We believe that the Guidelines should adopt a wording that can be applied to all the different governance systems, without excluding national hybrid models other than the one-tier and the two-tiers ones, as they introduce a number of novelties in the internal governance field, even within the regulatory perimeter set by the Level 1 legislation (i.e. CRD IV, Art. 3). First and foremost it needs to be stressed that, in one-tier systems company law conceives the management body (board of directors) as one unique and inseparable body through which both management and supervisory functions are performed. All the members of the board imperatively perform all the functions assigned to it (both management and supervisory) as they are all, collectively, part of the decision-making process, and they all have the same rights and responsibilities; they are all under the same liability regime, for they act as one single collegial body. Therefore, unlike in two-tier board systems, the supervisory function cannot be required to perform its role independently from the management function, for this would amount to expecting that someone acts independently from oneself. Secondly, that the allocation of management or supervisory functions to a certain type of board member (executive or non-executive), is also inadequate for one-tier systems, given that no efficient or real separation of responsibilities can be implemented where company law conceives the board as one unique and inseparable body through which both management and supervisory functions are performed. In light of the above and as further elaborated below, some of the requirements of the draft Guidelines may be incompatible with all the different governance systems, in particular the onetier system.
The Senior Management function is not defined in the draft Guidelines (contrary to the CRD IV Directive). This creates a confusion between roles of Executive functions, Management functions and Supervisory functions. It should be clarified that the senior management is included in the notion of “management body in its management function”.
The specific case of entities within a Group should be more taken into account and specified (proportionality principle). Duplication of formalities and documentation required at the different levels of a Group organization must be avoided. For subjects handled by the Group, subsidiaries should have rules allowing them to benefit from exemptions or reduced obligations.
In all its mentions Guidelines should refer to ‘risk control’ instead of ‘risk management’ as the second term includes some functions and activities that are allocated in the first line of defence. Therefore, accuracy is fundamental in this aspect.
Guidelines refer to internal governance of institutions, therefore the reference made to the reporting of breaches to competent authorities is an element out of its scope that should be eliminated.
In jurisdictions where there is a unitary board system, certain functions ascribed to the management body (certain general functions which are delegable) may be discharged by a committee of such body.
“Modern Governance in Banking” is a new modular programme of three three-day modules at the INSEAD business school in Fontainebleau, France. The content is driven by the needs for bank directors and senior executives working in banks to review and update their corporate governance practices due to the many pressures they face, and will focus on the effectiveness of directors and boards. Successful completion by participants offers certification by INSEAD. Read more
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