Corporate Governance Reform
Professor Blanaid Clarke
Trinity College Dublin
Law Reform Commission
Annual Conference
11th December 2012
Presentation
I. What went wrong?
Corporate
Governance
Failings
II. Recent Regulatory Initiatives
Irish
EU
III. Next Steps
2
I. Global Corporate Governance
Failings in Financial Institutions
(Hopt, 2012)
• Risk Management and Internal Control Failures
• Deficiencies in the Profile and Practice of
directors and Senior Management
• Complex and Opaque Corporate and Bank
Structures
• Perverse Incentives
• Failures in Disclosure and Transparency
• Weak Market for Corporate Control
3
Domestic Corporate Governance Failings
(Regling and Watson, 2010)
• Management failed to appreciate the risk entailed by
the significant concentration of bank assets in
property related activities.
• Lending guidelines and processes were widely
circumvented.
• Poor remuneration policies were tolerated
which encouraged and rewarded risk‐taking.
• There were “very specific and serious breaches of
basic governance principles” in specific institutions
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II. Regulatory Initiatives
Ireland
• PRISM Supervisory Engagement Model and new
Enforcement Model
• Fitness and Probity regime
• Corporate Governance Code for Credit Institutions
• Central Bank Supervision and Enforcement Bill
• Irish Corporate Governance Annex 2010
• Companies Consolidation and Reform Bill
• Department of Justice, White Collar Crime Consultation
5
Enforcement powers
“assertive risk-based approach
underpinned by a credible
threat of enforcement”
Supervisory measures and
stronger enforcement tools
(including combination of both)
to address concerns about
regulated entities and their senior
management/individuals
Principles: “proportionate,
consistent, targeted and
transparent”
6
Settlement Agreements and Monetary Penalties
€20,671,000 Monetary Penalties
Settlement Agreements
Monetary Penalties
14
12
€7,000,000
10
€6,000,000
8
6
€5,000,000
4
€4,000,000
2
€3,000,000
0
2006
2007
2008
2009
2010
2011
2012
€2,000,000
€1,000,000
56 Administrative Sanctions Settlement
Agreements (other work includes
refusals, revocations, F&P and supervisory
warnings)
€0
2006
2007
2008
2009
ASP Fines
7
2010
2011
2012
Fitness and Probity
• Central Bank Reform Act 2010, Part III
• Financial service Providers (not credit unions)
• Pre-Approval Controlled Functions (Chief
Executive Officer, Heads of Compliance, Risk,
and Internal Audit).
• Controlled Functions
• Fitness and Probity Standards (Competent and
Capable; Honest, Ethical, Financially Sound)
8
Corporate Governance Code for Credit Institutions and
Insurance Undertakings
-
Composition of the Board
Chairman
CEO
Independent Non-Executive Directors
Directors
Role of the Board
Appointments
Risk Appetite
Meetings
Committees
Compliance Statement to the Central Bank
9
Central Bank (Supervision & Enforcement) Bill
• Penalty up to €10,000,000
for body corporate or 10%
of turnover (whichever
highest) and €1,000,000 for
natural person
• Suspension of authorisation
• Revocation of authorisation
• Directions - single, wide
ranging directions regime
• Skilled persons reports power to require reports at
the cost of the firm
• Authorised Officers - single
appointment regime
and
wide ranging powers
• Regulations - detailed and
expansive powers to make
regulations
• Facilitates
assistance
overseas supervisors
to
• Gives
protection
whistleblowers
to
• Court
power
to
restitution orders
10
make
Other Irish Initiatives
• Irish Annex
• Companies
Consolidation and
Reform Bill
11
White Collar Crime
• Discussion Document (October 2010), Submissions published
(April 2011)
– Definition
– Investigating and Prosecuting White collar Crime
– Protection for Whistleblowers
– Legislation
– Sanctions
– Structures
• Section 57 of the Criminal Justice (Theft and Fraud Offences)
Act 2001
• Criminal Justice Act 2011
12
EU Regulatory Initiatives
Corporate Governance
• Green Paper on Corporate Governance in Financial Institutions
(2010) Feedback (July 2012)
–
–
–
–
–
–
–
–
Boards of Directors
Risk Related Functions
External Auditors
Supervisory Authorities
Shareholders
Implementation of Corporate Governance Principles
Remuneration
Conflicts of Interest
• Proposed Amendments to the Capital Requirements Directive
(2011)
• Commission Recommendation on Remuneration Policies in the
Financial Services Sector (2009)
• Green Paper on General Corporate Governance (2011)
• Proposed Directive on Women on Boards (2012)
13
EU Regulatory Initiatives
Company Law
• Green Paper on Auditing (2010) and Proposals
(2011)
• Reflection Group on the Future of Company Law
(2011)
• Consultation on the Future of European Company
Law (February 2012)Feedback (July 2012)
14
• The European Banking Authority
• Single Supervisory Banking Mechanism
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III. Next Steps
1. Review of Existing regulatory regimes to
assess effectiveness in respect of agreed
objectives and consistency
2. Consider EU regulation/guidance and best
Practice in other jurisdictions
3. Develop, where appropriate, a co-ordinated
approach in terms of information gathering,
case building and enforcement
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