Johannes Gutenberg University, Mainz, Germany
8.2 The “Fit” Requirement for Key Function Holders and Their Subordinate Staff Members in Key Functions
8.2.2 The Special Rules
8.3 The “Proper” Requirement for Key Function Holders and Their Subordinate Staff Members in Key Functions
8.3.1 The Two-Tier Structure of the Proper Requirement and the Proceduralization of the Proper Requirement as Starting Point
8.6 Supervisory Recall and Prohibition of Exercise of Function for Key Function Holders in Cases of Fit-and-Proper Deficiencies and Supervisory Right to Direct Information from Key Function Holders
8.6.1 Solvency II
Picking up from the Chap. 7 examination of the term “key functions” and of the key function holders, this chapter undertakes an examination of the supervisory review of key functions. In particular, this inquiry involves the areas of supervision of the key function holders as to fit-and-proper monitoring, the issue of remuneration of key function holders, the duties of notice and disclosure attendant on a change in key function holders, and the powers of insurance supervisory authorities in the supervision of key function holders.
First published as “Die aufsichtsbehördliche Kontrolle der Inhaber von Schlüsselfunktionen nach Solvency II und künftigem VAG” [in English: Review by Supervisory Authorities of the Holders of Key Functions under Solvency II and the Future VAG [German Insurance Supervision Act]], VersR (2012), 1061 ff.
The Solvency II Directive1 at Level 1, the DVO implementing it at Level 2, currently in draft form,2 as well as the CEIOPS Consultation Paper “Draft proposal for Level 3 Guidelines on the System of Governance” of December 20103 and the future VAG [German Insurance Supervision Act] at Level 44 often name the holders of key functions as the addressees of the rule or, in the case of the Governance Guidelines, their object. Since neither the term “key function holder” or even the term “key function” are specifically defined by law, and since numerous legal questions arise from the clarification of the legal requirements for both, clarity with respect to these legal requirements is a precondition for application of the legal rules addressed to key function holders.5 Building on this, the individual rules of the new insurance supervisory regime are then discussed with a focus on their relevance to key function holders in insurance undertakings.6 Among these, the requirements that such persons be “fit” (below, 8.2) and also “proper” (below, 8.3) have especially significant weight. Issues surrounding remuneration come to the fore as well since the new insurance supervisory regime also addresses remuneration in the area of key functions (below, 8.4). Finally, the examination turns to the duties of notice and disclosure that exist with respect to the supervisory authority and the public in connection with key function holders and their subordinate staff members (below, 8.5), and whether the supervisory authority may recall these persons or restrict their activity, and if the authority is entitled to obtain information directly from them (below, 8.6).
8.2 The “Fit” Requirement for Key Function Holders and Their Subordinate Staff Members in Key Functions
8.2.1 The Two-Tier Qualification Structure in General
Recital 34 of the Solvency II Directive requires: “All persons that perform key functions should be fit and proper”.7 Art. 258 SG6, para. 3 of the DVO takes up this very general requirement with the following sentence: “The persons performing a function … shall have the necessary … expertise … to carry out their responsibilities”. Thus, the rules apply to all persons who engage in work included within the scope of a key function, irrespective of their position within the hierarchy of the key function. The European insurance supervisory regime rightly presumes that all staff members who are part of a key function must possess the knowledge and skills necessary to properly meet their responsibilities.
But art. 42, para. 1 of the Solvency II Directive goes further, formulating more than just general qualifications for all persons who hold key functions.8 Rather, the provision defines “fitness” as follows: “their professional qualifications, knowledge and experience are adequate to enable sound and prudent management.” This is mirrored in art. 263 SG11, para. 2 of the DVO, which defines still further the special fitness criterion applicable only9 to key function holders within the meaning of art. 263 SG11, para. 1 of the DVO.
Thus the two-tier qualification structure is clear in the very wording of the rules, according to which the special qualification requirements for key function holders are differentiated from the general qualification requirements that apply to all staff of the undertaking who work in such functions. A systematic analysis of the framework of regulations fully supports the assumption of this two-level qualification structure. To start with, the special qualification requirements are restricted to key function holders, as these individuals are understood in the insurance supervisory regime. The background for this, in turn, is the telos of the equivalence between the key function holders and the persons who effectively run the undertaking. This equivalence of key function holders to the members of the governing body, which generally means the members of the managing board, is justified exclusively by the distinctive nature of the position of key function holder.10 This is the sole basis upon which enables art. 42, para. 1 of the Solvency II Directive to equate the holders of key functions with the management of the business even with respect to the special qualification requirements.11 These further requirements consequently pertain only to the key function holders as laid down in the insurance supervisory regime and defined in more detail previously.12 They do not, however, affect all other subordinate staff members in one of the key functions.
In addition, the qualification requirements themselves also demonstrate that they are directed exclusively toward these distinct key function holders. Thus art. 42, para. 1 a of the Solvency II Directive refers overall to “sound and prudent management”. For one thing, this cannot be required of all subordinate staff members in the key functions of an insurance undertaking. Such staff members have no influence on the management of the insurance undertaking and its business policies, especially on its appetite for risk. If the triad of “professional qualifications, knowledge and experience”, which is supposed to ensure sound and prudent management, were actually to extend to all subordinate staff members, then excluded from working in key functions would be graduates of an institution of higher education at the commencement of their careers, all persons moving between key functions within the insurance undertaking as well as those moving from another business area within the insurance undertaking into a key function, and those coming from another undertaking altogether. Extending these far-reaching qualification requirements to all staff in the key functions of an insurance undertaking would therefore both fail of its purpose and be incompatible with the principle of proportionality applicable under, i.a., art. 29, para. 3 of the Solvency II Directive in a general sense and Recital 31, sent. 3 of the Solvency II Directive for the organization of the key functions more specifically.
The system of qualification requirements under the Solvency II Directive includes the Level 2 rules in art. 263 SG11 of the DVO, referred to previously, which govern the implementation of art. 42, para. 2 of the Solvency II Directive. The requirements for fitness found therein go still further than those in art. 42, para. 1 a of the Solvency II Directive. Art. 263 SG11, para. 1 of the DVO requires “documented policies and adequate procedures” in order to ensure the fitness of key function holders at all times. Para. 2 provides numerous criteria for fitness that pertain only to holders of other key functions within the meaning of para. 1, as separate rules are provided for the members of governing bodies in para. 3.
In detail, art. 263 SG11, para. 2 of the DVO provides that the insurance undertaking would have to assess the occupational and professional qualifications of a person as well as his or her knowledge and relevant professional experience within and outside of the insurance sector. It would also have to take account of the particular responsibilities and duties assigned to this person. Since art. 42 of the Solvency II Directive applies only to key function holders as laid down in the insurance supervisory regime, the implementation rules are also applicable only to key function holders as laid down in the insurance supervisory regime, and not to all staff members that work in a key function. Aside from this unambiguous conclusion from the perspective of the legal system, the area of personal application of the provision also reveals a contextual underpinning of stringent requirements for processes and qualifications that cannot and should not apply to all staff in a key function.
Finally, from a legal systematic perspective, and with art. 42, para. 1 of the Solvency II Directive and art. 263 SG11, paras. 1 and 2 of the DVO as background, Recital 35 of the Solvency II Directive confirms that the two-tier qualification structure applies to the qualification requirements for persons who operate in an area of a key function. According to the Recital, “the purpose of assessing the required level of competence, professional qualifications and experience of those who effectively run the undertaking or have other key functions should be taken into consideration as additional factors”. This means that the issuers of the Directive themselves assume that the qualifications level at the top of the undertaking—that is, the management and holders of other key functions—in part determines the qualifications level of subordinate staff members within a key function. In other words, Recital 35 of the Solvency II Directive pertaining to the qualifications of subordinate staff in key functions makes explicit the rather obvious notion that, with consideration given to the tasks and undertaking involved, a level of qualification lower than that required of key function holders is sufficient for the staff subordinate to them.
8.2.2 The Special Rules
126.96.36.199 The Actuarial Function
The general two-tier qualification structure is supplemented in the Solvency II Directive by special rules.13 To start with, there are special, function-specific rules in art. 48, para. 2 of the Solvency II Directive that apply to the actuarial function. They prescribe the following for this function:
The actuarial function shall be carried out by persons who have knowledge of actuarial and financial mathematics, commensurate with the nature, scale and complexity of the risks inherent in the business of the insurance or reinsurance undertaking, and who are able to demonstrate their relevant experience with applicable professional and other standards.14
Although the DVO contains no concrete details with respect to these function-specific rules, the opposite is found with the detailed rules in the Level 3 drafts.
188.8.131.52 The Outsourcing of Key Functions
Special rules also apply to the outsourcing of key functions. The outsourcing of key functions15 is permitted under art. 49 of the Solvency II Directive.16 Art. 264 SG12 of the DVO contains numerous implementation regulations in this regard. In this text, the DVO correctly presumes that outsourcing shall not be allowed to alter the obligations of an insurance undertaking arising from the Solvency II Directive.17 The following also applies to an insurance undertaking under art. 264 SG12, para. 6 a of the DVO:
The insurance undertaking … shall … verify … that all staff of the service provider … are sufficiently qualified and reliable.
At Level 3, Guideline 11 of the Governance Guidelines stipulates that the fit-and-proper requirements for holders of key functions in cases of outsourcing apply to those staff members of the service providers who assume the respective responsibilities.18 According to Explanation No. 3.33 to these Guidelines, the responsibility for the determination that staff members of the service provider satisfy these requirements falls to the insurance undertaking.
8.2.3 The Fitness of Key Function Holders
184.108.40.206 The Requirements
The general qualification requirements already discussed apply to all persons who perform work in a key function, regardless of their level in the hierarchy.19 There are, however, special requirements in addition to these which arise from the higher qualifications demanded of the key function holders under the insurance supervisory regime. According to art. 42 para. 1 a of the Solvency II Directive, key function holders as laid down in the insurance supervisory regime must meet the following specific requirements for professional qualifications:
Their professional qualifications, knowledge, and experience are adequate to enable sound and prudent management (fitness requirement).
Art. 263 SG11 para. 2 of the DVO concretizes these rules at Level II with the following wording:
The assessment of whether a person is “fit” shall include an assessment of the person’s professional and formal qualifications, knowledge and relevant experience within the insurance sector, other financial sectors or other businesses and shall take account of the respective duties allocated to that person and, where relevant, the insurance, financial, accounting, actuarial and management skills of the person.
Guideline 12 then follows at Level 3, along with explanations.20 However, unlike other guidelines and explanations on this matter, this applies only to members of governing bodies.21 Other staff in the functions are covered only under the general explanations in No. 3.37 f.
The individual criteria of art. 263 SG11, para. 2 of the DVO are rather widely drawn. They require both professional and formal qualifications as well as relevant knowledge and experience. At the same time, however, they permit reasonable distinctions and the transfer of qualifications. This can be seen in the inclusion of qualifications from the overall financial sector and other areas of business in the criteria. It is also reflected in the consideration given to the specific responsibilities of a key function holder and the person’s skills in relation to the responsibilities.
In contrast, art. 263 SG11, para. 2 of the DVO does not provide detailed specifications for the legal requirement “sound and prudent management” as mandated under art. 42, para. 1 a of the Solvency II Directive.22 The skills required for management pertain mainly to members of the managing board as contained in art. 42, para. 1 of the Solvency II Directive. This is understandable, as the corporate management has to run the undertaking on its own responsibility set forth under sec. 76, para. 1 AktG [German Stock Corporation Act]. Thus the criterion of prudence in art. 42 of the Solvency II Directive should not be separately interpreted to be, as may first appear, an implied limitation on the undertaking’s freedom to act in accordance with its own appetite for risk.23 This becomes readily apparent in a comparative analysis of the various language versions of this directive.24
VAG-RegE [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act]
Sec. 25, para. 1, sent. 1 of the VAG-RegE [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act] requires that persons who “have other key functions” are not only proper but also fit. Fitness is defined in sec. 25, para. 1 of the VAG-RegE [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act] as follows:
Fitness is contingent on the professional qualifications, knowledge and experience that ensure sound and prudent management of the undertaking. This requires adequate theoretical and practical knowledge of the insurance business and, in cases where management duties are performed, sufficient leadership experience.
The text of sec. 25 of the VAG-RegE [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act] clearly goes beyond the fitness criteria laid down in the European requirements for key function holders. The Statement of Reasons for the government’s draft reflects this only indirectly by providing for the implementation of art. 42 of the Solvency II Directive and by presuming that sec. 25 of the VAG-RegE [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act] “integrates the specific rules of sec. 7 a para. 1 of the VAG [German Insurance Supervision Act], earlier version”.25 Nevertheless, and in agreement with art. 263 SG11, para. 2 of the DVO in this respect, the Statement of Reasons for the VAG-RegE [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act] also points out that the specific requirements are based “on the respective key task and the responsibilities a person has while executing it”. “In addition, the nature, scale and complexity of the risks with which the business operations of the undertaking are associated have influence on the fitness requirement”.26
The legal requirements of “professional qualification”, “knowledge and experience” are also found in art. 42, para. 1 of the Solvency II Directive. The explanation of the requirement of “knowledge” in sec. 25, para. 1, sent. 3 of the VAG-RegE [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act] with its reference to “adequate theoretical and practical knowledge” is not only an appropriate amplification of fitness but is also consistent with the corresponding requirement in art. 263 SG11, para. 2 of the DVO.
Sec. 25, para. 1 of the VAG RegE [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act] deviates, however, from art. 42, para. 1 of the Solvency II Directive and art. 263 SG11, para. 2 of the DVO in sentence 3 by specifying the requirement of “management experience” instead of simply “experience” as rendered in the Directive and the DVO, and then again in sentence 4 by requiring “a managerial position held with an insurance undertaking of comparable size and type of business for three years” in order to meet such management experience. Indeed, this is supposed to apply—continuing with the presumption of sec. 7 a, para. 1 sent. 3 of the current VAG [German Insurance Supervision Act]27—only for the “performance of management duties”, meaning that by contrary inference it does not apply to those specified later who have “other key tasks”. Nonetheless, there could be spillover effects.28 Overall, sec. 25, para. 1, sent. 4 of the VAG-RegE [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act] sets the fitness standard at a very high level. Especially significant here is the trio of “three years”, “insurance undertaking” and “comparable size and type of business”. It is clear at the outset that the rule is incompatible with moves made by personnel between different sectors as well as with the current one-year orientation period for management positions in the banking sector, which has the approval of BaFin [Federal Financial Supervisory Authority]. And if one were to take the last of the three requirements literally, even the “advancement” of a person from a smaller to a relatively larger undertaking—regardless of the actual magnitude of the undertaking—would hardly be possible in the future.
The fixed 3-year requirement for management experience is as excessive an application of the Solvency II rules as the stipulation of insurance undertakings of comparable size and business type. Under the principle of full harmonization,29 these have no justification in national implementation law and—particularly after the DVO takes effect—have no legal effect due to the primacy of European law. This holds true even more so for the one other stipulation in the triad: that the experience must be in connection with an “insurance undertaking”. Art. 263 SG11, para. 2 of the DVO directly provides for consideration of “knowledge and relevant experience within the insurance sector, other financial sectors or other businesses”. Ultimately, this means that the staff in question may come to an insurance undertaking from another part of the financial services sector—or even from another field of business altogether30—much the same as they can move to a larger insurance undertaking from a relatively smaller undertaking. And no rigid 3-year restrictions apply. Now, if this is the case even for the managing board members, meaning the persons who effectively run the business, it is certainly no different for the key function holders who are subordinate to them. Consequently, the direct reference to “insurance businesses” in sec. 25, para. 1, sent. 3 of the VAG-RegE [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act], where key function holders are expressly mentioned, is not compatible with the Solvency II rules. Exclusively relevant, and sufficient in the final analysis, are knowledge and experience within the meaning of art. 263 SG11, para. 2 of the DVO.
Earlier, under the VAG [German Insurance Supervision Act] then in effect, the question arose as to whether knowledge of the German language was a necessary component of fitness for managing board members of insurance undertakings. While the literature in insurance supervisory law sometimes supported this idea, it was rejected from a number of perspectives, including as an interpretation of the relevant criteria—namely, knowledge of the substantive requirements of the responsibilities assumed and actual communication skill in the German language with the aid of language mediators.31 This applies even more so today following the completion of harmonization of insurance supervision by the Solvency II project for the time being. The outcome is also a product of basic European freedoms as well as the uniform applicability of supervisory law to insurance groups and other cross-border undertakings of relevance to insurance. Applicability to key function holders proceeds from the fact that they cannot be subject to different rules based on their equivalence in terms of fitness requirements with managing board members of insurance undertakings under the Solvency II Directive. If overall governance is assigned in the future to financial supervision, as provided in sec. 289, para. 3 of the VAG-RegE [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act],32 it would mean that BaFin could apply its legal view on German language proficiency even to the general agents and management in the offices of German insurance undertakings in other EU/European Economic Area countries outside Germany in accordance with sec. 54, para. 2, sent. 1 of the VAG-RegE [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act].
BaFin laid out its view of expertise requirements for supervisory board members in a non-binding notice dated Feb. 22, 2010.33 The standards described were met with enormous criticism due, for example, to their low qualification requirements, erroneous assumptions on corporate law, and certain implied ways to meet the requirements.34 The notice will be entirely obsolete when the new standards of the Solvency II system take effect. It can therefore have no legal significance for key function holders, even indirectly.
Under art. 41, para. 3, subpara. 1 of the Solvency II Directive, insurance undertakings “shall have written policies in relation to at least risk management, internal control, internal audit and, where relevant, outsourcing”. It must therefore encompass three of the key functions: risk management35 and compliance—which is included by virtue of its membership in the internal control system under art. 46, para. 1, subpara. 2 of the Solvency II Directive—and internal audit. Regarding the actuarial function, the Directive recognizes an obligation to establish policies only indirectly, namely in art. 48, para. 1 i along with art. 41, para. 3, subpara. 1, sent. 2 of the Solvency II Directive. Added to these are further rules in the Solvency II system that also have implications for the need of policies of insurance undertakings. They proceed, i.a., from art. 263 SG11, para. 1, of the DVO, which states that insurance undertakings must establish, implement, and maintain “documented policies”.36
Under art. 41, para. 3, subpara. 2, sent. 2 of the Solvency II Directive, the policies “shall be subject to prior approval by the administrative, management or supervisory body”. For German law, it is not entirely clear whether or not the supervisory board, as positioned in the German dual organizational structure of managing board and supervisory board, is addressed by this. The uncertainly arises from the role of the managing board, which, under sec. 76 of the AktG [German Stock Corporation Act], is fully responsible for the management of the company and thus also for enacting essentially all company policies. The supervisory board can therefore “approve” neither the policies of the undertaking, nor its reports (as suggested by art. 55, para. 2 of the Solvency II Directive), nor any internal model (as suggested by art. 35, para. 5 and 116, para. 1 of the Solvency II Directive). Rather, the policies and reports etc. are directly attributable to managing board. It alone bears the responsibility, and not some other board upstream from it. The text of the Directive in other language versions and the objective pursued by the issuer of the Directive in assigning policy responsibility support the fundamental accountability of the managing board for the policies extensively discussed in the Solvency II Directive. Excluded however, are policies concerning the fit-and-proper requirements for managing board members under art. 263 SG11 of the DVO. The same applies to policies concerning the qualification requirements for supervisory board members37 if the intention is to view supervisory board members as key function holders.38 For the policies affecting members of the managing board, the supervisory board of each company holds sole responsibility. This on its own impedes the use of predetermined, standardized qualification policies across the group for all persons who effectively run the insurance undertaking or hold key functions in it as laid down in the insurance supervisory regime.
The reverse holds true for the managing board, which bears responsibility for policies affecting subordinate staff members in their capacity as key function holders under the insurance supervisory regime. With these policies the managing board can and must govern the basic responsibilities and powers of each key function. Thus, in order to comply with the requirements of art. 263 SG11 of the DVO, it must also identify the group of key function holders under the insurance supervisory regime for the particular undertaking either abstractly or based on job descriptions. Further, it must establish the fit-and-proper requirements for these persons and their subordinate staff. Finally, the DVO also specifies, as mandatory in the subject-matter of such policies, the procedures that must be provided for and followed in order to enforce these requirements within the insurance undertaking.
The Establishment and Documentation of Fitness (“Assessment”)
Art. 263 SG11 of the DVO and the Level 3 Governance Guidelines place particular emphasis on the “assessment” as to whether key function holders meet the fit-and-proper requirements. Guideline 14 (b) and (c) of the Governance Guidelines thus expressly requires that the policies include “a description of the procedure of assessing fitness … both initially and on an ongoing basis” and “a description of the minimum situations that give rise to a reassessment of fitness”.39 Thus an initial assessment of fitness must be made using a specific procedure, as well as reviews—whether regular or initiated by certain events—of assessments already made. This procedure must be included in the policies related to the key functions.40 Consequently, numerous issues must be addressed by the policies, such as who is responsible for assessing which key function holder, what procedure must be followed in doing so, what evidence of formal qualifications must be submitted and in what executed form, how often or on what occasion is a review or recall of a current qualifications assessment necessary,41 and what form of professional training is appropriate and necessary.42
The increasing importance of formalized processes under Solvency II and the flood of documentation requirements for insurance undertakings that comes with it,43 also extends to the assessment of fitness for key function holders. It is only by documenting these internal assessment processes that the managing board can be relieved with respect to have both provided for the necessary organizational processes and induced their actual implementation—as required by art. 263 SG11, para. 1, of the DVO. This may include acts of delegation throughout the operational structure.44 However, the managing board itself must always form its own impression in assessing the fitness of the functional leaders and their deputies because key function holders are often very close to the managing board as a result of their distinctive job description and decision-making powers.
220.127.116.11 Timing and Retention of Qualification
Art. 41, para. 1 of the Solvency II Directive mandates that key function holders must meet the fitness requirements at all times. Art. 263 SG11, para. 1 of the DVO repeats this, once again with the words “at all times”. And at Level 3, the Governance Guidelines expressly provide as follows in explanation No. 3.38:
The fitness assessment … includes arranging for further professional training as necessary, so that staff is also able to meet changing or increasing requirements of their particular responsibilities.
In other words, the fitness qualifications that the Solvency II system demands of key function holders must be present not only at the time an individual assumes the role, but permanently.45 To ensure this, insurance undertakings are required—according to the Level 3 explanations—to provide the appropriate and necessary professional training based on the “assessment”46 stressed earlier. The government’s draft of the VAG [German Insurance Supervision Act], on the other hand, does not speak to the matter of qualification timing or duration in either sec. 25 or in the Statement of Reasons.
The view, which is suggested and to some extent represented—including by BaFin in its notice dated February 22, 201047—in the context of the German insurance supervisory regime concerning the qualifications of supervisory board members, that such qualifications can be attained through additional training after the assumption of duties is inconsistent with corporate, liability, and supervision law48 and is not an issue with respect to the qualifications of key function holders in light of the Solvency II requirements. The question it presents, which has clear implications on liability, may be easily confused with another question but, from a strictly legal standpoint, must be kept separate. The question is, what supervisory consequences can a qualification have that, in the view taken here, is required from the very start, but missing at the time, and only earned while a supervisory or subsequent judicial proceeding is taking place? This is not a matter of liability arising from decisions made in the absence of the necessary qualifications. Rather, it concerns the relevant point in time for the legal assessment of supervisory measures or, in other words, whether it is actually possible to have an after-the-fact cure for deficient qualifications that had no impact in terms of legal liability.49
8.2.4 The Fitness of Subordinate Staff to Key Function Holders
18.104.22.168 Solvency II
Under the two-tier qualification structure that underlies the Solvency II system, general qualification requirements also apply to the subordinate staff of key function holders.50 As discussed previously, the Solvency II Directive in Recital 34—“fit and proper”—and the DVO in art. 258 SG6, para. 3—“necessary expertise”—rightly presume that all staff members who perform work in key functions possess the knowledge and skills necessary to properly carry out their duties.51 The same applies pursuant to No. 3.31 of the Governance Guidelines for “all persons working within a key function”. This underscores a difference between the general qualification requirements for all staff members in key functions52 and the special qualifications that apply only to key function holders. From Recital 35 of the Solvency II Directive53 and No. 3.37 of the Governance Guidelines it also proceeds that the special level of qualification required of the key function holder in each individual case partly determines the lower, general level of qualification related to the tasks and the undertaking that are required of the subordinate staff in key functions, and that the qualifications and experience of other staff members in the undertaking must be taken into account in determining the qualification requirements for staff members in key functions.
It follows that an undertaking’s internal policies on key functions must, in accordance with these requirements and in consideration of the principle of proportionality, provide specific details not only on the required qualification profile of key function holders but also that of staff members in key functions. Added to this as further subject-matter of the policies are all of the other questions previously discussed in connection with the proceduralization of fitness and the qualification dates and content for holders of key functions54 if they also apply at the level of their subordinate staff members. The matter of professional development, i.a., through internal or external training, has material significance here. Guideline 14 (d) of the Governance Guidelines requires that the written policies for key function holders also include: “a description of the procedure of assessing fitness and proper requirements of other personnel, both initially and on an ongoing-basis”.