Banker's oath and disciplinary regime
11/07/2019

An Act dated 22 April 2019 amends the Banking Act of 25 April 2014 on the status and supervision of credit institutions and brokerage firms in order to introduce a banker's oath and a disciplinary regime.

Overview of the main changes

The Act of 22 April 2019 aims to contribute to ensuring the stability and integrity of the banking sector and to strengthening public confidence in the banking sector. It is one of the responses to the financial crisis and complements the regulatory framework for the banking sector. Under this Act, which will enter into force on a date to be determined by royal decree after consultation with credit institutions, bankers will be required to take an oath at the beginning of their activities in order to comply with the ethical standards in force and will be subject to disciplinary control.

The Act creates a Disciplinary Order which has legal personality and whose mission is to develop ethical standards.

In the event of non-compliance with ethical standards, disciplinary sanctions may be imposed by the "Disciplinary Commission" established within the Disciplinary Order itself. These disciplinary sanctions can range from a warning to a professional prohibition. A person on whom a disciplinary sanction has been imposed may appeal against the decision. Within three months from the date on which a decision of the Disciplinary Commission of Appeal has been notified, an appeal against the appeal decision may be submitted to the Court of Cassation.

Adopted under the caretaker government, this act raises many questions. We discuss some of them below.

Who is covered by the Act?

The persons covered by the Act are bankers, defined as "natural persons who work under the responsibility of credit institutions and who carry out activities that are part of or arise from the exercise of the banking profession or are an integral part of the operating processes that support it".

This definition seems to encompass at least directors and members of the management committee, other executive officers, and heads of independent control functions whose concepts are included in the National Bank of Belgium's circular on "fit and proper" standards.  

The term "director" refers to members of the administrative body of a financial institution, both executive and non-executive.

The term "effective management" refers to the group of persons, whether or not they are directors, whose function within the institution implies that they exercise direct and decisive influence at the highest level on the management of the company's activities.

The concept of "independent control functions" refers to the cross-organisational functions of audit, compliance, risk management and the actuarial function in the insurance sector.

Persons covered by the banker's oath are already subject to an assessment of their ("fit and proper") suitability with respect to expertise and professional integrity.

Interaction between the new disciplinary regime and the "fit and proper" suitability assessment

According to article 19 of the Banking Act, directors, executive officers and persons in charge of independent control functions of credit institutions must at all times have the expertise and professional integrity required to perform their duties. These people are assessed to ensure that they qualify for "fit and proper" status.

"Fit and proper" concept

A person is considered an expert ("fit") for a specific function when he or she has the knowledge, skills and experience required for that function.

A person is considered professionally honourable ("proper") when there is no reason to reasonably doubt his/her good reputation. This means that the person will perform the tasks entrusted to him/her honestly, ethically and with integrity.

Evaluation of "fit and proper" status

Institutions are responsible for selecting and retaining expert and professionally honourable persons to serve as their directors or the persons in charge of independent control functions. This verification of a person's aptitude includes e.g., an assessment. The verification will be based in particular on information provided by the person to be assessed.

If the result of the aptitude assessment is positive, the institution must then submit to the National Bank of Belgium its evaluation that the person has the required aptitude. The National Bank of Belgium will also carry out an assessment on the basis of sufficient and reliable information. The National Bank of Belgium may choose to conduct an interview with the person concerned if it considers that a discussion with the person is desirable.

Ongoing evaluation

The persons concerned are required to be competent and professionally honourable at all times. In this regard, the National Bank of Belgium recommends that institutions periodically evaluate the functioning of these people in the field.

If an event is likely to influence their fit and proper status, the persons concerned must inform the institution accordingly. Where the institution considers that doubts could arise as to their fit and proper status, the institution must immediately inform the National Bank of Belgium and must do its utmost to examine the doubts more closely.

Thus, there is already a control to ensure optimal governance within credit institutions and to ensure the integrity of persons exercising functions at the highest level of the credit institution.

The new disciplinary regime introduced by the Act of 22 April 2019, and the possibility of imposing disciplinary sanctions in particular, is likely to have an impact on the maintenance of the fit and proper status of persons who have been the subject of a definitive disciplinary sanction.

Compliance with the guarantees of the right to a fair trial in disciplinary matters

The Act creates a Disciplinary Order whose mission is to develop ethical standards and draw up a Code of Ethics. . Within the Disciplinary Order, which has legal personality, a Disciplinary Commission is set up to ensure compliance with ethical standards and to impose disciplinary sanctions in the event of non-compliance with these standards.

In practice, it will be necessary to ensure that the procedure complies with the guarantees of the right to a fair trial resulting in particular from Article 6 of the European Convention on Human Rights.

 

David Szafran
david.szafran@eubelius.com

Related : Eubelius


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