Background to BIS Principles Flashcards
Which body helps banks implement sound corporate governance practices?
Basel Committee on Banking Supervision (BCBS)
What did the BCBS use to formulate their own guidance?
The OECD Principles of Corporate Governance
What are the primary points in the BCBS 2006 Principles?
- Board should be appropriately involved in approving the bank’s strategy.
- Clear lines of responsibility to be set and enforced throughout organisation.
- Compensation policies should be consistent with the bank’s long term objectives.
- Risk generated by operations that lack transparency should be adequately managed.
What were some of the shortcomings in banks that led to the 2007-2008 financial crisis in regards to corporate governance?
- Insufficient board oversight of senior management
- Inadequate risk management
- Unduly complex or opaque bank org structures and activities.
What does the BIS (BCBS) revised principles require from Boards to ensure they exercise their duties properly?
- Sound objective judgement - competent and qualified.
- Follow good governance practices
- Support from competent, robust and independent risk and control functions which the board oversees.
What does the BIS revised principles require from senior management?
They ensure that the bank’s activities are consistent with the business strategy, risk tolerance, appetite and policies approved by the board.
What does the BIS revised principles required of risk management and internal controls?
- Independent risk management with stature, resource and board access.
- Risk identification and monitoring on an ongoing firm wide and individual entity basis with techniques and controls proportionate to the complexity of the bank’s risk profile and external landscape.
- Timely comms within the bank about risk across the whole organisation.
In regards to compensation, what does the BIS recommend in their Principles?
That banks should implement the Financial Stability Board’s Principles for Sound Compensation Practices and accompanying Implementation Standards.
What are the key areas covered by the BIS (BCBS) reforms of their Principles?
- Board practices
- Senior management
- Risk management and internal controls
- Compensation
- Complex and opaque corporate structures
- Disclosure and transparency
What take precedence, national legislation or BCBS Principles?
National legislation
How many BIS Principles for Enhancing Corporate Governance are there?
14
What are the BIS Principles for Enhancing Corporate Governance?
- Board has overall responsibility for the bank
- Board members should be qualified and exercise sound judgement.
- Board to define governance practices for its own work and review them periodically.
- In group structure, board of parent company has overall responsibility for group corporate governance.
- Senior management to ensure that bank’s activities are consistent with bank strategy, risk tolerance policies approved by the board.
- Independent risk management
- Risks to be identified and monitored through the firm and for individual entities
- Robust internal comms about risk throughout the bank.
- Board and senior management to utilise the work conducted by internal and external auditors.
- Board to actively oversee the compensation system design and operation.
- Employee compensation to be linked to prudent risk-taking, risk outcomes and compensation payouts to be sensitive of time horizons of risks.
- Board and senior management to understand bank operational structure and risks ‘know your structure’.
- Bank operations in special-purpose or high risk jurisdictions to be scrutinised by board and senior management.
- Governance of bank should be adequately transparent to shareholders, depositors and other stakeholders.
