Alert April 13, 2010

Basel Committee Issues Updated Proposed Principles on Banks’ Corporate Governance

The Basel Committee on Banking Supervision (the “Basal Committee”) issued proposed, revised and updated principles (the “Proposed Principles”) concerning sound corporate governance of banking organizations (“Banks” and each a “Bank”).  The Basel Committee first published principles concerning sound corporate governance of Banks in 1999 and updated those principles in 2006.  See the February 28, 2006 Alert.  The Proposed Principles, which are discussed in a paper entitled Principles for Enhancing Corporate Governance, reflect lessons learned during the recent financial crisis, which, said the Basel Committee, “highlighted the continued importance of sound corporate governance for [Banks].” 

The Proposed Principles, among other things, address: (1) the role of the Board of Directors and its oversight of the Bank’s risk management strategy; (2) the qualifications of members of the Board of Directors; (3) the importance of a well-developed and independent risk management function, including a chief risk officer who has the necessary stature and who is provided with the necessary authority, independence, resources and access to the Board of Directors to perform his or her job effectively; (4) the need to manage risk on an enterprise-wide basis and also on an individual-entity basis; (5) Board of Director oversight of compensation systems; and (6) the role played by bank regulators in evaluating Banks’ corporate governance practices.  The Proposed Principles also discuss the role of Bank senior management in corporate governance and transparent disclosure of Banks’ corporate governance practices.

Comments on the Proposed Principles must be submitted to the Basel Committee by June 15, 2010.