FSB thematic review of Corporate Governance

FSB thematic review of Corporate Governance

The Financial Stability Board (FSB) has published a thematic review of FSB members’ compliance with the G20/OECD principles of corporate governance for regulated financial institutions (across all sectors).

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The Thematic Review on Corporate Governance review highlights some divergences across FSB members, and makes a number of recommendations.

Most of the identified divergences across countries are not very important or interesting – perhaps the most significant is that although the G20/OECD principles state that separation of the Board Chair and the CEO is good practice, no such requirement or guideline exists in the US, Japan, Korea, Mexico or Spain.

The recommendations are also fairly low-key, although they may indicate where the FSB and some national supervisors may focus their efforts over the next year or so. They include:

  • Encouraging regulated financial institutions (“firms”) to adopt and to disclose codes of ethics or conduct.
  • Introducing more specific requirements or guidelines on Board effectiveness reviews, succession planning and Board training.
  • Encouraging firms to enhance the disclosure of their Board nomination and election processes, and the qualifications of their Board members.
  • Focusing more on the duties, responsibilities and composition of Boards within group structures; the framework for related party transactions; and on the role and responsibilities of independent directors on the Board and Board committees.
  • Improving firms’ disclosures on governance structures, voting arrangements, shareholder agreements and significant cross-shareholdings and cross-guarantees, and remuneration.
  • Considering whether shareholders should be given the opportunity to vote on a firm’s remuneration policies and the total value of compensation for the Board and senior management.
  • Considering whether supervisors need more specific intervention powers to address weaknesses in firms’ corporate governance.
  • Clarifying how corporate governance requirements can be applied in a proportional manner – most FSB members already do this for smaller regulated firms, but this may not take account of the ownership structure of the firm, or the stage of development of firms and the financial sector in which they operate.
  • Identifying and addressing gaps or inconsistencies in cases where corporate governance requirements and guidelines are contained in multiple sources (for example, in EU and national legislation, regulatory requirements, and voluntary codes of conduct for listed firms).

Although this thematic review contains no immediate or specific new requirements, firms might usefully consider the implications for them of any future regulatory initiatives based on the recommendations, in particular the first six recommendations listed above.

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KPMG’s Financial Services Regulatory Centers of Excellence can provide insights into the implications of the raft of regulatory change.

 
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