Corporate governance policy for banks

About the policy

The three main components of the policy are:

• specific rules imposed via a bank's conditions of registration
• guidelines on the skills and experience expected of the board of directors
• required public disclosure of relevant information, such as details of the individual directors.

What is good corporate governance?

Good corporate governance should ensure the interests of a company's shareholders are properly represented, via the board of directors, in the running of the company.

Main areas of interest for shareholders are risk management, the setting of corporate strategy and ensuring the strategy is followed through.

An appropriate degree of separation

Corporate governance arrangements in banks also have implications for stability of the financial system as a whole. Where a New Zealand-registered bank is a wholly owned subsidiary, the interests of the parent entity can conflict with our objectives for prudential regulation and supervision.

Reflecting this concern, we state in our principles for bank registration that we need to be satisfied there will be enough separation between the bank and its owners.

So an important aim of our corporate governance policy is to promote an appropriate degree of separation in this way, on a continuing basis as well as when a bank is first registered.

Guidance on corporate governance

Our corporate governance policy is not meant to be a comprehensive guide to good corporate governance practice. The two most relevant guides to corporate governance for New Zealand banks are the corporate governance handbook published by the New Zealand Securities Commission in 2004 and the Basel Committee's 'Principles for enhancing corporate governance'.

Corporate governance handbook

Principles for enhancing corporate governance (PDF 1 MB)

Overseas bank branches

The policy only applies to New Zealand-incorporated banks. A New Zealand branch of an overseas bank is legally part of that bank, and the bank's corporate governance arrangements are a matter for the home country supervisor. But we require branches to publish in their disclosure statements some information on those head office arrangements.

Minimum requirements

1. The standard conditions of registration require a bank to have a board with at least five directors.
2. A strict majority of the board must be non-executive, and at least half of the board must be independent. A non-executive director is a person who is not employed by the bank, while to be independent, a director must meet certain additional tests designed to ensure they are free from any business or other association that could materially interfere with the exercise of their independent judgement.
3. At least half of the independent directors on the board must also be ordinarily resident in New Zealand.
4. The chairperson must be independent. However, if the chairperson is also a director of a parent bank or holding company, they may still qualify as independent, subject to our confirmation, provided the parent company directorship is the only respect in which they fail the normal tests for independence.

Separate audit committee

As well as the above requirements focused on board independence, the board must have a separate audit committee (or equivalent) whose mandate must include ensuring the integrity of the bank's financial controls, reporting systems and internal audit standards.

The audit committee must have at least three members, all non-executive and the majority independent, and must have a chairperson who is independent and is not the chairperson of the board.

Appointments

No person can be appointed as a director or as chairperson of a registered bank unless we have confirmed that we do not object to the appointment. This also applies to certain senior management appointments.

Guidelines

The policy includes guidelines that set out our expectations in matters relating to the integrity, competence and experience of board members in general, and of the audit committee in particular, both collectively and individually.

Public disclosure

All registered banks must publish 6-monthly disclosure statements setting out a range of financial and other information about the bank. The information required relating to corporate governance includes:

• details of each director (including whether they qualify as independent)
• the make-up of the board audit committee
• the board's policy for handling conflicts of interest.

Overseas bank branches must also disclose this information, in respect of the directors of the bank in the bank's home country of incorporation, and also of the New Zealand chief executive officer.

The disclosure regime also underlines the importance we attach to the role of director by requiring each director to sign an attestation in each quarterly disclosure statement, covering various matters including the bank's compliance with its conditions of registration, and its risk control systems.

Further information

Our corporate governance policy 'Corporate Governance (BS14)' from the bank prudential requirements policy documents.