In part 1, we provided some background information to the updated BaFin guidance notices entitled “Guidance Notice on managing directors pursuant to the KWG, ZAG and KAGB” (“Guidance Notice on Managing Directors”) as well as the “guidance note on members of management and supervisory bodies pursuant to the KWG and KAGB” (“Guidance Notice on Members of Management and Supervisory Bodies”) (together, the “Guidance Notices”) and also explained some of the planned amendments of the Guidance Notice on Managing Directors. In part 2 we now provide a short description of select amendments of the Guidance Notice on Members of Management and Supervisory Bodies.
Table of Contents
Reporting procedure
The Guidance Notice on Members of Management and Supervisory Bodies also does not contain the statement anymore that in case of documents in English the responsible department within BaFin can waive the requirement for a translation.
BaFin states that the period for checking the relevant requirements is four months. In case of any open issues, BaFin can interview the relevant person.
The Guidance Notice on Members of Management and Supervisory Bodies now also clarifies that any criminal proceedings that were suspended as a result of permanent procedural impediments (e.g. the statute of limitations) do not need to be declared – unlike proceedings that have only been suspended preliminarily.
Criminal proceedings that were terminated due to insignificance (Section 153 of the German Criminal Procedure Code, StPO) or based on certain conditions (Section 153a StPO), still need to be declared.
As part of assessing conflicts of interest, ties to significant shareholders of the reporting company have been included as a conflict of interest. Furthermore, court proceedings with and competing interests with respect to the reporting company as well as its group companies need to be reported.
Requirements for members of management and supervisory bodies
Members of management and supervisory bodies shall
- possess relevant knowledge,
- be reliable,
- have time available
- and be independent from the shareholders (KAGB).
i. Knowledge
The Guidance Notice on Members of Management and Supervisory Bodies also states that the relevant knowledge is key for the management / supervisory body.
The required knowledge can also be obtained through training. This usually has to take place within 6 months. In individual cases (e.g. for seasonal activities), this deadline can be extended up to one year. Additionally, new members should receive important information about the company within one month of starting their position and the induction should be concluded after no more than six months.
In accordance with the Guidelines, BaFin lists various aspects that need to be monitored by the management and supervisory body and in respect of which the management or supervisory body therefore needs to have the relevant knowledge, skill and experience.
ii. Reliability
Just as in its Guidance Notice on Managing Directors and the Guidelines, the “independence of mind” of a member of a management / supervisory body is also assessed as part of their reliability check.
Furthermore, BaFin states that conflicts of interests may also arise if the member holds significant shareholdings in group companies of the institution, if close relatives work for group companies of the institution or if there are legal disputes with the institution or a group company. BaFin adds that members who have a conflict of interest have to abstain from voting if there is a conflict of interest and that as part of the members’ suitability assessment a close eye should be kept on any potential conflicts of interest.
iii. Availability
As is the case in its Guidance Notice on Managing Directors, BaFin clarifies that taking up any additional mandates (including political mandates) has to trigger a reassessment whether the relevant member has sufficient time available. Volunteer activities also need to be considered as part of this assessment, unless they are minimal.
Duties of the management / supervisory body
The section on “duties of management or supervisory bodies, committees” in the Guidance Notice on Members of Management and Supervisory Bodies contains additions regarding the composition and tasks of committees as well as a detailed description of the nomination committee.
i. Composition of committees
CRR institutions of significant importance are obliged to establish a risk committee, an audit committee, a nomination committee and a remuneration committee. With regard to the composition of these committees, BaFin states that the committees must be composed of different groups of persons and that the members of the committees must rotate.
Additionally, BaFin underlines that the committees must have clear tasks and that they must document their results and submit them to the management / supervisory body for reporting purposes.
ii. Nomination committee
The nomination committee has the task of proposing or recommending candidates as managing directors as well as for the management / supervisory body. For the first time, the Guidance Notice on Members of Management and Supervisory Bodies now contains rules regarding the nomination process and further details on the tasks of the nomination committee.
The nomination committee must play an active role in the selection of the candidates. In particular, the nomination committee is required to prepare a written job description for the candidates (tasks, skills, required time etc.). Additionally, it needs to ensure that there is appropriate succession planning for the managing directors and the management or supervisory body.
The nomination committee is further required to support the management / supervisory body in promoting diversity among the managing directors as well as the management or supervisory body.
The nomination committee is also required to support the management / supervisory body with regard to the suitability assessment of the managing directors as well as the members of the management / supervisory body. Any rules as well as the procedure regarding the suitability assessment have to be included in a suitability policy. The nomination committee is responsible for monitoring compliance with the suitability policy and should also provide input in the preparation of the suitability guidelines. Suitability assessments are required in particular in the event of changes regarding the managing directors and the management / supervisory body. The procedures for the selection and appointment of key function holders should be set out in the suitability policy.
As part of the suitability assessment, the individual suitability of the members and the collective suitability of the managing directors as well as the management / supervisory body need to be assessed. For individual assessments, the list of relevant skills contained in Annex III to the Guidance Notice on Members of Management and Supervisory Bodies can be used. Assessments of the collective suitability can be carried out by reference to the suitability matrix template as set out in Annex II to the Guidance Notice on Members of Management and Supervisory Bodies. Individual and collective suitability need to be continuously monitored and reassessed in specific cases.
The nomination committee is also required to assist the management or supervisory body in reviewing any management policies regarding the selection and appointment of senior management (including key function holders) and to provide recommendations to the managing directors in relation thereto.
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