LONDON Europe's banks will have to conduct more rigorous checks on supervisory board members and all staff who hold key functions, not only top executives, under guidelines issued by the European Union's banking regulator on Thursday.
Weaknesses in corporate governance, including inadequate oversight and challenge by supervisors of the executive body, contributed to "excessive and imprudent risk-taking in the banking sector", leading to the failure of banks, the European Banking Authority (EBA) said.
The scope of new guidelines, therefore, should extend to supervisors of management, so they can "provide constructive challenge to the decisions and effective oversight of the management function".
There should also be a mandatory assessment of "key function holders", which the EBA defined as people who are responsible for day-to-day management of operations, below the management body.
These assessments are already carried out by most banks and regulators, but the practice can vary across the EU's 27 member states and the guidelines aim to harmonize policy.
The guidelines should be complied with by May 22 and the ongoing assessments should take into account the nature, scale and complexity of the business area, the EBA said.
There should be no reasonable doubt that a member of the management body is "of good repute", the guidelines said, which would include assessment of criminal or administration records and the cumulative effect of minor incidents.
Attention should also be paid to any evidence that an individual has not been "transparent, open and cooperative" in dealings with supervisory or regulatory authorities.
(Reporting by Steve Slater; Editing by David Goodman)