The Basel Committee on Banking Supervision has issued a set of corporate governance principles for banks.

The committee said Monday that the principles address fundamental deficiencies in bank corporate governance that became apparent during the financial crisis.

They cover:
> the role of the board;
> the board’s qualifications;
> the importance of a risk management function;
> the need to manage risks on an ongoing firm-wide and individual entity basis; and
> the board’s active oversight of the compensation system’s design and operation.

The principles also stress the importance of the board and senior management having a clear knowledge and understanding of the bank’s operational structure and risks, including risks arising from special purpose entities or related structures.

The Basel Committee recommends that regulators establish guidance or rules requiring banks to have robust corporate governance strategies, policies and procedures.

The committee points out that corporate governance improvements are also needed in other segments of the financial industry. To that end, it coordinated its work with the International Association of Insurance Supervisors, which is currently reviewing its governance principles for the insurance sector.

IE