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Last year, here in Florence, we had some very useful discussions about the functioning and composition of bank boards and the challenges involved. Exchanging views in this way is important for us to understand your challenges and for you to understand our expectations, so that we can together further shape and improve governance and risk culture at Europe’s banks.
All banks need good governance and a sound risk culture to take the right decisions. We saw in the global financial crisis and in last year’s banking sector turmoil that deficiencies in internal governance and risk culture can often be early warning signs of turbulence ahead. Good governance, on the other hand, can help banks develop an active strategy to steer them through the challenges of a constantly evolving environment.
We will celebrate the tenth anniversary of the Single Supervisory Mechanism (SSM) later this year. In these ten years, governance has continually figured among the top priorities and both supervisors and banks have done a significant amount of work to improve in this area. And indeed, over the last few years, we have seen progress in banks’ awareness of governance-related topics and their implementation. Despite this, our targeted review showed that there are still long-term structural deficiencies in the functioning of management bodies.
One of the advantages of European banking supervision is that we can assess and compare practices in different banks and different business models. This benchmarking is particularly important when we are discussing governance and the collective suitability of management bodies across different banks. Today I would like to share what we want to see in terms of good governance and risk culture, and I am looking forward to hearing your views on this during our exchanges.
Let me start with a familiar topic, the suitability criteria for members of the management body. While the management body as a whole is accountable for all areas of a bank’s business, individual members are expected to understand and contribute to the specific areas of the business for which they are responsible.
The bank and the supervisor each have a part to play in ensuring that individual members are and remain suitable for their specific roles. This is of crucial importance for the bank’s performance.
The bank needs to clearly allocate responsibilities and duties to a role and ensure that the person appointed is suitable. We, as supervisor, perform a prudential assessment and consider whether the person’s knowledge, skills, experience, reputation and independence of mind are sufficient, and whether they can dedicate enough time to the role. If need be, we can, for example, set conditions and obligations within the context of the suitability assessment. In some, fortunately rare, cases we have to conclude that the proposed appointee does not fulfil the criteria....
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