TOUGHER CORPORATE governance rules at banks, building societies and insurance companies will be introduced on January 1st, 2011, as the Central Bank of Ireland seeks to prevent a repeat of the implosion in the financial sector here in the past two years.
The rules will limit the number of directorships board members can hold and also require that a majority of each board should be independent non-executives.
It also places greater responsibilities on the role of chairmen and women at these institutions.
But the code includes a concession by the regulator for financial institutions based in the IFSC.
In response to concerns from international banks licensed to operate in Ireland, the regulator has stepped back from requiring that the chairmen of these institutions should be independent.
Institutions will be required to have at least five board members, who must attend each board meeting, except in exceptional circumstances such as illness.
Directors at “major” institutions – the main retail banks and other large financial groups – will not be permitted to hold more than three directorships with banks and insurers, and five outside the financial sector.
For other institutions, directors will not be able to hold more than five directorships in the financial sector and eight others.
Among the measures that will be introduced is a bar on the chief executive of a major bank from becoming chairman for five years after s/he steps down from that management role.
Had this prohibition been in place at the time, Seán FitzPatrick would not have been able to step up to the role of Anglo Irish Bank chairman after stepping aside as its chief executive.
A breach of the code will result in tough sanctions, including fines, prosecution and the suspension, removal or prohibition of individuals.
Banks and insurance companies will be required to submit an annual compliance statement to the Central Bank.
The code, which will cover up to 14,000 institutions, follows an extensive consultation period, with 130 submissions received. The Central Bank has still to decide on the definition of a “major” institution.
Institutions will have until the end of next June to implement changes to their systems and structures to comply with the new rules. Those bank or insurers that need to appoint new directors to meet the terms of the new code will have until December 31st to make the necessary changes.
The new code was broadly welcomed yesterday.
Maura Quinn, chief executive of the Institute of Directors, said the Central Bank had adopted a “proportionate approach” to the new rules and said the code would “strengthen Ireland’s position as a global financial services hub”.
Sinéad Ovenden, director of regulatory compliance services at Deloitte, said the new code gives Ireland a “gold-plated regime”.
The Irish Banking Federation said “considerable work” would be required to “identify and process applications from suitably-qualified candidates for director positions”.
