The Corporate Governance Code for Credit Institutions and Insurance Undertakings (the “Code”) was introduced in January 2011 and has been broadly welcomed as an important step in the enhancement of the corporate governance of financial institutions in Ireland. The Code applies to all Irish banks, building societies, insurance companies (both life and non-life but excluding captives), and reinsurance companies (excluding special purpose reinsurance vehicles).

While the Code applies to existing boards and directors with effect from 1 January 2011, the Central Bank has given institutions until 30 June 2011 to introduce the necessary changes. Where changes to board membership are necessary, institutions have until 31 December 2011 to identify and assess candidates prior to making appointments.

Key elements which have been introduced in the Code are:

  • the adoption of a two tier approach whereby minimum core requirements are imposed on all institutions covered by the Code and additional requirements are imposed upon those institutions which are deemed to be "major institutions";
  • the absence of specific criteria to be applied in determining whether an entity is a "major institution";
  • the requirement that each board should have a majority of independent non-executive directors has been relaxed in respect of banks and insurers that are subsidiaries. Such institutions are required to have a majority of non-executive directors and at least two independent non-executive directors;
  • the chairman of a subsidiary may be a group director and does not need to be an independent non-executive director as originally proposed. The original proposal was of significant concern to multi-national financial services groups with subsidiaries in Ireland;
  • boards must have a minimum of 7 directors in major institutions and a minimum of 5 in all others;
  • limits on the number of directorships which directors may hold in financial and non-financial companies to ensure they can comply with the expected demands of board membership of a credit institution or insurance company; and
  • all institutions to which the Code applies must submit an annual compliance statement to the Central Bank specifying whether the institution has complied with the Code.

Matthew Elderfield has stated that the Central Bank consciously decided in the wake of the financial crisis that it did not simply want to match best corporate governance practice internationally but rather the Central Bank wanted to set a higher standard. While it is expected that the administrative sanctions procedure will be more regularly used to deal with breaches of the Code, a breach of the Code can constitute an offence. Institutions are likely therefore to take a conservative and very literal approach to compliance with the Code.