MANILA, Philippines - The Bank for International Settlements (BIS) is strongly recommending that individual board members of banks must be more involved, and that the board should have greater collective corporate responsibility.
The BIS is recognized as the central bank of most central banks worldwide.
The Basel Committee of the BIS released recently a set of revised guidelines enhancing corporate and risk governance for banks.
It is open to suggestions and comments, but the final guidelines will be implemented next year.
‘The revised guidelines emphasize the importance of the board’s collective competence as well as the obligation on individual board members to dedicate sufficient time to their mandates and to remain current on developments in banking,” the BIS said in a statement.
The proposed guidelines include strengthening the guidance on risk governance, including the risk management roles played by business units, risk management teams, and internal audit and control functions (the three lines of defense) and the importance of a sound risk culture to drive risk management within a bank.
It likewise expands the guidance on the role of the board of directors in overseeing the implementation of effective risk management systems, and emphasize the importance of the board’s collective competence as well as the obligation on individual board members to dedicate sufficient time to their mandates and to remain current on developments in banking.
It also provides guidance for bank supervisors in evaluating the processes used by banks to select board members and senior management.
The revised guidelines also recognizes that the compensation systems form a key component of the governance and incentive structure through which the board and senior management of a bank convey acceptable risk-taking behavior and reinforce the bank’s operating and risk culture.
“Effective corporate governance is critical to the proper functioning of a bank, the banking sector and the economy,” the BIS said.
While there is no single approach to good corporate governance, the revised principles provide a framework within which banks and supervisors should operate to achieve robust and transparent risk management and decision-making.
Achieving the goals of the guidelines would promote public confidence and uphold the safety and soundness of the banking system.