Belgian Banking Watchdog Draws Attention To Payments And E-Money Governance

February 10, 2022
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The National Bank of Belgium has written to e-money and payment institutions in the country telling them to sort out management shortcomings before the end of the year.

The National Bank of Belgium (NBB) has written to e-money (EMIs) and payment institutions (PIs) in the country telling them to sort out management shortcomings before the end of the year.

In light of its prudential conduct rules for PIs and EMIs operating in the country, the NBB has issued what it considers a “useful” diktat to draw the institutions' attention to some governance rules stated in the revised Payment Services Directive (PSD2), as well as the country’s Companies and Associations Code.

At present, the NBB supervises 26 payment institutions. This number has increased more than 50 percent since 2015.

Well known firms in the country include the remittance business iBanFirst. Wise, formerly known as TransferWise, is also regulated by the NBB, having set up shop after the UK’s departure from the EU.

The NBB appears keen to keep this up, in spite of its new reminder. Following on from the letter, it also released fresh guidance for candidate PIs and EMIs seeking authorisation in the jurisdiction.

In the new guidance, particular emphasis is placed on the process to create realistic expectations on both ends, as well as to ensure applications are of a high standard.

Governance issues

In its letter to EMIs and PIs, the NBB "emphasises the importance of complying with these rules of good governance and encourages institutions to analyse this in the light of these clarifications and, if necessary, to provide the necessary adaptations to their governance structure in order to comply with the law of March 11, 2018”, referring to the PSD2.

In particular, the letter, published in French and Dutch, shares the NBB’s concerns about the independence of the boards of directors at the payment firms it regulates.

In the PSD2, for example, it states that the board of directors of an establishment, whose mission is to exercise effective control of the persons in charge of the administration and/or management of the establishment, must be composed of a majority of non-executives.

“Indeed, if the board of directors is composed of a majority of managers, we do not see how they could exercise objective control over said officers,” the letter points out.

Good governance is a running theme in the letter.

For example, in the second clarification that the NBB sets out, it states that components of the PIs/EMIs, such as the board of directors, may not perform another function as an employee in the same establishment.

For example, to the extent that the board of directors of an establishment has the task of evaluating the proper functioning of the independent control functions, there is in principle “inherent incompatibility” between the function of a member of the board of directors and the exercise of control, the letter says.

This incompatibility, the NBB points out, also exists between the senior employees in a position of management and the independent oversight function.

In this context, in particular, the NBB has said that it wishes to set out “a few additional clarifications”.

For example, it is possible for an effective manager of an establishment to exercise a control function independently if this person does not exercise parallel commercial or operational functions in the same establishment.

It is also possible in special cases to combine the internal audit function (third line of defence) with that of compliance or risk management (the second line of defence).

Non-executive directors are able to take a role in the independent control function provided that the performance of the duties in this latter function are entrusted to an employee of the establishment or outsourced to a third party. Executive members of the board of directors and managers with commercial and/or operational responsibilities of an establishment are not authorised to assume an independent monitoring function or to carry out the tasks.

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