Corporate Governance Policy - Banks and Deposit Companies Act 1999 (December 2012)

Summary

This is a Bermuda Monetary Authority policy paper setting out corporate governance expectations for deposit-taking institutions licensed under the Banks and Deposit Companies Act 1999. It articulates 13 principles, with supporting guidance, covering board practices, senior management oversight, risk management and internal controls, compensation, complex or opaque structures, and disclosure and transparency. The Authority treats compliance with corporate governance policies as a statutory minimum licensing criterion and will consider adherence to this Policy when assessing whether that criterion is met.

• Board practices: Boards must approve and oversee business strategy, risk appetite, risk and compliance policies, internal controls, corporate governance framework and compensation systems, and must exercise their duty of care under the Companies Act 1981.
• Board qualifications and structure: Board members must be and remain qualified, receive training, and the board should be composed of a majority of qualified non-executive members with defined governance practices, committees (including an audit committee) and periodic self-assessment.
• Senior management oversight: The board must select, monitor and, where necessary, replace senior management, set performance standards, and ensure internal control functions (audit, risk, compliance) report directly to the board.
• Risk management and internal controls: Institutions must maintain documented risk appetite, internal control systems, segregation of duties, and controls over transaction authorisation, completeness, accuracy, asset safeguarding, personnel and IT security, as detailed in the Annex on Internal Controls.
• Compensation: Compensation systems should be aligned with the bank's risk profile and code of conduct to avoid incentivising excessive risk-taking.
• Complex or opaque structures: Boards and senior management must understand and manage risks arising from complex or opaque corporate or group structures.
• Disclosure and transparency: Institutions should disclose governance arrangements, including board committee mandates and composition, to enhance transparency and accountability.

The Policy does not replace or reduce existing statutory requirements and allows institutions discretion in how they implement the guidance, proportionate to their size, complexity, structure and risk profile.

Key obligations

• Banks and deposit companies licensed under the Act must implement corporate governance policies and processes as a statutory minimum licensing requirement.
• Boards must approve and oversee the bank's business strategy, risk appetite, risk management and compliance policies, internal controls system, corporate governance framework and compensation system.
• Boards must establish a documented risk appetite and ensure capital resources are commensurate with the bank's risk profile.
• Boards must select and, where necessary, replace senior management and maintain succession planning.
• Board members must remain qualified for their positions, including through ongoing training, and boards should be composed of a majority of qualified non-executive members.
• Banks should establish an audit committee (or equivalent) responsible for oversight of financial reporting and auditors.
• Institutions must maintain internal control functions (internal audit, risk management, compliance) that report directly to the board and operate independently of business lines.
• Institutions should establish a code of conduct or comparable policy prohibiting illegal or improper activity and supporting confidential reporting of concerns.
• Institutions must have controls ensuring transaction authorisation, completeness, accuracy, safeguarding of assets, and appropriately trained personnel.
• Institutions must establish IT security policies, standards and training to protect information systems and data.

Applies to

banks, deposit companies licensed under the Banks and Deposit Companies Act 1999