Fit and proper assessments
Fit and proper assessments
The appointments of management bodies of supervised entities are founded on compelling and objective considerations, based on public interest, to ensure that the selected individuals always meet the suitability criteria of the law and rules deriving from it.
Members of the management body of supervised entities shall meet the suitability criteria prescribed in special legislation governing the activities of each supervised entity. A great deal of responsibility rests on the shoulders of these parties, and the goal of assessing their suitability is to ensure that suitable parties are in charge of supervised entities, thereby ensuring the credibility and reputation of the financial market. The operations of supervised entities can be extremely complex and extensive, and therefore high demands are placed on their managers to perform their work satisfactorily.
Supervised entities shall ensure that members of the management body and key function holders comply with the suitability criteria placed on them at any given time.
- When granting a licence and, where applicable, making changes to licences already issued.
- Change of members of the management body.
- Ongoing assessment of suitability.
The suitability assessment of members of the management body and key function holders is the responsibility of the supervised entities.
A supervised entity shall allocate sufficient funds and human resources to introducing the activities of the entity to members of the management body and ensuring that they receive appropriate training in membership of a management body.
A supervised entity shall establish a policy and procedures for assessing the suitability of members of the management body and key function holders.
Information about the accreditation of actuaries can be found here.
Legal requirements
The objective of the suitability requirements is to ensure that individuals acting on behalf of supervised entities are fit and proper, as they are entrusted with the management of entities operating in the financial market.
The Central Bank of Iceland has issued rules regarding the implementation of suitability assessments for each respective market.
In assessing suitability, the Central Bank also refers to the joint EBA and ESMA Guidelines on the assessment of the suitability of members of the management body and key function holders under Directive 2013/36/EU and Directive 2014/65/EU (2021/06). These guidelines provide further elaboration on the provisions of Icelandic legislation, including how to assess the collective composition of the board, conflicts of interest, and the independent judgment of board members.
Responsibility
It is worth noting that despite the Central Bank’s role in connection with assessing the suitability of members of the management body, it is always the responsibility of the person concerned to ensure their suitability and that there is no reason to doubt that they meet the suitability criteria of the law and regulations. The operations of supervised entities can be extremely complex and extensive, and strict requirements are therefore placed on such undertakings with regard to, among other things, their operations, activities and business practices. In this regard, it is particularly important to ensure there is no doubt that those who have been entrusted with responsibility for the operation of a supervised entity meet the legal suitability requirements and can perform their duties satisfactorily.
In addition, supervised entities must allocate sufficient funds and resources to introducing the company's activities to the members of the management body and ensuring that they receive appropriate training for their work.
Suitability criteria
The suitability of individuals is assessed based on the suitability requirements laid down in the legislation and further elaborated in the Central Bank’s rules. The guidelines of the European Supervisory Authorities are also taken into account when interpreting the legislation. It should be noted that legal requirements vary depending on the market in which the supervised entity in question operates.
Suitability criteria of members of the management body and key function holders of supervised entities:
Reputation, honesty and integrity
- Regardless of the type and scope of the supervised entity's operations.
- Are of legal age, financially independent, have not been convicted of an offence related to business operations, etc.
Adequate knowledge, skills and experience
- Members of the management body and key function holders must have sufficient experience and knowledge and have completed an education that apply to their position.
- Considering the type and scope of the supervised entity's operations and duties.
Independence of mind and independent members
- Members of the management body and key function holders must be independent in thinking in order to be able to effectively evaluate, criticise and monitor decision-making.
- Evaluation of conflicts of interest.
Sufficient time commitment
- Members of the management body and key function holders shall commit sufficient time to perform their functions for the supervised entity.
Composition of the management body
- Shall be such that the management body collectively possesses adequate knowledge, skills and experience to understand the activities carried out by the relevant entity, including the main risk factors.
Reputation, honesty and integrity
Legal capacity is divided into two components: personal autonomy and financial autonomy. Personal autonomy entails the right to control one's personal affairs, other than finances. Financial autonomy entails the right to control one's finances. Individuals become legally competent at the age of 18, and the suitability requirement is therefore primarily contingent on the condition that the member of the management body has not been deprived of legal capacity as a result of being deemed incapable of managing their personal affairs or finances.
Financial independence and no bankruptcy ruling in the last 5 years.
When assessing financial independence, the following factors are taken into account:
- That the equity position is positive.
- That income covers debt payments and cost of living.
- That debts, guarantees to third parties and the pledging of assets are not of a nature that could cast doubt on their independence with regard to the lender/creditor and likely to affect their work. When assessing whether a person is considered dependent on another, consideration is given to whether the obligation, taking into account annual income, is considered significant. Excluded obligations under this section are traditional loans available to the public, such as mortgages, car loans and student loans.
- Matters other than those listed above that concern financial status or financial obligations and may be relevant in the opinion of the Financial Supervisory Authority.
Good reputation and have not been convicted in a court of law for any offence related to business operations in the last 10 years.
Members of the management body and key function holders must have a good reputation and must not have been convicted in connection with business operations in the past 10 years for a criminal offence under the General Penal Code, Competition Act, Act on Public Limited Companies, Act on Private Limited Companies, Act on Accounting, Act on Annual Accounts, Act on Bankruptcy etc., Act on Withholding of Public Levies at Source and the Foreign Exchange Act, as well as special laws that apply to parties whose financial activities are subject to official supervision.
When assessing good reputation, consideration is given to whether individuals have shown conduct, action or inaction that gives rise to doubt about their ability to manage sound and healthy operations or that there is a likelihood that they will abuse their position or harm the supervised entity.
Violations of financial market legislation are of particular significance in the assessment, in addition to previous interventions by the Central Bank or the bank’s assessment of the person’s previous work being of significance in the suitability assessment. Other circumstances that may result in a lack of suitability based on past conduct include, for example, a person having the legal status of a defendant or charges having been brought against the person concerned or a supervised entity for which they were responsible or in charge, for alleged violations of the laws specified in the legislation.
When assessing good reputation, the following shall be taken into account, among other things:
- Any indication that the person has not been cooperative in dealings with competent authorities.
- Denial or revocation of a licence to engage in any type of activity.
- Reasons for dismissals.
- If the competent authorities have deemed the person unfit to hold the position.
- Any other matters, such as serious allegations based on relevant and reliable information, which indicate that the person is not behaving in accordance with what can be considered normal.
Adequate knowledge, skills and experience
Part of the fit and proper assessment of members of the management body and key function holders is to assess the suitability of the party based on their knowledge, skills and experience. Individuals shall possess adequate knowledge, skills and experience to perform their duties properly and, among other things, have knowledge of the activities carried out by the relevant supervised entity, including risk factors.
This suitability requirement entails an independent suitability requirement which members of the management body and key function holders must satisfy. Education that is useful in the workplace means that a person has acquired theoretical knowledge related to the activities, development, or operation of entities. When assessing sufficient experience and knowledge, the type and scope of operations of the supervised entity in question is also taken into account.
This is a discretionary suitability requirement and, by its nature, it is not possible to set general criteria for what knowledge or experience is required, but rather this must be assessed in each case, taking into account the type of supervised entity and the scope of the activities. For this reason, it is important members of the management body satisfactorily justify in writing how they believe their education and professional experience applies to the position in the management body of the supervised entity they intend to occupy.
If, in the opinion of the Central Bank, a member of the management body does not meet the requirements regarding knowledge, skills and experience, he or she will be invited to a suitability assessment interview.
Based on the above suitability criteria, the Central Bank considers, among other things, the following aspects when assessing sufficient knowledge, skills and experience:
- University degrees in the fields of finance, economics, engineering, law, and business administration are generally considered to satisfy the educational requirements.. Other degrees, such as diplomas or shorter study programs in the aforementioned disciplines or university degrees in other disciplines, are generally not considered to satisfy the educational requirements. The person must also have completed the university degree in question in order to meet the requirements, and therefore it is not sufficient for a person to study the academic disciplines in question.
- Work experience or membership of a management body that gives an individual knowledge of the activities of the supervised entity in question or of the activities of a supervised entity licensed to conduct comparable activities is generally considered to satisfy the aforementioned conditions of adequate knowledge and work experience.
- An individual’s managerial position or membership of a management body in another supervised entity or public company, experience with own investments in the financial market or with own business operations may be considered sufficient for a party to be deemed to meet the requirements of the law. Social work and participation in politics generally carry little weight.
- In the Central Bank's assessment of the knowledge and professional experience of members of the management body and key function holders, certain factors may weaken or strengthen the aforementioned suitability factors. These include, among other things, the size of the company on which the person's work experience or membership of a management body is based, the length of time spent in that job or in the management body, whether the person served as a full member or alternate member of that company's management body, and what their job entailed, e.g. whether it required managerial knowledge.
- Moreover, it can be assumed that different requirements are made for the work experience and suitability of an individual depending on the type and scope of operations of the supervised entity for which the person in question sits in the management body.
- Members of the management body should have a clear understanding of the administrative structure of the supervised entity, their role within the supervised entity, and potential conflicts of interest that may arise in the case of a group. Members of the management body should also contribute to maintaining an appropriate culture within the management body, as well as the organisation as a whole.
- Experience related to the financial market, legislation and other regulations in the financial market, experience in policy making, risk management, accounting, auditing and book keeping shall also be taken into account.
Independence of mind
Members of the management body and key function holders shall work with honesty, integrity and professionalism. Members of the management body must be independent in their thinking so that they can effectively evaluate, criticise and monitor decision-making.
Independence of mind in one's work entails actively participating in the operation of the management body and being able to make independent, objective and impartial decisions.
Other positions
Members of the management body of supervised entities may neither sit in the management body of another supervised entity or an entity closely associated with it, nor be employees or auditors of another supervised entity or be closely associated with it. Members of the management body may only perform legal duties for another financial undertaking that cannot create a conflict of interest risk between the two undertakings or in the financial market.
Close ties are considered to exist when individuals and/or undertakings are connected in any of the following ways:
- with a participation in the form of direct ownership or control of 20% or more of the share capital, initial capital or voting rights of a company,
- with control, or
- having a lasting connection to the same third party through a relationship of dominance.
When assessing conflicts of interest, consideration is given to, among other things, the individual’s ownership and the company's relationships with other parties in the financial market and whether the relationship could harm the sound and healthy operations of the supervised entity. The assessment also takes into account whether the undertakings have the same operating licences, since a risk of conflict of interest may arise if they are considered to be in competition with one another.
Sufficient time commitment
Members of the management body shall commit sufficient time to perform their functions for the supervised entity.
A supervised entity should assess whether a member of the management body has sufficient time to perform his duties, including to understand the entity’s operations and key risk factors. When assessing whether a member of the management body has sufficient time to perform his duties, the following shall be taken into account:
- The individual’s other management body positions, taking into account management bodies within the same group.
- Size, nature and scope of activities of other entities where the individual sits in the management body.
- Location and travel time required to perform the job.
- Number of management body meetings.
- Management body positions in entities.
- All meetings with, for example, competent authorities and stakeholders.
- Nature and scope of the individual’s other duties.
- Other duties of the management body member.
- Time spent on training members of the management body.
- Any other obligations which the supervised entities consider worth taking into account when assessing sufficient time.
Composition of the management body
The members of the management body shall have a broad experience and collectively possess adequate knowledge, competence and experience to understand the activities of the supervised entity in question, including the main risk factors. Supervised entities must also establish a policy on how they intend to enable individuals with diverse experience to perform their jobs as members of the management body.
Assessment process
The role of the Central Bank of Iceland
The role of the Central Bank is to ensure that members of the management body and key function holders meet the suitability criteria of the law and regulations. The Central Bank also has the authority to impose administrative sanctions if it becomes apparent that the provisions of the law or regulations based on them are not being enforced. The role of the Central Bank is not to confirm the suitability of members of the management body and key function holders, but it is entirely the responsibility of the supervised entities to ensure that members of the management body and key function holders meet the suitability requirements.
Notifications to the Central Bank of appointments of members of the management body
Supervised entities must notify the Central Bank of changes in the composition of the management body or the appointment of a new member of the management body within two days of the appointment. Following this, the individual will receive a notification and email asking them to respond to the Central Bank’s questionnaire, which requests various data about the individual in question that is necessary to assess their suitability. The individual has four weeks to respond to the questionnaire. A notification from a supervised entity of the appointment and subsequent changes to a member of the management body must be accompanied by sufficient information to enable an assessment to be made on whether the requirements of the law and regulations applicable to the supervised entity in question are met. This means that the supervised entity must justify its assessment of the suitability of the party in question, taking into account the applicable laws and rules/criteria, as well as information about when the assessment was conducted.
Information disclosure
The Central Bank’s questionnaire sent to a member of the management body includes questions related to the suitability requirements of the law, e.g. general information about the individual, financial independence, education, work experience, management body positions, conflicts of interest, etc. It is important that the individual provides a detailed explanation of their answers to the questionnaire.
Assessment of written documents
Fit and proper assessments involve, on the one hand, an examination of written documents and, on the other hand, conducting a suitability assessment interview when applicable. An examination of written documents involves checking whether an individual meets, among other things, the requirements of the law regarding residence, legal capacity, reputation, not having been declared bankrupt in the last five years, not having been convicted of a criminal offence in connection with business operations in the last 10 years, financial independence, knowledge, skills and experience, knowledge of the activities which the regulated party in question engages in, including risk factors, and that the circumstances stipulated in legislation regarding conflicts of interest in the financial market do not exist.
Suitability assessment
The Central Bank evaluates whether members of the management body should undergo a suitability assessment interview. The assessment takes into account, among other things, the type, size and scope of the supervised entity's operations and whether there is any doubt that the person concerned meets the legal requirements regarding sufficient knowledge, competence and experience to be able to perform their position in an appropriate manner. The Central Bank makes a decision on the suitability of a member of the management body after completing a suitability assessment interview.
All CEO’s must undergo a suitability assessment interview within six weeks of the Central Bank having complete its examination of written documents. On the other hand, members of the management body of supervised entities are only invited to a suitability assessment interview if there is doubt about their suitability and competence according to applicable laws and regulations, cf. the previous step where the Central Bank assesses the information provided by the individual. The suitability assessment interview evaluates, among other things, the individual´s knowledge of the activities carried out by the supervised entity in question, knowledge of financial market laws and regulations, financial reporting, auditing, and general commercial and administrative aspects.
In the case of entities that require an operating licence, members of the management body are invited to a suitability assessment interview if there is doubt about their suitability and competence according to the law and regulations. The rules of the Central Bank on the suitability assessment process for members of the management body describe the process for evaluating the suitability of members of the management body and sets the criteria for the assessment.
The invitation to a suitability assessment is sent in writing with at least two weeks' notice and specifies the topics to be discussed. The convened suitability assessment interview cannot be postponed unless there are compelling reasons for doing so, and generally by no longer than one week. The suitability assessment interview is conducted by the Central Bank of Iceland and can last up to four hours.
Repeated suitability assessment interview
If the outcome of the suitability assessment interview proves unsatisfactory, the individuals are given an opportunity to repeat the interview within four weeks of the results being available. The suitability assessment will only be repeated once, unless there are specific reasons to the contrary.
When the Central Bank assesses that a member of the management body has not demonstrated adequate knowledge, competence and experience in a suitability assessment interview, the individual is invited to a repeated suitability assessment interview. In a repeated assessment, the member of the management body is given the opportunity to answer the questions that the individual failed to demonstrate adequate knowledge of in the previous suitability assessment.
The Central Bank of Iceland‘s advisory committee
In the case of commercial banks, the three largest insurance companies and the three largest pension funds, the Central Bank has determined that all members of the management body must undergo a suitability assessment interview, regardless of whether the members of the management body meet all the suitability criteria. This is based on the type of operating licence, the scope of operations and the systemic importance of the supervised entity in question. In such cases, the Central Bank requests the opinion of an advisory committee on the suitability and competence of members of the management body.
Result of the fit and proper assessment
Fit and proper requirements fulfilled
In cases where a member of the management body is deemed to meet the suitability requirements, the Central Bank sends the member of the management body a letter stating that the bank has no objections to the individual’s suitability. It is also pointed out that the Central Bank may at any time place the suitability of the member of the management body under special review, and it is therefore not assumed that the individual in question is automatically qualified to perform the duties of member of the management body of other supervised entities from the outset. It is worth noting that despite the Central Bank’s role in assessing the suitability of members of the management body, it is the responsibility of the supervised entity to ensure the suitability of these individuals and to ensure that there is no reason to doubt that they meet the suitability criteria of the law and regulations.
In cases where a member of the management body does not appear to meet the suitability criteria of the law and regulations after a repeated suitability assessment, a process is initiated in which the member of the management body is notified that, in the opinion of the Central Bank, the individual does not meet the suitability criteria.
Fit and proper requirements not fulfilled
If the Central Bank considers that a party does not meet the suitability requirements of the law and regulations or if it is not possible to assess the party's suitability, the Central Bank will notify the party and the management body of the supervised party in writing of its conclusion, with a justification.
In cases where a member of the management body does not appear to meet the suitability requirements of the law and regulations after a repeated suitability assessment, the person concerned is sent a letter and invited to express their views or objections, cf. Administrative Procedure Act No. 37/1993. After receiving the person's objections, the Central Bank makes a decision regarding the person's suitability. The chairman of the management body of the supervised entity is informed of the progress of the case.
A proposed member of the management body who is not considered suitable is not permitted to sit in the management body of a supervised entity. If an individual has already assumed the position, the Central Bank may require that the member of the management body or key function holder steps down, either temporarily or permanently. If the Central Bank’s demands are not met within a reasonable time frame, the bank may unilaterally dismiss an individual from the position on the basis of the 4th paragraph of Article 10 of Act No. 87/1998 on the Official Supervision of Financial Activities. The Financial Supervisory Committee then decides on a dismissal if circumstances exist in which a member of the management body does not meet the suitability requirements due to criminal conduct, cf. point (g) of the 1st paragraph of Article 15 of Act No. 92/2019 on the Central Bank of Iceland.
Legislation, rules and interview topics
Below is information about legislation, rules, guidelines and other elements related to fit and proper assessments of members of the management body and key function holders of supervised entities.