Morrison & Foerster: BCBS Principles for Enhancing Corporate Governance

Background

On 4 October 2010, the Basel Committee on Banking Supervision ("BCBS") published a set of principles for enhancing corporate governance in banks (the "Principles"). The Principles are intended to provide targeted supervisory guidance. BCBS published initial guidance on corporate governance practices in 1999 and revised principles in 2006. BCBS launched a public consultation in March 2010, to address deficiencies which came to light since the financial crisis. The Principles should be considered in the context of the wider regulatory drive to strengthen corporate governance and restructure executive compensation practices for financial institutions.

Sound Corporate Governance Principles

BCBS's guidance is designed both to reinforce basic governance principles and to identify good practices for implementing them.

Board Practices

Board's overall responsibilities

Principle 1: The board has overall responsibility for the bank, including corporate governance and oversight of senior management. Responsibilities of the board include:

• Ultimate responsibility for the bank's business, risk strategy, and financial soundness, as well as its corporate governance and compensation system. Board members should exercise their "duty of care" and"duty of loyalty" to the bank under applicable national laws and supervisory standards. The board should review related party transactions to assess risk and attach appropriate restrictions.

• Corporate values and code of conduct. The board should take the lead in setting professional standards and corporate values, including the avoidance of excessive risks, and communicate these throughout the bank.

• Oversight of senior management.

Please click on the Attachment: link at the top of the post to view or download the entire article

For more legal analysis on the Dodd-Frank Wall Street Reform and Consumer Protection Act, visit Morrison & Foerster LLP's online resources that track rulemaking pursuant to the Act. If you are a lexis.com subscriber, watch for our upcoming Dodd-Frank area of law page!

© Copyright 2011 Morrison & Foerster LLP.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.