Final Guidelines On Internal Governance (EBA-GL-2017-11)

FINAL REPORT ON GUIDELINES ON INTERNAL GOVERNANCE
EBA/GL/2017/11
26 September 2017
Final Report
Guidelines
on internal governance under Directive 2013/36/EU
Contents
Executive Summary 3
Background and rationale 5
1. Compliance and reporting obligations 12
Status of these guidelines 12
Reporting requirements 12
2. Subject matter, scope and definitions 13
Subject matter 13
Addressees 13
Scope of application 13
Definitions 14
3. Implementation 16
Date of application 16
Repeal 16
4. Guidelines 17
Title I – Proportionality 17
Title II – Role and composition of the management body and committees 18
1 Role and responsibilities of the management body 18
2 Management function of the management body 20
3 Supervisory function of the management body 21
4 Role of the chair of the management body 22
5 Committees of the management body in its supervisory function 22
5.1 Setting up committees 22
5.2 Composition of committees 23
5.3 Committees’ processes 24
5.4 Role of the risk committee 25
5.5 Role of the audit committee 26
5.6 Combined committees 27
Title III – Governance framework 28
6 Organisational framework and structure 28
6.1 Organisational framework 28
6.2 Know your structure 28
6.3 Complex structures and non-standard or non-transparent activities 30
7 Organisational framework in a group context 31
8 Outsourcing policy 33
Title IV – Risk culture and business conduct 33

9 Risk culture 33
10 Corporate values and code of conduct 35
11 Conflict of interest policy at institutional level 36
12 Conflict of interest policy for staff 36
13 Internal alert procedures 39
14 Reporting of breaches to competent authorities 40
Title V – Internal control framework and mechanisms 41
15 Internal control framework 41
16 Implementing an internal control framework 42
17 Risk management framework 43
18 New products and significant changes 45
19 Internal control functions 46
19.1 Heads of the internal control functions 46
19.2 Independence of internal control functions 47
19.3 Combination of internal control functions 47
19.4 Resources of internal control functions 47
20 Risk management function 47
20.1 RMF’s role in risk strategy and decisions 48
20.2 RMF’s role in material changes 49
20.3 RMF’s role in identifying, measuring, assessing, managing, mitigating, monitoring and
reporting on risks 49
20.4 RMF’s role in unapproved exposures 50
20.5 Head of the risk management function 50
21 Compliance function 51
22 Internal audit function 52
Title VI – Business continuity management 53
Title VII – Transparency 54
Annex I – Aspects to take into account when developing an internal governance policy 56
5. Accompanying documents 58
5.1. Draft cost-benefit analysis/impact assessment 58
5.2. Feedback on the public consultation 64
2
Executive Summary
In recent years, internal governance issues have received increased attention from various
international bodies. Their main aim has been to correct institutions’ weak or superficial internal
governance practices, as identified during the financial crisis. Recently, there has been a greater
focus on conduct-related shortcomings and activities in offshore financial centres.
Sound internal governance arrangements are fundamental if institutions individually and the
banking system they form are to operate well. Directive 2013/36/EU reinforces the governance
requirements for institutions and in particular stresses the responsibility of the management body
for sound governance arrangements; the importance of a strong supervisory function that
challenges management decision-making; and the need to establish and implement a sound risk
strategy and risk management framework.
To further harmonise institutions’ internal governance arrangements, processes and mechanisms

within the EU in line with the requirements introduced by Directive 2013/36/EU, the European
Banking Authority (EBA) is mandated by Article 74 of Directive 2013/36/EU to develop guidelines in
this area. The guidelines apply to all institutions regardless of their governance structures (unitary
board, dual board or other structure), without advocating or preferring any specific structure, as
set out specifically in the scope of application. The terms ‘management body in its management
function’ and ‘management body in its supervisory function’ should be interpreted throughout the
guidelines in accordance with the applicable law within each Member State.
The guidelines complete the various governance provisions in Directive 2013/36/EU, taking into
account the principle of proportionality, by specifying the tasks, responsibilities and organisation of
the management body, and the organisation of institutions, including the need to create
transparent structures that allow for supervision of all their activities; the guidelines also specify
requirements aimed at ensuring the sound management of risks across all three lines of defence
and, in particular, set out detailed requirements for the second line of defence (the independent
risk management and compliance function) and the third line of defence (the internal audit
function).
The guidelines are based on an earlier set of guidelines on internal governance and in particular
add additional requirements that aim to foster a sound risk culture implemented by the
management body, to strengthen the management body’s oversight of the institution’s activities
and to strengthen the risk management frameworks of institutions. Additional guidelines have
been provided to further increase the transparency of institutions’ offshore activities and to ensure
the consideration of risks within institutions’ change processes.
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Next steps
The EBA has published its guidelines on internal governance, which will enter into force on
30 June 2018. The existing guidelines on internal governance, published on 27 September 2011,
will be repealed at the same time. On the same date, the EBA and ESMA joint guidelines on the
assessment of the suitability of members of the management body and key function holders will
come into force.
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Background and rationale

1. Trust in the reliability of the financial system is crucial for its proper functioning and a
prerequisite if it is to contribute to the economy as a whole. Consequently, effective internal
governance arrangements are fundamental if institutions individually and the banking
system they form are to operate well.
2. In recent years, internal governance issues have received increased attention from various
international bodies. Their main aim has been to correct institutions’ weak or superficial
internal governance practices, as identified during the financial crisis. These faulty practices,
while not a direct trigger for the financial crisis, were closely associated with it and were
questionable. In addition, recently, there has been a greater focus on conduct-related
shortcomings and activities in offshore financial centres.
3. In some cases, at the time of the financial crisis the absence of effective checks and balances
within institutions resulted in a lack of effective oversight of management decision-making,
which led to short-term oriented and excessively risky management strategies. Weak
oversight by the management body in its supervisory function has been identified as a
contributing factor. The management body, both in its management function and, in
particular, in its supervisory function, might not have understood the complexity of the
business and the risks involved, consequently failing to identify and constrain excessive risk-
taking in an effective manner.
4. Internal governance frameworks, including internal control mechanisms and risk

management, were often not sufficiently integrated within institutions or groups. There was
a lack of a uniform methodology and terminology, so that a holistic view of all risks did not
exist. Internal control functions often lacked appropriate resources, status and/or expertise.
5. Conversely, sound internal governance practices helped some institutions to manage the
financial crisis significantly better than others. These practices included the setting of an
appropriate risk strategy and appropriate risk appetite levels, a holistic risk management
framework and effective reporting lines to the management body.
6. Against this background, there is a clear need to address the potentially detrimental effects
of poorly designed internal governance arrangements on the sound management of risk, to
ensure effective oversight by the management body, in particular in its supervisory function,
to promote a sound risk culture at all levels of institutions and to enable competent
authorities to supervise and monitor the adequacy of internal governance arrangements.
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Legal basis
7. To further harmonise institutions’ internal governance arrangements, processes and
mechanisms within the EU, the EBA is mandated by Article 74 of Directive 2013/36/EU to
develop guidelines in this area.
8. Article 74 of Directive 2013/36/EU requires institutions to have robust governance

arrangements, including a clear organisational structure with well-defined, transparent and
consistent lines of responsibility.
9. Article 76 of Directive 2013/36/EU sets out requirements for the involvement of the
management body in risk management, the setting up of a risk committee for significant
institutions, and the tasks and organisation of the risk management function. In addition,
this Article establishes ‘that the head of the risk management function shall be an
independent senior management with distinct responsibility for the risk management
function’. To reflect the wording of the Directive, the revised guidelines refer, regarding the
second line of defence, to the ‘(independent) risk management function’, while the previous
guidelines used the term ‘(independent) risk control function’. However, it should be
remembered that business lines or units, as the first line of defence, have a material role in
ensuring robust risk management and compliance within an institution.
10. Article 88 of Directive 2013/36/EU sets out the responsibilities of the management body
regarding governance arrangements and the obligation to set up a nomination committee
for significant institutions.
11. Under Article 109(1) of Directive 2013/36/EU, competent authorities must require
institutions to meet the obligations set out in Articles 74 to 96 of that Directive on an
individual basis, unless competent authorities make use of the derogations as defined in
Article 7 of Regulation (EU) No 575/2013 and/or waivers for institutions permanently
affiliated to a central body in compliance with Article 21 of Directive 2013/36/EU.
12. Article 109(2) of Directive 2013/36/EU requires parent undertakings and subsidiaries subject
to this Directive to meet the governance requirements also on a consolidated or sub-
consolidated basis, to ensure that their arrangements, processes and mechanisms are
consistent and well-integrated and that any data and information relevant to the purpose of
supervision can be produced. In particular, it should be ensured that parent undertakings
and subsidiaries subject to this Directive implement such arrangements, processes and
mechanisms in their subsidiaries not subject to this Directive. These arrangements,
processes and mechanisms must also be consistent and well-integrated and those
subsidiaries not subject to this Directive must also be able to produce any data and
information relevant to the purpose of supervision.
13. According to Article 109(3) of Directive 2013/36/EU, the requirement under Article 109(2) of
this Directive to ensure the application of Articles 74 to 96 of the Directive also in
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subsidiaries not subject to this Directive does not apply only if the EU parent institution can
demonstrate that application is unlawful under the law of the third country.
14. Under Article 123(2) of Directive 2013/36/EU, competent authorities must require
institutions to have in place adequate risk management processes and internal control
mechanisms, including sound reporting and accounting procedures in order to identify,
measure, monitor and control transactions with their parent mixed-activity holding
company and its subsidiaries appropriately.
15. In line with Article 47 of Directive 2013/36/EU, branches in a Member State of credit
institutions authorised in a third country should be subject to equivalent requirements to
those applicable to institutions within the Member State where the branch is located, taking
into account regarding internal governance arrangements that the branch does not have a
management body but persons who are responsible for effectively directing the business.
16. The guidelines should be read in conjunction with and without prejudice to the guidelines
on sound remuneration policies (EBA/GL/2015/22) and the joint guidelines on the
assessment of the suitability of members of the management body and key function
holders. The existing guidelines on internal governance, published on 27 September 2011,
will be repealed when the new guidelines enter into force.
17. These guidelines should be read in conjunction with other relevant EBA products, including
the CEBS guidelines on outsourcing arrangements and the EBA guidelines on the supervisory
review process and the EBA guidelines on disclosures.
Rationale and objective of the guidelines

18. Internal governance includes all standards and principles concerned with setting an
institution’s objectives, strategies and risk management framework; how its business is
organised; how responsibilities and authority are defined and clearly allocated; how
reporting lines are set up and what information they convey; and how the internal control
framework is organised and implemented, including accounting procedures and
remuneration policies. Internal governance also encompasses sound information technology
systems, outsourcing arrangements and business continuity management.
19. Directive 2013/36/EU sets out requirements aimed at remedying weaknesses that were
identified during the financial crisis regarding internal governance arrangements and in
particular the sound management and oversight of risks. Identified weaknesses included in
particular a lack of effective oversight by the management body, in particular in its
supervisory function, limited accessability of the supervisory function and shortcomings
regarding the authority, stature and resources of the risk management function.
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20. In addition, it is also necessary to take into account developments in this area since the
publication of the EBA guidelines on internal governance in 2011, such as the updated OECD
principles of corporate governance 1 and the revised corporate governance principles for
banks published by the Basel Committee on Banking Supervision (BCBS) 2. The guidelines
align the terminology used regarding risk appetite and risk tolerance with the EBA guidelines
on common procedures and methodologies for the supervisory review and evaluation
process (SREP) (EBA/GL/2014/13) and also with the revised BCBS principles; they use the
term ‘risk appetite’ to refer to the aggregate level of risk and the types of risk an institution
is willing to assume, while ‘risk capacity’ is the maximum amount of risk an institution is able
to assume.
21. The guidelines are intended to apply to all existing board structures without interfering with
the general allocation of competences in accordance with national company law or
advocating any particular structure. Accordingly, they should be applied irrespective of the
board structure used (a unitary and/or a dual board structure and/or another structure)
across Member States. The management body, as defined in points (7) and (8) of Article 3(1)
of Directive 2013/36/EU, should be understood as having management (executive) and
supervisory (non-executive) functions.
22. The terms ‘management body in its management function’ and ‘management body in its
supervisory function’ are used throughout these guidelines without referring to any specific
governance structure, and references to the management (executive) or supervisory (non-
executive) function should be understood as applying to the bodies or members of the
management body responsible for that function in accordance with national law.
23. In Member States where the management body delegates, partially or fully, the executive
function to a person or an internal executive body (e.g. a chief executive officer (CEO),
management team or executive committee), the persons who perform those executive
functions on the basis of that delegation should be understood as constituting the
management function of the management body. For the purposes of these guidelines, any
reference to the management body in its management function should be understood as
including also the members of the executive body or the CEO, as defined in these guidelines,
even if they have not been proposed or appointed as formal members of the institution’s
governing body or bodies under national law.
24. The management body is empowered to set the institution’s strategy, objectives and overall
direction, and oversees and monitors management decision-making. The management body
in its management function directs the institution. Senior management is accountable to the
management body for the day-to-day running of the institution. The management body in
its supervisory function oversees and challenges the management function and provides
appropriate advice. The oversight roles include reviewing the performance of the
1
The OECD principles can be found at http://www.oecd.org/corporate/principles-corporate-governance.htm.
2
The BCBS guidelines can be found at http://www.bis.org/bcbs/publ/d328.htm.
8
management function and the achievement of objectives, challenging the strategy, and
monitoring and scrutinising the systems that ensure the integrity of financial information as
well as the soundness and effectiveness of risk management and internal controls.
25. Taking into consideration all existing governance structures provided for by national laws,
competent authorities should ensure the effective and consistent application of the
guidelines in their jurisdictions in accordance with the rationale and objectives of the
guidelines themselves. For this purpose, competent authorities may clarify the governing
bodies and functions to which the tasks and responsibilities set forth in the guidelines
pertain, when this is appropriate to ensure the proper application of the guidelines in
accordance with the governance structures provided for under national company law.
26. Independent directors within the supervisory function of the management body helps to
ensure that the interests of all internal and external stakeholders are considered and that
independent judgement is exercised where there is an actual or potential conflict of
interest 3.
27. With regard to the composition of committees and the requirement to have independent
members, the guidelines are in line with the BCBS principles on corporate governance,
which set out guidance for the largest institutions. To take into account the principle of
proportionality, simpler requirements have been introduced for smaller institutions.
28. The guidelines use the so-called ‘three lines of defence’ model in identifying the functions
within institutions responsible for addressing and managing risks.
29. The business lines, as the first line of defence, take risks and are responsible for their
operational management directly and on a permanent basis. For that purpose, business
lines should have appropriate processes and controls in place that aim to ensure that risks
are identified, analysed, measured, monitored, managed, reported and kept within the
limits of the institution’s risk appetite and that the business activities are in compliance with
external and internal requirements.
30. The risk management function and compliance function form the second line of defence.
The risk management function (referred to in the previous guidelines as the ‘risk control
function’) facilitates the implementation of a sound risk management framework
throughout the institution and has responsibility for further identifying, monitoring,
analysing, measuring, managing and reporting on risks and forming a holistic view on all
risks on an individual and consolidated basis. It challenges and assists in the implementation
of risk management measures by the business lines in order to ensure that the process and
controls in place at the first line of defence are properly designed and effective. The
compliance function monitors compliance with legal and regulatory requirements and
internal policies, provides advice on compliance to the management body and other
3
In this regard, the guidelines are based on the Commission Recommendation of 15 February 2005 on the role of non-
executive or supervisory directors of listed companies and on the committees of the (supervisory) board.
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relevant staff, and establishes policies and processes to manage compliance risks and to
ensure compliance. Both functions may intervene to ensure the modification of internal
control and risk management systems within the first line of defence where necessary.
31. The independent internal audit function, as the third line of defence, conducts risk-based
and general audits and reviews the internal governance arrangements, processes and
mechanisms to ascertain that they are sound and effective, implemented and consistently
applied. The internal audit function is in charge also of the independent review of the first
two lines of defence. The internal audit function performs its tasks fully independently of
the other lines of defence.
32. To ensure their proper functioning, all internal control functions need to be independent of
the business they control, have the appropriate financial and human resources to perform
their tasks, and report directly to the management body. Within all three lines of defence,
appropriate internal control procedures, mechanisms and processes should be designed,
developed, maintained and evaluated under the ultimate responsibility of the management
body.
33. All requirements within the guidelines are subject to the principle of proportionality,
meaning that they are to be applied in a manner that is appropriate, taking into account in
particular the institution’s size, internal organisation and nature, and the complexity of its
activities.
34. The guidelines specify requirements under Directive 2013/36/EU that need to be considered
when setting up new structures, e.g. in offshore financial centres, and which aim to increase
the transparency of and reduce the risks connected with such activities. Guidelines are also
provided regarding the reporting of institutions on governance arrangements, including in
relation to such structures.
35. The guidelines aim to establish a sound risk culture in institutions. Risks should be taken
within a well-defined framework in line with the institution’s risk strategy and appetite. This
includes the establishment of and ensuring compliance with a system of limits and controls.
Risks within new products and business areas, but also risks that may result from changes to
institutions’ products, processes and systems, are to be duly identified, assessed,
appropriately managed and monitored. The risk management function and compliance
function should be involved in the establishment of the framework and the approval of such
changes to ensure that all material risks are taken into account and that the institution
complies with all internal and external requirements.
36. To ensure objective decision-making, oversight and compliance with external and internal
requirements, including institutions’ strategies and risk limits, institutions should implement
a conflict of interest policy and internal whistleblowing procedures.
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GUIDELINES ON INTERNAL GOVERNANCE
EBA/GL/2017/11
DD Month YYYY
Guidelines
on internal governance
11
1. Compliance and reporting

obligations
Status of these guidelines

1. These guidelines are issued pursuant to Article 16 of Regulation (EU) No 1093/2010 4. In
accordance with Article 16(3) of Regulation (EU) No 1093/2010, competent authority and
financial institutions must make every effort to comply with the guidelines.
2. Guidelines set the EBA view of appropriate supervisory practices within the European
System of Financial Supervision or of how Union law should be applied in a particular area.
Competent authority as defined in Article 4(2) of Regulation (EU) No 1093/2010 to whom
guidelines apply should comply by incorporating them into their practices as appropriate
(e.g. by amending their legal framework or their supervisory processes), including where
guidelines are directed primarily at institutions.
Reporting requirements
3. According to Article 16(3) of Regulation (EU) No 1093/2010, competent authority must
notify the EBA as to whether they comply or intend to comply with these guidelines, or
otherwise with reasons for non-compliance, by ([dd.mm.yyyy]). In the absence of any
notification by this deadline, competent authority will be considered by the EBA to be non-
compliant. Notifications should be sent by submitting the form available on the EBA website
to [email protected] with the reference ‘EBA/GL/2017/11’. Notifications should
be submitted by persons with appropriate authority to report compliance on behalf of their
competent authority. Any change in the status of compliance must also be reported to EBA.
4. Notifications will be published on the EBA website, in line with Article 16(3) of Regulation
(EU) No 1093/2010.
4
Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing a
European Supervisory Authority (European Banking Authority), amending Decision No 716/2009/EC and repealing
Commission Decision 2009/78/EC (OJ L 331, 15.12.2010, p. 12).
12
2. Subject matter, scope and definitions
Subject matter
5. These guidelines specify the internal governance arrangements, processes and mechanisms
that credit institutions and investment firms must implement in accordance with
Article 74(1) of Directive 2013/36/EU 5 to ensure effective and prudent management of the
institution.
Addressees
6. These guidelines are addressed to competent authorities as defined in point 40 of
Article 4(1) of Regulation (EU) No 575/2013 6, including the European Central Bank with
regards to matters relating to the tasks conferred on it by Regulation (EU) No 1024/2013,
and to institutions as defined in point 3 of Article 4(1) of Regulation (EU) No 575/2013.
Scope of application
7. These guidelines apply in relation to institutions’ governance arrangements, including their
organisational structure and the corresponding lines of responsibility, processes to identify,
manage, monitor and report the risks they are or might be exposed to, and internal control
framework.
8. The guidelines intend to embrace all existing board structures and do not advocate any
particular structure. The guidelines do not interfere with the general allocation of
competences in accordance with national company law. Accordingly, they should be applied
irrespective of the board structure used (unitary and/or a dual board structure and/or
another structure) across Member States. The management body, as defined in points (7)
and (8) of Article 3(1) of Directive 2013/36/EU, should be understood as having
management (executive) and supervisory (non-executive) functions 7.
9. The terms ‘management body in its management function’ and ‘management body in its
supervisory function’ are used throughout these guidelines without referring to any specific
governance structure, and references to the management (executive) or supervisory (non-
executive) function should be understood as applying to the bodies or members of the
5
Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit
institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC
and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338).
6
Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential
requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (OJ L 176,
27.6.2013, p. 1-337).
7
See also recital 56 of Directive 2013/36/EU.
13
management body responsible for that function in accordance with national law. When
implementing these guidelines, competent authorities should take into account their
national company law and specify, where necessary, to which body or members of the
management body those functions should apply.
10. In Member States where the management body delegates, partially or fully, the executive
functions to a person or an internal executive body (e.g. a chief executive officer (CEO),
management team or executive committee), the persons who perform those executive
functions on the basis of that delegation should be understood as constituting the
management function of the management body. For the purposes of these guidelines, any
reference to the management body in its management function should be understood as
including also the members of the executive body or the CEO, as defined in these guidelines,
even if they have not been proposed or appointed as formal members of the institution’s
governing body or bodies under national law.
11. In Member States where some responsibilities are directly exercised by shareholders,
members or owners of the institution instead of the management body, institutions should
ensure that such responsibilities and related decisions are in line, as far as possible, with the
guidelines applicable to the management body.
12. The definitions of CEO, chief financial officer (CFO) and key function holder used in these
guidelines are purely functional and are not intended to impose the appointment of those
officers or the creation of such positions unless prescribed by relevant EU or national law.
13. Institutions should comply and competent authorities should ensure that institutions
comply with these guidelines on an individual, sub-consolidated and consolidated basis, in
accordance with the level of application set out in Article 109 of Directive 2013/36/EU.
Definitions
14. Unless otherwise specified, terms used and defined in Directive 2013/36/EU have the same
meaning in the guidelines. In addition, for the purposes of these guidelines, the following
definitions apply:
Risk appetite means the aggregate level and types of risk an institution is
willing to assume within its risk capacity, in line with its business
model, to achieve its strategic objectives.
Risk capacity means the maximum level of risk an institution is able to assume
given its capital base, its risk management and control
capabilities, and its regulatory constraints.
Risk culture means an institution’s norms, attitudes and behaviours related

to risk awareness, risk-taking and risk management, and the
controls that shape decisions on risks. Risk culture influences the
decisions of management and employees during the day-to-day
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activities and has an impact on the risks they assume.
Institutions means credit institutions and investment firms as defined in

Article 4(1)(1) and (2), respectively, of Regulation (EU)
No 575/2013.
Staff means all employees of an institution and its subsidiaries within

its scope of consolidation, including subsidiaries not subject to
Directive 2013/36/EU, and all members of the management
body in its management function and in its supervisory
function.
Chief executive officer (CEO) means the person who is responsible for managing and steering
the overall business activities of an institution.
Chief financial officer (CFO) means the person who is overall responsible for managing all of
the following activities: financial resources management,
financial planning and financial reporting.
Heads of internal control means the persons at the highest hierarchical level in charge of
functions effectively managing the day-to-day operation of the
independent risk management, compliance and internal audit
functions.
Key function holders means persons who have significant influence over the direction
of the institution but who are not members of the management
body and are not the CEO. They include the heads of internal
control functions and the CFO, where they are not members of
the management body, and, where identified on a risk-based
approach by institutions, other key function holders.
Other key function holders might include heads of significant
business lines, European Economic Area/European Free Trade
Association branches, third country subsidiaries and other
internal functions.
Prudential consolidation means the application of the prudential rules set out in
Directive 2013/36/EU and Regulation (EU) No 575/2013 on a
consolidated or sub-consolidated basis, in accordance with
Part 1, Title 2, Chapter 2 of Regulation (EU) No 575/2013.
Prudential consolidation includes all subsidiaries that are
institutions or financial institutions, as defined in Article 4(3) and
(26), respectively, of Regulation (EU) No 575/2013, and may also
include ancillary services undertakings, as defined in Article 2(18)
of that Regulation, established in and outside the EU.
Consolidating institution means an institution that is required to abide by the prudential

requirements on the basis of the consolidated situation in
accordance with Part 1, Title 2, Chapter 2 of Regulation (EU)
No 575/2013.
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Significant institutions means institutions referred to in Article 131 of

Directive 2013/36/EU (global systemically important institutions
(G-SIIs) and other systemically important institutions (O-SIIs)),
and, as appropriate, other institutions determined by the
competent authority or national law, based on an assessment of
the institutions’ size and internal organisation, and the nature,
scope and complexity of their activities.
Listed CRD-institution means institutions whose financial instruments are admitted to

trading on a regulated market or on a multilateral trading facility
as defined under Article 4, paragraphs (21) and (22) of Directive
2014/65/EU, in one or more Member States 8.
Shareholder means a person who owns shares in an institution or, depending

on the legal form of an institution, other owners or members of
the institution.
Directorship means a position as a member of the management body of an

institution or another legal entity.
3. Implementation
Date of application
15. These guidelines apply from 30 June 2018.
Repeal
16. The EBA guidelines on internal governance (GL 44) of 27 September 2011 are repealed with
effect from 30 June 2018.
8
Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial
instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (OJ L 173, 12.6.2014, p. 349).
16
4. Guidelines
Title I – Proportionality
17. The proportionality principle encoded in Article 74(2) of Directive 2013/36/EU aims to
ensure that internal governance arrangements are consistent with the individual risk profile
and business model of the institution, so that the objectives of the regulatory requirements
are effectively achieved.
18. Institutions should take into account their size and internal organisation, and the nature,
scale and complexity of their activities, when developing and implementing internal
governance arrangements. Significant institutions should have more sophisticated
governance arrangements, while small and less complex institutions may implement simpler
governance arrangements.
19. For the purpose of the application of the principle of proportionality and in order to ensure
an appropriate implementation of the requirements, the following criteria should be taken
into account by institutions and competent authorities:
a. the size in terms of the balance-sheet total of the institution and its subsidiaries
within the scope of prudential consolidation;
b. the geographical presence of the institution and the size of its operations in each
jurisdiction;
c. the legal form of the institution, including whether the institution is part of a group
and, if so, the proportionality assessment for the group;
d. whether the institution is listed or not;
e. whether the institution is authorised to use internal models for the measurement of
capital requirements (e.g. the Internal Ratings Based Approach);
f. the type of authorised activities and services performed by the institution (e.g. see
also Annex 1 to Directive 2013/36/EU and Annex 1 to Directive 2014/65/EU);
g. the underlying business model and strategy; the nature and complexity of the
business activities, and the institution’s organisational structure;
h. the risk strategy, risk appetite and actual risk profile of the institution, taking into
account also the result of the SREP capital and SREP liquidity assessments;
17
i. the ownership and funding structure of the institution;
j. the type of clients (e.g. retail, corporate, institutional, small businesses, public
entities) and the complexity of the products or contracts;
k. the outsourced activities and distribution channels; and
l. the existing information technology (IT) systems, including continuity systems and
outsourcing activities in this area.
Title II – Role and composition of the management body and

committees
1 Role and responsibilities of the management body
20. In accordance with Article 88(1) of Directive 2013/36/EU, the management body must have
ultimate and overall responsibility for the institution and defines, oversees and is
accountable for the implementation of the governance arrangements within the institution
that ensure effective and prudent management of the institution.
21. The duties of the management body should be clearly defined, distinguishing between the
duties of the management (executive) function and of the supervisory (non-executive)
function. The responsibilities and duties of the management body should be described in a
written document and duly approved by the management body.
22. All members of the management body should be fully aware of the structure and
responsibilities of the management body, and of the division of tasks between different
functions of the management body and its committees. In order to have appropriate checks
and balances in place, its decision-making should not be dominated by a single member or a
small subset of its members. The management body in its supervisory function and in its
management function should interact effectively. Both functions should provide each other
with sufficient information to allow them to perform their respective roles.
23. The management body’s responsibilities should include setting, approving and overseeing
the implementation of:
a. the overall business strategy and the key policies of the institution within the
applicable legal and regulatory framework, taking into account the institution’s long-
term financial interests and solvency;
b. the overall risk strategy, including the institution’s risk appetite and its risk
management framework and measures to ensure that the management body
devotes sufficient time to risk issues;
18
c. an adequate and effective internal governance and internal control framework that
includes a clear organisational structure and well-functioning independent internal
risk management, compliance and audit functions that have sufficient authority,
stature and resources to perform their functions;
d. the amounts, types and distribution of both internal capital and regulatory capital to
adequately cover the risks of the institution;
e. targets for the liquidity management of the institution;
f. a remuneration policy that is in line with the remuneration principles set out in
Articles 92 to 95 of Directive 2013/36/EU and the EBA guidelines on sound
remuneration policies under Articles 74(3) and 75(2) of Directive 2013/36/EU 9;
g. arrangements aimed at ensuring that the individual and collective suitability

assessments of the management body are carried out effectively, that the
composition and succession planning of the management body are appropriate, and
that the management body performs its functions effectively 10;
h. a selection and suitability assessment process for key function holders 11;
i. arrangements aimed at ensuring the internal functioning of each committee of the

management body, when established, detailing the:
i. role, composition and tasks of each of them;
ii. appropriate information flow, including the documentation of

recommendations and conclusions, and reporting lines between each
committee and the management body, competent authorities and other
parties;
j. a risk culture in line with Section 9 of these guidelines, which addresses the
institution’s risk awareness and risk-taking behaviour;
k. a corporate culture and values in line with Section 10, which fosters responsible and
ethical behaviour, including a code of conduct or similar instrument;
l. a conflict of interest policy at institutional level in line with Section 11 and for staff in
line with Section 12; and
9
EBA guidelines on sound remuneration policies under Articles 74(3) and 75(2) of Directive 2013/36/EU and disclosures
under Article 450 of Regulation (EU) No 575/2013 (EBA/GL/2015/22).
10
See also the joint ESMA and EBA guidelines on the assessment of the suitability of members of the management
body and key function holders under Directive 2013/36/EU and Directive 2014/65/EU.
11
See also joint ESMA and EBA guidelines on the assessment of the suitability of members of the management body
and key function holders under Directive 2013/36/EU and Directive 2014/65/EU.
19
m. arrangements aimed at ensuring the integrity of the accounting and financial

reporting systems, including financial and operational controls and compliance with
the law and relevant standards.
24. The management body must oversee the process of disclosure and communications with
external stakeholders and competent authorities.
25. All members of the management body should be informed about the overall activity,
financial and risk situation of the institution, taking into account the economic environment,
and about decisions taken that have a major impact on the institution’s business.
26. A member of the management body may be responsible for an internal control function as
referred to in Title V, Section 19.1, provided that the member does not have other
mandates that would compromise the member’s internal control activities and the
independence of the internal control function.
27. The management body should monitor, periodically review and address any weaknesses
identified regarding the implementation of processes, strategies and policies related to the
responsibilities listed in paragraphs 23 and 24. The internal governance framework and its
implementation should be reviewed and updated on a periodic basis taking into account the
proportionality principle, as further explained in Title I. A deeper review should be carried
out where material changes affect the institution.
2 Management function of the management body

28. The management body in its management function should engage actively in the business of
an institution and should take decisions on a sound and well-informed basis.
29. The management body in its management function should be responsible for the
implementation of the strategies set by the management body and discuss regularly the
implementation and appropriateness of those strategies with the management body in its
supervisory function. The operational implementation may be performed by the
institution’s management.
30. The management body in its management function should constructively challenge and
critically review propositions, explanations and information received when exercising its
judgement and taking decisions. The management body in its management function should
comprehensively report, and inform regularly and where necessary without undue delay the
management body in its supervisory function of the relevant elements for the assessment of
a situation, the risks and developments affecting or that may affect the institution, e.g.
material decisions on business activities and risks taken, the evaluation of the institution’s
economic and business environment, liquidity and sound capital base, and assessment of its
material risk exposures.
20
3 Supervisory function of the management body

31. The role of the members of the management body in its supervisory function should include
monitoring and constructively challenging the strategy of the institution.
32. Without prejudice to national law the management body in its supervisory function should
include independent members as provided for in Section 9.3 of the joint ESMA and EBA
guidelines on the assessment of the suitability of members of the management body and
key function holders under Directive 2013/36/EU and Directive 2014/65/EU.
33. Without prejudice to the responsibilities assigned under the applicable national company
law, the management body in its supervisory function should:
a. oversee and monitor management decision-making and actions and provide effective
oversight of the management body in its management function, including monitoring
and scrutinising its individual and collective performance and the implementation of
the institution’s strategy and objectives;
b. constructively challenge and critically review proposals and information provided by

members of the management body in its management function, as well as its
decisions;
c. taking into account the proportionality principle as set out in Title I, appropriately
fulfil the duties and role of the risk committee, the remuneration committee and the
nomination committee, where no such committees have been set up;
d. ensure and periodically assess the effectiveness of the institution’s internal

governance framework and take appropriate steps to address any identified
deficiencies;
e. oversee and monitor that the institution’s strategic objectives, organisational

structure and risk strategy, including its risk appetite and risk management
framework, as well as other policies (e.g. remuneration policy) and the disclosure
framework are implemented consistently;
f. monitor that the risk culture of the institution is implemented consistently;
g. oversee the implementation and maintenance of a code of conduct or similar and

effective policies to identify, manage and mitigate actual and potential conflicts of
interest;
h. oversee the integrity of financial information and reporting, and the internal control
framework, including an effective and sound risk management framework;
21
i. ensure that the heads of internal control functions are able to act independently and,
regardless the responsibility to report to other internal bodies, business lines or units,
can raise concerns and warn the management body in its supervisory function
directly, where necessary, when adverse risk developments affect or may affect the
institution; and
j. monitor the implementation of the internal audit plan, after the prior involvement of
the risk and audit committees, where such committees are established.
4 Role of the chair of the management body

34. The chair of the management body should lead the management body, should contribute to
an efficient flow of information within the management body and between the
management body and the committees thereof, where established, and should be
responsible for its effective overall functioning.
35. The chair should encourage and promote open and critical discussion and ensure that
dissenting views can be expressed and discussed within the decision-making process.
36. As a general principle, the chair of the management body should be a non-executive
member. Where the chair is permitted to assume executive duties, the institution should
have measures in place to mitigate any adverse impact on the institution’s checks and
balances (e.g. by designating a lead board member or a senior independent board member,
or by having a larger number of non-executive members within the management body in its
supervisory function). In particular, in accordance with Article 88(1)(e) of
Directive 2013/36/EU, the chair of the management body in its supervisory function of an
institution must not exercise simultaneously the functions of a CEO within the same
institution, unless justified by the institution and authorised by competent authorities.
37. The chair should set meeting agendas and ensure that strategic issues are discussed with
priority. He or she should ensure that decisions of the management body are taken on a
sound and well-informed basis and that documents and information are received in enough
time before the meeting.
38. The chair of the management body should contribute to a clear allocation of duties between
members of the management body and the existence of an efficient flow of information
between them, in order to allow the members of the management body in its supervisory
function to constructively contribute to discussions and to cast their votes on a sound and
well-informed basis.
5 Committees of the management body in its supervisory function

5.1 Setting up committees
22
39. In accordance with Article 109(1) of Directive 2013/36/EU in conjunction with Articles 76(3),
88(2), and 95(1) of Directive 2013/36/EU, all institutions that are themselves significant,
considering the individual, sub-consolidated and consolidated levels, must establish risk,
nomination 12 and remuneration 13 committees to advise the management body in its
supervisory function and to prepare the decisions to be taken by this body. Non-significant
institutions, including when they are within the scope of prudential consolidation of an
institution that is significant in a sub-consolidated or consolidated situation, are not obliged
to establish those committees.
40. Where no risk or nomination committee is established, the references in these guidelines to
those committees should be construed as applying to the management body in its
supervisory function, taking into account the principle of proportionality as set out in Title I.
41. Institutions may, taking into account the criteria set out in Title I of these guidelines,
establish other committees (e.g. ethics, conduct and compliance committees).
42. Institutions should ensure a clear allocation and distribution of duties and tasks between
specialised committees of the management body.
43. Each committee should have a documented mandate, including the scope of its
responsibilities, from the management body in its supervisory function and establish
appropriate working procedures.
44. Committees should support the supervisory function in specific areas and facilitate the
development and implementation of a sound internal governance framework. Delegating to
committees does not in any way release the management body in its supervisory function
from collectively fulfilling its duties and responsibilities.
5.2 Composition of committees14

45. All committees should be chaired by a non-executive member of the management body
who is able to exercise objective judgement.
46. Independent members 15 of the management body in its supervisory function should be
actively involved in committees.
47. Where committees have to be set up in accordance with Directive 2013/36/EU or national
law, they should be composed of at least three members.
12
See also the joint ESMA and EBA guidelines on the assessment of the suitability of members of the management
body and key function holders under Directive 2013/36/EU and Directive 2014/65/EU.
13
With regard to the remuneration committee, please refer to the EBA guidelines on sound remuneration practices.
14
This section should be read in conjunction with the joint ESMA and EBA guidelines on the assessment of the
suitability of members of the management body and key function holders under Directive 2013/36/EU and
Directive 2014/65/EU.
15
As defined in Section 9.3 of the joint ESMA and EBA guidelines on the assessment of the suitability of members of the
management body and key function holders under Directive 2013/36/EU and Directive 2014/65/EU.
23
48. Institutions should ensure, taking into account the size of the management body and the
number of independent members of the management body in its supervisory function, that
committees are not composed of the same group of members that forms another
committee.
49. Institutions should consider the occasional rotation of chairs and members of committees,
taking into account the specific experience, knowledge and skills that are individually or
collectively required for those committees.
50. The risk and nomination committees should be composed of non-executive members of the
management body in its supervisory function of the institution concerned. The audit
committee should be composed in accordance with Article 41 of Directive 2006/43/EC 16.
The remuneration committee should be composed in accordance with Section 2.4.1 of the
EBA guidelines on sound remuneration policies 17.
51. In G-SIIs and O-SIIs, the nomination committee should include a majority of members who
are independent and be chaired by an independent member. In other significant
institutions, determined by competent authorities or national law, the nomination
committee should include a sufficient number of members who are independent; such
institutions may also consider as a good practice having a chair of the nomination
committee who is independent.
52. Members of the nomination committee should have, individually and collectively,
appropriate knowledge, skills and expertise concerning the selection process and suitability
requirements.
53. In G-SIIs and O-SIIs, the risk committee should include a majority of members who are
independent. In G-SIIs and O-SIIs the chair of the risk committee should be an independent
member. In other significant institutions, determined by competent authorities or national
law, the risk committee should include a sufficient number of members who are
independent and the risk committee should be chaired, where possible, by an independent
member. In all institutions, the chair of the risk committee should be neither the chair of the
management body nor the chair of any other committee.
54. Members of the risk committee should have, individually and collectively, appropriate
knowledge, skills and expertise concerning risk management and control practices.
5.3 Committees’ processes

55. Committees should regularly report to the management body in its supervisory function.
16
Directive 2006/43/EC of the European Parliament and of the Council of 17 May 2006 on statutory audits of annual
accounts and consolidated accounts, amending Council Directives 78/660/EEC and 83/349/EEC and repealing Council
Directive 84/253/EEC (OJ L 157, 9.6.2006, p. 87) as last amended by Directive 2014/56/EU of the European Parliament
and of the Council of 16 April 2014.
17
EBA guidelines on sound remuneration policies under Articles 74(3) and 75(2) of Directive 2013/36/EU and
disclosures under Article 450 of Regulation (EU) No 575/2013 (EBA/GL/2015/22).
24
56. Committees should interact with each other as appropriate. Without prejudice to
paragraph 48, such interaction could take the form of cross-participation so that the chair or
a member of a committee may also be a member of another committee.
57. Members of committees should engage in open and critical discussions, during which
dissenting views are discussed in a constructive manner.
58. Committees should document the agendas of committee meetings and their main results
and conclusions.
59. The risk and nomination committees should at least:
a. have access to all relevant information and data necessary to perform their role,
including information and data from relevant corporate and control functions (e.g.
legal, finance, human resources, IT, risk, compliance, audit, etc.);
b. receive regular reports, ad hoc information, communications and opinions from

heads of internal control functions concerning the current risk profile of the
institution, its risk culture and its risk limits, as well as on any material breaches that
may have occurred, with detailed information on and recommendations for
corrective measures taken, to be taken or suggested to address them;
c. periodically review and decide on the content, format and frequency of the
information on risk to be reported to them; and
d. where necessary, ensure the proper involvement of the internal control functions
and other relevant functions (human resources, legal, finance) within their respective
areas of expertise and/or seek external expert advice.
5.4 Role of the risk committee

60. Where established, the risk committee should at least:
a. advise and support the management body in its supervisory function regarding the
monitoring of the institution’s overall actual and future risk appetite and strategy,
taking into account all types of risks, to ensure that they are in line with the business
strategy, objectives, corporate culture and values of the institution;
b. assist the management body in its supervisory function in overseeing the

implementation of the institution’s risk strategy and the corresponding limits set;
c. oversee the implementation of the strategies for capital and liquidity management as
well as for all other relevant risks of an institution, such as market, credit, operational
(including legal and IT risks) and reputational risks, in order to assess their adequacy
against the approved risk appetite and strategy;
25
d. provide the management body in its supervisory function with recommendations on

necessary adjustments to the risk strategy resulting from, inter alia, changes in the
business model of the institution, market developments or recommendations made
by the risk management function;
e. provide advice on the appointment of external consultants that the supervisory

function may decide to engage for advice or support;
f. review a number of possible scenarios, including stressed scenarios, to assess how

the institution’s risk profile would react to external and internal events;
g. oversee the alignment between all material financial products and services offered to
clients and the business model and risk strategy of the institution 18. The risk
committee should assess the risks associated with the offered financial products and
services and take into account the alignment between the prices assigned to and the
profits gained from those products and services; and
h. assess the recommendations of internal or external auditors and follow up on the

appropriate implementation of measures taken.
61. The risk committee should collaborate with other committees whose activities may have an
impact on the risk strategy (e.g. audit and remuneration committees) and regularly
communicate with the institution’s internal control functions, in particular the risk
management function.
62. When established, the risk committee must, without prejudice to the tasks of the
remuneration committee, examine whether incentives provided by the remuneration
policies and practices take into consideration the institution’s risk, capital and liquidity and
the likelihood and timing of earnings.
5.5 Role of the audit committee

63. In accordance with Directive 2006/43/EC 19, where established, the audit committee should,
inter alia:
18
See also the EBA guidelines on product oversight and governance arrangements for retail banking products, available
at http://www.eba.europa.eu/regulation-and-policy/consumer-protection-and-financial-innovation/guidelines-on-
product-oversight-and-governance-arrangements-for-retail-banking-products.
19
Directive 2006/43/EC of the European Parliament and of the Council of 17 May 2006 on statutory audits of annual
accounts and consolidated accounts, amending Council Directives 78/660/EEC and 83/349/EEC and repealing Council
Directive 84/253/EEC (OJ L 157, 9.6.2006, p. 87), as last amended by Directive 2014/56/EU of the European Parliament
and of the Council of 16 April 2014.
26
a. monitor the effectiveness of the institution’s internal quality control and risk
management systems and, where applicable, its internal audit function, with regard
to the financial reporting of the audited institution, without breaching its
independence;
b. oversee the establishment of accounting policies by the institution;
c. monitor the financial reporting process and submit recommendations aimed at

ensuring its integrity;
d. review and monitor the independence of the statutory auditors or the audit firms in
accordance with Articles 22, 22a, 22b, 24a and 24b of Directive 2006/43/EU and
Article 6 of Regulation (EU) No 537/2014 20, and in particular the appropriateness of
the provision of non-audit services to the audited institution in accordance with
Article 5 of that Regulation;
e. monitor the statutory audit of the annual and consolidated financial statements, in
particular its performance, taking into account any findings and conclusions by the
competent authority pursuant to Article 26(6) of Regulation (EU) No 537/2014;
f. be responsible for the procedure for the selection of external statutory auditor(s) or
audit firm(s) and recommend for approval by the institution’s competent body their
appointment (in accordance with Article 16 of Regulation (EU) No 537/2014 except
when Article 16(8) of Regulation (EU) No 537/2014 is applied) compensation and
dismissal;
g. review the audit scope and frequency of the statutory audit of annual or
consolidated accounts;
h. in accordance with Article 39(6)(a) of Directive 2006/43/EU, inform the

administrative or supervisory body of the audited entity of the outcome of the
statutory audit and explain how the statutory audit contributed to the integrity of
financial reporting and what the role of the audit committee was in that process; and
i. receive and take into account audit reports.
5.6 Combined committees

64. In accordance with Article 76(3) of Directive 2013/36/EU, competent authorities may allow
institutions that are not considered significant to combine the risk committee with, where
established, the audit committee as referred to in Article 39 of Directive 2006/43/EC.
20
Regulation (EU) No 537/2014 of the European Parliament and of the Council of 16 April 2014 on specific
requirements regarding statutory audit of public-interest entities and repealing Commission Decision 2005/909/EC (OJ
L 158, 27.5.2014, p. 77).
27
65. Where risk and nomination committees are established in non-significant institutions, they
may combine the committees. If they do so, those institutions should document the reasons
why they have chosen to combine the committees and how the approach achieves the
objectives of the committees.
66. Institutions should at all times ensure that the members of a combined committee possess,
individually and collectively, the necessary knowledge, skills and expertise to fully
understand the duties to be performed by the combined committee 21.
Title III – Governance framework

6 Organisational framework and structure
6.1 Organisational framework
67. The management body of an institution should ensure a suitable and transparent
organisational and operational structure for that institution and should have a written
description of it. The structure should promote and demonstrate the effective and prudent
management of an institution at individual, sub-consolidated and consolidated levels. The
management body should ensure that the internal control functions are independent of the
business lines they control, including that there is an adequate segregation of duties, and
that they have the appropriate financial and human resources as well as powers to
effectively perform their role. The reporting lines and the allocation of responsibilities, in
particular among key function holders, within an institution should be clear, well-defined,
coherent, enforceable and duly documented. The documentation should be updated as
appropriate.
68. The structure of the institution should not impede the ability of the management body to
oversee and manage effectively the risks the institution or the group faces or the ability of
the competent authority to effectively supervise the institution.
69. The management body should assess whether and how material changes to the group’s
structure (e.g. setting up of new subsidiaries, mergers and acquisitions, selling or winding-up
parts of the group, or external developments) impact on the soundness of the institution’s
organisational framework. Where weaknesses are identified, the management body should
make any necessary adjustments swiftly.
6.2 Know your structure
21
See also the joint ESMA and EBA guidelines on the assessment of the suitability of members of the management body
28
70. The management body should fully know and understand the legal, organisational and
operational structure of the institution (‘know your structure’) and ensure that it is in line
with its approved business and risk strategy and risk appetite.
71. The management body should be responsible for the approval of sound strategies and
policies for the establishment of new structures. Where an institution creates many legal
entities within its group, their number and, in particular, the interconnections and
transactions between them should not pose challenges for the design of its internal
governance, and for the effective management and oversight of the risks of the group as a
whole. The management body should ensure that the structure of an institution and, where
applicable, the structures within a group, taking into account the criteria specified in
Section 7, are clear, efficient and transparent to the institution’s staff, shareholders and
other stakeholders and to the competent authority.
72. The management body should guide the institution’s structure, its evolution and its
limitations and should ensure that the structure is justified and efficient and does not
involve undue or inappropriate complexity.
73. The management body of a consolidating institution should understand not only the legal,
organisational and operational structure of the group but also the purpose and activities of
its different entities and the links and relationships among them. This includes
understanding group-specific operational risks and intra-group exposures as well as how the
group's funding, capital, liquidity and risk profiles could be affected under normal and
adverse circumstances. The management body should ensure that the institution is able to
produce information on the group in a timely manner, regarding the type, the
characteristics, the organisational chart, the ownership structure and the businesses of each
legal entity, and that the institutions within the group comply with all supervisory reporting
requirements on an individual, sub-consolidated and consolidated basis.
74. The management body of a consolidating institution should ensure that the different group
entities (including the consolidating institution itself) receive enough information to get a
clear perception of the general objectives, strategies and risk profile of the group and how
the group entity concerned is embedded in the group’s structure and operational
functioning. Such information and revisions thereof should be documented and made
available to the relevant functions concerned, including the management body, business
lines and internal control functions. The members of the management body of a
consolidating institution should keep themselves informed about the risks the group’s
structure causes, taking into account the criteria specified in Section 7 of the guidelines. This
includes receiving:
a. information on major risk drivers;
29
b. regular reports assessing the institution’s overall structure and evaluating the
compliance of individual entities’ activities with the approved group-wide strategy;
and
c. regular reports on topics where the regulatory framework requires compliance at

individual, sub-consolidated and consolidated levels.
6.3 Complex structures and non-standard or non-

transparent activities
75. Institutions should avoid setting up complex and potentially non-transparent structures.
Institutions should take into account in their decision-making the results of a risk
assessment performed to identify whether such structures could be used for a purpose
connected with money laundering or other financial crimes and the respective controls and
legal framework in place 22. To this end, institutions should take into account at least:
a. the extent to which the jurisdiction in which the structure will be set up complies
effectively with EU and international standards on tax transparency, anti-money
laundering and countering the financing of terrorism;
b. the extent to which the structure serves an obvious economic and lawful purpose;
c. the extent to which the structure could be used to hide the identity of the ultimate
beneficial owner;
d. the extent to which the customer’s request that leads to the possible setting up of a
structure gives rise to concern;
e. whether the structure might impede appropriate oversight by the institution’s

management body or the institution’s ability to manage the related risk; and
f. whether the structure poses obstacles to effective supervision by competent

authorities.
76. In any case, institutions should not set up opaque or unnecessarily complex structures which
have no clear economic rationale or legal purpose or if institutions are concerned that these
structures might be used for a purpose connected with financial crime.
77. When setting up such structures, the management body should understand them and their
purpose and the particular risks associated with them and ensure that the internal control
22
For further details on the assessment of country risk and the risk associated with individual products and customers,
institutions should refer also to the final (once issued) joint guidelines on risk factors:
https://www.eba.europa.eu/regulation-and-policy/anti-money-laundering-and-e-money/guidelines-on-risk-factors-
and-simplified-and-enhanced-customer-due-diligence/-/regulatory-activity/consultation-paper .
30
functions are appropriately involved. Such structures should be approved and maintained
only when their purpose has been clearly defined and understood, and when the
management body is satisfied that all material risks, including reputational risks, have been
identified, that all risks can be managed effectively and appropriately reported, and that
effective oversight has been ensured. The more complex and opaque the organisational and
operational structure, and the greater the risks, the more intensive the oversight of the
structure should be.
78. Institutions should document their decisions and be able to justify their decisions to
competent authorities.
79. The management body should ensure that appropriate actions are taken to avoid or
mitigate the risks of activities within such structures. This includes ensuring that:
a. the institution has in place adequate policies and procedures and documented
processes (e.g. applicable limits, information requirements) for the consideration,
compliance, approval and risk management of such activities, taking into account the
consequences for the group’s organisational and operational structure, its risk profile
and its reputational risk;
b. information concerning these activities and the risks thereof is accessible to the
consolidating institution and internal and external auditors and is reported to the
management body in its supervisory function and to the competent authority that
granted authorisation; and
c. the institution periodically assesses the continuing need to maintain such structures.
80. These structures and activities, including their compliance with legislation and professional
standards, should be subject to regular review by the internal audit function following a risk-
based approach.
81. Institutions should take the same risk management measures as for the institution’s own
business activities when they perform non-standard or non-transparent activities for clients
(e.g. helping clients to set up vehicles in offshore jurisdictions, developing complex
structures, financing transactions for them or providing trustee services) that pose similar
internal governance challenges and create significant operational and reputational risks. In
particular, institutions should analyse the reason why a client wants to set up a particular
structure.
7 Organisational framework in a group context

82. In accordance with Article 109(2) of Directive 2013/36/EU, parent undertakings and
subsidiaries subject to that Directive should ensure that governance arrangements,
processes and mechanisms are consistent and well integrated on a consolidated and sub-
consolidated basis. To this end, parent undertakings and subsidiaries within the scope of
31
prudential consolidation should implement such arrangements, processes and mechanisms

in their subsidiaries not subject to Directive 2013/36/EU to ensure robust governance
arrangements on a consolidated and sub-consolidated basis. Competent functions within
the consolidating institution and its subsidiaries should interact and exchange data and
information as appropriate. The governance arrangements, processes and mechanisms
should ensure that the consolidating institution has sufficient data and information and is
able to assess the group-wide risk profile, as detailed in Section 6.2.
83. The management body of a subsidiary that is subject to Directive 2013/36/EU should adopt
and implement on the individual level the group-wide governance policies established at the
consolidated or sub-consolidated level, in a manner that complies with all specific
requirements under EU and national law.
84. At the consolidated and sub-consolidated levels, the consolidating institution should ensure
adherence to the group-wide governance policies by all institutions and other entities within
the scope of prudential consolidation, including their subsidiaries not themselves subject to
Directive 2013/36/EU. When implementing governance policies, the consolidating
institution should ensure that robust governance arrangements are in place for each
subsidiary and consider specific arrangements, processes and mechanisms where business
activities are organised not in separate legal entities but within a matrix of business lines
that encompasses multiple legal entities.
85. A consolidating institution should consider the interests of all its subsidiaries, and how
strategies and policies contribute to the interest of each subsidiary and the interest of the
group as a whole over the long term.
86. Parent undertakings and their subsidiaries should ensure that the institutions and entities
within the group comply with all specific requirements in any relevant jurisdiction.
87. The consolidating institution should ensure that subsidiaries established in third countries,
and which are included in the scope of prudential consolidation, have governance
arrangements, processes and mechanisms in place that are consistent with group-wide
governance policies and comply with the requirements of Articles 74 to 96 of
Directive 2013/36/EU and these guidelines, as long as this is not unlawful under the laws of
the third country.
88. The governance requirements of Directive 2013/36/EU and these guidelines apply to
institutions independent of the fact that they may be subsidiaries of a parent undertaking in
a third country. Where an EU subsidiary of a parent undertaking in a third country is a
consolidating institution, the scope of prudential consolidation does not include the level of
the parent undertaking located in a third country and other direct subsidiaries of that parent
undertaking. The consolidating institution should ensure that the group-wide governance
policy of the parent institution in a third country is taken into consideration within its own
32
governance policy insofar as this is not contrary to the requirements set out under relevant
EU law, including Directive 2013/36/EU and these guidelines.
89. When establishing policies and documenting governance arrangements, institutions should
take into account the aspects listed in Annex I to the guidelines. While policies and
documentation may be included in separate documents, institutions should consider
combining them or referring to them in a single governance framework document.
8 Outsourcing policy 23
90. The management body should approve and regularly review and update the outsourcing
policy of an institution, ensuring that appropriate changes are implemented in a timely
manner.
91. The outsourcing policy should consider the impact of outsourcing on an institution’s
business and the risks it faces (such as operational risks, including legal and IT risks;
reputational risks; and concentration risks). The policy should include the reporting and
monitoring arrangements to be implemented from inception to the end of an outsourcing
agreement (including drawing up the business case for outsourcing, entering into an
outsourcing contract, the implementation of the contract to its expiry, contingency plans
and exit strategies). An institution remains fully responsible for all outsourced services and
activities and management decisions arising from them. Accordingly, the outsourcing policy
should make it clear that outsourcing does not relieve the institution of its regulatory
obligations and its responsibilities to its customers.
92. The policy should state that outsourcing arrangements should not hinder effective on-site or
off-site supervision of the institution and should not contravene any supervisory restrictions
on services and activities. The policy should also cover intragroup outsourcing (i.e. services
provided by a separate legal entity within an institution’s group) and take into account any
specific group circumstances.
93. The policy should require that, when selecting material external services providers or when
outsourcing activities, the institution must take into account whether or not the service
provider has in place appropriate ethical standards or a code of conduct.
Title IV – Risk culture and business conduct

9 Risk culture
94. A sound and consistent risk culture should be a key element of institutions’ effective risk
management and should enable institutions to make sound and informed decisions.
23
The present guidelines are limited to the general outsourcing policy; specific aspects of the issue of outsourcing are
dealt with in the CEBS guidelines on outsourcing, which are due to be revised. These guidelines are available at
https://www.eba.europa.eu/regulation-and-policy/internal-governance/guidelines-on-outsourcing.
33
95. Institutions should develop an integrated and institution-wide risk culture, based on a full
understanding and holistic view of the risks they face and how they are managed, taking
into account the institution’s risk appetite.
96. Institutions should develop a risk culture through policies, communication and staff training
regarding the institutions’ activities, strategy and risk profile, and should adapt
communication and staff training to take into account staff’s responsibilities regarding risk-
taking and risk management.
97. Staff should be fully aware of their responsibilities relating to risk management. Risk
management should not be confined to risk specialists or internal control functions.
Business units, under the oversight of the management body, should be primarily
responsible for managing risks on a day-to-day basis in line with the institution’s policies,
procedures and controls, taking into account the institution’s risk appetite and risk capacity.
98. A strong risk culture should include but is not necessarily limited to:
a. Tone from the top: the management body should be responsible for setting and
communicating the institution’s core values and expectations. The behaviour of its
members should reflect the values being espoused. Institutions’ management,
including key function holders, should contribute to the internal communication of
core values and expectations to staff. Staff should act in accordance with all
applicable laws and regulations and promptly escalate observed non-compliance
within or outside the institution (e.g. to the competent authority through a
whistleblowing process). The management body should on an ongoing basis
promote, monitor and assess the risk culture of the institution; consider the impact
of the risk culture on the financial stability, risk profile and robust governance of the
institution; and make changes where necessary.
b. Accountability: relevant staff at all levels should know and understand the core
values of the institution and, to the extent necessary for their role, its risk appetite
and risk capacity. They should be capable of performing their roles and be aware that
they will be held accountable for their actions in relation to the institution’s risk-
taking behaviour.
c. Effective communication and challenge: a sound risk culture should promote an

environment of open communication and effective challenge in which decision-
making processes encourage a broad range of views, allow for testing of current
practices, stimulate a constructive critical attitude among staff, and promote an
environment of open and constructive engagement throughout the entire
organisation.
34
d. Incentives: appropriate incentives should play a key role in aligning risk-taking

behaviour with the institution’s risk profile and its long-term interest 24.
10 Corporate values and code of conduct

99. The management body should develop, adopt, adhere to and promote high ethical and
professional standards, taking into account the specific needs and characteristics of the
institution, and should ensure the implementation of such standards (through a code of
conduct or similar instrument). It should also oversee adherence to these standards by staff.
Where applicable, the management body may adopt and implement the institution’s group-
wide standards or common standards released by associations or other relevant
organisations.
100. The implemented standards should aim to reduce the risks to which the institution is
exposed, in particular operational and reputational risks, which can have a considerable
adverse impact on an institution’s profitability and sustainability through fines, litigation
costs, restrictions imposed by competent authorities, other financial and criminal penalties,
and the loss of brand value and consumer confidence.
101. The management body should have clear and documented policies for how these
standards should be met. These policies should:
a. remind readers that all the institution’s activities should be conducted in compliance
with the applicable law and with the institution’s corporate values;
b. promote risk awareness through a strong risk culture in line with Section 9 of the
guidelines, conveying the management body’s expectation that activities will not go
beyond the defined risk appetite and limits defined by the institution and the
respective responsibilities of staff;
c. set out principles on and provide examples of acceptable and unacceptable

behaviours linked in particular to financial misreporting and misconduct, economic
and financial crime (including fraud, money laundering and anti-trust practices,
financial sanctions, bribery and corruption, market manipulation, mis-selling and
other violations of consumer protection laws);
d. clarify that in addition to complying with legal and regulatory requirements and
internal policies, staff are expected to conduct themselves with honesty and integrity
and perform their duties with due skill, care and diligence; and
24
Please refer also to the EBA guidelines on sound remuneration policies under Articles 74(3) and 75(2) of
Directive 2013/36/EU and disclosures under Article 450 of Regulation (EU) No 575/2013 (EBA/GL/2015/22), available at
https://www.eba.europa.eu/regulation-and-policy/remuneration.
35
e. ensure that staff are aware of the potential internal and external disciplinary actions,
legal actions and sanctions that may follow misconduct and unacceptable
behaviours.
102. Institutions should monitor compliance with such standards and ensure staff awareness,
e.g. by providing training. Institutions should define the function responsible for monitoring
compliance with and evaluating breaches of the code of conduct or similar instrument and a
process for dealing with issues of non-compliance. The results should periodically be
reported to the management body.
11 Conflict of interest policy at institutional level

103. The management body should be responsible for establishing, approving and overseeing
the implementation and maintenance of effective policies to identify, assess, manage and
mitigate or prevent actual and potential conflicts of interest at institutional level, e.g. as a
result of the various activities and roles of the institution, of different institutions within the
scope of prudential consolidation or of different business lines or units within an institution,
or with regard to external stakeholders.
104. Institutions should take, within their organisational and administrative arrangements,
adequate measures to prevent conflicts of interest from adversely affecting the interests of
its clients.
105. Institutions’ measures to manage or where appropriate mitigate conflicts of interest

should be documented and include, inter alia:
a. an appropriate segregation of duties, e.g. entrusting conflicting activities within the

processing of transactions or when providing services to different persons, or
entrusting supervisory and reporting responsibilities for conflicting activities to
different persons;
b. establishing information barriers, e.g. through the physical separation of certain

business lines or units; and
c. establishing adequate procedures for transactions with related parties, e.g. requiring
transactions to be conducted at arm’s length.
12 Conflict of interest policy for staff 25

106. The management body should be responsible for establishing, approving and overseeing
the implementation and maintenance of effective policies to identify, assess, manage and
25
This section should be read in conjunction with the joint ESMA and EBA guidelines on the assessment of the
suitability of members of the management body and key function holders under Directive 2013/36/EU and
36
mitigate or prevent actual and potential conflicts between the interests of the institution
and the private interests of staff, including members of the management body, which could
adversely influence the performance of their duties and responsibilities. A consolidating
institution should consider interests within a group-wide conflict of interest policy on a
consolidated or sub-consolidated basis.
107. The policy should aim to identify conflicts of interest of staff, including the interests of
their closest family members. Institutions should take into consideration that conflicts of
interest may arise not only from present but also from past personal or professional
relationships. Where conflicts of interest arise, institutions should assess their materiality
and decide on and implement as appropriate mitigating measures.
108. Regarding conflicts of interest that may result from past relationships, institutions should
set an appropriate timeframe for which they want staff to report such conflicts of interest,
on the basis that these may still have an impact on staff’s behaviour and participation in
decision-making.
109. The policy should cover at least the following situations or relationships where conflicts of
interest may arise:
a. economic interests (e.g. shares, other ownership rights and memberships, financial
holdings and other economic interests in commercial customers, intellectual
property rights, loans granted by the institution to a company owned by staff,
membership in a body or ownership of a body or entity with conflicting interests);
b. personal or professional relationships with the owners of qualifying holdings in the

institution;
c. personal or professional relationships with staff of the institution or entities included

within the scope of prudential consolidation (e.g. family relationships);
d. other employment and previous employment within the recent past (e.g. five years);
e. personal or professional relationships with relevant external stakeholders (e.g. being

associated with material suppliers, consultancies or other service providers); and
f. political influence or political relationships.
110. Notwithstanding the above, institutions should take into consideration that being a
shareholder of an institution or having private accounts or loans with or using other services
of an institution should not lead to a situation where staff are considered to have a conflict
of interest if they stay within an appropriate de minimis threshold.
37
111. The policy should set out the processes for reporting and communication to the function
responsible under the policy. Staff should have the duty to promptly disclose internally any
matter that may result, or has already resulted, in a conflict of interest.
112. The policy should differentiate between conflicts of interest that persist and need to be
managed permanently and conflicts of interest that occur unexpectedly with regard to a
single event (e.g. a transaction, the selection of service provider, etc.) and can usually be
managed with a one-off measure. In all circumstances, the interest of the institution should
be central to the decisions taken.
113. The policy should set out procedures, measures, documentation requirements and
responsibilities for the identification and prevention of conflicts of interest, for the
assessment of their materiality and for taking mitigating measures. Such procedures,
requirements, responsibilities and measures should include:
a. entrusting conflicting activities or transactions to different persons;
b. preventing staff who are also active outside the institution from having inappropriate
influence within the institution regarding those other activities;
c. establishing the responsibility of the members of the management body to abstain

from voting on any matter where a member has or may have a conflict of interest or
where the member’s objectivity or ability to properly fulfil duties to the institution
may be otherwise compromised;
d. establishing adequate procedures for transactions with related parties (institutions

may consider, inter alia, requiring transactions to be conducted at arm’s length,
requiring that all relevant internal control procedures fully apply to such
transactions, requiring binding consultative advice from independent members of
the management body, requiring the approval by shareholders of the most relevant
transactions and limiting exposure to such transactions); and
e. preventing members of the management body from holding directorships in

competing institutions, unless they are within institutions that belong to the same
institutional protection scheme, as referred to in Article 113(7) of Regulation (EU)
No 575/2013, credit institutions permanently affiliated to a central body, as referred
to in Article 10 of Regulation (EU) No 575/2013, or institutions within the scope of
prudential consolidation.
114. The policy should specifically cover the risk of conflicts of interest at the level of the
management body and provide sufficient guidance on the identification and management of
conflicts of interest that may impede the ability of members of the management body to
take objective and impartial decisions that aim to fulfil the best interests of the institution.
38
Institutions should take into consideration that conflicts of interest can have an impact on
the independence of mind of members of the management body 26.
115. Actual or potential conflicts of interest that have been disclosed to the responsible
function within the institution should be appropriately assessed and managed. If a conflict
of interest of staff is identified, the institution should document the decision taken, in
particular if the conflict of interest and the related risks have been accepted, and if it has
been accepted, how this conflict of interest has been satisfactorily mitigated or remedied.
116. All actual and potential conflicts of interest at management body level, individually and
collectively, should be adequately documented, communicated to the management body,
and discussed, decided on and duly managed by the management body.
13 Internal alert procedures

117. Institutions should put in place and maintain appropriate internal alert policies and
procedures for staff to report potential or actual breaches of regulatory or internal
requirements, including, but not limited to, those of Regulation (EU) No 575/2013 and
national provisions transposing Directive 2013/36/EU, or of internal governance
arrangements, through a specific, independent and autonomous channel. It should not be
necessary for reporting staff to have evidence of a breach; however, they should have a
sufficient level of certainty that provides sufficient reason to launch an investigation.
118. To avoid conflicts of interest, it should be possible for staff to report breaches outside
regular reporting lines (e.g. through the compliance function, the internal audit function or
an independent internal whistleblowing procedure). The alert procedures should ensure the
protection of the personal data of both the person who reports the breach and the natural
person who is allegedly responsible for the breach, in accordance with Directive 95/46/EC.
119. The alert procedures should be made available to all staff within an institution.
120. Information provided by staff through the alert procedures should, if appropriate, be
made available to the management body and other responsible functions defined within the
internal alert policy. Where required by the staff member reporting a breach, the
information should be provided to the management body and other responsible functions in
an anonymised way. Institutions may also provide for a whistleblowing process that allows
information to be submitted in an anonymised way.
121. Institutions should ensure that the person reporting the breach is appropriately protected
from any negative impact, e.g. retaliation, discrimination or other types of unfair treatment.
The institution should ensure that no person under the institution’s control engages in
26
See also the joint ESMA and EBA guidelines on the assessment of the suitability of members of the management body
39
victimisation of a person who has reported a breach and should take appropriate measures
against those responsible for any such victimisation.
122. Institutions should also protect persons who have been reported from any negative
effects in case the investigation finds no evidence that justifies taking measures against that
person. If measures are taken, the institution should take them in a way that aims to protect
the person concerned from unintended negative effects that go beyond the objective of the
measure taken.
123. In particular, internal alert procedures should:
a. be documented (e.g. staff handbooks);
b. provide clear rules that ensure that information on the reporting and the reported
persons and the breach are treated confidentially, in accordance with
Directive 95/46/EC, unless disclosure is required under national law in the context of
further investigations or subsequent judicial proceedings;
c. protect staff who raise concerns from being victimised because they have disclosed
reportable breaches;
d. ensure that the potential or actual breaches raised are assessed and escalated,
including as appropriate to the relevant competent authority or law enforcement
agency;
e. ensure, where possible, that confirmation of receipt of information is provided to

staff who have raised potential or actual breaches;
f. ensure the tracking of the outcome of an investigation into a reported breach; and
g. ensure appropriate record keeping.
14 Reporting of breaches to competent authorities

124. Competent authorities should establish effective and reliable mechanisms to enable
institutions’ staff to report to competent authorities relevant potential or actual breaches of
regulatory requirements, including, but not limited to, those of Regulation (EU)
No 575/2013 and national provisions transposing Directive 2013/36/EU. These mechanisms
should include at least:
a. specific procedures for the receipt of reports on breaches and follow-up, for instance
a dedicated whistleblowing department, unit or function;
b. appropriate protection as referred to in Section 13;
40
c. protection of the personal data of both the natural person who reports the breach
and the natural person who is allegedly responsible for the breach, in accordance
with Directive 95/46/EC; and
d. clear procedures as set out in paragraph 123.
125. Without prejudice to the possibility of reporting breaches through the competent
authorities’ mechanisms, competent authorities may encourage staff to first try and seek to
use their institutions’ internal alert procedures.
Title V – Internal control framework and mechanisms

15 Internal control framework
126. Institutions should develop and maintain a culture that encourages a positive attitude
towards risk control and compliance within the institution and a robust and comprehensive
internal control framework. Under this framework, institutions’ business lines should be
responsible for managing the risks they incur in conducting their activities and should have
controls in place that aim to ensure compliance with internal and external requirements. As
part of this framework, institutions should have internal control functions with appropriate
and sufficient authority, stature and access to the management body to fulfil their mission,
and a risk management framework.
127. The internal control framework of the institution concerned should be adapted on an
individual basis to the specificity of its business, its complexity and the associated risks,
taking into account the group context. The institutions concerned must organise the
exchange of the information necessary in a manner that ensures that each management
body, business line and internal unit, including each internal control function, is able to carry
out its duties. This means, for example, a necessary exchange of adequate information
between the business lines and the compliance function at the group level and between the
heads of the internal control functions at the group level and the management body of the
institution.
128. The internal control framework should cover the whole organisation, including the
management body’s responsibilities and tasks, and the activities of all business lines and
internal units, including internal control functions, outsourced activities and distribution
channels.
129. The internal control framework of an institution should ensure:
a. effective and efficient operations;
b. prudent conduct of business;
41
c. adequate identification, measurement and mitigation of risks;
d. the reliability of financial and non-financial information reported both internally and
externally;
e. sound administrative and accounting procedures; and
f. compliance with laws, regulations, supervisory requirements and the institution’s

internal policies, processes, rules and decisions.
16 Implementing an internal control framework

130. The management body should be responsible for establishing and monitoring the
adequacy and effectiveness of the internal control framework, processes and mechanisms,
and for overseeing all business lines and internal units, including internal control functions
(such as risk management, compliance and internal audit functions). Institutions should
establish, maintain and regularly update adequate written internal control policies,
mechanisms and procedures, which should be approved by the management body.
131. An institution should have a clear, transparent and documented decision-making process
and a clear allocation of responsibilities and authority within its internal control framework,
including its business lines, internal units and internal control functions.
132. Institutions should communicate those policies, mechanisms and procedures to all staff
and every time material changes have been made.
133. When implementing the internal control framework, institutions should establish
adequate segregation of duties – e.g. entrusting conflicting activities within the processing
of transactions or when providing services to different persons, or entrusting supervisory
and reporting responsibilities for conflicting activities to different persons – and establish
information barriers, e.g. through the physical separation of certain departments.
134. The internal control functions should verify that the policies, mechanisms and procedures
set out in the internal control framework are correctly implemented in their respective
areas of competence.
135. Internal control functions should regularly submit to the management body written
reports on major identified deficiencies. These reports should include, for each new
identified major deficiency, the relevant risks involved, an impact assessment,
recommendations and corrective measures to be taken. The management body should
follow up on the findings of the internal control functions in a timely and effective manner
and require adequate remedial actions. A formal follow-up procedure on findings and
corrective measures taken should be put in place.
42
17 Risk management framework

136. As part of the overall internal control framework, institutions should have a holistic
institution-wide risk management framework extending across all its business lines and
internal units, including internal control functions, recognising fully the economic substance
of all its risk exposures. The risk management framework should enable the institution to
make fully informed decisions on risk-taking. The risk management framework should
encompass on- and off-balance-sheet risks as well as actual risks and future risks that the
institution may be exposed to. Risks should be evaluated from the bottom up and from the
top down, within and across business lines, using consistent terminology and compatible
methodologies throughout the institution and at consolidated or sub-consolidated level. All
relevant risks should be encompassed in the risk management framework with appropriate
consideration of both financial and non-financial risks, including credit, market, liquidity,
concentration, operational, IT, reputational, legal, conduct, compliance and strategic risks.
137. An institution’s risk management framework should include policies, procedures, risk
limits and risk controls ensuring adequate, timely and continuous identification,
measurement or assessment, monitoring, management, mitigation and reporting of the
risks at the business line, institution and consolidated or sub-consolidated levels.
138. An institution’s risk management framework should provide specific guidance on the
implementation of its strategies. This guidance should, where appropriate, establish and
maintain internal limits consistent with the institution’s risk appetite and commensurate
with its sound operation, financial strength, capital base and strategic goals. An institution’s
risk profile should be kept within these established limits. The risk management framework
should ensure that, whenever breaches of risk limits occur, there is a defined process to
escalate and address them with an appropriate follow-up procedure.
139. The risk management framework should be subject to independent internal review, e.g.
performed by the internal audit function, and reassessed regularly against the institution’s
risk appetite, taking into account information from the risk management function and,
where established, the risk committee. Factors that should be considered include internal
and external developments, including balance-sheet and revenue changes; any increase in
the complexity of the institution's business, risk profile or operating structure; geographic
expansion; mergers and acquisitions; and the introduction of new products or business
lines.
140. When identifying and measuring or assessing risks, an institution should develop
appropriate methodologies including both forward-looking and backward-looking tools. The
methodologies should allow for the aggregation of risk exposures across business lines and
support the identification of risk concentrations. The tools should include the assessment of
the actual risk profile against the institution’s risk appetite, as well as the identification and
assessment of potential and stressed risk exposures under a range of assumed adverse
circumstances against the institution’s risk capacity. The tools should provide information on
43
any adjustment to the risk profile that may be required. Institutions should make
appropriately conservative assumptions when building stressed scenarios.
141. Institutions should take into consideration that the results of quantitative assessment
methodologies, including stress testing, are highly dependent on the limitations and
assumptions of the models (including the severity and duration of the shock and the
underlying risks). For example, models showing very high returns on economic capital may
result from a weakness in the models (e.g. the exclusion of some relevant risks) rather than
a superior strategy or excellent execution of a strategy on the part of the institution. The
determination of the level of risk taken should not therefore be based only on quantitative
information or model outputs; it should also comprise a qualitative approach (including
expert judgement and critical analysis). Relevant macroeconomic environmental trends and
data should be explicitly addressed to identify their potential impact on exposures and
portfolios.
142. The ultimate responsibility for risk assessment lies solely with the institution, which,
accordingly, should evaluate its risks critically and should not rely exclusively on external
assessments. For example, an institution should validate a purchased risk model and
calibrate it to its own individual circumstances to ensure that the model accurately and
comprehensively captures and analyses the risk.
143. Institutions should be fully aware of the limitations of models and metrics and use not
only quantitative but also qualitative risk assessment tools (including expert judgement and
critical analysis).
144. In addition to the institutions’ own assessments, institutions may use external risk
assessments (including external credit ratings or externally purchased risk models).
Institutions should be fully aware of the exact scope of such assessments and their
limitations.
145. Regular and transparent reporting mechanisms should be established so that the
management body, its risk committee, where established, and all relevant units in an
institution are provided with reports in a timely, accurate, concise, understandable and
meaningful manner and can share relevant information about the identification,
measurement or assessment, monitoring and management of risks. The reporting
framework should be well defined and documented.
146. Effective communication and awareness regarding risks and the risk strategy is crucial for
the whole risk management process, including the review and decision-making processes,
and helps prevent decisions that may unknowingly increase risk. Effective risk reporting
involves sound internal consideration and communication of risk strategy and relevant risk
data (e.g. exposures and key risk indicators), both horizontally across the institution and up
and down the management chain.
44
18 New products and significant changes 27

147. An institution should have in place a well-documented new product approval policy
(NPAP), approved by the management body, that addresses the development of new
markets, products and services, and significant changes to existing ones, as well as
exceptional transactions. The policy should in addition encompass material changes to
related processes (e.g. new outsourcing arrangements) and systems (e.g. IT change
processes). The NPAP should ensure that approved products and changes are consistent
with the risk strategy and risk appetite of the institution and the corresponding limits, or
that necessary revisions are made.
148. Material changes or exceptional transactions may include mergers and acquisitions,
including the potential consequences of conducting insufficient due diligence that fails to
identify post-merger risks and liabilities; setting up structures (e.g. new subsidiaries or single
purpose vehicles; new products; changes to systems or the risk management framework or
procedures; and changes to the institution’s organisation.
149. An institution should have specific procedures for assessing compliance with these
policies, taking into account the input of the risk management function. This should include
a systematic prior assessment and documented opinion by the compliance function for new
products or significant changes to existing products.
150. An institution’s NPAP should cover every consideration to be taken into account before
deciding to enter new markets, deal in new products, launch a new service, or make
significant changes to existing products or services. The NPAP should also include the
definitions of ‘new product/market/business’ and ‘significant changes’ to be used in the
organisation and the internal functions to be involved in the decision-making process.
151. The NPAP should set out the main issues to be addressed before a decision is made.
These should include regulatory compliance; accounting; pricing models; the impact on risk
profile, capital adequacy and profitability; the availability of adequate front, back and
middle office resources; and the availability of adequate internal tools and expertise to
understand and monitor the associated risks. The decision to launch a new activity should
clearly state the business unit and individuals responsible for it. A new activity should not be
undertaken until adequate resources to understand and manage the associated risks are
available.
152. The risk management function and the compliance function should be involved in
approving new products or significant changes to existing products, processes and systems.
Their input should include a full and objective assessment of risks arising from new activities
under a variety of scenarios, of any potential shortcomings in the institution’s risk
27
See also the EBA guidelines on product oversight and governance requirements for manufacturers and distributors of
retail banking products, available at https://www.eba.europa.eu/-/eba-publishes-final-product-oversight-and-
governance-requirements-for-manufactures-and-distributors-of-retail-banking-products.
45
management and internal control frameworks, and of the ability of the institution to
manage any new risks effectively. The risk management function should also have a clear
overview of the roll-out of new products (or significant changes to existing products,
processes and systems) across different business lines and portfolios, and the power to
require that changes to existing products go through the formal NPAP process.
19 Internal control functions

153. The internal control functions should include a risk management function (see
Section 20), a compliance function (see Section 21) and an internal audit function (see
Section 22). The risk management and compliance functions should be subject to review by
the internal audit function.
154. The operational tasks of the internal control functions may be outsourced, taking into
account the proportionality criteria listed in Title I, to the consolidating institution or
another entity within or outside of the group with the consent of the management bodies of
the institutions concerned. Even when internal control operational tasks are partially or fully
outsourced, the head of the internal control function concerned and the management body
are still responsible for these activities and for maintaining an internal control function
within the institution.
19.1 Heads of the internal control functions

155. Heads of internal control functions should be established at an adequate hierarchical level
that provides the head of the control function with the appropriate authority and stature
needed to fulfil his or her responsibilities. Notwithstanding the overall responsibility of the
management body, heads of internal control functions should be independent of the
business lines or units they control. To this end, the heads of the risk management,
compliance and internal audit functions should report and be directly accountable to the
management body, and their performance should be reviewed by the management body.
156. Where necessary, the heads of internal control functions should be able to have access
and report directly to the management body in its supervisory function to raise concerns
and warn the supervisory function, where appropriate, when specific developments affect
or may affect the institution. This should not prevent the heads of internal control functions
from reporting within the regular reporting lines as well.
157. Institutions should have documented processes in place to assign the position of the head
of an internal control function and for withdrawing his or her responsibilities. In any case,
the heads of internal control functions should – and under Article 76(5) of
Directive 2013/36/EU the head of the risk management function must – not be removed
without the prior approval of the management body in its supervisory function. In significant
institutions, competent authorities should be promptly informed about the approval and
the main reasons for the removal of a head of an internal control function.
46
19.2 Independence of internal control functions

158. In order for the internal control functions to be regarded as independent, the following
conditions should be met:
a. their staff do not perform any operational tasks that fall within the scope of the
activities the internal control functions are intended to monitor and control;
b. they are organisationally separate from the activities they are assigned to monitor
and control;
c. notwithstanding the overall responsibility of members of the management body for

the institution, the head of an internal control function should not be subordinate to
a person who has responsibility for managing the activities the internal control
function monitors and controls; and
d. the remuneration of the internal control functions’ staff should not be linked to the
performance of the activities the internal control function monitors and controls, and
not otherwise likely to compromise their objectivity 28.
19.3 Combination of internal control functions

159. Taking into account the proportionality criteria set out in Title I, the risk management
function and compliance function may be combined. The internal audit function should not
be combined with another internal control function.
19.4 Resources of internal control functions

160. Internal control functions should have sufficient resources. They should have an adequate
number of qualified staff (both at parent level and at subsidiary level). Staff should remain
qualified on an ongoing basis and should receive training as necessary.
161. Internal control functions should have appropriate IT systems and support at their
disposal, with access to the internal and external information necessary to meet their
responsibilities. They should have access to all necessary information regarding all business
lines and relevant risk-bearing subsidiaries, in particular those that can potentially generate
material risks for the institutiones.
20 Risk management function
28
See also the EBA guidelines on sound remuneration policies, available at https://www.eba.europa.eu/regulation-and-
policy/remuneration/guidelines-on-sound-remuneration-policies.
47
162. Institutions should establish a risk management function (RMF) covering the whole
institution. The RMF should have sufficient authority, stature and resources, taking into
account the proportionality criteria listed in Title I, to implement risk policies and the risk
management framework as set out in Section 17.
163. The RMF should have, where necessary, direct access to the management body in its
supervisory function and its committees, where established, including in particular the risk
committee.
164. The RMF should have access to all business lines and other internal units that have the
potential to generate risk, as well as to relevant subsidiaries and affiliates.
165. Staff within the RMF should possess sufficient knowledge, skills and experience in relation
to risk management techniques and procedures, and markets and products, and should
have access to regular training.
166. The RMF should be independent of the business lines and units whose risks it controls but
should not be prevented from interacting with them. Interaction between the operational
functions and the RMF should help to achieve the objective of all the institution’s staff
bearing responsibility for managing risk.
167. The RMF should be a central organisational feature of the institution, structured so that it
can implement risk policies and control the risk management framework. The RMF should
play a key role in ensuring that the institution has effective risk management processes in
place. The RMF should be actively involved in all material risk management decisions.
168. Significant institutions may consider establishing dedicated RMFs for each material
business line. However, there should be a central RMF, including a group RMF in the
consolidating institution, to deliver an institution- and group-wide holistic view on all risks
and to ensure that the risk strategy is complied with.
169. The RMF should provide relevant independent information, analyses and expert
judgement on risk exposures, and advice on proposals and risk decisions made by business
lines or internal units, and should inform the management body as to whether they are
consistent with the institution’s risk appetite and strategy. The RMF may recommend
improvements to the risk management framework and corrective measures to remedy
breaches of risk policies, procedures and limits.
20.1 RMF’s role in risk strategy and decisions

170. The RMF should be actively involved at an early stage in elaborating an institution’s risk
strategy and in ensuring that the institution has effective risk management processes in
place. The RMF should provide the management body with all relevant risk-related
48
information to enable it to set the institution’s risk appetite level. The RMF should assess
the robustness and sustainability of the risk strategy and appetite. It should ensure that the
risk appetite is appropriately translated into specific risk limits. The RMF should also assess
the risk strategies of business units, including targets proposed by the business units, and
should be involved before a decision is made by the management body concerning the risk
strategies. Targets should be plausible and consistent with the institutions risk strategy.
171. The RMF’s involvement in decision-making processes should ensure that risk
considerations are taken into account appropriately. However, accountability for the
decisions taken should remain with the business and internal units, and ultimately the
management body.
20.2 RMF’s role in material changes

172. In line with Section 18, before decisions on material changes or exceptional transactions
are taken, the RMF should be involved in the evaluation of the impact of such changes and
exceptional transactions on the institution’s and group’s overall risk, and should report its
findings directly to the management body before a decision is taken.
173. The RMF should evaluate how risks identified could affect the institution’s or group’s
ability to manage its risk profile, its liquidity and its sound capital base under normal and
adverse circumstances.
20.3 RMF’s role in identifying, measuring, assessing,

managing, mitigating, monitoring and reporting on risks
174. The RMF should ensure that all risks are identified, assessed, measured, monitored,
managed and properly reported on by the relevant units in the institution.
175. The RMF should ensure that identification and assessment are not based only on
quantitative information or model outputs, and take into account also qualitative
approaches. The RMF should keep the management body informed of the assumptions used
in and potential shortcomings of the risk models and analysis.
176. The RMF should ensure that transactions with related parties are reviewed and that the
risks they pose for the institution are identified and adequately assessed.
177. The RMF should ensure that all identified risks are effectively monitored by the business
units.
178. The RMF should regularly monitor the actual risk profile of the institution and scrutinise it
against the institution’s strategic goals and risk appetite to enable decision-making by the
management body in its management function and challenge by the management body in
its supervisory function.
49
179. The RMF should analyse trends and recognise new or emerging risks and risk increases
arising from changing circumstances and conditions. It should also regularly review actual
risk outcomes against previous estimates (i.e. back testing) to assess and improve the
accuracy and effectiveness of the risk management process.
180. The RMF should evaluate possible ways to mitigate risks. Reporting to the management
body should include proposed appropriate risk-mitigating actions.
20.4 RMF’s role in unapproved exposures

181. The RMF should independently assess breaches of risk appetite or limits (including
ascertaining the cause and undertaking a legal and economic analysis of the actual cost of
closing, reducing or hedging the exposure against the potential cost of keeping it). The RMF
should inform the business units concerned and the management body, and recommend
possible remedies. The RMF should report directly to the management body in its
supervisory function when the breach is material, without prejudice for the RMF to report
to other internal functions and committees.
182. The RMF should play a key role in ensuring a decision on its recommendation is made at
the relevant level, complied with by the relevant business units and appropriately reported
to the management body and, where established, the risk committee.
20.5 Head of the risk management function

183. The head of the RMF should be responsible for providing comprehensive and
understandable information on risks and advising the management body, enabling this body
to understand the institution’s overall risk profile. The same applies to the head of the RMF
of a parent institution regarding the consolidated situation.
184. The head of the RMF should have sufficient expertise, independence and seniority to
challenge decisions that affect an institution’s exposure to risks. When the head of the RMF
is not a member of the management body, significant institutions should appoint an
independent head of the RMF who has no responsibilities for other functions and reports
directly to the management body. Where it is not proportionate to appoint a person who is
dedicated only to the role of head of the RMF, taking into account the principle of
proportionality as set out in Title I, this function can be combined with the head of the
compliance function or can be performed by another senior person, provided there is no
conflict of interest between the functions combined. In any case, this person should have
sufficient authority, stature and independence (e.g. head of legal).
185. The head of the RMF should be able to challenge decisions taken by the institution’s
management and its management body, and the grounds for objections should be formally
documented. If an institution wishes to grant the head of the RMF the right to veto
decisions (e.g. a credit or investment decision or the setting of a limit) made at levels below
50
the management body, it should specify the scope of such a veto right, the escalation or
appeal procedures, and how the management body will be involved.
186. Institutions should establish strengthened processes for the approval of decisions on
which the head of the RMF has expressed a negative view. The management body in its
supervisory function should be able to communicate directly with the head of the RMF on
key risk issues, including developments that may be inconsistent with the institution’s risk
appetite and strategy.
21 Compliance function
187. Institutions should establish a permanent and effective compliance function to manage
compliance risk and should appoint a person to be responsible for this function across the
entire institution (the compliance officer or head of compliance).
188. Where it is not proportionate to appoint a person who is dedicated only to the role of
head of compliance, taking into account the principle of proportionality as set out in Title I,
this function can be combined with the head of the RMF or can be performed by another
senior person (e.g. head of legal), provided there is no conflict of interest between the
functions combined.
189. The compliance function, including the head of compliance, should be independent of the
business lines and internal units it controls and have sufficient authority, stature and
resources. Taking into account the proportionality criteria set out in Title I, this function may
be assisted by the RMF or combined with the RMF or other appropriate functions, e.g. the
legal division or human resources.
190. Staff within the compliance function should possess sufficient knowledge, skills and
experience in relation to compliance and relevant procedures, and should have access to
regular training.
191. The management body in its supervisory function should oversee the implementation of a
well-documented compliance policy, which should be communicated to all staff. Institutions
should set up a process to regularly assess changes in the law and regulations applicable to
its activities.
192. The compliance function should advise the management body on measures to be taken to
ensure compliance with applicable laws, rules, regulations and standards, and should assess
the possible impact of any changes in the legal or regulatory environment on the
institution’s activities and compliance framework.
193. The compliance function should ensure that compliance monitoring is carried out through
a structured and well-defined compliance monitoring programme and that the compliance
policy is observed. The compliance function should report to the management body and
communicate as appropriate with the RMF on the institution’s compliance risk and its
51
management. The compliance function and the RMF should cooperate and exchange
information as appropriate to perform their respective tasks. The findings of the compliance
function should be taken into account by the management body and the RMF in decision-
making processes.
194. In line with Section 18 of these guidelines, the compliance function should also verify, in
close cooperation with the RMF and the legal unit, that new products and new procedures
comply with the current legal framework and, where appropriate, with any known
forthcoming changes to legislation, regulations and supervisory requirements.
195. Institutions should take appropriate action against internal or external fraudulent
behaviour and breaches of discipline (e.g. breaches of internal procedures, breaches of
limits).
196. Institutions should ensure that their subsidiaries and branches take steps to ensure that
their operations are compliant with local laws and regulations. If local laws and regulations
hamper the application of stricter procedures and compliance systems implemented by the
group, especially if they prevent the disclosure and exchange of necessary information
between entities within the group, subsidiaries and branches should inform the compliance
officer or the head of compliance of the consolidating institution.
22 Internal audit function

197. Institutions should set up an independent and effective internal audit function (IAF),
taking into account the proportionality criteria set out in Title I, and should appoint a person
to be responsible for this function across the entire institution. The IAF should be
independent and have sufficient authority, stature and resources. In particular, the
institution should ensure that the qualification of the IAF’s staff members and the IAF’s
resources, in particular its auditing tools and risk analysis methods, are adequate for the
institution’s size and locations, and the nature, scale and complexity of the risks associated
with the institution’s business model, activities, risk culture and risk appetite.
198. The IAF should be independent of the audited activities. Therefore, the IAF should not be
combined with other functions.
199. The IAF should, following a risk-based approach, independently review and provide
objective assurance of the compliance of all activities and units of an institution, including
outsourced activities, with the institution’s policies and procedures and with external
requirements. Each entity within the group should fall within the scope of the IAF.
200. The IAF should not be involved in designing, selecting, establishing and implementing
specific internal control policies, mechanisms and procedures, and risk limits. However, this
should not prevent the management body in its management function from requesting
input from internal audit on matters related to risk, internal controls and compliance with
applicable rules.
52
201. The IAF should assess whether the institution’s internal control framework as set out in
Section 15 is both effective and efficient. In particular, the IAF should assess:
a. the appropriateness of the institution’s governance framework;
b. whether existing policies and procedures remain adequate and comply with legal and
regulatory requirements and with the risk appetite and strategy of the institution;
c. the compliance of the procedures with the applicable laws and regulations and with
decisions of the management body;
d. whether the procedures are correctly and effectively implemented (e.g. compliance
of transactions, the level of risk effectively incurred, etc.); and
e. the adequacy, quality and effectiveness of the controls performed and the reporting
done by the defence business units and the risk management and compliance
functions.
202. The IAF should verify, in particular, the integrity of the processes ensuring the reliability of
the institution’s methods and techniques, and the assumptions and sources of information
used in its internal models (e.g. risk modelling and accounting measurements). It should also
evaluate the quality and use of qualitative risk identification and assessment tools and the
risk mitigation measures taken.
203. The IAF should have unfettered institution-wide access to all the records, documents,
information and buildings of the institution. This should include access to management
information systems and minutes of all committees and decision-making bodies.
204. The IAF should adhere to national and international professional standards. An example
of the professional standards referred to here is the standards established by the Institute
of Internal Auditors.
205. Internal audit work should be performed in accordance with an audit plan and a detailed
audit programme following a risk-based approach.
206. An internal audit plan should be drawn up at least once a year on the basis of the annual
internal audit control objectives. The internal audit plan should be approved by the
management body.
207. All audit recommendations should be subject to a formal follow-up procedure by the
appropriate levels of management to ensure and report on their effective and timely
resolution.
Title VI – Business continuity management
53
208. Institutions should establish a sound business continuity management plan to ensure
their ability to operate on an ongoing basis and to limit losses in the event of severe
business disruption.
209. Institutions may establish a specific independent business continuity function, e.g. as part
of the RMF 29.
210. An institution’s business relies on several critical resources (e.g. IT systems including cloud
services, communication systems and buildings). The purpose of business continuity
management is to reduce the operational, financial, legal, reputational and other material
consequences arising from a disaster or extended interruption to these resources and
consequent disruption to the institution’s ordinary business procedures. Other risk
management measures might be intended to reduce the probability of such incidents or to
transfer their financial impact to third parties (e.g. through insurance).
211. In order to establish a sound business continuity management plan, an institution should
carefully analyse its exposure to severe business disruptions and assess (quantitatively and
qualitatively) their potential impact, using internal and/or external data and scenario
analysis. This analysis should cover all business lines and internal units, including the RMF,
and should take into account their interdependency. The results of the analysis should
contribute to defining the institution’s recovery priorities and objectives.
212. On the basis of the abovementioned analysis, an institution should put in place:
a. contingency and business continuity plans to ensure that the institution reacts
appropriately to emergencies and is able to maintain its most important business
activities if there is disruption to its ordinary business procedures; and
b. recovery plans for critical resources to enable the institution to return to ordinary
business procedures in an appropriate timeframe. Any residual risk from potential
business disruptions should be consistent with the institution’s risk appetite.
213. Contingency, business continuity and recovery plans should be documented and carefully
implemented. The documentation should be available within the business lines, internal
units and RMF, and should be stored on systems that are physically separated and readily
accessible in case of contingency. Appropriate training should be provided. Plans should be
regularly tested and updated. Any challenges or failures occurring in the tests should be
documented and analysed, with the plans reviewed accordingly.
Title VII – Transparency
29
Please refer also to Article 312 of Regulation (EU) No 575/2013.
54
214. Strategies, policies and procedures should be communicated to all relevant staff
throughout an institution. An institution’s staff should understand and adhere to policies
and procedures pertaining to their duties and responsibilities.
215. Accordingly, the management body should inform and update the relevant staff about
the institution’s strategies and policies in a clear and consistent way, at least to the level
needed to carry out their particular duties. This may be done through written guidelines,
manuals or other means.
216. Where parent undertakings are required by competent authorities under Article 106(2) of
Directive 2013/36/EU to publish annually a description of their legal structure and
governance and the organisational structure of the group of institutions, the information
should include all entities within the group structure as defined in Directive 2013/34/EU 30,
by country.
217. The publication should include at least:
a. an overview of the internal organisation of the institutions and the group structure as
defined in Directive 2013/34/EU and changes thereto, including the main reporting
lines and responsibilities;
b. any material changes since the previous publication and the date of the material
change;
c. new legal, governance or organisational structures;
d. information on the structure, organisation and members of the management body,

including the number of its members and the number of those qualified as
independent, and specifying the gender and duration of the mandate of each
member of the management body;
e. the key responsibilities of the management body;
f. a list of the committees of the management body in its supervisory function and
their composition;
g. an overview of the conflict of interest policy applicable to the institutions and to the
management body;
h. an overview of the internal control framework; and
i. an overview of the business continuity management framework.

30
Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial
statements, consolidated financial statements and related reports of certain types of undertakings, amending
Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and
83/349/EEC (OJ L 182, 29.6.2013, p. 19).
55
Annex I – Aspects to take into account

when developing an internal governance
policy
In line with Title III, institutions should consider the following aspects when documenting internal
governance policies and arrangements:
1. Shareholder structure
2. Group structure, if applicable (legal and functional structure)
3. Composition and functioning of the management body
a) selection criteria
b) number, length of mandate, rotation, age
c) independent members of the management body
d) executive members of the management body
e) non-executive members of the management body
f) internal division of tasks, if applicable
4. Governance structure and organisation chart (with impact on the group, if applicable)
a) specialised committees
i. composition
ii. functioning
b) executive committee, if any
i. composition
ii. functioning
5. Key function holders
a) head of the risk management function
b) head of the compliance function
c) head of the internal audit function
d) chief financial officer
e) other key function holders
6. Internal control framework
a) description of each function, including its organisation, resources, stature and
authority
b) description of the risk management framework, including the risk strategy
56
7. Organisational structure (with impact on the group, if applicable)

a) operational structure, business lines, and allocation of competences and
responsibilities
b) outsourcing
c) range of products and services
d) geographical scope of business
e) free provision of services
f) branches
g) subsidiaries, joint ventures, etc.
h) use of offshore centres
8. Code of conduct and behaviour (with impact on the group, if applicable)
a) strategic objectives and company values
b) internal codes and regulations, prevention policy
c) conflict of interest policy
d) whistleblowing
9. Status of the internal governance policy, with date
a) development
b) last amendment
c) last assessment
d) approval by the management body.
57
5. Accompanying documents
5.1. Draft cost-benefit analysis/impact assessment

1. Article 16(2) of Regulation (EU) No 1093/2010 of the European Parliament and of the
Council of 24 November 2010 establishing a European Supervisory Authority (European
Banking Authority) (EBA Regulation) provides that the EBA should carry out an analysis of
‘the potential related costs and benefits’ of any guidelines it develops. This analysis
should provide an overview of the findings regarding the problem to be dealt with, the
solutions proposed and the potential impact of these options.
A. Problem identification
2. Trust in the reliability of the financial system is crucial for its proper functioning and a
prerequisite if it is to contribute to the economy as a whole. Consequently, effective
internal governance arrangements are fundamental if institutions individually and the
banking system they form are to operate well.
3. Weaknesses in corporate governance in a number of institutions have contributed to

excessive and imprudent risk-taking in the financial sector, which has led to the failure of
individual institutions and systemic problems in Member States and globally. The very
general provisions on governance of institutions and the non-binding nature of a
substantial part of the corporate governance framework, based essentially on voluntary
codes of conduct, did not sufficiently facilitate the effective implementation of sound
corporate governance practices by institutions. In some cases, the absence of effective
checks and balances within institutions resulted in a lack of effective oversight of
management decision-making, which exacerbated short-term and excessively risky
management strategies.
4. In order to address the potentially detrimental effect of poorly designed corporate

governance arrangements on the sound management of risk, requirements to ensure
effective oversight by the management body, promote a sound risk culture at all levels of
credit institutions and investment firms, and enable competent authorities to monitor the
adequacy of internal governance arrangements are needed.
5. Guidelines should ensure that the additional requirements for institutions’ internal
governance and with regard to the responsibilities of members of the management body
introduced by Directive 2013/36/EU are applied in a harmonised way.
58
B. Policy objectives
6. The EBA has updated the previously issued EBA guidelines on internal governance. The
underlying reasons are mainly additions made in Directive 2013/36/EU to the existing
regulatory framework. The guidelines were also restructured to increase their clarity and
their consistency with other guidelines issued by the EBA in the meantime, in particular
with regard to the reinforcement of the requirements regarding risk oversight by the
management body and the risk management function, the application of the internal
governance arrangements at group level and more precise criteria regarding the
application of the proportionality principle.
7. The governance requirements should be applied on a consolidated basis, that is at the

levels of the group, parent undertakings and subsidiaries, including branches and
subsidiaries established in third countries and subsidiaries to which Directive 2013/36/EU
does not directly apply on an individual level.
8. The implementation of internal governance arrangements should reflect differences

between types of institutions in a proportionate manner, taking into account their size
and internal organisation and the nature, scope and complexity of their activities.
9. In order to ensure a well-functioning internal market, transparent, predictable and

harmonised supervisory practices and decisions are necessary for conducting business.
The EBA should therefore seek to further harmonise supervisory practices.
10. The EBA aims for the maximum possible harmonisation as a means to achieve a level
playing field, prevent regulatory arbitrage opportunities, increase supervisory
convergence and achieve legal certainty. In addition, the development of common
procedures and practices is expected to reduce the compliance burden on institutions
and contribute to efficient and effective cooperation among competent authorities.
11. The EBA has updated the aforementioned guidelines on internal governance in line with
the mandate given under Article 74 of Directive 2013/36/EU and based on the reinforced
internal governance requirements introduced under this Directive to achieve a higher
level of harmonisation, to ensure effective oversight by the management body and to
promote a sound risk culture at all levels of credit institutions and investment firms.
12. In particular, the guidelines specify:
a. the involvement of the management body in the definition and implementation of

the governance arrangements, particularly with regard to risk oversight, including
through the setting up of specialised committees;
b. how internal policies are to be applied in a group context;
59
c. how the principle of proportionality is to be applied by both competent authorities

and institutions; and
d. how the internal control framework should be implemented, including how the
internal control functions should be organised.
C. Baseline scenario
13. The current EU legislative framework for institutions’ internal governance consists mainly
of Directive 2013/36/EU; the EBA guidelines on internal governance, published in 2011;
the EBA guidelines for common procedures and methodologies for the supervisory review
and evaluation process (SREP); the EBA guidelines on sound remuneration policies; and
the EBA guidelines on the assessment of the suitability of members of the management
body and key function holders.
14. The impact assessment covers guidelines developed to ensure the harmonised
application of additional governance requirements introduced by Directive 2013/36/EU
and areas where the policy has changed. Areas that have not changed in substance and
the underlying changes introduced by the Directive 2013/36/EU and Regulation (EU)
No 575/2013 have not been assessed.
D. Options considered
15. The following sets of policy options were considered.
Option 1: Scope of the guidelines:
16. Option A: providing guidelines on all aspects of internal governance arrangements

including the assessment of the suitability of members of the management body,
remuneration and disclosures.
17. Option B: providing guidelines only on the aspects that have not been dealt with in other
EBA products.
18. Option A might appear to be more efficient for the addressees, as all the guidelines on
this particular area would be accessible in a single document. The costs of implementing a
single set of guidelines and separate sets of guidelines would be the same.
19. Option B would allow for greater differentiation between guidelines on internal
governance arrangements, sound remuneration policies and suitability. Regarding the
legal mandates provided to the EBA, Option B would reflect better the Directive
2013/36/EU mandates. In any case, all EBA guidelines can be accessed via the EBA Single
Rulebook.
60
20. Option B was retained.
Option 2: Reinforcement of the involvement of the management body, particularly regarding

risk oversight
21. Option A: no further guidelines, as the previous guidelines are sufficient.
22. Option B: reinforcement of the involvement of the management body regarding risk
oversight by strengthening its duties and responsibilities, and distinguishing between the
management body in its supervisory function and in its management function. In
particular, it should be established that the management body in its supervisory function
should monitor that the strategic objectives, the organisational structure, and the risk
strategy and policy, as well as other policies such as remuneration and disclosure
obligations, are implemented consistently. The management body in its management
function should implement the strategies set by the management body and discuss
regularly the implementation and appropriateness of those strategies with the
management body in its supervisory function.
23. Option A is not recommended, as it would not lead to greater harmonisation and would
not improve risk management practices or result in the greater involvement of the
management body in risk oversight or more generally in internal governance
arrangements.
24. Option B would increase risk oversight by the management body and risk culture within
institutions in line with international standards. While some additional guidelines would
be provided regarding the responsibilities of the management body, it is not expected
that this would increase the costs of the governance arrangements already implemented
within institutions or of supervision by competent authorities. Assessing and increasing
the qualifications and the available resources of members of the management body,
particularly regarding risk management, would tigger some costs. The costs would
depend on the size and complexity of the institution.
25. Option B was retained.
Option 3: Proportionality
26. The approach taken was not sufficiently effective and did not lead to an appropriate level
of harmonisation, as only a reference to the principle was made in the previous
guidelines. Options for the approach to proportionality were as follows.
27. Option A: retaining the neutral approach taken under the previous EBA guidelines.
28. Option B: providing a set of criteria, in line with Article 74(2) of Directive 2013/36/EU, for
the application of proportionality principle in a harmonised way.
61
29. Option A would not be in line with the EBA’s mandate to develop guidelines to ensure the
harmonisation of supervisory practices on internal governance arrangements, taking into
account the proportionality principle.
30. Option B provides a non-exhaustive list of criteria to be taken into account in applying the
principle of proportionality. All institutions and competent authorities should take into
account at least those criteria, which will ensure consistency in the application of the
proportionality principle. No additional costs would be created by these additional
guidelines for both competent authorities and institutions.
31. Option B was retained
Option 4: Organisation of internal control functions, particularly the risk management function
32. Option A: no further guidelines, as the previous guidelines are sufficient.
33. Option B: strengthening the guidelines with regard to the resources, authority and stature
of the risk management function only.
34. Option C: strengthening the guidelines with regard to the resources, authority and stature
of all internal control functions.
35. Option A is not recommended, as it would not lead to greater harmonisation and would
not improve risk management practices or result in the greater involvement of the
management body in risk oversight or more generally in internal governance
arrangements.
36. Option B is not recommended, as it may create inconsistencies regarding the

organisation, resources and stature of the internal control functions within institutions,
even though the principle of proportionality needs to be taken into account when
implementing the guidelines.
37. Option C would create consistency between the internal control functions. While one
might argue that this would cause additional costs, those costs are needed to establish a
sound internal control framework and ensure the independence of the internal control
functions. This is already required by existing regulations. However, stronger internal
functions within institutions might be more costly in terms of staff costs or
reorganisation; on the other hand, institutions would also benefit from the improved
framework, which would lead to a better alignment of risk profile with risk appetite as set
by the management body.
38. Option C was retained.
62
E. Cost-benefit analysis
39. Respondents to the public consultation found it difficult to assess the costs of the
implementation work needed under the updated guidelines. The burden would be
greater if all the guidelines needed to be applied on an individual level by all subsidiaries.
A few respondents stressed that the development of ethical standards for external service
providers would create additional costs. The guidelines might lead to a need for more
staff for governance arrangements. Respondents pointed out the effect on the level
playing field in relation to third countries.
40. While the guidelines are applicable to all institutions, regarding other subsidiaries they
apply only on a consolidated or sub-consolidated basis and not on an individual level.
Directive 2013/36/EU is to be applied to all subsidiaries on a consolidated basis and
therefore related burdens are not incurred by implementing the guidelines. Sound ethical
standards are key to protecting an institution’s reputation. This holds true also where
services are provided by external sources. The guidelines were adjusted and require
institutions to take into account the ethical standards in place at service providers when
selecting them. Overall, the initial assessment has not changed; in particular, the
requirements regarding the independence of members of the management body and the
composition of committees have been made lighter after taking into account the
responses to the public consultation.
41. Overall, the guidelines, compared with the baseline scenario, will create very low
additional recurring costs for institutions, mainly driven by reorganising their internal
control frameworks. In addition, the minor increase in costs will be compensated for by
the adoption of a more proportionate approach with clear criteria and by the additional
benefits in terms of effective and sound internal governance arrangements. The
implementation of the guidelines will improve internal governance within institutions and
therefore reduce their vulnerability. Sound internal governance and conduct of business
helps to build up trust in the banking system.
42. The implementation of the guidelines by competent authorities will trigger low one-off
costs to change existing rules/methodologies/manuals and to inform staff members and
the sector regarding those changes. As the changes are limited and will mainly involve
updating existing guidelines, the costs should be relatively low.
43. Furthermore, the guidelines are in line with international internal governance standards;
therefore, no impact on the level playing field in relation to non-EU institutions is
expected.
63
5.2. Feedback on the public consultation

The EBA publicly consulted on the draft proposal contained in this paper.
The consultation period lasted for three months and ended on 28 January 2017. Thirty-three
responses were received, of which twenty-eight were published on the EBA website.
This paper presents a summary of the key points and other comments arising from the
consultation, the analysis and discussion triggered by these comments, and the actions taken to
address them if deemed necessary.
In many cases, several industry bodies made similar comments or the same body repeated its
comments in response to different questions. In such cases, the comments, and the EBA’s
analysis, are included in the section of this paper where the EBA considers them most
appropriate.
Changes to the draft guidelines have been incorporated as a result of the responses received
during the public consultation.
Summary of key issues and the EBA’s responses
A key issue raised by many respondents is the applicability of the guidelines to different
governance structures. Respondents were of the view that some provisions of the guidelines are
not enforceable in or are not compatible with some governance structures adopted in Member
States. For instance, in one-tier structures institutions have a unitary and inseparable body
through which both management and supervisory functions are performed and where all
members have the same responsibilities. Under some company laws, the body appointed by
shareholders does not have executive functions and therefore some respondents felt that no
requirements should be addressed to the management body in its management function; rather,
they should be addressed to the senior management. A few respondents identified particular
aspects that they deemed inappropriate for two-tier structures and for particular business models
and/or governance systems, such as public or cooperative institutions. Overall, respondents
advocated ensuring that the EBA guidelines are compatible with all governance models. In this
context, some respondents believed that the definitions of the management body in its different
functions should be clarified and that the notion of senior management should be used in the
guidelines; in particular, ‘senior management’ should be included in the ‘management body in its
management function’. In addition, it was argued that the notion of key function holders should
not be part of the guidelines, as it is not included in Directive 2013/36/EU.
Regarding the establishment of committees, many respondents deemed the guidelines to be too
detailed, endangering the desirable flexibility granted under national laws. A few respondents
pointed out that there could be unintended consequences, such as the building of inefficient and
too large boards.
64
Another key issue identified concerns the scope and the level of application of the guidelines.
First, respondents asked for confirmation that the guidelines do not apply to subsidiaries that are
themselves not subject to Directive 2013/36/EU on a solo basis, but only on a consolidated basis.
The situation of investment firms to which Directive 2004/39/EC, but not Directive 2013/36/EU
applies should also be clarified. Second, some respondents asked for the group context to be
better taken into account and suggested, in line with the principle of proportionality, applying
lighter requirements to subsidiaries or allowing exclusions, arguing that subsidiaries should be
allowed to rely on the group with regard to several matters (e.g. reporting, the code of conduct,
the description of the operational structure, the internal control framework). It was argued that,
with the same objective of decreasing the administrative and compliance burden, it should be
made clear that proportionality applies to all the requirements of the guidelines.
Respondents found that parts of the guidelines (the references to the audit committee, the
requirements on the composition of committees and the requirement to have independent
members on the risk and nomination committees, the guidelines on reporting breaches to
competent authorities, etc.) lacked a solid legal basis, because they went beyond what
Directive 2013/36/EU explicitly requires. Respondents also suggested that the definition of
‘independence’ should be left to national law.
Respondents recommended that the three lines of defence model should be better defined and
explained, while ensuring that the responsibilities of the first line are clearly set out.
The EBA has analysed and considered all the responses to the public consultation. The guidelines
have been revised so that they can be applied to all possible governance structures. It is neither
the intention to require institutions to change their governance structure, nor to alter the
assignment of responsibilities as set out in national law. The guidelines clarify the meaning of
‘management body’ provided in Directive 2013/36/EU. They also clarify that any reference to the
management body should be understood as including not only the members of the body
appointed under national law but also the persons directing the business (e.g. the CEO or
executive committee). The guidelines do not use the term ‘senior management’, as the definition
is not precise enough and has been implemented by Member States in different ways. Using the
concept of senior management in the guidelines would not lead to the appropriate level of
harmonisation. The requirements on board committees have been revised to better reflect the
principle of proportionality and other international standards.
Article 109 of Directive 2013/36/EU determines how the governance requirements should be
applied. Institutions that are subject to that Directive have to apply the requirements on an
individual basis. Regarding subsidiaries that are not subject to Directive 2013/36/EU, including
MiFID firms not subject to Directive 2013/36/EU, the requirements are applied in a group context
on a consolidated or sub-consolidated basis. The principle of proportionality should ensure the
appropriate application of the requirements on all levels. Institutions are expected to adopt and
implement group policies and, naturally, with regard to the performance of tasks, governance
arrangements existing within the group can be relied on, while the management body of an
institution has overall responsibility for that institution and its governance arrangements.
65
In accordance with Article 16 of the EBA Regulation, the EBA has the power to issue guidelines in
the area of its competence. The area of governance, including the supervision of institutions’
governance arrangements, is clearly included in this area (e.g. Article 74 of Directive 2013/36/EU).
It is not necessary for certain concepts to be explicitly mentioned in the Directive in relation to
the issuing of guidelines by the EBA. The EBA is not restricted to issuing guidelines based on an
explicit mandate from the co-legislators. The concepts of key function holders, codes of conduct,
independent directors, etc., are clearly linked to institutions’ governance arrangements and
therefore the EBA has the power to issue guidelines on these topics.
The guidelines are compatible with the three lines of defence model and it has been clarified that
the business units (the first line of defence) are part of this model. However, the guidelines focus
in particular on the responsibilities of the management body and the second line of defence. It
was not deemed necessary to refer explicitly in the guidelines to the three lines of defence model;
as the purpose of the guidelines is to specify regulatory requirements that are linked to certain
functions, such explanatory text was not required. The structure of the guidelines has been
changed to better differentiate between the internal control framework, in which all three lines of
defence participate, and the specific requirements in relation to the second line of defence.
The principle of proportionality, a principle that applies to all EU legislation, applies to the
guidelines. This means that the guidelines are to be applied taking into account the size of the
institution and the nature, scale and complexity of its activities.
The feedback table contains a more detailed analysis of the comments made.
66
Summary of responses to the consultation and the EBA’s analysis
Amendments to
Comments Summary of responses received EBA analysis
the proposals
General comments
Even though the draft guidelines do not advocate any

particular structure and are intended to apply to all
existing governance structures, they appear to be
unsuccessful in the aim of creating guidance that can
easily be applied to all sorts of governance structures.
For this purpose, the following suggestions are
proposed:
• expressly state that the guidelines do not intend The guidelines have
to give guidance on the allocation of tasks The comments have been accommodated. The guidelines do not been amended to
Neutral approach on
between different legal and organisational advocate any particular governance structure and are not better apply to all
governance systems
bodies; intended to change the responsibilities assigned by national law. governance
• adopt a more neutral wording that does not systems.
implicitly reveal that a certain governance model
is assumed;
• expressly clarify that, when the term
‘management body’ is used, it refers to either
the management function or the supervisory
function and that the tasks allocated by the
management body are to be allocated to the
correct body under applicable national law.
The wording of the guidelines is often prescriptive, as In line with the EBA’s mandate, the approach of the guidelines is to
if the draft guidelines were a regulation. This specify the requirements of Directive 2013/36/EU and set out
prescriptive/regulating approach of the draft which arrangements are expected within robust governance
Prescriptiveness No change.
guidelines towards institutions’ corporate governance arrangements.
practices is not compatible with the legal status of
The guidelines respect all different company laws and the principle
guidelines.
of proportionality and leave sufficient room for implementation by
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Amendments to
the proposals
The draft guidelines should focus exclusively on the institutions.
harmonisation of supervisory practices and not on the
The guidelines set out several governance principles, which aim to
harmonisation of corporate governance practices; the
establish appropriate checks and balances.
latter should be only a by-product of the former and
not the other way round. With regard to competent authorities, guidelines are subject to a
comply or explain approach, i.e. if part of the guidelines would
One respondent suggested that a reference to
contradict national law the competent authority has the option to
national implementing laws should be included.
not comply with the relevant part of the guidelines. Institutions
should make every effort to comply with the guidelines.
Institutions must comply with applicable law. Preserving in all
cases existing national law would limit future harmonisation.
The guidelines should refer to ‘risk control’ instead of Article 76 of Directive 2013/36/EU refers to the independent risk
‘risk management’, as the latter term includes some management function. The guidelines are consistent with the Background section
Risk management
functions and activities that are allocated to the first terminology used in the Directive. The change of terminology from amended.
line of defence. the previous guidelines is explained in the background section.
The EBA is mandated to provide guidance in the area of its

competence. Article 71 of Directive 2013/36/EU sets out
Reporting of breaches to The guidelines relate to the internal governance of requirements for the reporting of breaches. A specific mandate set
competent authorities institutions; therefore, the reference to the reporting out in Directive 2013/36/EU is not necessary for every element of
No change.
of breaches to competent authorities is an element the guidelines. Establishing whistleblower channels is a measure to
Section 10 out of their scope that should be eliminated. facilitate the supervision of banks and is therefore within the
scope of the EBA’s competences and is part of the task of
supervising institutions’ internal governance.
A few respondents question if the EBA is mandated to The EBA is mandated to provide guidance in the area of its
provide guidance on, for example, the independence competence. The requirements of Directive 2013/36/EU in the
Mandate to provide
of members of the management body, committee area of governance include only a few specific technical criteria
guidelines, rationale and No change.
structures, the audit committee or other aspects on that the EBA is to take into account when providing guidelines on
objective of the guidelines
which guidance was not explicitly required by Article 74(1) and (2) of this Directive. Article 74(1) sets out
Directive 2013/36/EU. principles to be further specified by the EBA; this further
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Amendments to
the proposals
specification includes the guidelines in the areas mentioned, which
fall under the mandate, as they concern institutions’ robust
governance arrangements and internal organisation.
In accordance with Article 16 of Regulation (EU) No 1093/2010,
the EBA can issue guidelines addressed to competent authorities
or financial institutions with a view to establishing consistent,
efficient and effective supervisory practices within the European
System of Financial Supervision, and to ensuring the common,
uniform and consistent application of Union law,
Responses to questions in Consultation Paper EBA/CP/2016/16
Background, The three lines of defence model should be better

paragraph 20; Section 12 explained and more guidance given on how it should
be applied.
Three lines of defence
model The text on the risk management function should
emphasise the importance of senior management and The text in the background section regarding the three lines of Par. The guidelines
business line managers in identifying and assessing defence model has been further clarified. The word ‘ensure’ have been
risks critically rather than relying only on surveillance stresses that the objective of the measures taken by the second amended in several
conducted by the risk management function. Par. In line of defence is to make certain of, for example, the compliance places to better
addition, ensuring compliance is primarily a task for of the institution with internal and external requirements. explain the three
the first line. lines of defence
model.
The word ‘ensure’, when tasks to be performed by the
second line are referred to, should be reviewed, as
this ‘ensuring’ is mainly a responsibility of the first
line, while the second line adds an additional layer of
control.
Subject, matter, scope
69
Amendments to
the proposals
and definitions
The guidelines add only a limited number of requirements to the

existing governance guidelines. However, to allow for legal
Some respondents ask for sufficient time to changes that might be needed and to align the timeline with that
Date of application No change.
implement the guidelines, at least one year. of the EBA guidelines on the assessment of the suitability of
members of the management body and key function holders, the
guidelines will enter into force on 30 June 2018.
Scope Several respondents suggest clarifying the application Article 109 of Directive 2013/36/EU requires that the governance
of the guidelines in groups. For this purpose, the requirements are applied on an individual basis, unless competent
following main suggestions are submitted: authorities make use of the derogation provided for in Article 7 of
• the application on a consolidated basis cannot result Regulation (EU) No 575/2013 or Article 21 of
in the same level of constraint than the application Directive 26/2013/EU. In addition, it requires that the
on an individual basis; requirements are applied on a consolidated or sub-consolidated
level to all subsidiaries. With regard to subsidiaries in the scope of
• more proportionality should be adopted, allowing
prudential consolidation that are not subject to the Directive, the
subsidiaries to benefit from exemptions or at least
parent undertaking must be required by the competent authority
lighter requirements;
to meet the obligations of Title 7, Chapter 2, Section II of
• fully owned subsidiaries should not have all the Sections 8 and 9
Directive 2013/36/EU on a consolidated or sub-consolidated basis.
same requirements to fulfil as heads of groups or amended and other
listed entities; Exceptions are possible only in line with the Directive and sections clarified.
• a general principle should be added to allow the Regulation. Neither the guidelines nor the principle of
possibility of relying on existing processes or rules proportionality can lead to the non-application of or exemptions
defined at group level; from explicit regulatory requirements.
• only entities subject to Directive 2013/36/EU
Institutions within the scope of consolidation may as far as
(CRD IV) should apply CRD IV rules on an
possible rely on or make use of the structures, processes and
individual basis. Entities not subject to CRD IV
documentation established and may adopt group policies or base
but which are parts of the consolidated
their policies on such group policies, e.g. where changes are
perimeter of an entity subject to CRD IV should
needed to comply with national law.
apply CRD IV rules only on a consolidated basis;
• some respondents suggest specifying that key The scope section explicitly refers to and is consistent with
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Amendments to
the proposals
function holders should be considered only at the Article 109 of Directive 2013/36/EU.
level of the parent company;
• some respondents also stress that clarification of
the application of the guidelines in groups would
avoid the duplication of documentation and
formalities within the group itself.
Question 1 With regard to cases where the ‘management body’ is
The responsibilities of the management body, including in its
mentioned without specifying whether in its
General comment management (executive) and supervisory (non-executive)
management or supervisory function, some
functions, differ depending on the governance structure and
respondents suggest clarifying that this means the
national company law. Further specification in the guidelines is
management body in its management function; others
often not possible, as the guidelines do not intend to interfere
suggest that the guidelines should expressly provide
with the responsibilities assigned under national company law. The
that national corporate law will determine if the
responsibility is to be assigned to the responsible function within
requirement will apply to the management body in its
the management body under national law. In some cases,
management or in its supervisory function.
responsibilities may even be with the shareholders or owners
Some respondents suggest more clearly defining, directly. Scope section
including in the definitions section, the notion of amended.
The definition of ‘management body’ in Article 3(7) of
‘management body’.
Directive 2013/36/EU indeed includes not only the body or bodies
With regard to its composition, it should be clarified appointed in accordance with national law but also the persons
that the management body must include not only the who effectively direct the business of the institution. The
board of directors but also the CEO, the members of the management body is therefore sometimes broader than the
executive committees, and the general manager or governance body or bodies under national law, and always
other senior managers, who will take responsibility for includes the persons who direct the business (e.g. the CEO, the
the executive management of the bank even if they are executive committee or similar staff) in cases where they are not
not part of the board. part of the governance body or bodies appointed by shareholders.
The guidelines have been clarified accordingly.
Question 1 Some respondents recommend introducing the concept The guidelines intentionally do not refer to ‘senior management’,
as the definition in Article 3(9) of the Directive is not sufficiently No change.
of senior management to the guidelines.
clear. The understanding of that concept differs between Member
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the proposals
States. The guidelines therefore introduce the concept of key
function holders to achieve a greater level of harmonisation.
Definitions Some respondents observe that the current guidelines The definitions have been aligned with those used by the BCBS.
include two definitions: risk appetite and risk capacity. The change of definitions has been explained in the background Background section
Risk appetite
The definitions differ and are narrower than the section. clarified.
definition in GL 44.
Some respondents deem that this definition
Definitions The definition of ‘staff’ covers the scope of application in
overextends the Level 1 scope. Respondents suggested
accordance with Article 109 of Directive 2013/36/EU. It has been
Staff deleting the reference to ‘including subsidiaries not
clarified that all subsidiaries within the scope of consolidation are
subject to Directive 2013/36/EU’.
included. Definition clarified.
Some respondents suggest clarifying if contractors are Where institutions contract tasks through a service provider, the
included. natural persons providing the service are not employees of the
institution.
Definitions Some respondents suggest that this definition should The CEO is a person directing the business. Referring to day-to-day
emphasise responsibility for day-to-day management, management would lead to confusion with the concept of senior
CEO
since the reference to steering of the overall business management defined within the Directive, which is implemented No change.
could be misinterpreted as meaning ‘being responsible differently in Member States.
for the institution’s strategy’.
Definitions Some respondents deem that the CFO should not be

included in the guidelines. The definition has been retained, in order to ensure that the CFO,
CFO Definition
if not part of the management body, is assessed as a key function
Other respondents propose deleting the reference to amended.
holder. The reference to risk has been deleted.
‘and risks’.
Definitions Some respondents suggest replacing this definition with The definition has been retained to be consistent with the
specific definitions of ‘chief compliance officer (CCO)’, guidelines on the assessment of the suitability of members of the
Head of internal control No change.
‘chief risk officer (CRO)’ and ‘chief audit executive management body and key function holders. The group
(CAE)’, and clarifying that these functions are to be application has been clarified (see above).
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Amendments to
the proposals
considered at group level only.
Article 16 of the EBA Regulation lays down the general

competence to issue guidelines with a view to establishing
consistent, efficient and effective supervisory practices within the
European System of Financial Supervision and ensuring the
common, uniform and consistent application of Union law.
However, the EBA may only issue guidelines within its scope of
action, which is defined in Article 1(2) and (3) of the EBA
Regulation. In accordance with Article 1(2), the limitation of power
is clearly marked: the EBA must act only within the scope of the
listed EU directives/regulations and of any further legally binding
Union act that confers tasks on the EBA. Directive 2013/36/EU is
one of the directives listed and internal governance is expressly
Definitions Some respondents complain about the lack of a legal covered in Article 74 of the CRD. Moreover, Article 74(3) of
basis in Article 91 of CRD IV for the guidelines setting Directive 2013/36/EU expressly mandates the EBA to issue
Mandate regarding key No change.
out requirements on key function holders and request guidelines on the governance arrangements, processes and
function holders their deletion. internal control mechanisms referred to in Article 74(1).
In addition, corporate governance is expressly mentioned in
Article 1(3) of the EBA Regulation among the matters on which the
EBA is allowed to act in the field of the activities of credit
institutions and investment firms.
Ensuring the suitability of key function holders of credit
institutions and their role in institutions is an essential part of the
internal governance arrangements for the prudent management of
an institution. Moreover, in accordance with Article 98(7) of the
CRD IV, such governance arrangements must be expressly included
in the review and evaluation to be conducted by competent
authorities.
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Amendments to
the proposals
Definitions Some respondents request the deletion of the reference Certain key functions are specifically named in the definition, while
to ‘other key function holders’. Others ask for it to be it is for the institution to determine who other key function No change.
Key function holders clarified to whom this definition might apply. holders are.
The definition of ‘significant institutions’ is used in several EBA

Some respondents deem it inopportune that the guidelines and consistent with Directive 2013/36/EU. Competent
Definitions guidelines provide a further definition of ‘significant authorities can also determine whether an institution is significant No change.
Significant institutions institutions’ and propose replacing this with a reference for their market.
to ‘systemically important institutions’.
Some respondents suggest better reconciling this The definition has been deleted and additional guidance has been
definition with the fact that members of the provided. Institutions should have a specific conflict of interest
management body always have to pursue the benefit of policy for staff. Staff includes the members of the management
the entity first, but typically also have to consider the body of the institution. The conflict of interest policy for staff deals
interests of all shareholders, employees and other with conflicts between the personal interests of staff and the
stakeholders. interest of the institution. Definition deleted
Definitions
Otherwise, it could lead to the unacceptable and Section 10.3
Conflict of interest Institutions should also manage other conflicts of interest, e.g.
consequence that shareholder representatives on the amended.
between different group entities, business lines or units, or
supervisory board would have to abstain from their between the institution and external stakeholders, including
voting right when decisions regarding the annual clients.
accounts and the possible dividends had to be made.
The purpose and application of a conflict of interest policy has
Some respondents suggest clarifying why the definition been clarified.
appears to exclude internal conflicts.
Some respondents recommend adding additional Definitions of ‘compliance risk’ and ‘conduct risk’, which are a
definitions for: ‘competent authorities’, ‘chief risk subset of operational risks, are not needed in the guidelines.
Proposed additional officer (CRO)’, ‘conduct risk’ (in line with The chief risk officer in the guidelines is the head of the No change.
definitions EBA/GL/2014/13), ‘compliance risk’ (in line with GL 44) independent risk management function.
and the ‘three lines of defence’ (in line with BCBS
principles). As neither the term ‘CRO’ nor the term ‘three lines of defence’ is
used in the guidelines, definitions are not needed. The three lines
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Amendments to
the proposals
of defence model is explained in the background section.
Paragraph 17 Some respondents observe that this provision is in

conflict with national law in countries where different
governance structures are applied (e.g. there is only one
management body responsible for functions that the
guidelines distribute between the management function
and the supervision function). The paragraph has been amended so that it can be applied to all
different governance structures. Further specification of the
Other respondents ask that the responsibilities of the Guidelines
responsibilities of the different functions beyond what is already
management body, distributed between the amended.
included in the guidelines is not necessary and could conflict with
‘supervisory function’ and the ‘management function’, national company law.
be better expressed, ensuring that the supervision tasks
include the task of strategic direction and the approval
of main transactions, as well as the task of monitoring
and controlling the management body performing its
management function.
Paragraph 19 Some respondents suggest also mentioning the board’s

responsibility for setting the general principles for the
Responsibilities of the See comment on paragraph 17. No change.
development of human resources (i.e. talent
management body
management, succession planning, etc.).
Question 2 Some respondents deem not only that this requirement

is hard to reconcile with the purpose of the law but also
Paragraph 19(h)
that the inclusion of the minutes of the discussion could
The committees give advice and recommendations to the
ultimately prevent or hamper discussion between the Paragraph 19(h)
supervisory function and support it. The comment has been
members of the management body. Therefore, it is amended.
accommodated and the text has been clarified.
suggested that the guidelines simply require the
decision taken to be documented without specifying any
further obligation.
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the proposals
Paragraph 19(j) Some respondents suggest exempting very small and

non-complex institutions from adopting a code of All institutions should have a code of conduct or similar. Setting an
conduct. appropriate culture is a core principle of robust governance Section 10.2
Some respondents suggest clarifying that institutions arrangements. Institutions may adopt and implement group clarified.
may rely on a group-wide or sector-wide code of policies or common policies, e.g. provided by associations.
conduct.
Paragraph 20 Some respondents suggest that the term

‘communications’ be explained and narrowed in scope, Paragraph 20
The comment has been accommodated.
assuming that it means external communications amended.
(particularly investor relations, business reporting).
Paragraph 23 Some respondents observe that supervision seems to be

entrusted to non-executive members only, with no
Supervisory function of
chance for the executive members of the management
the management board The guidelines have been altered so that they can be applied to all
body to take part in it. Responsibility for strategic
governance bodies.
supervision is with the board as a whole and not with
individual non-executive members. The supervisory function may, where the national company law
allows, include executive and non-executive members. Its main
Some other respondents suggest that the management
focus is oversight tasks.
body in its supervisory function should not be
understood in all cases as a mere monitoring and The oversight role of the supervisory function includes overseeing Paragraph 23
overseeing body. The focus on board monitoring should the management function, the achievements of objectives, amended.
be balanced by a correspondent emphasis on the challenging the institution’s strategy, monitoring and scrutinising
strategic function of the board, consisting in developing the integrity of financial information and reporting, and the
the organisation and its strategy. It is suggested that the internal control framework, including effective and sound risk
guidelines be more balanced on this topic. management.
Some respondents suggest amending the reference to
the fact that ‘the management body in its supervisory
function should also ensure the integrity of the financial
information and reporting, and internal control
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Amendments to
the proposals
framework, including effective and sound risk
management’ in order to make it applicable also to
institutions belonging to Member States where national
corporate law does not confer such tasks on the
management body in its supervisory function.
Therefore, the following amendment is proposed: ‘the
management body in its supervisory function should
also submit recommendations or proposals to ensure
the integrity of financial information and reporting, and
the internal control framework, including effective and
sound risk management’.
Question 3 Some respondents suggest the following drafting The issue is dealt with in the EBA guidelines on the assessment of
amendment: ‘a) have suitable members who do not the suitability of members of the management body and key
Paragraph 24(a) perform any executive function in the institution and function holders. All members of the management body
are collectively able to fully understand and oversee the individually and the management body collectively must be Subparagraph
risk strategy and the risk appetite of the institution;’. suitable. deleted.
Other respondents suggest that the board should have While in most cases institutions have more non-executive
‘a majority of suitable members who do not perform directors than executive directors, it was not seen as necessary to
any executive function in the institution’. issue guidelines on this fact.
Paragraph 24(e) In some jurisdictions, the management body in its

The guidelines focus on the oversight role of the supervisory
supervisory function may have to not only ‘oversee and Paragraph 24
function, which under national law may have additional
monitor the strategic objectives’ but also decide on the amended.
responsibilities. This has been clarified.
strategy.
Paragraph 24(g) Some respondents suggest amending this paragraph in In line with Article 76 of Directive 2013/36/EU, it must be possible
order to make it applicable also to institutions adopting for the risk management function to report directly to the
Paragraph 24(g)
a governance structure under which the relevant supervisory function.
amended.
national corporate law does not allow or permit direct All control functions should be able todirectly access to the
reporting of the internal control functions to the management body in its supervisory function, so that, where
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Amendments to
the proposals
management body in its supervisory function. necessary, they can warn that function about adverse
developments. The wording has been clarified.
Paragraph 24(i) Some respondents deem that this should be the

responsibility of the audit committee rather than of the While the main tasks will be performed by the audit committee,
whole board, while the board should receive a regular where established, the final responsibility for the audit plan is with No change.
report from the internal audit function through the the management body.
audit committee on significant audit findings.
Paragraph 29 Some respondents suggest amending this paragraph in Paragraph 29

order to make it applicable also to two-tier systems. amended.
Section 3 The EBA guidelines require, in line with the BCBS principles, that
the chair is independent or a non-executive-member. In addition,
Role of the chair of the Some respondents comment that the chair of the
Directive 2013/36/EU and the guidelines allow, in exceptional
management body management body should be both independent and a
cases with the approval of the competent authority, that the chair
non-executive member.
can be the same person as the CEO.
Some respondents suggest clarifying if the guidance on
The chair is, in line with Article 88 of the Directive, the chair of the
the chair is applicable to the management body in its No change.
supervisory function. In a unitary board system, the differentiation
management or supervisory function (or both).
suggested is not possible. When reading the guidelines, applicable
Some respondents suggest that the guidelines should company law has to be taken into account.
put greater emphasis on the relevance of the personal
The assessment of the chair’s skills is part of the assessment of his
attitudes of the chair.
or her suitability, which needs to take into account the position of
a member of the management body.
Question 3 Some respondents highlight that the guidelines do not Institutions, including institutions where a member of the
duly take into account the circumstance that some management body represents the Member State, have to comply
General comments Section on the
national corporate laws provide specific rules on the with all legislative requirements. While there may be limitations
management body
composition of certain corporate bodies (e.g. the on the possibility of influencing the composition of the
revised.
management board in its supervisory function of management body, its proper functioning must still be ensured.
public/cooperative banks is elected by the local
The requirement that at least two persons must effectively direct
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parliament). This limits the possibility of influencing the the business is already clearly encoded in Article 13 of
composition of the management body. Directive 2013/36/EU. Therefore, no further clarification is
needed.
Some respondents suggest clarifying that, in compliance
with national corporate laws, collegiality in the The management body, while being responsible, for example, for
management function can also be limited to two people the implementation of the institution’s strategies, may of course
(CEO, deputy CEO). rely on other staff for the tasks necessary to, for instance,
implement policies.
Some respondents point out that the responsibilities of
the management body sometimes seem to include tasks
that are too operational.
Section 5 Some respondents observe that the requirement to

create different specialised committees composed of
Specialised committees
independent members and having independent
of the management Significant institutions are required to form risk, nomination and
members as chairs would lead to very large boards,
body in its supervisory remuneration committees. Other institutions may also form such
which might reduce the efficiency of the management
function committees but are not obliged to do so. The principle of
body.
proportionality applies.
Some respondents deem that the requirements on the
different committees are too detailed and ask for a The section has been revised to distinguish between the situation
more flexible approach. of G-SIIs, O-SIIs, other significant institutions, designated by
Section 5 revised.
competent authorities or national law and the situation of other
Some respondents observe that some national institutions. In addition, the independence criteria have been
corporate laws do not allow the issues to be dealt with reviewed and it has been clarified that meeting a criterion results
by the specialised committees (compliance, risk in a refutable presumption that the member is not independent.
management, internal control, reporting) to be
delegated by the board; consequently, such issues Committees act under the overall responsibility of the
remain competences of the board. management body.
Some respondents suggest that Section 5.2 should not

apply to non-significant institutions.
Paragraph 32 Some respondents suggest further clarifying how No change.

It is for the institution to ensure that the composition of the
specifically it can be ensured that the board’s decision-
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making process is not dominated by a member or a management body is appropriate.
small set of members.
Some respondents suggest redrafting the guidance on
Paragraph 33
information flow to the supervisory function in order to
specify that generally information should be provided in Paragraph 33
the normal course of business without undue delay. amended.
Only information regarding material developments
should be provided without delay.
Some respondents highlight that this paragraph seems
Paragraph 34
only to allow committees to provide advice to the
management body without granting them any authority The guidelines have been clarified. Decision-making powers may Paragraph 34
to assume decisions. Therefore, they suggest that ‘and be delegated to committees if allowed under national law. amended.
to prepare the decisions to be taken by this body’ be
deleted.
Paragraph 37 Some respondents do not fully agree on requiring that
committees should not be composed mostly of the
same group of members; the main reasons are that:
- It is not practical, especially for smaller institutions Some cross-participation of members is allowed and ensures a
and group entities. sufficient information flow. The guidelines have been revised to
allow a more practical approach to the composition of Section 5.2
- Remuneration and nomination committees in
committees. amended.
particular often deal with overlapping issues. The
same goes for audit and risk committees. See also comments on Section 5.
- Sufficient flow of information and the proper
performance of supervisory body functions can be
ensured only if composition of committees by the
same group of members is allowed.
Paragraph 42 Some respondents suggest deleting any requirement for In line with Directive 2013/36/EU and other international
committees to be made up exclusively of non-executive standards, the nomination and risk committees should be
Non-executives No change.
directors. composed of non-executive directors. Committees may invite
members of the
other staff, where needed, to their meetings.
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committees
Paragraph 42 Some respondents observe that CRD IV requires only

that committee members are non-executives; no
Independent members
independence requirements are set. Therefore, they
on the specialised
deem that the guidelines do not have a legal basis.
committees The EBA has the legal power to issue guidelines in the area of its
Regarding the notion of independence: competence, including on institutions’ governance arrangements.
- Some respondents suggest deleting it or, otherwise, Independence of mind is required of all members of the
suggest that it should refer only to independence of management body. ‘Being independent’ goes beyond this
mind. If it goes beyond independence of mind, it requirement.
will cause problems for cooperative banks, for
See also the feedback on the EBA guidelines on the assessment of
instance, since the applicable national law
the suitability of members of the management body and key
stipulates that every supervisory board member
function holders regarding ‘independent directors’.
usually has to be a member of the cooperative as
well. Having at least some independent members of the management Section amended
- Some respondents propose introducing a specific body in its supervisory function is required for all significant
notion of independence applicable to fully owned institutions and listed institutions, including subsidiaries, ensuring
subsidiaries in order to have no separation of that the interests of all stakeholders are taken into account. Other
liability and control. institutions should have at least one idependent director, unless
- Some respondents suggest that the independence they are fully owned subsidiaries within a group.The necessary
criteria be left to national law or soft law and harmonisation of criteria to assess the independence of a member
deleted from the guidelines. is not possible in the absence of requirements at the European
Union level.
Regarding the number of independent shareholders in
See comments on Section 5.
the specialised committees:
- Some respondents require the guidelines to further
explain why independent members should be the
majority of the risk committee but should be just a
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sufficient number in the other specialised
committees.
- Some respondents suggest clarifying that an
appropriate number of independent members is
required only if the institution is required to
establish committees.
- Some respondents ask for the meaning of
‘sufficient’ to be clarified.
In order to ensure more flexibility, some respondents

suggest adding the following: ‘Where the member is not
considered independent, the institutions can prove the
independence of a member and/or decide on measures
to mitigate possible conflicts of interest so that the
member is independent afterwards. For example, the
member should abstain from voting on any matter
where a conflict of interest exists. This process and
decisions should be documented.’
Paragraph 43 Some of the respondents do not agree on requiring
appropriate ‘professional’ experience of the members of
the risk and nomination committees, deeming that the
adjective ‘professional’ suggests that all members must
be able to look back on a career as a risk manager. This
requirement does not match those of Article 76(3) of The comments have been accommodated. However, committees
Paragraph 43
CRD IV. That provision does not require any experience need to be composed in such a way that they have the collective
amended.
at all, but only knowledge, skills and expertise. knowledge and skills to perform their tasks.
Some respondents observe that requiring members of
the committees to have such knowledge, skills and
experience both individually and collectively would be
particularly challenging in a two-tier system, where a
very different set of individuals performs the
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supervisory function.
Paragraph 44 Some respondents do not agree with requiring each The guidelines have been revised to better take into account the
chair of a committee to be independent, for the principle of proportionality and to differentiate between G-SIIs,
following main reasons: O-SIIs, other significant institutions and other institutions.
Independent members of the management body in its
- Some deem that this requirement goes far beyond
management function should always have an active role in
BCBS principles on corporate governance. The
committees.
principle of proportionality has to be applied, as
the BCBS principles are generally applied to G-SIIs. In G-SIIs and O-SIIs, the nomination committee should include a
- Some highlight the impact that this requirement majority of members who are independent and should be chaired
would have on group structures: it would mean by an independent member. In other isignificant nstitutions, the
that, for example, the CFO of an industrial nomination committee should include a sufficient number of
enterprise that is the parent company of a credit members who are independent; having a chair of the nomination
institution would no longer be able to chair the committee who is independent is considered a good practice in all
risk committee or audit committee, which would significant institutions that have set up such a committee. Section 5.2.
weaken the position of the shareholder. revised.
In G-SIIs and O-SIIs, the risk committee should include a majority
- some deem it sufficient to provide that the chair
of members who are independent. In other significant institutions,
must be a non-executive member.
the risk committee should include a sufficient number of members
who are independent. In G-SIIs and O-SIIs, the chair of the risk
Some respondents deem that, especially for the
committee should be an independent, non-executive member. In
nomination committee, it should be sufficient that the
other significant institutions, the risk committee should be chaired,
chair be a non-executive director. Having an
where possible, by an independent, non-executive member. In all
independent, non-executive chair could be considered
institutions the chair of the risk committee should be neither the
appropriate for the audit committee.
chair of the management body nor the chair of any other
Some respondents are of the view that the prohibition committee.
on a dual chair applicable to all the committees, and the
The management body and its committees need to take into
proposed rotation requirement, would aggravate the
account the interests of all stakeholders and not only of the
problem of complying with all the existing requirements
shareholders.
for the constitution of specialised committees.
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Paragraph 45 Under Directive 2014/56/EU amending

Directive 2006/43/EC on statutory audits of annual
Audit committee
accounts and consolidated accounts, the audit The comment has been accommodated. The guidelines refer to Paragraph 45
committee can be exempted from the independence the audit directive. amended.
requirements if all members of the audit committee are
members of the supervisory body.
Section 5.3 Some respondents deem that this paragraph may not be
applicable to subsidiaries fully integrated in a group and
Committees’ processes The guidelines do not prevent committees from implementing the
suggest that it should be specified that, in such entities, No change.
processes defined by a parent institution.
Paragraph 46 the committees can rely on the existing processes of
their parent company.
Paragraph 46(a)-(b) The requirement on access to information by the audit

The requirement for access to relevant information and data does
function should be clarified to make clear that it does
not mean that it is necessary to give committees unlimited access
not mean that the audit function should have direct Paragraph 46
to all IT systems at all times. However, committees need to be able
access to IT systems, which might contradict data amended.
to acquire all the information that is necessary to perform their
protection requirements. More guidance is needed on
duties.
which data are relevant (paragraph 46(a)).
Paragraph 46(d) Committees, where necessary, should involve other relevant

Some respondents observe that this paragraph cannot Paragraph 46
functions. This per se is not limited by the governance structure
be applied in certain governance structures. amended.
adopted. The wording has been clarified.
Section 5.4 Some respondents suggest that the specific tasks of the
committee may differ depending on national company
Role of the risk The risk committee should at least be responsible for the tasks set
law.
committee out in the guidelines. National law may assign additional duties. Section 5.4.
Some observe that certain roles of the risk committee The language has been clarified and adjusted to suit all governance amended.
are not applicable to a two-tier structure, where the systems.
supervisory board does not set the risk appetite,
strategy or corporate culture (see subparagraphs (a) and
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(d)).
Paragraph 47(e)
Some respondents do not agree with this role, deeming
that each corporate body should be entitled to appoint
its own consultants. Others deem that the role of the
Paragraph 47(e)
risk committee should rather be limited to providing The comments have been accommodated.
amended.
advice or support and that the committee should only
receive regular information on the appointed external
consultants.
Paragraph 47(g) Some respondents deem that this is an operational task

of the management body that does not concern the
supervisory body in two-tier governance structures. The
risk committee’s job should be overseeing but not
executing. The word ‘examine’ should therefore be
replaced by ‘oversee’. The wording of the guidelines has been adjusted to stress the
Some respondents suggest that ‘all’ should be removed oversight role of the risk committee. The oversight should focus on
from ‘financial products’ and to limit the requirement to material financial products and services.
Paragraph 47(g)
material products in order to make the requirement The committee bases its assessments on reports received by the amended.
practical. internal control functions directly or indirectly, but should form its
A detailed review of all financial products by the risk own view on the risks that are associated with the products and
committee would be too time-consuming. The risk services provided.
committee should not have to examine the alignment
between all financial products and services offered to
clients and the business model and risk strategy of the
institution, but should only receive, on an annual basis,
a report on such alignment covering significant risks.
Section 5.5 Some respondents highlight that, pursuant to a Where a different board is mandated with the tasks under No change.
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Audit committee governance model provided by their national legal company law, the guidelines on the audit committee should be
framework (Italy), these tasks and responsibilities interpreted as applying to that board.
belong to a specific corporate body other than the
management board, namely the board of statutory
auditors. Therefore, this paragraph cannot be applied to
institutions adopting this governance model.
Paragraph 50(c)
Some respondents deem it more appropriate that the
Paragraph 50
committee make recommendations to the board to The comment has been accommodated.
amended.
ensure the adequacy of the financial reporting process.
Paragraph 50(h) A few respondents ask for clarification of the term The comment has been accommodated. Paragraph 50
‘review’. amended.
Paragraph 51 Some respondents ask why non-significant institutions

A listed institution would be required to have an audit committee
need the permission of the competent authorities to
Combined committees under the Audit Directive. Article 76(3) of Directive 2013/36/EU No change.
combine risk and audit committees, if they are not
envisages that the approval of the competent authority is needed.
required to form these committees.
Section 6 Some respondents state that ensuring an appropriate

The substance of the requirements has not changed from the
organisational and operational structure is primarily the
Organisational previous guidelines. The management body includes the persons
responsibility of the management.
framework and who direct the institution. Paragraph 57 of the ‘Know your
structure Some respondents observe that this section creates a structure’ section has not changed from the previous guidelines.
heavy burden on institutions and suggest easing the
The application of policies in a group context has been clarified. Paragraph 56
requirements within paragraphs 56 and 57 by limiting
Subsidiaries or affiliated institutions should adopt and implement amended.
the requirements to the material changes and the main
group policies and make use of available documentation, but they
organisational features. The adoption of a written
need to meet the requirements on an individual level, unless a
organisational framework should be done at the level of
waiver is granted by the competent authority under Article 21 of
the central body and not be required at the level of the
Directive 2013/36/EU or Article 7 of Regulation (EU)
regional or local cooperative banks affiliated to such a
No 575/2013/EU.
central body.
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Paragraph 60 Some respondents deem that this paragraph introduces There is no change from the previous guidelines other than the
excessively burdensome obligations on the requirement that the institution needs to be able to provide
management body of the consolidating institution. They information in a timely manner, which is not considered to be
observe that this approach might induce top executives burdensome, as an institution’s structure needs in any case to be
to micromanagement, and ultimately result in a documented. The provision ensures that the group’s capital, No change.
departure from the risk-based approach, a loss of focus liquidity and risks are managed in a holistic way. The requirement
on critical issues, and counterproductive effects. is fully consistent with Article 109 of Directive 2013/36/EU, which
requires the application of governance requirements also on a
consolidated basis.
Paragraph 61 Some respondents deem that this is an obligation that is

difficult to comply with. Under some national laws, The comment has been accommodated. Institutions should
Reporting obligations
restrictions might apply to the disclosure of information document information on their objectives, strategies and risk
within groups
to third parties (including consolidated supervisory profiles on individual and consolidated levels and keep this
authorities). These cases should be duly mentioned in information up to date. Paragraph 61
the guidelines. amended.
Although the reference to competent authorities has been
Additionally, the requirement to document any flow of deleted, it should be remembered that institutions are subject to
significant information between entities and to make it supervision and that in this context competent authorities will
available to competent authorities is deemed request the necessary documentation from institutions.
unnecessary.
Section 6.3 Some respondents find that the guidelines are quite
vague in this section, which may lead to differences in The guidelines in this section set out clear principles. It is not
Complex structures and
implementation and a non-level playing field in terms of possible to describe each and every case of potential complex
non-standard or non-
protection against non-transparent activities. structures or non-transparent activities.
transparent activities
Some respondents, in order to clarify the obligations on Institutions also have obligations to prevent, for example, money No change.
institutions, suggest providing – in line with the OECD, laundering or financing of terrorism conducted by clients. Hence
the EU Common Reporting Standard and the EU Mutual the guidelines cannot be limited to the institutions’ own structures
Assistance Directive – that, where accounts are held by but need also to cover structures set up by institutions for clients.
legal entities, the legal entity has to issue a so-called
‘self-certification’ stating whether it is an active or
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passive entity and, if it is a passive entity, to additionally
indicate the persons controlling it.
Some respondents observe that this section addresses
both the issue of complexity in an institution’s own
organisational structure and the complexity issues
related to client activities.
Paragraph 67(b)
Fulfilling the obligation to report to the competent The guidelines require reporting on the activities and risks of such
authority might not always be feasible due to data structures. The protection of personal data is not affected by the No change.
protection and/or tax secrecy issues. provision.
Title II
Internal governance
policy, risk culture and
business conduct
Question 4 Respondents consider that the management body in its

supervisory function could be overloaded with tasks
Section 7; paragraph 70
that are of an executive nature and not be able to
Reference to Annex I efficiently ensure its supervisory mission.
and requirement to The guidelines have been clarified regarding the creation and
Some respondents point to the fact that there can be
have a written adoption of group policies by subsidiaries. Institutions should
benefits to having one central document for the group,
governance policy document their governance arrangements and policies. Annex I
which avoids discrepancies and reduces the
lists all those arrangements and policies. It has been clarified that Section 7 deleted.
administrative burden.
the documentation can be spread over different documents, but
Referring to Annex I, some respondents comment that that a central document should be available that points to such
they are concerned that it is too broad; others comment existing documentation.
that Annex I includes an exhaustive list of aspects to be
considered in the internal government policy. However,
there should not be a requirement to have a single
document approved by the management body.
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Question 4 The guidelines on the organisational framework and internal

Respondents consider that this paragraph is inconsistent control framework have been clarified. Section 7 has been
Section 7, paragraph 72
in stating that it is the sole responsibility of the integrated into those provisions. Institutions are required to
compliance function to ‘analyse how the internal document their governance arrangements and policies. This can be
done in separate documents and existing policies can be referred Guidelines clarified
governance policy affects the institution’s compliance
to. and restructured.
with legislation, regulations and internal policies and
should report all identified compliance risks and issues Ensuring compliance is not the sole responsibility of the second
of non-compliance to the management body’. line of defence. The responsibilities of the control functions are set
out in a specific section of the guidelines.
Paragraph 73 One respondent deems the periodic review of the

Guidelines clarified
governance policy by the supervisory board to be too See comments on paragraph 72.
and restructured.
prescriptive. This provision should therefore be deleted.
Question 4 (Mixed) financial holding companies should be included The guidelines have been better aligned with the wording of
in the scope; according to Article 109 of CRD IV, parent Article 109 of Directive 2013/36/EU. The governance requirements
Section 8; paragraph 75
undertakings and subsidiaries are obliged to fulfil apply also on a consolidated basis, which includes also firms that
governance requirements at group level. Paragraph 75
are not subject to the Directive on an individual basis. Holding
amended.
Some respondents point out that subsidiaries outside companies are not directly subject to the requirements but need
the scope of CRD IV seem to be wrongly covered by the to ensure that the requirements of the Directive are complied
scope. with.
Question 4 The use of the terms ‘policy’ and ‘framework’ should be

The comment has been accommodated. Section 8 amended.
Section 8 aligned and the difference between the two explained.
Question 4 National legal requirements should obviously be taken The comment has been accommodated. However, in line with
into account at the national level but are clearly not Article 109 of Directive 2013/36/EU, the parent undertaking and
Paragraph 77
manageable directly by the parent company and subsidiaries have an obligation to ensure that the subsidiaries Section 8 revised.
therefore should not systematically be taken into comply with the governance requirements. Subsidiaries, when
account in a group-wide policy. adopting group policies, should make the changes necessary to
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comply with national law.
Section 8; paragraphs 78 Paragraph 78 provides an application to subsidiaries

and 79 established in third countries. This entails a competitive The guidelines follow the requirements of Article 109 of
No change.
disadvantage compared with local entities, which may Directive 2013/36/EU.
be subject to less restrictive local regulations.
Section 8; It is not clear what ‘outside the institution’ means in this

paragraph 84(a) context. ‘Staff should act in accordance with all
It has been clarified that there should be an information channel Paragraph 84
applicable laws and regulations and promptly escalate
to the competent authority. amended.
observed noncompliance within or outside the
institution.’
Section 8; The requirement for all staff to know and understand Paragraph 84
paragraph 84(b) the risk capacity is deemed to be too far reaching. amended.
Section 9; paragraph 85 Respondents state that the implementation of ethical

standards for external service providers lies beyond the
power of the institutions.
Institutions may rely on group-wide policies or codes of conduct
Some respondents suggest applying the principle of
issued by other competent entities. The existence of a code of Paragraph 85
proportionality, thus exempting very small and non-
conduct should be taken into account in the procurement of amended.
complex institutions from adopting a code of conduct.
service providers.
Some respondents suggest clarifying that institutions
may rely on a group-wide or sector-wide code of
conduct.
Section 9; Several respondents ask for the wording of

paragraphs 85-87(c) paragraph 87(c) to be changed because they think that
The comments have been accommodated; examples of such Paragraph 87(c)
defining a catalogue of acceptable and unacceptable
behaviour are sufficient. amended.
behaviour is neither realistic nor necessary and argue
that not all situations can be defined in advance.
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Section 9; paragraphs 88 Several respondents point out that it is not clear what
and 89 the relationship between these two paragraphs is.
One respondent suggests that it is sufficient to send
reports on deviations to the management body and to The guidelines have been clarified. It is for the institution to define
send on an annual basis a report on how the which function is in charge of monitoring compliance with the
Paragraph 88
implementation of and compliance with ethical and code of conduct. Periodic reporting has been retained; the
amended.
professional standards are ensured. guidelines allow for a sufficient level of flexibility for the
appropriate reporting framework to be defined internally.
The responsibility to review implementation and
compliance should be allocated to the institution itself.
One respondent suggests that such a review should be
done by the compliance function.
Section 9; paragraph 92 The section has been clarified and deals now only with the conflict
The provision contradicts the definition that conflicts of between private interests and the institution’s interest.
interest are conflicts between the private interest of a
person and the interest of the institution. However, with regard to tasks within the institution that are
incompatible or where conflicting interests of different business Section 9.3 revised.
National laws may have specific requirements on units exist, the institution has to implement appropriate
conflict of interest policies. arrangements (e.g. segregation of duties regarding conducting
business and control). This has been clarified in the section on the
internal control framework.
Question 4 One respondent is concerned about the requirement for

binding consultative advice from independent members
Paragraph 94(f)
of the management body, as this is in conflict with The guidelines provide examples of measures that can be used to
national company law. manage conflicts of interest. Where the examples provided are in
No change.
Furthermore, requiring shareholder approval for most conflict with applicable law or where they are not practical, other
important transactions is in conflict with some company measures have to be taken.
law; in addition, the role of statutory auditors has to be
clarified in this context.
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Section 9; paragraph 95 Respondents suggest that the requirement to mitigate

It is for the institutions to assess the materiality of conflicts of
or remedy any conflict of interest should be limited to Section 9.3 revised.
interest.
material conflicts of interest.
Section 9; paragraph 97 Two respondents think that reporting breaches outside

Paragraph 97
regular reporting lines should not prevent staff from The comment has been accommodated.
amended.
reporting to their managers.
Question 4 If the case should justify measures being taken against

persons, such persons should still be protected against Paragraph 101
Paragraph 101 The comment has been accommodated.
unjustified negative effects and should be protected by amended.
relevant confidentiality rules.
Section 9; The management body is a collegial body; making one

The comment has been accommodated. While the body is Paragraph 103
paragraph 103 member responsible is contrary to the principle of
collegial, it is possible to assign certain tasks to one member. amended.
collegiality.
Section 10; Reporting of breaches to competent authorities should

The guidelines also deal with the supervision of institutions’
paragraph 104 not be required, as it is not an element of internal Paragraph clarified.
governance arrangements.
governance.
Question 4 If all employees are invited to report possible breaches

See also Article 71 of Directive 2013/36/EU. Having in place not
of laws and regulations to the authorities, the
Section 10 only internal but also external whistleblowing channels is an
authorities might end up receiving a large amount of
effective tool to improve institutions’ governance and to detect
information of varying value and quality. Reporting by No change.
material breaches of applicable laws. Reporting outside of the
individual employees could create unnecessary
institution may in some cases lead to better protection of the
confusion and work both for the authorities and for the
whistleblower.
board.
Section 11; Some respondents suggest replacing ‘e.g.’ with ‘i.e.’, Paragraph 109
paragraph 109 because the example in brackets is the only situation The comment has been accommodated.
amended.
that could be considered outsourcing from a legal point
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of view.
Title III
Proportionality
Several respondents suggest that the provisions on
Question 5 The title was moved and is now Title I. All EU legislation and
proportionality should be moved to the beginning of the Guidelines
guidelines are subject to the principle of proportionality; hence the
Proportionality guidelines in order to clarify that they apply to the restructured.
change is only presentational.
guidelines as a whole.
Question 5 It should be clarified that the list of proportionality The assessment of proportionality always requires a case-by-case
criteria is not binding and whether it is cumulative. assessment of several aspects that are relevant for the specific Paragraph 112
Paragraph 112
institution. It has been clarified that additional criteria may be amended.
taken into account.
Title IV
Internal control
framework
Question 6 Clarification regarding the relationship between the

Business continuity management and bank recovery and
required recovery plans under the Bank Recovery and
General comment resolution are unrelated topics. Business continuity aims to ensure
Resolution Directive and the contingency and recovery No change.
the continuity of business in the case of disruption (e.g. following
plans required by guidelines would have been very
external events, natural catastrophes or IT failures).
useful.
Question 6 It is suggested that ‘strong’ be deleted in both the first

and second sentences because it is an indeterminate
Section 12;
legal concept.
paragraph 113 Paragraph 113
The comments have been accommodated.
The delineation between the three lines of defence is amended.
not clear.
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Paragraph 116 Some respondents point out that it should be possible

to develop the governance framework within the group; Paragraph 116
The application of standards within a group has been clarified.
the individual institutions would simply adhere to the amended.
group standard.
Paragraph 119 It is not clear which function is responsible. This could

Paragraph 119
be clarified by adding ‘in their respective area of The comment has been accommodated.
amended.
responsibility’.
Question 6 One respondent points out that the guidelines allow the
head of internal control functions to be subordinate to a
Section 12;
senior executive who is not responsible for managing The guidelines have been amended so that they can be applied to
paragraph 122
the activities monitored by the internal control area. all governance structures. It is obvious that the control functions
CRD IV envisages that the head of risk will report have regular reporting lines to the management body in its
directly to the management board in its supervisory management function.
function.
The heads of control functions should have direct access to the
Paragraph 122
For others, it is not compatible with national corporate supervisory function and report to it when necessary, e.g. to warn
amended.
laws in accordance with which the supervisory body is it about adverse developments.
responsibly ‘only’ for overseeing the management body
In order to ensure that the control functions are independent, they
and not for overseeing the levels below the
cannot be subordinate to senior executives who are also
management body.
responsible for managing business areas that are controlled by
It should be clarified that the heads of internal control those functions.
functions have to report directly to the CEO, although
they should have direct access to the board of directors.
Paragraph 123 According to Article 76 of Directive 2013/36/EU, the risk

Direct reporting lines from the heads of the internal management function must be able, where necessary, to have
audit and risk management functions to the supervisory direct access to the supervisory function. The same should apply to No change.
board are not in line with national company laws. the compliance and audit functions so as to ensure, where
necessary, their independent reporting on issues to the
supervisory function or the audit committee, e.g. regarding issues
94
Amendments to
the proposals
that pose material risks.
Section 12; Paragraph 124 goes beyond CRD IV (Article 76(5)), under It is appropriate to ensure the same level of protection of the
paragraph 124 which only the removal of the head of risk management heads of internal control functions to ensure their independence,
is subject to approval by the management body in its as is provided for in the Directive with respect to the head of risk
supervisory function. management.
In some cases, institutions do not have a head of the If there is not a head of compliance, the guidelines apply to the
No change.
internal compliance function; rather, the responsibilities person who leads the compliance function in parallel with his or
are distributed among several functions. her other function (e.g. head of legal).
There are also concerns about the information to be The information to be provided to the competent authority aims
given to competent authorities about the removal of a to ensure compliance with the requirements. However, the
head of an internal control function. notification needs to respect applicable data protection laws.
Section 12; The guidelines apply to all governance structures. The CEO is a
paragraph 125(c) Some respondents affirm that in practice the person directing the business and therefore falls under the
supervisory authorities often require that the internal definition of ‘management body’. The control functions may
control functions should be subordinate to the CEO, so report directly to the CEO. The independence of control functions
it is recommended that this section be clarified. is a key feature that ensures that they can act effectively. Internal No change.
control functions should be able to report directly to the
Some respondents suggest that the guidelines should management body and the heads of control functions should have,
not attempt to give a definition of ‘independent’. where necessary, direct access to the management body in its
supervisory function.
Paragraph 126 One respondent is strongly opposed to combining the Both functions form the second line of defence; therefore, the
risk management and compliance functions because of combination of those functions might be possible in some cases, No change.
possible conflicts of interest. taking into account the principle of proportionality.
Question 6 If an institution outsources the operational tasks of the The management body has overall responsibility for the
internal control function, the institution should not have institution’s activities both outsourced and not outsourced, within No change.
Paragraph 128
to maintain responsibility for this function within the the group and outside the group.
institution; rather, it should be able to verify and ensure
95
Amendments to
the proposals
that the outsourced activities are properly managed.
One respondent suggests that a distinction should be
drawn between intragroup outsourcing and outsourcing
to third parties.
Question 6 In paragraph 129, the concepts of internal control

Paragraph 129
functions and institutions are confused. The paragraph The comment has been accommodated.
Paragraph 129 amended.
should be rewritten.
Question 6 Paragraph 130

Paragraphs 130 and 132 seem to regulate the same amended,
Paragraphs 130 and 132 The comment has been accommodated.
issues and should be merged. paragraph 132
deleted.
Question 6 The EBA should elaborate on which function in the

Paragraph 134
institution should conduct the independent internal The review is typically conducted by the internal audit function.
Paragraph 134 amended.
review of the risk management framework.
Question 6 It would be desirable if all the requirements regarding

The guidelines specify the tasks of the functions within this
the new product process could be included in the same
process, while Section 14 outlines the core procedural elements. No change.
section; see, for example, paragraphs 158-160 regarding
The separation avoids redundancy within the guidelines.
risk and paragraph 181 regarding compliance.
Paragraph 141 It is considered that it creates too much of an

administrative burden to require the approval of the
Paragraph 141
management body to be sought with regard to not only The comment has been accommodated
amended.
the risk management framework but every individual
detail of and change to it.
Section 14; The section should better differentiate between new It has been clarified what material changes are and that the
Section amended.
paragraph 143 product approval and the process for material changes. management body is responsible for approving the policy.
96
Amendments to
the proposals
Some respondents point out that the paragraph implies
that the management body should assess separate
products, which is too far reaching. The management
body should rather take into account changes to the
product range when revisiting its strategies.
Question 6 It is the responsibility of the compliance function to monitor and

ensure compliance with internal and external requirements. This
Paragraphs 144, 145 and Some respondents point out that a shared responsibility may be done together with the risk management function. In
148 between the compliance function and the risk addition, an independent review of the process will be done by the
management function could create overlap or that internal audit function.
issues might fall in between. An institution should be
able to assign the main responsibility to one of the The paragraph has been removed from Section 14; the
functions, either risk or compliance. responsibilities are defined in the section on the internal control
functions. Within the requirements set by the guidelines,
institutions should define the internal responsibilities.
Question 6 One respondent points out that, instead of a written

opinion from the head of compliance, sufficient
Paragraph 145
documentation by the compliance function would be Paragraph 145
sufficient. To require an approval would be too far amended.
reaching, as this mixes responsibilities between the first
and second lines of defence.
Paragraph 148 The wording ‘under a variety of scenarios’ goes too far
The same wording was included in the previous guidelines. No change.
and should be deleted.
Paragraph 150 A direct reporting line from the head of the risk
The requirement is in line with Article 76(5) of
management function to the supervisory board is not in No change.
line with national company laws.
Question 6 One respondent asks whether the change from risk

The wording follows the wording used in Directive 2013/36/EU. Background section
control function (GL 44) to risk management function
97
Amendments to
the proposals
Section 15.1 has any meaning The change has been explained in the background section. amended.
Paragraphs 154, 161 and The term ‘all risks’ should be understood as ‘all Institutions have to manage all their risks. The intensity is
No change.
164 significant risks’. determined following a risk-based approach.
Question 6 It is unclear how the RMF would ‘test’ the robustness Paragraph 156
The wording has been clarified.
Paragraph 156 and sustainability of the risk strategy and appetite. amended.
Question 6 Paragraph 160 explains sufficiently the nature of material changes.

‘Material changes’ should be clarified. In the
The guidelines have been restructured and the section on material
Paragraph 158 respondent’s view, such changes should be only those No change.
changes has been moved to Section 18, ‘New products and
that have a material impact on the risk profile.
significant changes’.
Paragraph 168 Some respondents suggest that the wording ‘in its
supervisory function’ should be deleted, in order to In line with Article 76(5) of Directive 2013/36/EU, there must be
make the paragraph applicable to their legal system, the possibility for the risk management function to report, where No change.
where the RMF reports directly only to the management necessary, directly to the supervisory function.
body in its management function.
Paragraph 172 It should be clarified if the head of the risk management A definition of the term ‘CRO’ was not seen as necessary, as it is
function is equivalent to the CRO and if this role should not used in the guidelines. The head of the risk management
No change.
be positioned at the CEO level in the case of significant function does not necessarily have to be a member of the
institutions. management body.
Section 15; Respondents propose changing ‘procedures’ to Paragraph 174

paragraph 174 ‘processes’. amended.
Paragraphs 175-182 In smaller and less complex institutions it should be

possible – as under the current guidelines – to combine The guidelines specifically allow for such a combination. The text Section 15.2.
the compliance function with other functions (e.g. HR, has been clarified further. amended.
legal).
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Amendments to
the proposals
Section 15; Respondents propose reflecting existing laws in all

The guidelines set out the expected role of the compliance
paragraph 179 Member States. In line with the response on
function. The requirements regarding the organisation of the
paragraph 72, respondents consider that the definition Section 15.2.
function have been further clarified. Other parts of the guidelines
of the roles and responsibilities of the compliance revised.
have been amended to stress that compliance is also a
function might conflict with the definitions already in
responsibility of the first line of defence.
place in Member States.
Question 6 Several respondents emphasise that the compliance

function is not a legal advisor (this is the role of the legal The comment has been accommodated. The compliance function Paragraph 179
Paragraph 179
department); rather, it ensures that the institution provides advice on how to deal with compliance issues. amended.
complies with laws and internal procedures.
Paragraph 180 The requirement to have a compliance policy and In general, small and less complex institutions may have policies
monitoring programme should not apply to small that are less sophisticated than the policies of large and complex
institutions. Smaller institutions should have standards institutions. A compliance policy will include, inter alia and taking No change.
or policies only for the most relevant areas, e.g. trading, into account the business model of the institution, the areas
anti-money laundering, data protection. mentioned by the respondent.
Paragraphs 180 and 181 Two respondents are concerned about the proposed Non-compliance with internal and external standards can have a
cooperation between the risk management and the material impact on an institution’s risk profile; close cooperation
No change.
compliance functions. Such a requirement goes too far between those functions is therefore needed and usually
in their opinion. established in practice.
Section 15.3 Further more specific guidelines should be provided on

when the audit function meets the requirements; the The principle of proportionality applies to all requirements and
No change.
reference to size, nature and complexity is not requires a case-by-case assessment.
sufficiently clear.
Question 6 Some respondents suggest that all items related to the The review, its frequency and intensity should be done following a
Paragraph 185
internal audit should be in the same section and that risk-based approach.
Section 15.3 amended.
audits should be done following a risk-based approach.
The section deals with the requirements regarding the internal
99
Amendments to
the proposals
General comment audit function. However, sometimes this function is also relevant
in different contexts and therefore requirements could not be
further concentrated without creating significant repetition.
Paragraph 186 The IAF should ensure that each material entity in the All group entities should be subject to review by the internal audit
group falls within the scope of the IAF, and not each function. The review, its frequency and intensity should be done No change.
entity, in order to be risk-oriented. following a risk-based approach.
Paragraphs 185, 186 and The wording is not in line with the BCBS principles The guidelines take into account the BCBS principles, but do not
187 (principles 6 and 7) or audit standards. replicate them. In practice, institutions will also rely on other
No change.
Some respondents suggest that more detail should be accepted internal audit standards. More detailed guidelines would
provided on the internal audit function’s tasks. risk being incompatible with such standards.
Paragraph 189 For the parent company of the group, the IAF does not The guidelines do not require automated access via, for example,
have automatic access to the minutes of the IT systems, but they do require that the internal audit function has No change.
management body in its supervisory function. access to such documents as needed to perform its tasks.
Paragraph 192 A few respondents point out that in some Member

States the management body in its supervisory function Paragraph 192
is informed about the audit plan and can make amended.
comments on it but has no right to approve it.
Question 6 The reference to the AMA has been moved to a footnote; the
Respondents comment that it is not clear if the
relevant parts of the regulation are still in force. The requirements
Paragraph 196 paragraph refers to the first line or the second line of
apply to the institution; business continuity measures are needed Paragraph 196
defence and ask why the advanced measurement
also in the business lines. In large institutions, often a specific unit amended.
approach (AMA) is included, since in future it will no
is created. Otherwise, this function can, for example, be part of the
longer be applicable.
risk management function.
Question 7 A few respondents consider the listed topics to be The comments have been accommodated; points (d) and (e) have Paragraph 202
included in the annual publication that can be required been deleted. amended.
Paragraph 202
by competent authorities under Article 106(2) of
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Amendments to
the proposals
Directive 2013/36/EU as too far reaching.
Paragraph 202(d): several respondents deem it
inappropriate to publish an overview of material
outsourcing of activities, processes and systems, as this
could jeopardise business secrecy. The same applies to
paragraph 202(e), dealing with close links with other
natural or legal persons.
Question 8 Some respondents point out that the criteria listed in

Annex I do not allow institutions sufficient discretion to
Annex I
take into account their special features and do not
sufficiently take into account national legal frameworks. The guidelines aim to harmonise the documentation of
Some respondents consider that points 6(c) and (d) are governance policies and arrangements, which should also reduce
Annex I amended.
not appropriate: either they should be deleted, as they the burden for institutions active in multiple Member States.
are part of the audit process, or it should be clarified Points 6(c) and (d) have been deleted.
that they refer to the overall handling of weaknesses
identified and measures to manage them, and not to
each individual case.
Question 8 Respondents find it difficult to assess and estimate the

costs that the guidelines will incur, especially because
Costs of the guidelines
there remains some uncertainty as regards the
application of the principle of proportionality and the
level of application of the guidelines. According to The impact assessment has been updated. Costs caused by the
respondents, costs would be significant if the guidelines provisions of Directive 2013/36/EU directly (e.g. regarding the Impact assessment
were to be applied to each subsidiary/entity on an scope of application) are not taken into consideration in the amended.
individual basis. assessment of the impact caused by the guidelines.
Costs would be driven by the requirements to develop,
adopt, implement, monitor and assess new policies and
procedures. For instance, the requirement related to
the development of ethical standards for external
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Amendments to
the proposals
services providers is deemed to be costly and to provide
limited added value: one respondent believes that,
when these providers already have a code of ethics and
business conduct, financial institutions should not have
additional obligations in this respect. Overall, the
administrative burden caused by the guidelines would
be non-negligible.
More specifically, respondents have identified the
following costs: the need to recruit additional staff to
comply with the guidelines and inefficient allocation of
managers’ time.
According to some respondents, both EU groups and
subsidiaries of EU groups involved in non-regulated
activities or activities regulated to a low degree would
be penalised by those costs and suffer from a non-level
playing field with non-EU groups and non-EU entities
involved in non-regulated activities or activities
regulated to a low degree, as these entities are
supposed to apply lighter requirements in the field of
corporate governance.
102
103

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FINAL REPORT ON GUIDELINES ON INTERNAL GOVERNANCE

Title IV – Risk culture and business conduct 33

To further harmonise institutions’ internal governance arrangements, processes and mechanisms

Background and rationale

4. Internal governance frameworks, including internal control mechanisms and risk

8. Article 74 of Directive 2013/36/EU requires institutions to have robust governance

Rationale and objective of the guidelines

1. Compliance and reporting

Status of these guidelines

2. Subject matter, scope and definitions

Risk culture means an institution’s norms, attitudes and behaviours related

activities and has an impact on the risks they assume.

Institutions means credit institutions and investment firms as defined in

Staff means all employees of an institution and its subsidiaries within

Consolidating institution means an institution that is required to abide by the prudential

Significant institutions means institutions referred to in Article 131 of

Listed CRD-institution means institutions whose financial instruments are admitted to

Shareholder means a person who owns shares in an institution or, depending

Directorship means a position as a member of the management body of an

d. whether the institution is listed or not;

i. the ownership and funding structure of the institution;

k. the outsourced activities and distribution channels; and

Title II – Role and composition of the management body and

e. targets for the liquidity management of the institution;

g. arrangements aimed at ensuring that the individual and collective suitability

i. arrangements aimed at ensuring the internal functioning of each committee of the

i. role, composition and tasks of each of them;

ii. appropriate information flow, including the documentation of

m. arrangements aimed at ensuring the integrity of the accounting and financial

2 Management function of the management body

3 Supervisory function of the management body

b. constructively challenge and critically review proposals and information provided by

d. ensure and periodically assess the effectiveness of the institution’s internal

e. oversee and monitor that the institution’s strategic objectives, organisational

f. monitor that the risk culture of the institution is implemented consistently;

g. oversee the implementation and maintenance of a code of conduct or similar and

4 Role of the chair of the management body

5 Committees of the management body in its supervisory function

5.2 Composition of committees14

5.3 Committees’ processes

59. The risk and nomination committees should at least:

b. receive regular reports, ad hoc information, communications and opinions from

5.4 Role of the risk committee

b. assist the management body in its supervisory function in overseeing the

d. provide the management body in its supervisory function with recommendations on

e. provide advice on the appointment of external consultants that the supervisory

f. review a number of possible scenarios, including stressed scenarios, to assess how

h. assess the recommendations of internal or external auditors and follow up on the

5.5 Role of the audit committee

b. oversee the establishment of accounting policies by the institution;

c. monitor the financial reporting process and submit recommendations aimed at

h. in accordance with Article 39(6)(a) of Directive 2006/43/EU, inform the

i. receive and take into account audit reports.

5.6 Combined committees

Title III – Governance framework

6.2 Know your structure

a. information on major risk drivers;

c. regular reports on topics where the regulatory framework requires compliance at

6.3 Complex structures and non-standard or non-