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.
Keywords: International, Banking, Operational Risk, Fit and Proper Criteria, Governance, Proportionality, FSI
Previous ArticleEIOPA Issues Statement on Mitigating Impact of COVID-19 on Insurers
Next ArticleIASB Defers Effective Date for IFRS 17
The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.
The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.
Certain regulatory authorities in the US are extending period for completion of the review of certain residential mortgage provisions and for publication of notice disclosing the determination of this review until December 20, 2021.
The Prudential Regulation Authority (PRA) published the policy statement PS18/21, which introduces an amendment in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook.
The European Banking Authority (EBA) published its annual report on asset encumbrance in banking sector.
The European Banking Authority (EBA) published a methodological guide to mystery shopping.
The Australian Prudential Regulation Authority (APRA) released a letter to authorized deposit-taking institutions to provide an update on key policy settings for the capital framework reforms, which will come into effect from January 01, 2023.
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published a report that assesses the business continuity planning activities of financial market infrastructures or FMIs.
The Bank of England (BoE) published questions and answers (Q&A) on OSCA to BEEDS migration for statistical reporting as well a presentation from the project overview session held with statistical reporters.
The Basel Committee on Banking Supervision (BCBS) is consulting on a technical amendment to the Basel Framework to reflect a new process reviewing the global systemically important bank (G-SIB) assessment methodology.