which the eligible person has started to exercise functions. The request must indicate the start date of the performance of functions. 

Institutions submit these requests through BPnet, Banco de Portugal’s extranet for the operational communication with the financial community. 

For reappointments of all members of the management body and in the event of an authorisation request to exercise functions as an alternate of the member of the management or supervisory body, the special registration request and authorisation request must be filed at the same time, being that, in such situations, either the eligible person is already exercising his or her functions, or as an alternate, no start date has been defined for that effect (as provided for in Article 8 (3) of Instruction of Banco de Portugal No 12/2015).

In cases of prior authorisation to exercise functions, the aforementioned request for registration must be accompanied by a copy of the minutes of the meeting where the given person(s) has been designated to exercise the functions at stake.

Relationship between the authorisation and the spe

The authorisation process to exercise functions is undertaken as part of the supervised institutions’ authorisation process and, subsequently, throughout the lifecycle of the institution, whenever there is a change in the holders of the positions subject to Banco de Portugal’s authorisation process. 

The supervised institutions may not begin their activity until they are authorised by Banco de Portugal and enrolled in Banco de Portugal’s special register; subsequent changes to the initial authorisation’s request are also subject to registration.

Legislation and Regulations