**3.3 First conclusions: towards new skills and expertise. EBA and ESMA view**

On 26 September 2017, EBA and ESMA [13] issued guidelines pursuant to article 9(1) of Directive 2014/65/EU (MiFID II) and article 91(12) of Directive 2013/36/EU (CRD IV). The Guidelines explicitly identify *Key Function Holders* (KFH), i.e. those responsible for certain key functions in the governance of the bank, as individuals to be assessed with the same criteria as corporate officers. They provide the criteria to be considered in the assessment of corporate officers and key function holders, outline the direction along which the supervisory authority develops the assessment of governance and key control functions in the context of the SREP process and aim to harmonise at a European level and improve the effectiveness of the assessment process for members of corporate governance and key function holders of banks, and therefore to strengthen the suitability of the governance structures of the European banking system. The guidelines came into force in June 2018 and are in any case inspired by the principle of proportionality, so its prescriptions must be calibrated in relation to the nature, size and operational complexity of the financial intermediary.

<sup>22</sup> FSB in *A Framework for Assessing Risk Culture* (2014).

#### *Basel IV: The Challenge of II Pillar for Risk Management Function DOI: http://dx.doi.org/10.5772/intechopen.96929*

The guidelines are addressed to board members, heads of corporate control functions, Chief Financial Officers (CFOs), and heads of business lines that otherwise exert influence on the bank's direction and governance.

In compliance with the guidelines, banking and financial institutions must ensure and assess that KFH have an appropriate level of reputation, honesty, integrity, knowledge, skills and experience:


In this regard, banks and financial institutions should establish their own fitness policy, including an appropriate induction plan (for new appointments) and ongoing training to ensure that they are familiar with the required areas and have the necessary skills. The Guidelines outline a perimeter of competencies for the fitness assessment of KFHs that includes not only their previous experience but also technical competencies23 (banking and financial markets, legal requirements, regulatory framework, strategic planning, etc.) and a very articulated set of soft skills including: independence of mind, decision-making ability, authenticity (consistency with stated values), communication and judgement skills (examines, recognises and understands the essential elements of issues with respect to which he/she is able to weigh different courses of action and project himself/herself beyond his/her area of responsibility), customer and quality orientation (of products, services, relationships), leadership, loyalty (identifies with the company, its value system defends the interests of the company and operates objectively and critically with a sense of involvement), stress resistance, negotiation skills, awareness of the external context (he/she is well informed about financial, economic, social and other relevant developments at a national and international level that may affect the company), ability to work in a team, persuasiveness, strategic acumen (he/she is able to develop a realistic vision of future developments by translating it into long-term objectives, e.g. by applying scenario analysis), ability to chair meetings efficiently and effectively creating an open atmosphere that encourages everyone to participate.

Independence of mind should not be confused with the independence required of members of the management body. In the latter case, reference is made to the fact that a member of the body in question must not have had any present or recent relationship or connection of any kind with the intermediary that could influence the latter's ability to take balanced and independent decisions in the performance of his/her functions. For example, the fact that a member of the board of directors is

<sup>23</sup> In this regard, it should be noted that the amended article 26 of the Consolidated Law on Banking specifies that "persons performing administrative, managerial and control functions in banks must be fit for the performance of their duties.... The officers must meet the requirements of professionalism, good repute and independence, satisfy criteria of competence and propriety, and devote the necessary time to the effective performance of their duties, so as to ensure the bank's sound and prudent management.… The management and supervisory bodies of banks assess the fitness of their members and the overall adequacy of the body, documenting the analysis process and providing reasons for the assessment".

considered to be "independent" does not mean that the member simultaneously has independence of mind [14]. The latter is in fact a set of necessary behavioural skills, including courage, conviction and strength to effectively evaluate and challenge the proposed decisions of other board members, the ability to ask questions of board members and to resist group-think.
