Corporate Governance Requirements for Credit Institutions & Insurance Undertakings

From Accountingnet.ie

Law & Regulation
Corporate Governance Requirements for Credit Institutions & Insurance Undertakings
By Conor Sweeney - OmniPro
Jul 20, 2010 - 8:38:14 AM

The Financial Regulator recently issued a Consultation Paper on Corporate Governance Requirements for Credit Institutions & Insurance Undertakings. The provisions will be applicable to all credit institutions & insurers licensed or authorised by the Financial Regulator. The requirements are not applicable to foreign incorporated subsidiaries of an Irish Financial Institution.

The closing date for submissions was 30th June 2010. The Financial Regulator has indicated that they will collate the submissions and finalise the requirements by October 2010 and allow Credit Institutions and Insurance Undertakings six months to adopt the provisions and 12 months to make changes to the board of Directors.

The consultation paper has caused considerable debate in the financial and insurance industry as the requirements will have significant impact on the board of these entities. Some of the large banks operating in the IFSC have muted that if the provisions are approved in their current format, this could discourage foreign companies establishing in the IFSC and force companies to cease operating in Ireland.

The main provisions of the Corporate Governance requirements include:-

Impose requirements in terms of the minimum number of directors on the board
Limit the number of directorships which directors may hold so as to ensure they can comply with the expected demands of board membership of an institution
Require that board membership is reviewed at a minimum every 3 years
Require clear separation of the roles of Chairman and CEO and preclude an individual who has been CEO, director or senior manager during the previous five years from becoming Chairman of that institution
Set out clearly the role of the independent non-executive directors
Require the board to set the risk appetite for the institution and to monitor adherence to this on an ongoing basis
Set out the minimum requirements for board committees
Require annual confirmation of compliance to the Financial Regulator

I have set out below the main heading in the consultation paper and the main provisions of each heading.

General Requirements

The Board retains responsibility for corporate governance of the organisation & senior management are to play an important role

Composition of the Board

Minimum of 5 directors, the majority being independent non-executive directors
The number of directorships of a Director of a credit institution and insurance undertaking shall not exceed three & five directorships outside of these regulated entities
On appointment of directors, the board should consider possible conflicts of interest of the new Directors
Directors shall no participate in any decision where a potential conflict of interest exists

Chairman

Chairman to have financial a financial background or undertake training to peform this function
Chairman & CEO roles shall be separate & the Chairman be an independent non-executive director
Chairman shall seek Regulator approval prior to being appointed as a director
CEO, executive director of senior management cannot be appointed as Chairman for 5 years after ceasing that role.

Chief Executive Officer

Can only act as CEO for 1 company
Renewal of CEO contract to be reviewed every 5 years

Independent Non-Executive Directors

The INED shall clearly be identified in the annual report
They shall have relevant skills, experience & knowledge (accounting, auditing & risk management)

Role of the Board

Role & responsibilities of the board shall be clearly documented

Appointments

Board is responsible for appointment of CEO & senior management, & non-executives
Board review of board performance & individual directors annually

Risk Appetite

Board is required to understand risks the institution is exposed to & establish a documented risk appetite of the institution
The board shall ensure that the institution’s remuneration practices do not promote excessive risk taking

Meetings

Board shall meet at least once each calendar month
Detailed minutes shall be prepared with all decisions, discussions and points for further actions being documented
Establish a documented conflict of interest policy

Reserved Powers

Board shall establish a schedule of matters reserved for decision

Consolidated Supervision

Board shall exercise adequate control & oversight over the activities of all subsidiaries

Committees of the Board

Establish an Audit & Risk Committee (Remuneration & Nomination Committees are encouraged)
Non-Executive Directors particularly independent non-exec directors, shall play a leading role
Written terms of reference for committees & reviewed annually

Audit Committees

Composed of non-exec directors’ the majority being independent. The Chairman & CEO shall not be a member of the committee

Risk Committee

Risk committee separate from audit committee with responsibility for oversight & advice on current risk exposures of the entity & future risk strategy
Committee shall have a balance of executive & non-executive directors

Remuneration Committee

Where possible all members shall be independent non-executive directors & Chairman shall not be a member

Nomination Committee

Recommendations to the board on appointment of executive & non-executive directors

Compliance Statement

Compliance statement specifying compliance to be submitted to the regulator on an annual basis

Conor Sweeney is joint Vice-President of the Irish Region Council of the Institute of Chartered Secretaries and Administrators and Director of OmniPro Corporate Consultants and he can be contacted on +353 59 9183888 or csweeney@omnipro.ie

Visit www.omnipro.ie for further information.

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