1. Introduction
1:1 Corporate governance is key to the proper functioning of financial institutions and the financial and economic system.
1.1 Context
1:2 Stockbroking firms are, by definition, risky entities (giving rise to risks for customers, for themselves and for the market in general). Consequently, they are required to take measures to ensure a high degree of confidence in their stability and solvency/liquidity. A commitment to taking all reasonable measures to ensure the proper governance of their activities is thus important not only for the sake of their own management but also to maintain confidence on the part of the public, their customers and market participants in individual institutions and the financial system as a whole.
1:3 On 20 July 2022, as part of the transposition of the Investment Firms Directive (IFD),[1] Belgium adopted the Act on the legal status and supervision of stockbroking firms (the “Brokerage Supervision Act”),[2] laying down rules on sound governance. This act builds on previous legislation, including the Act of 25 October 2016 which incorporated rules on stockbroking firms into the Banking Act.
1:4 This manual has two objectives: on the one hand, to consolidate in a single document the legislative and regulatory provisions on sound governance that underpin the prudential supervision of stockbroking firms (without replacing the underlying documents) and, on the other hand, to clarify the NBB’s prudential expectations in terms of governance by highlighting new elements resulting from the latest legislative and regulatory developments in this area.
1:5 To ensure compliance with the governance rules, the Brokerage Supervision Act places at the disposal of the National Bank of Belgium a broad range of measures: prudential measures in the framework of Pillar 2 (Article 138), recovery measures (Articles 202-207), penalties (Articles 235-237) and administrative fines (Article 238). In addition, certain violations may be criminally sanctioned (Articles 239-243).
1.2. Scope
1:6 This manual applies to the following institutions:[3]
- stockbroking firms established in Belgium, with the exception of large stockbroking firms[4] in classes 1A and 1B, which are subject, through references in the Brokerage Supervision Act, to the provisions of the Banking Act and the Governance Manual for the Banking Sector;[5] and
- Belgian branches of stockbroking firms governed by the law of a non-EEA Member;[6] and
- investment holding companies and mixed financial holding companies governed by Belgian law that form part of a group of investment firms.[7]
1.3 Methodology
1:7 This manual aims to refer to all texts containing governance requirements (the Brokerage Supervision Act and its explanatory memorandum, regulations, royal decrees, circulars, communications, European legislation and EBA guidelines) and, where appropriate, to provide further clarification on these documents. It is thus intended to clarify the NBB’s prudential expectations in terms of governance for a range of subjects. In addition, the manual addresses topics that are not per se covered by specific policy papers. It goes without saying that policy papers that are not touched on in this manual continue to apply. Furthermore, this manual is without prejudice to the governance powers of other supervisory authorities (e.g. the FSMA).
1:8 This manual does not replace the relevant policy papers. If such policy papers are amended, the manual will be adapted and should be interpreted in a dynamic manner in the meantime. As this manual is in principle an online publication, it is intended to be a constantly evolving (or “living”) document that remains applicable as modifications are made, without changing its headings or references, as is the case for example with circulars that are not published in online format. Firms will, however, always be notified of any amendments made. In addition, these are explained in a specific section of the manual, with an indication of the date of amendment.
1:9 Insofar as possible, the structure of this manual follows that of the Brokerage Supervision Act and the EBA Guidelines of 22 November 2021 on internal governance for investment firms (EBA/GL/2021/14).
1:10 This manual also transposes into Belgian law the EBA Guidelines on internal governance for investment firms (EBA/GL/2021/14) and the EBA Guidelines on remuneration policies for investment firms (EBA/GL/2021/13) under the Investment Firms Directive, which are appended hereto.
1:11 This manual covers the following topics: (i) qualities required of shareholders or partners, (ii) suitability of management and the independent control functions, (iii) appropriate organisation of the business, (iv) governance at group level, and (v) prudential reporting and transparency.
1.4. Proportionality
1:12 Article 17 §4 of the Brokerage Supervision Act provides that internal governance arrangements must be proportionate to the nature, scale and complexity of the risks inherent in the firm’s business model and operations.
1:13 Pursuant to the principle of proportionality, stockbroking firms falling within the scope of this manual may take into account criteria such as the nature, scale and complexity of the risks inherent in their business model and operations in order to determine the level of governance requirements applicable to them.
1:14 In practice, the NBB relies on the concept of a “small stockbroking firm” to apply the principle of proportionality. The implications of this can be seen, for instance, in the following areas: management structure (senior management, specialised committees, independent directors and positioning of the CRO), internal control and the independent control functions (less sophisticated internal policies and the possibility to combine the risk management and compliance functions), frequency of reporting (assessment report on the internal control system to be submitted every two years), etc. For more information on the principle of proportionality and the criteria to be taken into account, please see paragraphs 17 to 21 of EBA/GL/2021/14.
1.5 Definitions
1:15 The terms used in this manual have the same meaning as in Article 3 of the Brokerage Supervision Act or in EBA/GL/2021/14. For purposes of this manual, the following definitions apply.
1:16 “Brokerage Supervision Act”: the Act of 20 July 2022 on the legal status and supervision of stockbroking firms.
1:17 “CAC”: the Companies and Associations Code, introduced by the Act of 23 March 2019.
1:18 “Directors”: all members of the statutory governing body of a stockbroking firm, an investment holding company or a mixed financial holding company falling within the scope of this manual, including both executive and non-executive directors.
1:19 “Diversity”: the situation whereby the characteristics of the members of the statutory governing body, including their age, gender, geographical provenance[8] and educational and professional background, are different to an extent that allows for a variety of views within this body.
1:20 “Independent control functions”: the risk management function, the compliance function and the internal audit function.[9]
1:21 “NBB”: the National Bank of Belgium.
1:22 “Senior managers”: the persons making up the firm’s senior management,[10] namely:
- where a management committee has been set up, the members of this committee and any other person whose position is at the next lower hierarchical level, insofar as that person can have a direct and decisive influence on the management of all or some of the firm’s activities, including the managers of foreign branches;
- where such a committee has not been established, any persons who can have a direct and decisive influence on the management of all or some of the firm’s activities.
1:23 “Small stockbroking firm”:[11] a stockbroking firm whose asset value (on-balance sheet and off-balance sheet) was, on average, less than or equal to €300 million over the four-year period immediately preceding the current financial year.
1:24 Furthermore, the term “firm” in this manual should be interpreted as referring to stockbroking firms falling within the scope of application set out above.
[1] Directive (EU) 2019/2034 of the European Parliament and of the Council of 27 November 2019 on the prudential supervision of investment firms and amending Directives 2002/87/EC, 2009/65/EC, 2011/61/EU, 2013/36/EU, 2014/59/EU and 2014/65/EU.
[2] Act of 20 July 2022 on the legal status and supervision of stockbroking firms.
[3] The applicable governance rules at group level, when a stockbroking firm forms part of a group of credit institutions that includes a credit institution governed by Belgian law or a financial conglomerate, are set out in Chapter 5 (“Governance at group level”) of the Governance Manual for the Banking Sector. Please refer to that chapter for group aspects.
[4] These are stockbroking firms that:
- meet the conditions set out in Article 1(2)(a) or (b) of Regulation (EU) 2019/2033;
- are subject to a decision by the Bank pursuant to Article 91 of the Banking Act or Article 1(5) of Regulation (EU) 2019/2033; or
- form the object of a decision taken by the competent authority of the Member State where the stockbroking firm is authorised pursuant to the legislation of this Member State aimed at transposing Article 5 of Directive (EU) 2019/2034 or pursuant to Article 1(5) of Regulation (EU) 2019/2033.
[5] In other words, this manual concerns stockbroking firms falling within class 2, including small stockbroking firms that are subject to less stringent rules.
[6] Taking into account Article 226 of the Brokerage Supervision Act.
[7] The applicable rules of governance at group level when a stockbroking firm belongs to a group of investment firms are set out in Chapter 5 (“Governance at group level”) of this manual. When a stockbroking firm belongs to a group that includes a credit institution, the rules on the supervision of groups set out in the Banking Act apply and reference is thus made to the Governance Manual for the Banking Sector with regard to these aspects.
[8] The term “geographical provenance” refers to the region where a person has gained a cultural, educational or professional background. This aspect is particularly important for firms that are active internationally.
[9] In Belgium, these three mandatory independent control functions constitute the “key functions” referred to in EBA/GL/2021/14.
[10] See the definition of “senior management” in the NBB Regulation of 9 November 2021 on the exercise of external functions. This concept is similarly defined in Article 3(63) of the Brokerage Supervision Act.
[11] See Article 23 of the Brokerage Supervision Act. It should be noted that Belgium chose to exercise the option offered to the Member States to raise the threshold from €100 million to €300 million, thereby extending the special regime applicable to “small stockbroking firms” to a larger number of firms, in accordance with Article 32(4)(a) and (5) of Directive (EU) 2019/2034.