香港金管局银行公司治理英文

CorporateGovernanceinBanks

“NewBankingGuidelinesandCorporateGovernancebetweenIndustries”DavidCarseDeputyChiefExecutiveHongKongMonetaryAuthority26April2001IntroductionMyremitistotalkaboutournewbankingguidelinesandaboutcorporategovernance“betweenindustries”Inpractice,thismeansexplainingwhycorporategovernanceisparticularlyimportantforbanksascomparedwithotherindustriesTheimportanceofcorporategovernanceCorporategovernanceisthesystembywhichcompaniesaredirectedandcontrolledItisakeyissueinrelationtolistedcompaniesbecauseoftheseparationbetweenownershipandmanagementwhichlistingpromotes(givingrisetotheso-called“agencyproblem”)theneedtoprotectminorityshareholdersHence,thefocusincorporategovernanceontheneedforindependentdirectorsThespecialcaseofbanksTheaboveconsiderationsalsoapplyinrelationtolistedbanksButthereareotherreasonswhycorporategovernanceisparticularlyimportantforbanks,bothlistedandunlistedhighleverageexposesbankstoriskandplacesincreasedfocusontheneedtoprotectcreditors(notjustinvestors)banksarelookingafterotherpeople’smoney,butrisk-takingiscentraltotheiractivitiestherearepotentiallyhugesystemicproblemsifbanksgetintodifficultiesTheroleofbadcorporategovernanceintheAsiancrisisWeakcorporategovernanceinAsianbankswasoneofthekeyfactorsintheAsiancrisismanybankswerecontrolledbyowner-managersandtheboardofdirectorsplayedlittlerolebankswereoftenpartsofwiderconglomeratesandwereusedtofundotherpartsofthegrouportheowners(connectedlending)managementwasnotprofessionalandlackedself-responsibilitygrowthwasmoreimportantthanreturnoncapitalriskmanagementwaspoorTheroleofregulationThepotentialforbankingcrisisexplainswhybanksareregulatedTraditionallythishasbeenatop-downprocessregulatorslaydownrulesandtrytoenforcethemIncreasingly,however,thetrendistowardssupervisionratherthanregulationThisplacesthemainemphasisonthekeyroleofthedirectorsandseniormanagementinensuringthatbanksareprudentlymanagedTheroleofsupervisionTheabovetrendbringscorporategovernancetotheforerecognisesthatbankingistoocomplextoberunbyregulatorstriestoencourageself-responsibilityinbanksandtoavoidmoralhazardRoleofthesupervisoristoputinplacecertainminimumstandards,tomonitortheperformanceofmanagementandtotakeactionifmanagementisnotdoingitsjobproperlyHowcangoodcorporategovernancebepromotedbysupervisors?ApprovalofdirectorsandchiefexecutivesofbanksandremovalofthosethatarenotfitandproperIssuanceofguidelinesoncorporategovernanceMeasurestoencouragemarketdisciplinethroughdisclosureandtransparencyApprovalofdirectorsandchiefexecutivesAlldirectorsandchiefexecutivesofbanksinHongKongmustbeapprovedasfitandproperbytheHKMARelevantcriteriaincludeprobity,reputationandcharacterknowledge,experience,competence,soundnessofjudgementcompliancerecordbusinessrecordandotherbusinessinterestsStandardsrequiredvaryaccordingtotheparticularpositiontobeheldApprovalofmanagersHKMAalsorecentlyproposedthatitshouldalsohavethepowertoapprove“managers”(i.e.seniorexecutivesbelowthelevelofCEO)ThisattractedoppositionfromsomebankswhoregardeditastoointrusiveandasdetractingfromtheprerogativeoftheboardandCEOAsaresultwehavemodifiedourproposaltorequirenotificationoftheappointmentofmanagersstipulateasoneofthelicensingcriteriathatbanksshouldhaveadequatesystemstoensurethatmanagersarefitandproperHKMAguidelineoncorporategovernanceCorporategovernanceofHongKongbanksisrelativelygoodbyregionalstandardsashasbeenshownbytheirabilitytosurvivetheAsiancrisisintactHowever,thereweresomeweaknessesintheperformanceoftheboardsofafewlocalbanksduringtheAsiancrisisinthesecases,theboardofdirectorsfailedtoplayaproperleadershiproleToaddressthissituation,theHKMAissuedaguidelineoncorporategovernanceinlocallyincorporatedauthorizedinstitutionsinMay2000intendedtoreasserttheroleoftheboardofdirectorsContentsoftheHKMAGuidelineMajorresponsibilitiesoftheboardensurecompetentmanagementapproveobjectives,strategiesandbusinessplansensurethatthebank’soperationsareconductedprudentlyandwithintheframeworkoflawsandboardpoliciesensurethatthebank’saffairsareconductedwithahighdegreeofintegrityLegalobligationsofdirectorsTheuseofauditors,includinginternalauditSpecificrequirementsSpecificRequirements(1)Theboardshouldensurethatthebankestablishespolicies,proceduresandcontrolstomanagethevarioustypesofriskwithwhichitisfaced

8typesofriskspecifiedbyHKMA(i.e.credit,interestrate,market,liquidity,operational,reputation,legalandstrategicrisk)boardshouldapproverelevantpoliciestomanagetheseriskswhileseniormanagementshouldputthemintoeffectpoliciesshouldnotexistmerelyforform’ssake(e.g.tosatisfytheregulator),butshoulddictatehowthebankisactuallyruninpractice

SpecificRequirements(2)Theboardshouldensurethatthebankfullyunderstandstheprovisionsofsection83oftheBankingOrdinanceonconnectedlendingandestablishesapolicyonsuchlending

section83oftheOrdinancelimitstheunsecuredadvancesofbankstoconnectedparties(e.g.directorsandtheirrelatives)boardshouldensurethatthebankfullyunderstandsitslegalobligationsandestablishesapolicyonconnectedlendingaccordingtotheminimumstandardsspecifiedintheGuidelineSpecificRequirements(3)Theboardshouldensurethatitreceivesthemanagementletterfromtheexternalauditorwithoutunduedelay,togetherwiththecommentsofmanagementmanagementlettershouldnormallybereceivedwithin4monthsfromthefinancialyear-endboardand/orauditcommitteeshouldensureappropriateactionistakentoaddressanyweaknessesidentifiedinthemanagementlettercopyofthemanagementlettershouldbegiventotheHKMASpecificRequirements(4)Theboardshouldmaintainappropriatechecksandbalancesagainsttheinfluenceofmanagementand/orshareholdercontrollers,inordertoensurethatdecisionsaretakenwiththebank’sbestinterestsinmind.

boardshouldhaveatleast3independentnon-executivedirectorstoprovidethenecessarychecksandbalancesandbringinoutsideexperiencebanksshouldnotifythenamesoftheirindependentdirectorstotheHKMAHKMAmayrequireadditionalindependentdirectorstobeappointedSpecificRequirements(5)Theboardshouldestablishanauditcommitteewithwrittentermsofreferencespecifyingitsauthoritiesandduties

auditcommitteeshouldbemadeupofnon-executivedirectors,themajorityofwhomshouldbeindependentBoardmeetingsofabankshouldbeheldpreferablyonamonthlybasisbutinanyeventnolessthanonceeveryquarterbanksshouldkeepfullminutesofboardmeetingsHKMAwillrequirebankstoprovideitwitharecordofthenumberofboardmeetingsheldeachyearSpecificRequirements(6)Individualdirectorsshouldattendatleasthalfofboardmeetingsheldineachfinancialyearandallmeetingswheremajorissuesaretobediscussed

participationofdirectorsinboardmeetingscanbefacilitatedbyvideoortelephoneconferencingHKMAwillmonitortheattendancerecordsofindividualdirectorsTheHKMAwillmeetthefullboardofdirectorsofeachbankeveryyear.

HKMA’sintentionisnottoparticipateinboardmeetingsbuttostrengthencommunicationbetweentheHKMAandthebanksatthehighestlevelTheroleofpublicdisclosureingoodcorporategovernanceAsnoted,themainresponsibilityrestswithshareholders,directorsandmanagementBankingsupervisorsalsoplayaroleBothoftheaboveneedtobesupplementedbyadequatepublicdisclosureThisfacilitatesprivatesectoroversightoftherisk-takingandfinancialconditionofbanksdisclosuremakesdirectorsandseniormanagersmoreaccountabletothevariousstakeholdersincreasesthenumberof“watchfuleyes”,thusreinforcingsupervisoryeffortsWhatshouldbanksdisclose?(1)Financialperformance(breakdownofincomeandexpenseetc)Financialposition(breakdownofonandoff-balancesheetitems,includingcapitalpositionandliquidassets)RiskmanagementstrategiesandpracticesRiskexposures(includingquantitativeandqualitativeinformationoncredit,market,liquidity,operational,legalandotherrisks)Whatshouldbanksdisclose?(2)AccountingpoliciesBasicbusiness,managementandcorporategovernanceinformation(includingbusinessstrategies,groupstructure,boardandmanagementstructure,remunerationpoliciesetc)DisclosureandtransparencyDisclosuredoesn’tnecessarilyachievetransparencyToachievetransparency,disclosuremustenableuserstoproperlyassessthebank’sriskprofile,financialconditionandperformance,businessactivitiesetcThereforedisclosuremustbecomprehensiverelevantandtimelyreliablecomparablematerialThebenefitsofdisclosure(1)Wellmanagedbanksshouldbenefit,e.g.fromimprovedaccesstocapitalmarketsandmoresecurefundingatalowercostEnableamoreefficientallocationofcapitalbetweenbanksbyhelpingshareholderstomoreaccuratelyassessandcomparetheriskandreturnprospectsofindividualbanksEnableawidersetofshareholderstoparticipateeffectivelyinthegovernanceofthebanksandmakethecorporategovernanceprocessmoretransparentThebenefitsofdisclosure(2)Enabledepositorsandothercreditorstobetterdecidewhichbankstheyshouldplacetheirmoneywithandtocurbexcessiverisk-takingReducedriskofmarketdisruptions-ongoingdisclosureshouldmakemarketparticipantslesslikelytooverreacttonegativeinformationStrengthenedincentivesforbankstobehaveinaprudentandefficientmannerThebenefitsofdisclosure(3)ReductioninsystemicriskthroughbetterabilitytodistinguishhigherriskbanksfromthosethatarefundamentallysafeandsoundshouldreducetheriskofcontagionReinforcesupervisoryguidancebymakingbanksdisclosewhentheyarenon-compliantReducemoralhazardfacedbysupervisorsTheproblemsofachievingtransparencyThefinancialstrengthandriskinessofbanksareinherentlydifficulttoevaluateproblemofhowtovalueloanportfolioshowtocommunicatemeaningfullytheriskappetiteandqualityofriskmanagementofabankdifficultyofcomparabilityoffinancialinformationo/adifferencesinaccountingstandards,supervisoryguidelines,interpretation,enforcementlimitsondisclosureofcustomerinformationandproprietaryinformation,e.g.onriskmanagementtechniquesandstrategiesproblemofkeepinguptodatewithrapidchangesinbanks’riskprofilesTheproblemsofachievingmarketdisciplineMarketparticipantsmaynotrespondtoinformationinawaythatpromotesfinancialstabilitypubliclydisclosedinformationmaynotberegardedassufficientlycredibleparticipantsmayrelyonofficialsafetynetsforprotectionretaildepositorsmaybeunabletomonitorabank’sconditionviapublicdisclosureshareholdersmayfailtodisciplinemanagementmanagementmaylackincentivestobehaveprudentlyPotentialdrawbacksofpublicdisclosureCostofproducingandprovidinginformationMarketmayreactmoreharshlythandesirablewhenitbecomesawarethatabankisweakenedpotentialthatbankmayfailfromliquidityproblemsevenifitissolventotherbanksmaybeaffectedthroughcontagion,particularlyintimesoffinancialstressHowever,contagionriskshouldbereducedinanenvironmentofadequateongoingpublicdisclosureAlso,themarketincentivesprovidedbydisclosureshouldhelptocorrectbank-levelproblemsatanearlystageTheroleofsupervisorsinimprovingtransparency(1)Supervisorsshouldtrytopromotecomparability,relevance,reliabilityandtimelinessofinformationdisclosedissuedisclosurestandardsandguidelinesoratleastinfluencethedebateontheseEncouragetheuseofsupervisorydefinitionsandreportingclassificationsforpublicdisclosurepurposestofacilitatecomparisonofdataMediateifbanksfailtoagreeprivatelyonstandardsinordertospeeduptheprocessofdisclosureconvergenceTheroleofsupervisorsinimprovingtransparency(2)PublicationofaggregateinformationreceivedfrombanksDifficulttogobeyondthistodiscloseinformationonindividualbanks,e.g.supervisoryratingswouldconflictwiththesupervisors’roletomaintainbankingstabilityandmakeitmoredifficulttoresolveindividualbanks’problemscouldmakesupervisorsmorereluctanttomakeindependentjudgmentsaboutbanksiftheseweretobemadepubliccouldmakeitmoredifficulttoobtainconfidentialinformationfrombanksBankdisclosureinHongKongHKMApublishesannualguidelinesonfinancialdisclosurewhichhavehelpedtoupgradestandardsinHongKongdisclosurebybanksinHongKonghasbeenratedthebestintheRegion(e.g.bytheIMF)ButbanksherecannotaffordtorelaxothercountriesintheRegionarecatchingupandevenmovingaheadinsomerespects(e.g.ThaibanksnowpublishNPLsonamo