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Organization of banks

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Corporate bodies-corporate governance

Malaysian regulatory framework imposes a high standard of corporate governance
for licensed banks. The prior written approval of BNM is required earlier than
a person can also be appointed as a chairman, director or chief executive
officer (CEO) of a licensed bank. BNM also has its rigorous fit and proper’
tests, contained in the ‘Fit and Proper Criteria’ and Guidelines on Corporate
Governance for Licensed Institutions. These hints are applicable to banks and
retaining organizations of banks. The Guidelines on Corporate Governance for
Licensed Institutions are formulated primarily based on the indispensable
concepts of responsibility, accountability and transparency, and include large
principles dealing with board matters, management oversight, accountability and
audit and transparency. For Islamic banks and worldwide Islamic banks, the
Guidelines on Corporate Governance for Licensed Islamic Banks comprise
similarly excessive standards of corporate governance. The principles,
requirements and necessities under the Guidelines on Corporate Governance for
Licensed Institutions are expressed to be aligned with the Malaysian Code on
Corporate Governance, the worldwide Bank for International Settlements (BIS)
Guidelines on Enhancing Corporate Governance for Banking Organizations and
other international first-class practices on company governance.


5.2 Organization

organizational shape of a bank have to encompass 4 important types of oversight
in order to make certain excellent assessments and balances: (i) oversight by
the board of directors; (ii) oversight by individuals now not concerned in the
day- to-day management of the extraordinary enterprise areas; (iii) direct line
supervision of more than a few business areas; and (iv) impartial risk
management, and compliance audit functions. The board of administrators of a
bank is finally accountable for the appropriate stewardship of the bank. In
this regard, the board ought to have an suitable variety of administrators
commensurate with the complexity, size, scope and operations of the bank. The
board needs to contain directors who, as a group, supply a mixture of core
abilities such as finance, accounting, legal, commercial enterprise management,
records technology and funding management. Further, the board is required to
set up the following committees: (i) a nominating committee; (ii) a
remuneration committee; (iii) a risk management committee; and (iv) an audit


banks are required to set up an positive interior audit function that affords
an independent contrast on the adequacy of, and compliance with, set up
insurance policies and procedures. In this regard, BNM has issued Guidelines on
Minimum Audit Standards for Internal Auditor of Financial Institutions



5.3 Risk management

board of directors of a licensed financial institution is tasked with the
responsibility of making sure that the financial institution establishes
comprehensive threat administration policies, tactics and infrastructure, and
manages the various types of risks. The board have to approve and periodically
evaluation the risk administration capabilities of the financial institution to
make certain that they are able to assist the bank’s business growth as nicely
as to ensure that there are reliable and enough management facts systems that
cowl the full range of the bank’s activities. BNM has issued a variety of
pointers on threat administration such as threat governance and credit risk


5.4 Supervision of management

adopts a one-tier board system and the board remains eventually accountable for
presenting superb oversight of management. Senior administration on the other
hand is responsible for setting up a management shape that promotes
accountability and oversight of line managers and officers carrying out their
features in specific areas constant with the insurance policies and procedures
laid down by means of the board. BNM closely supervises and regulates bank
management. Appointment of bank directors, CEOs and chairmen requires the prior
written consent of BNM. BNM’s guidelines stipulate more than a few necessities
bearing on to directors and board composition, so as to ensure nice oversight
of management. As examples: (i) at least a third of the board should be
unbiased administrators (although, in instances where BNM has issues as to the
effective functioning of the board, a higher percentage of impartial directors
might also be special by BNM); (ii) there should be no longer greater than one
government director on the board – only in excellent circumstances, will BNM
allow up to a maximum of two govt directors; and (iii) there need to be a clear
separation between the roles of chairman, who need to be a non-executive
director, and CEO, to make sure supervision and accountability of management.

The audit committee, risk management committee, nominating committee and
remuneration committee are to be chaired via impartial directors. In terms of
composition: (i) the majority of the nominating committee need to be
non-executive directors; (ii) the remuneration committee is to incorporate only
non-executive directors; (iii) the threat administration committee need to
incorporate only non-executive directors; and (iv) the audit committee is to
incorporate solely non-executive administrators with at least three members, of
which the majority ought to be unbiased directors.


5.5 Compensation

guidelines stipulate that banks have to grant for a formal and transparent
manner for fixing the remuneration packages of board members, CEOs and senior
management. In this regard, the remuneration committee is responsible for
creating a clear coverage and framework on the remuneration of directors, CEO
and senior management. In setting the remuneration packages, the committee
should ensure that the remuneration policy helps the bank’s objectives,
subculture and strategy, remuneration and employment prerequisites of the
industry, the bank’s relative performance, and that the performance-related
elements of remuneration form a vast proportion of the total remuneration
package deal of govt directors. BNM might also require banks to post the
distinctive formulae and important points of the remuneration programs of
directors and CEOs together with the banks’ annual monetary reports





6.Regulatory development and Topical Trends


Blueprint and the center of attention areas of the Blueprint will proceed to
underpin regulatory reforms in Malaysia. There are comprehensive tips made for
each center of attention area. It is not possible to set out all the
recommendations in this chapter. Amongst the hints that are still being applied
beneath the Blueprint are the following:

Strengthening the institutional shape of financial institutions to furnish
adequate safeguards for depositors in opposition to contagion dangers and
excessive leverage via ensuring that retail deposits are not excessively
leveraged through banking establishments in high-risk and complex activities.

Promoting the long-term sustainability and greater ability of DFIs in help of
their mandates, which will consist of enhancing the risk-sharing and
accountability arrangements between DFIs and the Government, and strengthening
the corporate governance and threat administration of DFIs so as to impervious
their self-sufficiency in funding and capital.

Implementation of the Basel III reform package to reinforce the capital and
liquidity buffers held by means of banking institutions.

Strengthening the regulatory and supervisory framework of the Labuan IBFC in line
with worldwide standards and pleasant practices.

Developing a framework for monitoring and managing dangers arising from
non-regulated entities and activities.

the framework for two economic crime prevention and investigation.



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