Governance matters because trust matters.

Behind every banking regulation lies a simple reality: customers need to trust the institutions that manage their savings, finance businesses and support the economy. That trust does not rely solely on capital ratios or risk models. It also depends on the quality, integrity and competence of the people taking decisions at the highest level of financial institutions.

This is the broader context behind the ongoing revision of the EBA and ESMA Joint Guidelines on the assessment of the suitability of members of management bodies and key function holders. Through these revised guidelines, European authorities seek to further strengthen governance standards across the banking sector and promote greater supervisory convergence across the European Union.

This week, the ABBL published its response to the consultation. While fully supporting the objective of strong and credible governance, the Association also calls for a framework that remains proportionate, workable and firmly anchored in the legal mandate set by European legislation.

Strong governance should not become a box-ticking exercise

“Robust governance is essential for the resilience of financial institutions and for confidence in the financial system as a whole,” explains Sandrine Roux, Secretary General of the ABBL. “But governance effectiveness cannot be reduced to an ever-growing accumulation of formal requirements and documentation.”

In its response, the ABBL warns that certain elements of the draft guidelines risk going beyond the scope of CRD VI by introducing highly detailed obligations through Level 3 guidance. According to the Association, this could create legal uncertainty and additional administrative burden without necessarily improving governance outcomes in practice.

The ABBL therefore advocates for an approach that remains principle-based and proportionate, while respecting the diversity of governance models and national company law frameworks across Member States.

Preserving proportionality and operational reality

One of the key concerns raised by the ABBL relates to proportionality — particularly for smaller institutions and subsidiaries operating within international banking groups.

“In many cases, governance arrangements already exist at group level and operate efficiently,” says Sandrine Roux. “Applying the same level of documentation and procedural complexity to every institution, regardless of its size or structure, risks creating unnecessary operational burden.”

The ABBL therefore calls for greater recognition of simplified governance arrangements where appropriate, including the possibility to rely more extensively on group-level frameworks and existing governance documentation.

The response also stresses that collective suitability must remain the cornerstone of board assessments. While management bodies collectively need to cover areas such as ESG, ICT, AI, AML/CFT and data protection, the ABBL cautions against expecting every individual board member to become a technical expert in all domains.

Attracting experienced leaders remains essential

Another important message from the ABBL concerns the attractiveness of management body and key function holder roles within European financial institutions.

The Association expresses concerns regarding proposals that could lead to suitability assessments being influenced by unverified information, adverse media coverage or indirect associations, without concrete evidence of personal responsibility.

“Our institutions must remain able to attract and retain experienced, competent and diverse profiles for their members of management bodies and key function holders,” notes Sandrine Roux. “This requires a framework based on objectivity, legal certainty and proportionality. Suitability assessments should remain fact-based and individualised.”

The ABBL also calls for realistic implementation timelines and proposes that the revised framework should only apply from 31 December 2027, allowing institutions sufficient time to adapt their governance frameworks and internal processes.

We are grateful for the input received from our members (ABBL Bank Governance Forum) to complete this consultation.