The Central Bank of Ireland has published its Corporate Governance Code for Credit Institutions and Insurance Undertakings. The Code will apply to all Irish banks, building societies, insurance companies (both life and non-life but excluding captives), and reinsurance companies (excluding special purpose reinsurance vehicles) with effect from 1 January 2011. A six month implementation period will begin to run from that date, with a further six month implementation period afforded for any change to an undertaking’s board of directors where such a change is necessary.
Companies that are within the scope of the Code are referred to below as Financial Institutions.
Financial Institutions which are considered by the Central Bank to be a “Major Institution” will be subject to more onerous requirements than other Financial Institutions.
The board of a Financial Institution must consist of a majority of independent non-executive directors (“INED”). An important, and welcome, exception to this rule exists for companies within a group where the board of such a company must consist of at least two INEDs and a majority of group non-executive directors (“GNEDs”). GNEDs can hold executive roles in other companies within the same group.
The Code requires that a considerable amount of documentation be put in place, including:
- records of all considerations of conflicts of interest of board members;
- formal letters of appointment for directors;
- formal board reviews on an annual basis;
- terms of reference for the board and all sub-committees of the board;
- an expression of the company’s risk appetite;
- a risk-averse remuneration policy;
- a formal list of matters reserved specifically for the board to decide upon; and
- an annual statement of compliance with the Code.
Records will need to be kept of any material deviations from the Code and various reporting requirements will arise where such a deviation occurs.
Subject to an optional exception for companies in a group, Financial Institutions will be required to have both an audit and a risk committee. The format of these committees will depend on the number of directors on the board and the risk profile of the Financial Institution.
Guidelines on the limit of directorships an individual may hold are also contained in the Code. These guidelines create the rebuttable presumption that the individual will not have time to properly carry out their duties as a director if the number of directorships they hold exceeds specified limits. If an individual is on the board of a Major Institution then he/she can only hold two other directorships with Financial Institutions. If an individual is on the Board of a Financial Institution that is not a Major Institution then he/she may hold four other directorships in Financial Institutions. There are also guidelines regarding the number directorships in companies that are not Financial Institutions that can be held.
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This article has been authored by Grant Murtagh.