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Consultation on Corporate Governance Code for Investment Firms


The Central Bank published a Consultation on corporate governance requirements for investment firms (CP 94) on 5 May 2015. The Consultation is essentially a draft corporate governance code very similar to the Corporate Governance Code for Credit Institutions and Insurance Undertakings first introduced in 2011. In 2012 the Central Bank had conducted a thematic review of corporate governance in investment and stockbroking firms following which it issued nine recommendations focusing in particular upon corporate governance structures generally, board composition, the importance of appointing independent non-executive directors, the role of Chairman and CEO and roles of sub-committees. Thus the terms of the draft Code should come as no shock to the industry.

The Central Bank is inviting responses to the Consultation by no later than 5 August 2015.

To whom will the code apply?
The Code will apply to all firms, licensed or authorised by the Central Bank under either the MiFID Regulations or as non-retail investment intermediaries under the Investment Intermediaries Act, 1995 (apart from fund depositaries and administrators covered by the IFIA voluntary Corporate Governance Code for fund services providers and firms designated as “low impact” under the Central Bank’s Probability Risk Impact System (“PRISM”). Low impact firms are however encouraged to adopt the requirements of the proposed Code and foreign incorporated subsidiaries of firms subject to the proposed Code will also be encouraged to adopt equivalent good corporate governance practices).   

Code highlights
Highlights of the draft Code include:

Composition of Board
The firm must ensure that its Board is of sufficient size and expertise to oversee its operations. It must have a minimum of three directors (five in the case of PRISM High and Medium High firms), a majority of whom must be independent, non-executive directors (except in the case of groups, the majority of the Board may be composed of a combination of group directors and independent non-executive directors provided that in all cases the subsidiary must have at least one independent non-executive director (two in the case of PRISM High and Medium High firms). Two of the directors must be available to meet the Central Bank at short notice, one of whom must be an independent non-executive director or the Chairman. The number of directorships held by a director shall not affect his/her ability to discharge his/her role; however, there is no stated upper limit on the number of directorships a director may have. A formal review of Board membership must be carried out at least once every 3 years. PRISM High and Medium High firms must conduct a formal review of the Board and individual directors at least annually and an external valuation of the Board must be conducted every three years. If an independent non-executive director of a firm has been a member of the Board for nine years his/her continued membership must be formally reviewed. 

The Chairman must be an independent non-executive director (save that, in the case of a firm which is a subsidiary, the Chairman may be a group director). The Chairman must be proposed for election or re-appointment on an annual basis. The prior approval of the Central Bank must be obtained prior to the Chairman taking on any other directorships (other than within a group), as the required time commitment may be significant. The role of Chairman and CEO must be split and no individual who has been the CEO, an executive director or a member of senior management of the firm during the previous five years may act as Chairman.

There is no requirement for the CEO to be a member of the Board (unlike in the case of credit institutions/insurance undertakings). The CEO’s contract must be reviewed by the Board on renewal and at least once every 5 years.

Board meetings
The Board must meet as often as it is appropriate to fulfil its responsibilities effectively and prudently and must meet at least 4 times per calendar year and at least once in every 6 month period.

Audit/Risk Committee
The Board must establish at a minimum, both an Audit and a Risk Committee, (unlike in the case of credit institutions and insurance undertakings, there is no legal requirement for a chief risk officer). Where a firm is part of a wider group which has a group audit committee and/or a group risk committee, it may rely on these committees provided that the Board is satisfied that they are appropriate to the specific circumstances of the firm and the Board has documented its assessment. The Audit and Risk Committee must have at least one shared member. The Audit Committee must be composed of non-executive directors, including at least one independent non-executive director. The Risk Committee must be composed of a majority of non-executive directors or independent non-executive directors or a combination of both. In the case of both committees, the Chairman must be an independent non-executive director. PRISM High Impact and Medium High Impact firms must also establish Remuneration and Nomination committees except where they are part of a wider group where remuneration and nomination committees already exist.

Compliance statement
The firm must submit a compliance statement to the Central Bank on an annual basis (or with such other frequency as the Central Bank may notify from time to time). The report shall include details of any material deviations from the Code, advising of the background to the deviation and the actual or proposed remedial action. 

Contributed by  Patricia Taylor.