Featured Product

    FSI Paper Reviews Fit and Proper Assessment Criteria at Banks

    March 17, 2020

    FSI published a paper that reviews the post-crisis "fit and proper" assessment criteria for bank directors, along with the related guidance on board composition and structure, in 19 jurisdictions. The paper identifies areas where additional guidance on aspects of board governance can help to further strengthen the quality of bank boards, which, in turn, may enhance confidence in the financial system. The stock-take also provides insights on the methods authorities use to enhance board composition and structure.

    The 19 jurisdictions reviewed in this assessment include the US, the UK, EU, Australia, Bahrain, Belgium, Brazil, Chile, China, Germany, Hong Kong, India, Malaysia, the Netherlands, Nigeria, the Philippines, Russia, South Africa, and Thailand. The paper finds that, while all jurisdictions prescribe the "fit and proper" criteria, some have no regulatory powers to approve board candidates or they do not require prior approval of all bank directors. Where prior regulatory approval is required, regulatory decisions are driven by the fitness criterion, which comprises a range of different factors. When it comes to board composition, nearly all authorities require the chair and the CEO roles to be separated and many prescribe an appropriate mix of executive directors, non-executive directors, and independent non-executive directors on the board. In this context, all jurisdictions provide guidance on what is not considered "independent," focusing on the relationship between a bank and a director. Several jurisdictions also impose tenure limits for non-executive directors and independent non-executive directors. As for board structure, most authorities require banks to establish risk, audit, and remuneration committees, while ethics and culture committees are rare. While regulatory guidance on corporate governance is applicable to all banks, authorities differentiate expectations through the use of proportionality.

    The review of fit and proper assessment approaches identifies practices that may be useful for supervisory authorities. Authorities might, where appropriate, seek regulatory powers to approve board candidates and determine whether aspects of the fitness criterion can be enhanced to help support desired outcomes. These include clarifying the “expertise” requirements of board candidates, particularly the board chair and the chair of board subcommittees; assessing the time commitment of board candidates, considering their outside obligations; incorporating the “independence of mind” concept, which goes beyond determining whether candidates have a conflict of interest; and outlining the role of interviews in the assessment process. In determining formal independence, supervisory assessments might be improved by defining more concrete attributes for an independent non-executive director, establishing maximum tenure limits for an independent non-executive director, and monitoring how often an independent non-executive director dissents from the majority opinion.

     

    Related Links

    Keywords: International, Banking, Operational Risk, Fit and Proper Criteria, Governance, Proportionality, FSI

    Related Articles
    News

    EBA Updates List of Validation Rules for Reporting by Banks

    EBA issued a revised list of validation rules with respect to the implementing technical standards on supervisory reporting.

    September 10, 2020 WebPage Regulatory News
    News

    EBA Responds to EC Call for Advice to Strengthen AML/CFT Framework

    EBA published its response to the call for advice of EC on ways to strengthen the EU legal framework on anti-money laundering and countering the financing of terrorism (AML/CFT).

    September 10, 2020 WebPage Regulatory News
    News

    NGFS Advocates Environmental Risk Analysis for Financial Sector

    NGFS published a paper on the overview of environmental risk analysis by financial institutions and an occasional paper on the case studies on environmental risk analysis methodologies.

    September 10, 2020 WebPage Regulatory News
    News

    MAS Issues Guidelines to Promote Senior Management Accountability

    MAS published the guidelines on individual accountability and conduct at financial institutions.

    September 10, 2020 WebPage Regulatory News
    News

    APRA Formalizes Capital Treatment and Reporting of COVID-19 Loans

    APRA published final versions of the prudential standard APS 220 on credit quality and the reporting standard ARS 923.2 on repayment deferrals.

    September 09, 2020 WebPage Regulatory News
    News

    SRB Chair Discusses Path to Harmonized Liquidation Regime for Banks

    SRB published two articles, with one article discussing the framework in place to safeguard financial stability amid crisis and the other article outlining the path to a harmonized and predictable liquidation regime.

    September 09, 2020 WebPage Regulatory News
    News

    FSB Workshop Discusses Preliminary Findings of Too-Big-To-Fail Reforms

    FSB hosted a virtual workshop as part of the consultation process for its evaluation of the too-big-to-fail reforms.

    September 09, 2020 WebPage Regulatory News
    News

    ECB Updates List of Supervised Entities in EU in September 2020

    ECB updated the list of supervised entities in EU, with the number of significant supervised entities being 115.

    September 08, 2020 WebPage Regulatory News
    News

    OSFI Identifies Focus Areas to Strengthen Third-Party Risk Management

    OSFI published the key findings of a study on third-party risk management.

    September 08, 2020 WebPage Regulatory News
    News

    FSB Extends Implementation Timeline for Framework on SFTs

    FSB is extending the implementation timeline, by one year, for the minimum haircut standards for non-centrally cleared securities financing transactions or SFTs.

    September 07, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5796