ECB’s review of management bodies of EU banks
Early 2023, the European Central Bank (ECB) conducted a review of management bodies in a sample of 20 banks across the European Union.
In his blog published on 20 July 2023 Frank Elderson (Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB) shared the key findings of the review.
Banks’ governance has been on the ECB’s supervisory radar since the early days of the Single Supervisory Mechanism. Indeed, most of the findings and recommendations the ECB presents in their annual supervisory review and evaluation process (SREP) have to do with internal governance. In the 2022 SREP, for instance, ECB assigned 73% of institutions a score of 3 out of 4 for internal governance, indicating that most banks under ECB supervision need to improve in this area.
A major driver behind these scores is a lack of effectiveness in terms of the composition, collective sustainability and oversight role of the management bodies. In addition, banks’ existing policies describing the roles and responsibilities of committees and board are not always effectively implemented.
Mr Elderson concluded that ECB’s targeted analysis highlighted that there are still some long-term structural deficiencies in the functioning of management bodies. For the sake of sound governance, he notes that ECB, as the competent supervisor, must continue their efforts to strengthen banks’ management body effectiveness. To do so, Elderson deems it vital for ECB to maintain an ongoing dialogue with banks in order to broaden their understanding of ECB’s supervisory expectations.
Mr Elderson notes that against this background, the ECB made management body effectiveness one of their main supervisory priorities for 2022-24.
If you have any questions on sound governance of banks or other regulated institutions, please do not hesitate to contact the Stibbe’s Financial Regulation team.
