On 23 December 2013 the Central Bank published the new Corporate Governance Code for Credit Institutions and Insurance Undertakings 2013 (the Revised Code). The Revised Code will take effect on 1 January 2015. In the meantime, institutions will continue to be subject to the requirements of the existing Corporate Governance Code for Credit Institutions and Insurance Undertakings 2011 (the Existing Code). The Revised Code distinguishes between institutions depending on whether they have been classified a "High-Impact", "Medium- High Impact", "Medium-Low Impact" or "Low-Impact" under PRISM.
KEY REVISIONS TO THE EXISTING CODE INCLUDE:
- Chief Risk Officer: Each institution must appoint a Chief Risk Officer (CRO) whose responsibilities are set out in the Revised Code. The CRO will report to the board and risk committee, and will also have direct access to the Chairman of the board. Other than High-Impact institutions, institutions whose operations are not sufficiently large or complex to justify a dedicated CRO may identify another person who occupies a pre-approval control function to act as CRO, subject to the prior approval of the Central Bank. Similarly, High Impact insurers and reinsurers whose operations are not sufficiently complex to justify a dedicated CRO may, with the Central Bank's prior consent, appoint their Chief Actuary as CRO.
- Risk Committee: Additional requirements in relation to the composition of the risk committee are also set out in the Revised Code. The CRO will report on a regular basis to this committee which will be comprised of a majority of non-executive or independent non-executive directors, one of whom must be the Chairman of the committee. The members of the risk committee must collectively have relevant risk experience.
- Members of Committees: In order to allow members to gain a greater understanding of the risks to which the institution is exposed, the Revised Code encourages cross-membership between board sub-committees and introduces a requirement for all institutions to have a minimum of one shared member between the risk and audit committees (in the case of High Impact institutions, the chair of the audit committee and the risk committee cannot be the same person), while High Impact institutions must also have a shared member between the risk and remuneration committees. In addition, the risk and audit committees will now be required to have a minimum of three members.
- Role of the Board/Board Meetings: The Revised Code sets out new parameters for the responsibilities of the board, and directors may now attend board meetings by videoconference or teleconference where it is not possible to be physically present. The Revised Code also requires that a new written diversity policy be put in place in relation to the selection of individuals to become members of the board but does not specify the scope of diversity. Boards will also have a new requirement to develop contingency plans for events which might occur in the future based upon risk assessments. Although the maximum number of directorships that an individual may hold has not changed (five), the Revised Code clarifies that this number includes those directorships of credit institutions and insurance/ reinsurance undertakings held outside of the State. Finally, the Revised Code also reduces the minimum number of board meetings for High Impact institutions from eleven to six per annum, and the requirement that the boards of other institutions meet at least quarterly has been adjusted to four times per calendar year, and at least once in every six month period.
- The role of Chairman/CEO: The Revised Code confirms that the restriction on a Chairman or CEO holding that position in more than one institution at any one time also extends to holding such a position in a credit institution, insurance undertaking or reinsurance undertaking authorised outside the State. However, the Revised Code permits a Chairman of a non-High Impact institution to hold a second Chairman position within the group, subject to the approval of the Central Bank. Further, the CEO of a Medium- Low or Low Impact institution may hold up to two additional CEO positions in other Medium-Low or Low Impact institutions with the approval of the Central Bank.
- Appendix for the new Capital Requirements Directive (CRD IV): The Revised Code includes a new Appendix 2 which applies to credit institutions which are subject to CRD IV and are deemed "significant" under that directive. To the extent that the corporate governance requirements of CRD IV differ from the requirements in the Revised Code, these "significant" institutions should comply with the requirements listed in Appendix 2. In particular, Appendix 2 indicates that significant institutions should substitute provisions of CRD IV in respect of the composition of the board, the risk committee, the remuneration committee and the nomination committee for those contained in the Revised Code. It is expected that Appendix 2 will be updated to refer to specific provisions of the Irish transposing legislation for CRD IV when that is published by the Minister for Finance.
- Institutions in Run-Off: The Central Bank has indicated that it will address the issue of whether or not individual institutions in run-off can dis-apply certain provisions of the Revised Code in the Frequently Asked Questions document that it expects to issue.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.