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Basel Committee issues guidance on corporate governance for banking organisations

The Basel Committee on Banking Supervision in February 2006, issued guidance to help promote the adoption of sound corporate governance practices by banking organisations. This guidance results from a consultative document published in November 2005, which elicited a number of helpful comments from banks, industry associations, supervisory authorities and other organisations.

The guidance, entitled Enhancing corporate governance for banking organisations, builds on a paper originally published by the Committee in 1999, as well as principles for corporate governance issued by the Organisation for Economic Co-operation and Development in 2004. This guidance is intended to help ensure the adoption and implementation of sound corporate governance practices by banking organisations worldwide, but is not intended to establish a new regulatory framework layered atop existing national legislation, regulations or codes.

The paper highlights the importance of

the roles of boards of directors (with a focus on the role of independent directors) and senior management; effective management of conflicts of interest;

the roles of internal and external auditors, as well as internal control functions;

governing in a transparent manner, especially where a bank operates in jurisdictions, or through structures, that may impede transparency; and

the role of supervisors in promoting and assessing sound corporate governance practices.

Mr Jaime Caruana, Chairman of the Basel Committee and Governor of the Bank of Spain, noted: "Sound corporate governance is an important element of bank safety and soundness and the stability of the financial system. The Basel Committee believes that this paper will help to foster more effective risk management and greater transparency on the part of banking organisations."

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