Basel Committee issues principles for enhancing corporate governance
October 04, 2010:
The Basel Committee on Banking Supervision today issued a set of principles for enhancing sound corporate governance practices at banking organisations.
The Principles for enhancing corporate governance address fundamental deficiencies in bank corporate governance that became apparent during the financial crisis. The principles were first issued for consultation in March 2010. Comments received were highly supportive of the Committee’s proposed corporate governance guidance.
The principles cover:
• the role of the board, which includes approving and overseeing the implementation of the bank’s risk strategy, taking account of the bank’s long-term financial interests and safety;
• the board’s qualifications. For example, the board should have adequate knowledge and experience relevant to each of the material financial activities the bank intends to pursue to enable effective governance and oversight of the bank;
• the importance of a risk management function (including a chief risk officer or equivalent for large banks and internationally active banks), a compliance function and an internal audit function, each with sufficient authority, stature, independence, resources and access to the board;
• the need to identify, monitor and manage risks on an ongoing firm-wide and individual entity basis. This should be based on risk management systems and internal control infrastructures that are appropriate for the external risk landscape and the bank’s risk profile; and
• the board’s active oversight of the compensation system’s design and operation, including careful alignment of employee compensation with prudent risk-taking, consistent with the Financial Stability Board’s principles.
The principles also stress the importance of the board and senior management having a clear knowledge and understanding of the bank’s operational structure and risks. This includes risks arising from special purpose entities or related structures.
Supervisors also have a critical role in ensuring that banks practice good corporate governance. In line with the Committee’s principles, supervisors should establish guidance or rules requiring banks to have robust corporate governance strategies, policies and procedures. Commensurate with a bank’s size, complexity, structure and risk profile, supervisors should regularly evaluate the bank’s corporate governance policies and practices as well as its implementation of the Committee’s principles.
The need for sound corporate governance improvements has also been observed in other financial sectors. That is why, in developing the principles issued today, the Basel Committee coordinated its work with the International Association of Insurance Supervisors (IAIS), which is currently reviewing its Insurance Core Principles to address corporate governance for the insurance sector. The Basel Committee and the IAIS seek to collaborate on monitoring the sound implementation of their respective principles.
FSB invites feedback on residential mortgage underwriting practices...Read here
Options for strengthening repo clearing and settlement arrangements ...Read here
Microfinance activities and the Core Principles-Basel Committee...Read here
Macroeconomic impact of stronger capital and liquidity requirements... Read here
Broad agreement on capital & liquidity reform package... Read here
FSB invites feedback on risk disclosure practices... Read here
Basel Committee progress on regulatory reform package... Read here
Fiscal consolidation & financial sector reform... Read here
Basel announces adjustments to the Basel II market risk framework... Read here
Report on Bank funding and liquidity management ... Read here
Basel II and Revisions to the Capital Requirements Directive ... Read here
Strengthening cross-border bank resolution frameworks... Read here
Principles for enhancing corporate governance in banks... Read here
Initiative to promote international financial standards... Read here
consultative paper on Microfinance activities... Read here
Central Bank Governors reinforces Basel reform package... Read here
CLICK FOR MORE FEATURES & STORIES