FED Consults on Corporate Governance and Large Entity Rating System
FED is requesting public comments on a corporate governance proposal to enhance the effectiveness of boards of directors and on a proposal to better align its rating system for large financial institutions with the post-crisis supervisory program for these firms. Comments will be accepted for 60 days.
The proposal on corporate governance would refocus the FED's supervisory expectations for the largest firms' boards of directors on their core responsibilities, which will promote the safety and soundness of the firms. Boards' core responsibilities include oversight of the types and levels of risk a firm may take and aligning the firm's business strategy with those risk decisions. Additionally, the proposal would reduce unnecessary burden for the boards of smaller institutions. The corporate governance proposal is made up of three parts and it:
Identifies the attributes of effective boards of directors, such as setting a clear and consistent strategic direction for the firm, supporting independent risk management, and holding the management of the firm accountable (for the largest institutions, FED supervisors would use these attributes to inform their evaluation of a firm's governance and controls)
Clarifies that, for all supervised firms, most supervisory findings should be communicated to the firm's senior management for corrective action, rather than to its board of directors
Identifies existing supervisory expectations for boards of directors that could be eliminated or revised
The proposal on the rating system for large financial institutions system incorporates the regulatory and supervisory changes made by FED since 2012, which focus on capital, liquidity, and the effectiveness of governance and controls, including firms' compliance with laws and regulations. The current supervisory program for the largest firms was introduced in 2012 and sets higher standards to lower the probability of a firm's failure or material distress and to reduce risks to the U.S. financial stability. The proposed changes to the rating Supervisors would assess and assign confidential ratings in each of these categories. The proposed rating system would only apply to large financial institutions, such as domestic bank holding companies and savings and loan holding companies with USD 50 billion or more in total consolidated assets as well as the intermediate holding companies of foreign banking organizations operating in the United States. Consistent with existing practice, the new rating system would not apply to insurance companies supervised by the Board. Firms with less than USD 50 billion in consolidated assets, including community banks, would continue to use the current rating system, which reflects long-standing supervisory practices for those firms.
Related Links
Proposal on Corporate Governance (PDF)
Proposal on Rating System (PDF)
Comment Due Date: October 01, 2017
Keywords: Americas, United States of America, Banking, Corporate Governance, Rating System, FED
Related Articles
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
BIS Bulletin Examines Cognitive Limits of Large Language Models
The use cases of generative AI in the banking sector are evolving fast, with many institutions adopting the technology to enhance customer service and operational efficiency.
ECB is Conducting First Cyber Risk Stress Test for Banks
As part of the increasing regulatory focus on operational resilience, cyber risk stress testing is also becoming a crucial aspect of ensuring bank resilience in the face of cyber threats.
EBA Continues Momentum Toward Strengthening Prudential Rules for Banks
A few years down the road from the last global financial crisis, regulators are still issuing rules and monitoring banks to ensure that they comply with the regulations.
EU and UK Agencies Issue Updates on Final Basel III Rules
The European Commission (EC) recently issued an update informing that the European Council and the Parliament have endorsed the Banking Package implementing the final elements of Basel III standards