CB reviews fit and proper rules for bank directors
The Central Bank (CB) is reviewing the fit and proper criteria when appointing directors in banks and plans to make some changes, top official said. ”We’re relooking at these rules and want to introduce new ones and restructure the existing ones this year,” governor Central Bank, Arjuna Mahendran told the Business Times. He said that in addition to this, the banks should ensure that an effective combnation of professionals with practical experience in relevant subjects such as banking, finance, economics, business management, human resource management, law, marketing, information technology or any other discipline relevant or complementary to banking operations, is available in the bank to carry out its operations and discharge its responsibilities.
He explained that directors of banks and financial institutions are said to carry a greater fiduciary duty than directors of other companies, and the public who place their confidence in bank management would in nature be inclined to have higher expectations from bank directors in their knowledge in governing these entities. He said that the CB prefers different skills sets in directors who are appointed to bank boards in the future. “We’d like them to possess (specific qualifications in) banking low, forensic accounting, etc,” he said. He said that it’s most important to bridge the information and skills gap between financial experts and the less sophisticated depositors, borrowers and investors on the other. “Along with expertise on these areas, impeccable behaviour is also important to handle related conflicts,” he added.
Now, the CB’s fit and proper rules say that a bank’s director board should be composed of a healthy mix of executive directors and non-executive directors. Some of the non-executive directors should also be independent so that there is strong independent element brought into the decision-making process, it says, adding that the board’s composition should ensure a balance of skills and experience as may be deemed appropriate and desirable for the requirements of the bank. Mr. Mahendran added that the banking industry worldwide is making huge progress and going through rapid change with new innovations, instruments, technologies, products, systems and processes being introduced often and it’s vital therefore, that the directors should be persons who would-be able to keep alongside with these changes, provide constant contribution and leadership to the board decision-making processes. The local banking system consists of 33 banks, of which 25 are commercial banks (2 state banks, 11 domestic private banks and 12 foreign banks) and eight are specialised banks (6 state banks and 2 private banks).