The Basel Committee on Banking Supervision (the Committee) has published for consultation a set of principles for enhancing sound corporate governance practices at banking organisations.
The principles cover:
- The role of the board, which includes approving and overseeing the implementation of the bank's risk strategy taking into account the bank’s long-term financial interests and safety.
- The board's qualifications. For example, the board should have adequate knowledge and experience relevant to each of the material financial activities the bank intends to pursue to enable effective governance and oversight of the bank.
- The importance of an independent risk management function, including a chief risk officer or equivalent with sufficient authority, stature, independence, resources and access to the board.
- The need to identify, monitor and manage risks on an ongoing firm-wide and individual entity basis. This should be based on risk management systems and internal control infrastructures that are appropriate for the external risk landscape and the bank's risk profile.
- The board’s active oversight of the compensation system's design and operation, including careful alignment of employee compensation with prudent risk-taking, consistent with the Financial Stability Board’s principles.
The Committee also believes that regulators have a critical role in ensuring that banks practice good corporate governance. In line with the Committee's principles, regulators need to establish guidance or rules requiring banks to have robust corporate governance strategies, policies and procedures.
The principles are intended to help banks to enhance their corporate governance frameworks and to assist supervisors in assessing the quality of those frameworks. It is not, however, intended to establish a new regulatory framework layered on top of existing national legislation, regulation or codes.
The deadline for comments on the consultation is 15 June 2010.
View Principles for enhancing corporate governance - consultative document, 16 March 2010