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 roles.
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 industry.
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 institution.
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 institution".
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 all passed.
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 failed."
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 Netherlands.
"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 show."
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)