The Central Bank (the Bank) has published a consultation paper in which it proposes the introduction of a number of changes to the Corporate Governance Code for Credit Institutions and Insurance Undertakings (the Code). The Code applies on a statutory basis to all credit institutions and insurance undertakings which are licensed or authorised by the Bank (including reinsurers but excluding captives which are governed by a separate Corporate Governance Code).

The Code was introduced in 2011 and the Bank is now seeking comments on whether there are aspects of the Code which could be clarified, enhanced or amended to strengthen its provisions.

It is planned that following a consultation process which runs until 1 October 2013, a revised version of the Code will be published in December 2013.

Note: In order to maintain a consistent approach with its supervisory regime, the Bank has re-defined the category of "Major Institution" as used in the 2010 Code to that of the Bank's Probability Risk Impact SysteM (PRISM) category of "High Impact" institution. The Bank also uses the terminology of other PRISM impact categories (Medium-High, Medium-Low and Low) as appropriate throughout this consultation paper.  This is one of the changes proposed to the Code (see below).

More significant proposed amendments

  • Risk committees (Section 23)

The Bank is proposing to amend the provision relating to risk committees to require that the committee be composed of a majority of non-executive directors. It also proposes that the committee should be chaired by a non-executive director. The Bank is seeking comments on whether this would be proportionate in the context of institutions' operations and current practice.

  • Chief Risk Officer (Section 12)

It is proposed to introduce a new requirement for all institutions to appoint a Chief Risk Officer (CRO) with responsibility for (a) maintaining effective processes to identify, manage and monitor risks across the institution; (b) risk reporting in a timely and comprehensive manner to the risk committee; and (c) facilitation of the setting of the risk appetite by the board. The CRO role would be at senior management level and the CRO would be required to have sufficient authority and independence to effectively discharge his or her duties. In institutions which are not designated High Impact, the appointment of a full-time CRO may not be warranted. In these cases, it is proposed that the CRO role be shared with another pre-approval control function provided there is no conflict of interest between the two roles.

  • Board Meetings (Section 16)

The Bank is seeking views on the practical, operational and strategic issues surrounding the implementation of the current requirement for High Impact institutions to hold eleven board meetings per year.

The Bank is also proposing a change to the current requirement for non- High Impact institutions to hold four board meetings per year, one per quarter. The Bank is proposing to permit institutions to hold one board meeting per half-year with the balance of meetings to be scheduled as the board deems appropriate, to reflect the reality that some institutions may have a clustering of business activity around certain parts of the year. 

  • Chairman (Section 8)

It is proposed to allow the Chairman of subsidiaries of groups which are designated as Medium-High, Medium-Low or Low Impact institutions, to hold more than one Chairman position in another credit institution or insurance undertaking provided that the institution resides within the same group and the Chairman has sufficient time available to fulfill the role. The current prohibition on the Chairman of a High Impact institution from holding the position of Chairman or CEO of another credit institution or insurance undertaking will remain in place, subject to derogation requests which will be considered by the Bank on a case-by-case basis.

  • Chief Executive Officer (Section 9)

It is proposed to amend the current prohibition on the CEO holding more than one CEO position in another credit institution or insurance undertaking at any one time.

In some institutions, the nature, scale and complexity of their operations may not justify a full-time CEO role. It is proposed to permit the CEO of a Medium-Low or Low Impact institution to hold up to two additional CEO roles in credit institutions or insurance undertakings which are designated as either Medium-Low or Low Impact, provided the CEO has sufficient time available to fulfill the roles.

  • Committees of the Board (Section 19 & Appendix 1)

It is proposed to include a requirement that the Chairman of the audit committee shall be a member of the risk committee and vice versa to broaden and deepen understanding of key board committees and facilitate a holistic risk management strategy for the institution. For High Impact institutions, it is proposed to introduce a requirement that the Chairman of the remuneration committee shall be a member of the risk committee and vice versa.

  • Annual Compliance Statement (Section 26)

For administrative convenience, it is proposed to amend the provision concerning Annual Compliance Statements to permit institutions with a non-calendar year financial reporting period to change the submission basis of the annual compliance statement to that of the institution's financial year.

  • Board responsibilities (Section 13)

The Bank believes that Section 13, which outlines the responsibilities of the board, could be enhanced by providing more detail on the Bank's expectations and has suggested a number of changes around this.

Specific areas for comment

  • Composition of the board / board diversity (Section 7)

The Bank is seeking specific feedback on whether a provision concerning board diversity requirements should be included in the Code and, if so, the nature of this requirement.

  • Directorship limits (Section 7 and Appendix 1)

The Bank is seeking comments on how the directorship limits requirement in the Code has operated and if the limits are appropriate. The current limits are:

  • The number of directorships of credit institutions and insurance undertakings held by a director must not exceed five, and the number of directorships of other entities must not exceed eight; and
  • For High Impact institutions, the number of directorships of credit institutions and insurance undertakings must not exceed three and the number of directorships of other entities must not exceed five.
  • Introduction of PRISM definitions

As outlined above, in order to maintain a consistent approach with its supervisory regime, the Bank proposes to re-define the category of "Major Institution" as used in the 2010 Code to that of the Bank's Probability Risk Impact SysteM (PRISM) category of "High Impact" institution. The Bank also proposes to use the terminology of other PRISM impact categories (Medium-High, Medium-Low and Low) as appropriate throughout the Code. 

Time table

The consultation runs until 1 October 2013. The revised Code is expected to be published in December 2013. According to the Bank, institutions will be provided with a reasonable timeframe for the implementation of the revised Code which will take into account the materiality of any amendments made.