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

    PRA Consults on Implementation of Certain Provisions of CRD5

    PRA, via the consultation paper CP12/20, proposed changes to its rules, supervisory statements, and statements of policy to implement certain elements of the Capital Requirements Directive (CRD5).

    July 31, 2020 WebPage Regulatory News
    News

    EIOPA Report Identifies Key Financial Stability Risks for Insurers

    EIOPA published the financial stability report that provides detailed quantitative and qualitative assessment of the key risks identified for the insurance and occupational pensions sectors in the European Economic Area.

    July 30, 2020 WebPage Regulatory News
    News

    EBA Publishes Risk Dashboard for First Quarter of 2020

    EBA published its risk dashboard for the first quarter of 2020 together with the results of the risk assessment questionnaire.

    July 30, 2020 WebPage Regulatory News
    News

    EBA Issues Updates on Stress Test Exercise for Banks in EU

    EBA announced that the next stress testing exercise is expected to be launched at the end of January 2021 and its results are to be published at the end of July 2021.

    July 30, 2020 WebPage Regulatory News
    News

    PRA Proposes Guidance Related to Matching Adjustment under Solvency II

    PRA published the consultation paper CP11/20 that sets out its expectations and guidance related to auditors’ work on the matching adjustment under Solvency II.

    July 30, 2020 WebPage Regulatory News
    News

    MAS Issues Guidance on Dividend Distributions by Banks

    MAS published a statement guidance on dividend distribution by banks.

    July 30, 2020 WebPage Regulatory News
    News

    APRA Updates Guidance on Capital Management for Banks

    APRA updated its capital management guidance for banks, particularly easing restrictions around paying dividends as institutions continue to manage the disruption caused by COVID-19 pandemic.

    July 29, 2020 WebPage Regulatory News
    News

    FSB Report Reviews Macro-Prudential Framework and Tools in Germany

    FSB published a report that reviews the progress on data collection for macro-prudential analysis and the availability and use of macro-prudential tools in Germany.

    July 29, 2020 WebPage Regulatory News
    News

    EBA Urges Firms to Finalize Preparations for End of Brexit Transition

    EBA issued a statement reminding financial institutions that the transition period between EU and UK will expire on December 31, 2020; this will end the possibility for the UK-based financial institutions to offer financial services to EU customers on a cross-border basis via passporting.

    July 29, 2020 WebPage Regulatory News
    News

    SRB on Operational Continuity in Resolution and FMI Contingency Plans

    SRB published guidance on operational continuity in resolution and financial market infrastructure (FMI) contingency plans.

    July 29, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5606