Required Appointments
The Central Bank requires the appointment of a Compliance Officer and non-executive directors. It may also require internal auditors. Directors and other senior officers must comply with the fitness and probity requirements.
The 2011 Standards of Fitness and Probity for persons carrying out functions in regulated entities, provides for two categories of persons. Persons occupying a pre-approval controlled function and persons occupying a controlled function. Persons performing the above roles must be competent and capable, honest, ethical and act with integrity and financially sound.
The directors must be approved by the Central Bank. Entities were required by the end of 2011 to provide a list of individuals in their organisation providing preapproved control functions. The persons on the list were required to be compliant with the standards in relation to existing directors.
Requirements of the Individuals
Competence and capability require that they have the requisite experience and qualification for the role. Evidence of qualifications and relevant experience is required. A record of the job application, interview and references may be required. The requirements regarding honesty and integrity require answering questions in relation to disciplinary proceedings, criminal proceedings and dismissal.
The requirement for financial soundness requires that the persons have managed their own personal financial affairs in a prudent manner. This requires answering a list of questions dealing with personal solvency and insolvency of entities with which the person has been associated.
The regulated entity must itself be satisfied on reasonable grounds that every employee and director which occupies the above position complies with the standards of commencement and on an ongoing basis. There is a positive obligation to carry out and record due diligence in respect of ongoing compliance.
The CF and PCF obligations depend on the nature of the role and function in substance. The relevant individual must comply with the requisite standards on an ongoing basis. This requires notification of any material changes to the organisation. The organisation must notify the Central Bank of any such changes.
Corporate Governance Code
The Central Bank published a corporate governance code for the regulated entities in 2010.The code distinguishes between normal institutions providing regulated financial services and the major institutions (generally larger banks and insurance companies) in respect of whom more onerous obligations apply. Each entity must make a compliance statement as to whether it has achieved the requisite compliance with the code.
The code emphasises that the Board remains responsible for governance at all times while recognising the role of senior management. There must be robust governance structures, clear organisation, risk management, internal controls and sound administrative and accounting systems. No person should not have unfettered powers.
Where a director has concerns regarding governance, he must approach the Board about the issues without delay. If no adequate response is received within five days, he must inform the Central Bank.
Directors Requirements
There must be a minimum of five directors and seven for major institutions. The majority must be independent nonexecutive directors. Nonexecutive directors are not employees and have no managerial role in the organisation.
In the case of subsidiaries, the majority may comprise group nonexecutive directors but there must be at least two independent non-executive directors. Three are required for major institutions.
In theory, the nonexecutive directors are expected to challenge the directors and management. As directors, they have the ultimate control of the organisation. Their role is deemed protected by the Central Bank, so that they may not be dismissed by the organisation without good cause. This would undermine their supervisory role. The Central Bank will scrutinise voluntary resignations as well as dismissals.
Directors are expected to attend all meetings except where they cannot do so for reasons beyond their control. The Central Bank will examine minutes.
A director shall hold no more than five directorships (three for a major institution) of regulated entities. This does not apply to group companies and eight (five for a major institution) for non-regulated entities. A Central Bank may determine that five is too many in the circumstances.
A person who has been a director for nine years must have his role reviewed by the Board. The overall Board membership must be reviewed tri-annually.
Chairman
Each institution must have a Chairman to lead the Board who should encourage critical review and challenge of management. The Chairman may not be the Chief Executive Officer or Managing Director and must be a nonexecutive director. In the case of a group company, the Chairman must be a group nonexecutive.
The Chairman is elected annually and must have the appropriate experience and knowledge. He may not take other directorships without Central Bank consent.
A CEO may not hold the position in more than one regulated entity. He must have the appropriate knowledge and experience. The CEO and the Compliance Officer are primarily answerable to the Central Bank and the OCDE for regulatory matters.
The Board must document the responsibility of the Board itself, committee members, senior management in terms of responsibility and reporting. It must review the performance and document the review. It must a business plan dealing with performance indicators, with provisions dealing with the deviations from the plan and conflict of interest.
Policies and Committees
The Board must ensure that remuneration policies do not incentivise undue risk-taking. Boards must maintain a policy on diversity, with a view to creating more diversified Boards. Meetings must be quarterly and at least six times a year for major institutions.
A risk committee and an audit committee must be established with appropriate terms of reference. They must report to the Board on a regular basis.
The audit committee is to be made up of nonexecutive directors with an independent Chairman. The Chairman and CEO may not sit on the audit committee but may attend by invitation. The audit committee is responsible for reviewing financial statements, recommending matters to the Board if appropriate, assessing auditor independence, monitoring controls and liaising with auditors in relation to their findings.
The risk committee is to advise the Board on risk and risk toleration and financial reserves. Major institutions must create a remuneration committee to determine remuneration. The majority must be nonexecutive directors. Major institutions must establish a nomination committee to advise on the appointment of directors. The majority must be nonexecutive directors.