Response to Consultation Comments - Corporate Governance Related Amendments (2012-12-12)

Summary

This is a Bermuda Monetary Authority letter responding to industry consultation comments received on the draft Corporate Governance Policy for banks and deposit companies, issued following the Banks and Deposit Companies Amendment Act 2012, which added a corporate governance licensing criterion to the Banks and Deposit Companies Act 1999. The Authority explains how it has finalised the Statement of Principles (SoP) and the new Corporate Governance Policy (Policy), and how compliance with these will be considered when assessing whether an institution meets the corporate governance licensing criterion.

• Board delegation: The board of directors may delegate powers, but retains ultimate responsibility for matters delegated.
• Risk terminology: "Risk tolerance" has been replaced throughout the Policy with "risk appetite", defined as the level of aggregate risk the board is willing to assume in pursuing business objectives.
• Board composition: Principle 2 requires a majority of non-executive directors generally; Principle 4 requires an adequate number of independent directors specifically where the bank is a subsidiary of a group.
• Committee rotation: Occasional rotation of board committee membership and chairmanship is a suggested consideration, not a hard requirement, and should be avoided if it would impair committee effectiveness.
• Audit committee independence: The requirement has been softened from entirely independent non-executive directors to a "sufficient number" of independent NEDs, aligning with Basel Committee standards.
• Disclosure of committees: Public disclosure should include, at minimum, committee names, a summary of purpose and role, and composition information (numbers of executive, non-executive and independent directors).
• Senior management: Senior management includes at minimum the CEO and senior executives as defined under section 7 of the Act, and is accountable to the board of directors.
• Sensitive information: There is no requirement under the Policy to disclose commercially sensitive proprietary information.
• Individual board member disclosure: Information on individual board members specified under section 13.3 must be disclosed, though disclosure of the selection process may be limited to a general description.
• Annual report: There is no requirement for licensed deposit-taking institutions to publish a standalone annual report containing the Principle 13 disclosures; other media may be used.

The letter also notes a consequential amendment moving detailed Internal Controls provisions from the Authority's 2007 paper on its relationship with auditors and reporting accountants into a new Annex of the Policy paper, without adding new substantive requirements.

Key obligations

• Banks and deposit companies must ensure board committee information (names, purpose, role and composition by director category) is publicly disclosed.
• Banks and deposit companies must disclose information on individual board members as specified under section 13.3 of the Policy.
• Audit committees must include a sufficient number of independent non-executive directors.
• Senior management must be accountable to the board of directors, consistent with the Policy's governance structure.
• Institutions must not disclose commercially sensitive proprietary information as part of Policy-required disclosures, but must otherwise meet the disclosure and transparency provisions referenced.
• Compliance with the Statement of Principles and Corporate Governance Policy will be assessed by the Authority as part of the corporate governance licensing criterion.

Applies to

banks, deposit companies