| LONDON, July 7
LONDON, July 7 Five years after mismanagement
brought the global financial system to the brink of collapse, a
Reuters survey reveals yawning differences in the way European
Union countries assess whether bankers are up to the job.
In a continent where executives have made headlines for
contributing to the failure of their banks - British CEOs Fred
Goodwin of RBS and James Crosby of HBOS were stripped of their
knighthoods, and in Spain former Caja Madrid chairman Miguel
Blesa was briefly jailed as part of an investigation into the
bank - most countries now vet bankers before they take on key
But a lack of coherence across the block in how nations
decide whether senior banking figures are "fit and proper", how
many bankers they assess and how likely they are to get a clean
bill of health, demonstrate a work still very much in progress,
and show just how hard it will be for the EU to create a banking
union with a level playing field for all 28 members.
The European Banking Authority (EBA) lacks the power to
insist upon convergence, and there is no guarantee that the
European Central Bank will be much better placed when it assumes
supervision of the euro zone's banks next year.
The most striking difference in the 23 countries examined by
Reuters is how deep into the organisations the checks go. While
some examine only the most senior managers and directors, others
go all the way down to traders and other risk takers.
In theory a senior banker drummed out of the industry after
failing an assessment in one country could flit to a similar
role in another EU member where he or she might face no scrutiny
at all, even for a key function such as chief financial officer.
The UK, which has the largest financial services industry
in the EU, puts everyone in a "control" function through the
tests, a definition that can encompass more than a thousand
staff in the largest banks, capturing anyone taking on
significant risk. More than 225,000 financial services workers -
spanning bankers, insurers and asset managers - were assessed
there in the four and three quarter years to end 2012.
The UK's financial and professional services sector employs
over 2 million, according to TheCityUK, which represents the
In Sweden, where about 140,000 are employed in the industry,
according to the Swedish Bankers Association, just 424 have gone
through the tests in the five years to end 2012. In Slovenia the
average runs at 12 a year, and in the Czech Republic, where the
tests only extend to board members, an average of 150 bankers
are assessed every year. Twelve countries only examine top
management and board, implying no more than a dozen per
The EBA brought in new guidelines late last year calling for
EU countries to extend some checks to all "key function
holders", a group far bigger than most have been examining.
It defines such people as "staff members whose positions
give them significant influence over the key direction of the
credit institution ... (which) might include heads of
significant business lines, EEA branches, third country
subsidiaries, support and internal control functions".
"We took the liberty to extend as far as we could the scope
to span the management body and key function holders," the EBA's
director of regulation Isabelle Vaillant told Reuters. "This has
been a harsh discussion with our members."
All bar three of the EU's member states have said they
either already comply or intend to. Slovakia, Sweden and Italy
have indicated they will partially comply.
The EBA wants harmonisation on testing at this level, but
Vaillant accepts it might not happen.
"On balance you could accept more flexibility on this layer,
which is an extra layer compared to the legal requirement to
assess the management body," she said.
MAKING THE GRADE
Bankers deemed to warrant an assessment can face very
different processes. Interviews by the regulators are allowed in
only a minority of countries, including the UK, Ireland and
Slovenia. In most, it's a form-filling exercise.
Honesty and integrity are identified as desirable qualities
in most. Several also like their bankers to be solvent,
trustworthy and of good reputation.
Austria and the Czech Republic disqualify bankers with a
criminal conviction. Most take it into consideration but don't
automatically blacklist. Denmark alone specifically rejects
bankers who have "caused a loss/writedown to a financial
The EBA guidelines are less specific, with general
provisions requiring experienced managers "of good repute" with
the right education.
Some countries allow for the re-examination of those already
in place. In Ireland, the only three executive directors who
survived their banks' bailouts were re-examined in 2011. They
The efficacy of even the strictest regime is moot. One
senior banker with recent experience of the fitness and probity
tests in the UK and in Ireland, which modelled its regime on the
UK's and tested 3,105 in its first full year, said it was hard
to conclude that either was particularly robust.
"The regulations are not really a deterrent," he said. "Not
enough preliminary work is done on the assessment, the firms are
left to their own devices after approval (of a candidate by the
regulator), and the rules are only reviewed after they have
The regimes have also been criticised for their relatively
low failure rates, particularly in the UK, where just 0.01
percent of all applicants fail. Eleven countries disclosed their
pass/fail rates to Reuters, with failures and withdrawals
ranging from 0.17 percent in Portugal to 15 percent in the
"The (Irish) statistics don't capture withdrawals from the
process," said Ireland's financial regulator Matthew Elderfield,
who was surprised to find no testing regime to speak of when
appointed in 2010. He introduced a new fitness and probity
system in 2012, which 3 percent of applicants failed in its
first year. "Applicants tend to withdraw if there are problems,"
he said. "The system is more effective than the statistics
In the UK, 3.3 percent of all applicants withdrew over the
four and three quarter year period.
A UK advisor who deals with board appointments also said his
impression didn't match the reported statistics. "We can
actually find it very tough to fill NED (non executive director)
roles, to get people the regulator will accept," he said.
The HR boss of a large UK bank said the tests weren't overly
problematic because the qualities desired were qualities banks
themselves would want in their executives in any case.
"The regulators have made firms really focus on the right
candidate," said the HR chief of one UK bank. "Your reputation
with the regulator is at stake if you keep putting forward
candidates that fail."
Several countries declined to reveal their statistics, while
others said they did not keep records of the outcome of the
process. In Spain, where an average of 319 financial workers a
year go through the checks, no records are kept of failures
because "the usual way of dealing with a case of unsuitability
is through informal channels", Banca d'Espana told Reuters.
Central banks in Bulgaria, Croatia, Hungary, Italy and
Romania did not reply to queries from Reuters.
Vaillant at the EBA says its efforts to corral countries
into complying with guidelines will result in better banks.
"We are definitely, that's for sure, upgrading the average
level in Europe. We took the best practices, and they will be
applied all across Europe. This is a big step on average."
(Additional reporting by Jesus Aguado in Madrid and Mia Shanley
in Stockholm; Editing by Will Waterman)