The Central Bank has published a new code of practice for banks and insurers aimed at addressing the failures in corporate governance at several Irish financial institutions
Limits on the number of directorships that Irish bank board members can hold and a ban on chief executives becoming chairpersons are among the raft of new measures to be adopted.
Under the rules, the boards of banks and insurers will now be required to set and oversee the relative “risk appetite” of their institutions.
This is a response to the bonus structure that exists in many banks which was, in part, responsible for the loose lending practices by financial institutions during the boom.
Boards of major institutions will also be required to have a minimum of seven directors so that “appropriate oversight” exists to avoid or minimise the risk of a future crisis.
Individuals who have served as chief executives, directors or senior managers are to be barred from taking up roles as chairpersons in the same institution for at least five years.
The number of directorships which directors may hold in financial and non-financial companies is to be limited to ensure they can comply with the time demands of board membership.
The new rules will come into force on January 1st and will apply to all credit institutions and insurers operating in the State.
However, different standards will apply to Irish subsidiaries of foreign regulated such those operating in the Irish Financial Services Centre in Dublin.
“The buck stops with the board of directors. We need to learn the lessons of the financial crisis by improving corporate governance practices in the financial services sector in Ireland,” the head of financial regulation at the Central Bank, Matthew Elderfield, said in a statement today.
Addressing the Chairperson’s Forum in Dublin today, Mr Elderfield insisted the rules would deliver stronger standards for banks and insurance companies operating in Ireland.
“These requirements are more demanding than those in place in other jurisdictions as we have decided that in the area of corporate governance we do not want to simply match best practice internationally but wish to set a higher standard.”
“It’s time to bring fresh blood into the board room, which brings more challenge, asks more awkward questions and devotes more time to assessing risk. Depositors, policyholders and, indeed, Irish taxpayers have the right to expect no less from the guardians of their money,” he said.
Failure to comply with the code may leave an institution subject to supervisory action and disciplinary procedures by the Central Bank.
The disciplinary procedures include sanctions under the administrative sanctions framework, criminal prosecution or the Central Bank using its powers to refuse the appointment of directors.
