Mon 16 Apr 2018
News - Key governance developments February-April 2018
Key governance developments February-April 2018IntrocuctionFinancial groups still in the firing line over governance issues
A decade after the global financial crisis exposed grave governance failings at institutions throughout the world, authorities remain concerned that not all the weaknesses have been remedied. Barclays, which has been heavily penalised for market manipulation, is still seen as having inadequate employee oversight procedures; UK asset managers have been told to improve the governance of fund boards; and the European Central Bank has warned auditors to monitor institutions for attempts to sidestep rules governing capital buffers against problem loans.Key governance developments February-April 2018Barclays oversight of employee conduct still inadequate: audit committee
Barclays' audit committee says the bank's current compliance procedures are not yet adequate and improvements need to be made, including holding individuals to account for failures. Having received heavy financial penalties for attempting to manipulate interest rate benchmarks and foreign exchange markets, Barclays has been ordered by regulators to improve oversight and monitoring of employees to curb misconduct, and its changes include recruiting new heads of internal audit for its main UK and international divisions. However, the committee says further progress is needed in instilling the required level of control consciousness throughout the group.
Financial Times (subscription required)https://www.ft.com/content/2f221e3c-2a90-11e8-9b4b-bc4b9f08f381ECB warns auditors that banks could try to hide 2017 losses
The European Central Bank has told auditors that banks could try to use the transition to new IFRS9 accounting standards to defer losses on non-performing loans over five years rather than incorporate them into their 2017 financial results. The Single Supervisory Mechanism raised the issue earlier this year and also alerted the European Banking Authority, and its board has agreed it can impose additional capital charges if it finds banks are seeking capital savings that are not justified.
Bloomberghttps://www.bloomberg.com/news/articles/2018-03-26/ecb-said-to-have-raised-concern-banks-could-mask-losses-for-2017UK considers increasing auditor responsibility for annual report content
The UK Financial Reporting Council is to consult on making auditors responsible for examining the entirety of companies’ annual reports and accounts, including assuring the accuracy of strategic reports, director reports and corporate governance statements. At present auditors examine the financial statements included in annual reports but do not audit other sections such as directors’ reports, leading to fears that such information may not be of the same standard. The FRC, which has been accused recently of being too lenient with the biggest accounting groups, now says it will start issuing harsh financial penalties of £10m or more to large audit firms found guilty of misconduct.
Financial Timeshttps://www.ft.com/content/8f5ce606-375b-11e8-8b98-2f31af407cc8 Raiffeisen chairman resigns over scandal involving former CEO
Johannes Rüegg-Stürm has resigned as chairman of the board of Swiss bank Raiffeisen following the arrest and launch of criminal proceedings against former CEO Pierin Vincenz. Vice-chairman Pascal Gantenbein will take interim charge of the board until a successor is found. The St. Gallen-based bank says prosecutors are examining allegations of wrongdoing during his 16-year tenure relating to Vincenz's personal stakes in Aduno and Investnet, two investment firms acquired by Raiffeisen. Regulator Finma continues to examine corporate governance issues at Raiffeisen, where Vincenz's wife Nadja Ceregato has long been chief counsel.
SWI Swissinfohttps://www.swissinfo.ch/eng/new-beginings_raiffeisen-chair-resigns-over-scandal-tainted-former-ceo/43957450Irish Nationwide failed to review risk of large commercial loans
Irish Nationwide Building Society failed to review credit risk as part of its lending governance practices despite having promised the Central Bank of Ireland it would do so in 2007. The regulator was concerned that there was no evidence that the group's credit committee was considering credit reviews of major commercial loans, despite a recommendation by auditor KPMG. The building society had to be bailed out during Ireland’s banking crisis, having reported a loss of €2.5bn for 2009 after writing off almost a quarter of its loan book, and was subsequently liquidated.
Irish Timeshttps://www.irishtimes.com/business/financial-services/inbs-assurances-to-financial-regulator-not-followed-through-inquiry-hears-1.3428550UK regulator tightens fund management governance rules
The Financial Conduct Authority has told asset management companies to improve the governance of fund boards and to be prepared to move investors to cheaper versions of the funds they offer. It also requires changes to performance fees and disclosure of investment objectives to stop closet tracking by funds that charge higher fees for active management. Under rules to be rolled out over the next 12 to 18 months, the regulator will require executives at asset managers to assess the value of the company’s funds, take responsibility for recruiting independent directors and act in the best interests of investors. This additional requirement is part of the senior managers and certification regime accountability rules for all financial services companies, which will come into force toward the end of next year.
Financial Timeshttps://www.ft.com/content/3ad6fde6-38a1-11e8-8b98-2f31af407cc8 ECB to have final say over new ABN Amro chair
Dutch finance minister Wopke Hoekstra says the European Central Bank will have the final say on the appointment of a successor to Olga Zoutendijk as chair of the supervisory board of state-owned bank ABN Amro. The ECB is insisting that the candidate have wide banking sector experience, but Dutch politicians say they should also pay close attention to social issues. Zoutendijk, who has a background in Australia's banking industry, was criticised for her lack of experience of Dutch financial sector governance structures.
Financieele Dagblad (in Dutch)https://fd.nl/economie-politiek/1246164/nieuwe-rvc-voorzitter-abn-amro-moet-van-ecb-vooral-bankier-zijn International Maritime Organization accused of being dominated by shipping register states
Transparency International has accused the International Maritime Organization of weak governance. It says that private shipping companies have undue influence that may be hindering efforts to regulate greenhouse gas emissions by the industry, which could otherwise reach 17% of the global total by 2050. Just over half of the world’s commercial shipping fleet is registered in just five jurisdictions – Panama, Liberia, the Marshall Islands, Malta and the Bahamas, a choice in which tax benefits play a prominent role – and between them they contribute 43.5% of the total funding from the IMO’s 170 member states. Transparency International say the five countries may exert an exaggerated weight in the IMO policy-making processes.
Maritime Professionalhttps://www.maritimeprofessional.com/news/blames-weak-governance-climate-change-315853Sustainable governance report finds 64% of leading US companies committed to climate change efforts
A survey of more than 600 of the largest publicly-traded US companies conducted by sustainability advocacy group Ceres has found that 64% have made greenhouse gas reduction commitments and 32% have undertaken to increase their use of renewable energy. The Turning Point report from Ceres examines how prepared companies are in dealing with sustainability issues including climate change, water pollution and human rights abuses. Ceres issues detailed governance grades to each company and measures its progress in meeting targets set by the Paris Agreement and the United Nations’ Sustainable Development Goals.
Cereshttps://www.ceres.org/resources/roadmap-for-sustainabilityUkraine claims progress on public governance reforms
Cabinet secretary Oleksandr Saienko says the latest steps in Ukraine’s reform programme will include reviewing corporate governance at state-owned enterprises and within the public administration. Sir Suma Chakrabarti, president of the European Bank for Reconstruction and Development, says the bank approves the care taken in communicating and demonstrating the benefits of an efficient, transparent and accountable state administration.