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22 - Sustainability and Fit and Proper Testing in the Boards of Banks, Insurers and Investment Companies

from Part IV - Ensuring Financial Stability and Sustainability

Published online by Cambridge University Press:  30 January 2025

By
Iris Palm-Steyerberg
Edited by
Kern Alexander ,
Matteo Gargantini  and
Michele Siri
Kern Alexander
Affiliation:
University of Zurich
Matteo Gargantini
Affiliation:
University of Genoa
Michele Siri
Affiliation:
University of Genoa
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Summary

Chapter 22 analyzes whether and to what extent sustainability can be integrated into EU fit and proper testing for members of the management body of banks, insurers and investment companies. It concludes that (prospective) members should indeed have sufficient knowledge, skills and expertise in sustainability, both as a collective and individually. The extent to which this knowledge is required depends on the institution and the specific role and responsibilities of the director. However, every director must have basic sustainability knowledge and expertise to adequately perform his or her role. It is argued that EU supervisors, including the ECB, should use the fit and proper test, or at least engage in serious dialogue with financial institutions, to ensure that there is sufficient ESG expertise in the management body. This is well within their mandate since core prudential values such as the solidity of the institution and stability of the financial sector may be at stake. To ensure a level playing field within the EU, it is recommended that EU regulators set out more specific requirements regarding ESG expertise in Level 1 or 2 legislation. This would also provide greater legal certainty for financial institutions and (proposed) members of the management body.

Keywords

fit and proper testingcollective suitabilitymanagement bodiesfit-and-proper requirementsprofessional trainingindividual expertisesufficient timeESGindependencegood repute
Type
Chapter
Information
The Cambridge Handbook of EU Sustainable Finance
Regulation, Supervision and Governance
 , pp. 573 - 595
Publisher: Cambridge University Press
Print publication year: 2025

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