5. directors; (ii) oversight by individuals now not concerned

Topic: BusinessTeamwork
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Last updated: July 20, 2019

                 5.Organization of banks 5.

1Corporate bodies-corporate governanceTheMalaysian regulatory framework imposes a high standard of corporate governancefor licensed banks. The prior written approval of BNM is required earlier thana person can also be appointed as a chairman, director or chief executiveofficer (CEO) of a licensed bank. BNM also has its rigorous fit and proper’tests, contained in the ‘Fit and Proper Criteria’ and Guidelines on CorporateGovernance for Licensed Institutions. These hints are applicable to banks andretaining organizations of banks.

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The Guidelines on Corporate Governance forLicensed Institutions are formulated primarily based on the indispensableconcepts of responsibility, accountability and transparency, and include largeprinciples dealing with board matters, management oversight, accountability andaudit and transparency. For Islamic banks and worldwide Islamic banks, theGuidelines on Corporate Governance for Licensed Islamic Banks comprisesimilarly excessive standards of corporate governance. The principles,requirements and necessities under the Guidelines on Corporate Governance forLicensed Institutions are expressed to be aligned with the Malaysian Code onCorporate Governance, the worldwide Bank for International Settlements (BIS)Guidelines on Enhancing Corporate Governance for Banking Organizations andother international first-class practices on company governance. 5.2 Organization Theorganizational shape of a bank have to encompass 4 important types of oversightin order to make certain excellent assessments and balances: (i) oversight bythe board of directors; (ii) oversight by individuals now not concerned in theday- to-day management of the extraordinary enterprise areas; (iii) direct linesupervision of more than a few business areas; and (iv) impartial riskmanagement, and compliance audit functions.

The board of administrators of abank is finally accountable for the appropriate stewardship of the bank. Inthis regard, the board ought to have an suitable variety of administratorscommensurate with the complexity, size, scope and operations of the bank. Theboard needs to contain directors who, as a group, supply a mixture of coreabilities such as finance, accounting, legal, commercial enterprise management,records technology and funding management.

Further, the board is required toset up the following committees: (i) a nominating committee; (ii) aremuneration committee; (iii) a risk management committee; and (iv) an auditcommittee. Additionally,banks are required to set up an positive interior audit function that affordsan independent contrast on the adequacy of, and compliance with, set upinsurance policies and procedures. In this regard, BNM has issued Guidelines onMinimum Audit Standards for Internal Auditor of Financial Institutions  5.3 Risk managementTheboard of directors of a licensed financial institution is tasked with theresponsibility of making sure that the financial institution establishescomprehensive threat administration policies, tactics and infrastructure, andmanages the various types of risks. The board have to approve and periodicallyevaluation the risk administration capabilities of the financial institution tomake certain that they are able to assist the bank’s business growth as nicelyas to ensure that there are reliable and enough management facts systems thatcowl the full range of the bank’s activities.

BNM has issued a variety ofpointers on threat administration such as threat governance and credit riskmanagement. 5.4 Supervision of managementMalaysiaadopts a one-tier board system and the board remains eventually accountable forpresenting superb oversight of management. Senior administration on the otherhand is responsible for setting up a management shape that promotesaccountability and oversight of line managers and officers carrying out theirfeatures in specific areas constant with the insurance policies and procedureslaid down by means of the board. BNM closely supervises and regulates bankmanagement.

Appointment of bank directors, CEOs and chairmen requires the priorwritten consent of BNM. BNM’s guidelines stipulate more than a few necessitiesbearing on to directors and board composition, so as to ensure nice oversightof management. As examples: (i) at least a third of the board should beunbiased administrators (although, in instances where BNM has issues as to theeffective functioning of the board, a higher percentage of impartial directorsmight also be special by BNM); (ii) there should be no longer greater than onegovernment director on the board – only in excellent circumstances, will BNMallow up to a maximum of two govt directors; and (iii) there need to be a clearseparation between the roles of chairman, who need to be a non-executivedirector, and CEO, to make sure supervision and accountability of management.The audit committee, risk management committee, nominating committee andremuneration committee are to be chaired via impartial directors. In terms ofcomposition: (i) the majority of the nominating committee need to benon-executive directors; (ii) the remuneration committee is to incorporate onlynon-executive directors; (iii) the threat administration committee need toincorporate only non-executive directors; and (iv) the audit committee is toincorporate solely non-executive administrators with at least three members, ofwhich the majority ought to be unbiased directors. 5.

5 CompensationBNM’sguidelines stipulate that banks have to grant for a formal and transparentmanner for fixing the remuneration packages of board members, CEOs and seniormanagement. In this regard, the remuneration committee is responsible forcreating a clear coverage and framework on the remuneration of directors, CEOand senior management. In setting the remuneration packages, the committeeshould ensure that the remuneration policy helps the bank’s objectives,subculture and strategy, remuneration and employment prerequisites of theindustry, the bank’s relative performance, and that the performance-relatedelements of remuneration form a vast proportion of the total remunerationpackage deal of govt directors. BNM might also require banks to post thedistinctive formulae and important points of the remuneration programs ofdirectors and CEOs together with the banks’ annual monetary reports    6.

Regulatory development and Topical Trends TheBlueprint and the center of attention areas of the Blueprint will proceed tounderpin regulatory reforms in Malaysia. There are comprehensive tips made foreach center of attention area. It is not possible to set out all therecommendations in this chapter. Amongst the hints that are still being appliedbeneath the Blueprint are the following:•Strengthening the institutional shape of financial institutions to furnishadequate safeguards for depositors in opposition to contagion dangers andexcessive leverage via ensuring that retail deposits are not excessivelyleveraged through banking establishments in high-risk and complex activities.•Promoting the long-term sustainability and greater ability of DFIs in help oftheir mandates, which will consist of enhancing the risk-sharing andaccountability arrangements between DFIs and the Government, and strengtheningthe corporate governance and threat administration of DFIs so as to impervioustheir self-sufficiency in funding and capital.

•Implementation of the Basel III reform package to reinforce the capital andliquidity buffers held by means of banking institutions.•Strengthening the regulatory and supervisory framework of the Labuan IBFC in linewith worldwide standards and pleasant practices.•Developing a framework for monitoring and managing dangers arising fromnon-regulated entities and activities.

•Enhancingthe framework for two economic crime prevention and investigation.  

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