On 22 November 2021, the European Banking Authority (EBA) published a final report containing revised guidelines on internal governance for investment firms under the Investment Firms Directive (IFD).
The guidelines have been prepared in accordance with Article 26 of the IFD which requires investment firms to have robust governance arrangements, including a clear organisational structure with well-defined, transparent and consistent lines of responsibility, processes and mechanisms. Article 26 also mandates the EBA to develop guidelines in this area.
The guidelines apply to class 2 investment firms (investment firms that are non-systemically relevant investment firms which do not qualify as small and non-interconnected investment firms either and to which the IFD and the Investment Firms Regulation applies without limitation). The requirements apply regardless of the investment firm’s governance structure (unitary board, dual board or other structure).
The guidelines complete the various governance provisions in the IFD, taking into account the principle of proportionality, by specifying the tasks, responsibilities and functioning of the management body, and the organisation of investment firms, including the need to create transparent structures that allow for the supervision of all their activities. The guidelines also specify in more detail the requirements under the IFD and aim to ensure the sound management of all risks. Risks need to be managed across all three lines of defence. While the business needs to manage its risks, the guidelines stress the responsibilities of the second line of defence (the independent risk management and compliance function) and also the third line of defence (the internal audit function).
The guidelines are consistent with the guidelines on internal governance for credit institutions. Also, all investment firms must comply with the governance requirements under the Markets in Financial Instruments Directive II.
The guidelines come into force from 30 April 2022.