On 17 December 2020, the European Banking Authority (EBA) issued a consultation paper concerning draft guidelines on internal governance under the Investment Firm Directive (IFD).
The guidelines are intended to complete the various governance provisions in the IFD, taking into account the principle of proportionality, by specifying the tasks, responsibilities and organisation of the management body, and the organisation of investment firms, including the need to create transparent structures that allow for supervision of all their activities. The draft guidelines also specify requirements aimed at ensuring the sound management of risks across all three lines of defence and, in particular, set out detailed requirements for the second line of defence (the independent risk management and compliance function) and the third line of defence (the internal audit function).
The EBA adds that the draft guidelines are consistent with the guidelines on internal governance for credit institutions and with international standards and in particular with requirements that aim to foster a sound risk culture implemented by the management body, to strengthen the management body’s oversight of the firm’s activities and to strengthen the risk management frameworks of investment firms.
When finalised the guidelines will apply on an individual and consolidated basis within the scope of application set out in accordance with Article 25 of the IFD.
The deadline for comments on the consultation paper is 17 March 2021. It is expected that the guidelines will be applied as of 26 June 2021.