Enhancing corporate governance for banking organisations

Note: This document has been superseded by its revised version of February 2006.

Please find attached a paper issued today by the Basel Committee on Banking Supervision that provides guidance on corporate governance in banks. This paper forms part of an ongoing effort by the Committee to strengthen procedures for risk management and disclosure in banks. It is being circulated to supervisors around the world in the belief that it will assist in promoting the adoption of sound corporate governance practices as they implement the Core Principles for Effective Banking Supervision. The Committee believes that through sound corporate governance, bank supervisors can have a collaborative working relationship with bank management, rather than an adversarial one.

The paper draws on supervisory experience with corporate governance problems at banking organisations and suggests the types of practices that could help to avoid such problems. It identifies a number of practices as critical elements of any corporate governance process:

• Establishing strategic objectives and a set of corporate values that are communicated throughout the banking organisation;
• Setting and enforcing clear lines of responsibility and accountability throughout the organisation;
• Ensuring that board members are qualified for their positions, have a clear understanding of their role in corporate governance and are not subject to undue influence from management or outside concerns;
• Ensuring that there is appropriate oversight by senior management;
• Effectively utilising the work conducted by internal and external auditors, in recognition of the important control function they provide;
• Ensuring that compensation approaches are consistent with the bank's ethical values, objectives, strategy and control environment;
• Conducting corporate governance in a transparent manner.

The paper is not being issued formally for consultation, but if you have strong views our Risk Management Group would be pleased to receive them.