Uniform letter to payment institutions, registered payment institutions, electronic money institutions and limited electronic money institutions

National Bank of Belgium
NATIONALE BANK VAN BELGIE
Eurosystem
THE GOVERNOR
Public
Brussels, 8 February 2022

Uniform letter to all payment institutions1, registered payment institutions2, electronic money institutions3 and limited electronic money institutions4.

Dear Madam,
Dear Sir,

The Law of 11 March 2018 concerning the status of and supervision of payment institutions and electronic money institutions, access to the business of payment service providers and to the activity of issuing electronic money, and access to payment systems provides in its Article 21, § 1 in conjunction with Article 176, § 1 with the requirement respectively for each payment institution and electronic money institution to have a solid and appropriate arrangement for business organization, including supervisory measures to guarantee effective and prudent management of the institution.

Article 21 of the Law of 11 March 2018 details further in its § 1, points 1° to 9° what is meant hereinafter for payment institutions. Article 176, § 1 of the Law of 11 March 2018 declares a number of these points applicable by analogy to electronic money institutions.5

1 As intended in Article 2, 8° of the Law of 11 March 2018 concerning the status of and supervision of payment institutions and electronic money institutions, access to the business of payment service providers and to the activity of issuing electronic money, and access to payment systems (hereinafter: 'the Law of 11 March 2018').

2 As intended in Article 2, 9° of the Law of 11 March 2018.

3 As intended in Article 2, 75° of the Law of 11 March 2018.

4 As intended in Article 2, 74° of the Law of 11 March 2018.

5 More specifically points 1°, 2°, 4°, 5° to 9° as well, where applicable, appropriate control and security measures in the field of information technology.

our reference
TP/2022/041 N your correspondence
Reinout Temmerman tel./gsm: + 32 2 221 32 09
Reinout.temmerman@nbb.be
Supervision of financial market infrastructures, on payment services and on cyber risks National Bank of Belgium NV de Berlaimontlaan 14 1000 Brussels BELGIUM company number:
0203.201.340
RPR Brussels www.nbb.be

THE GOVERNOR
Biz. 2/3 - 2022-02-08
Public

Following findings made by the Bank in the context of the prudent supervision it exercises on payment institutions and electronic money institutions, the Bank considers it useful to draw the attention of the institutions to certain governance rules resulting from the aforementioned provisions of the Law of 11 March 2018 as well as from its reading in conjunction with the provisions of the Code of Companies and Associations6. This concerns three specific clarifications:

1. It follows from the reading of Article 21, § 1, 1° of the Law of 11 March 20187 in conjunction with Article 176, § 1 of the Law of 11 March 20188 that, since the mission of the Board of Directors of an institution is to exercise effective control over those responsible for effective management/leadership of the institution, the Board of Directors of the institution must consist of a majority of non-executive directors. Indeed, if the Board of Directors consists of a majority of executives, it is impossible to see how objective control over those same executives could be exercised;

2. It follows from the good governance principle included in Article 21, § 1, 1° of the Law of 11 March 20189 in conjunction with Article 176, § 1 of the Law of 11 March 201810 that a member of a statutory body of the institution, namely the Board of Directors or the Executive Committee or the Management Board of the institution, may not exercise any other function as an employee in the same institution. It must also be stated that based on company law, the exercise of a mandate as director or member of the Executive Committee or the Management Board of an institution is only possible on the basis of a status as an independent and no provision may take place as an employee of the institution.11 The Bank points out that where the effective management of an institution is not located in the Executive Committee or the Management Board (or where the statutes of the institution do not provide for an Executive Committee/Management Board), the effective management may be employees of the relevant institution;

3. It follows from Article 21, § 1, 1° of the Law of 11 March 201812 in conjunction with Article 176, § 1 of the Law of 11 March 201813 that, to the extent that the mission of the Board of Directors of an institution is to assess the proper functioning of the independent control functions, there is in principle an inherent incompatibility between the function of member of the Board of Directors and the exercise of an independent control function. This incompatibility also exists between a function as effective leader of the institution and the exercise of an independent control function. In this context, the Bank wishes to make some additional clarifications:

• it is possible for an effective leader of an institution to exercise an independent control function (for example Compliance and, if applicable, Risk) if this person also does not exercise commercial or operational functions in the same institution;
• it is, in special cases, possible to combine the function of Internal Audit (3rd line control) with that of Compliance or Risk (2nd line control);

6 Code of Companies and Associations (hereinafter: 'CCA').
7 Article 21, § 1 of the Law of 11 March 2018: "Each payment institution has a solid and appropriate arrangement for business organization, including supervisory measures, to guarantee effective and prudent management of the institution, which is based in particular on: 1° an appropriate policy structure based at the highest level on a clear distinction between, on the one hand, the effective management of the institution and, on the other hand, the supervision of that management, and which provides within the institution for appropriate separation of functions and a clearly defined, transparent and coherent arrangement for the allocation of responsibilities". 8 Cf. the reference in Article 176, § 1 of the Law of 11 March 2018 to the corresponding application for electronic money institutions of the provisions under Article 21, § 1, 1° of the Law of 11 March 2018. 9 Cf. the provisions under footnote 7 supra. 10 Cf. the provisions under footnote 8 supra. 11 Cf. Articles 5:70/6:58/7:85/7:105 of the CCA regarding members of an Executive Committee and Article 7/107 regarding directors (members of the Board of Directors) of an institution. 12 Cf. the provisions under footnote 7 supra. 13 Cf. the provisions under footnote 8 supra.

THE GOVERNOR
Biz. 3/3 - 2022-02-08
Public

• non-executive directors may take on an independent control function, provided that the exercise of the tasks included in this latter function is assigned to (i) an employee of the institution or (ii) outsourced to a third party;
• executive members of the Board of Directors of an institution and effective leaders of an institution who have commercial and/or operational responsibilities may not take on an independent control function, nor exercise its tasks.

The Bank emphasizes the importance for institutions to comply with these good governance rules and encourages institutions to analyze their governance in light of these clarifications and, where necessary, make adjustments to their governance structure in order to comply with the Law of 11 March 2018.

The Bank is aware that possible adjustments by institutions may require a certain amount of time to implement. Therefore, the Bank believes that any non-compliance of institutions with these clarifications should be resolved by 31 December 2022.

Yours sincerely,

Pierre Wunsch