CG requiremnets for banks in tanzania
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Transcript of CG requiremnets for banks in tanzania
CorporateGovernanceRequirementsforBanksin
TanzaniaNBAA/BOTJointConference,Arusha2014
KassimHussein,PhD
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Weplantodiscuss:
• OverviewofCG;CGFramework;MainsourcesofCGforbanks
• FocusofbankCG;WhyCGmaQersforBanksandFI’s;WhatCGensures
• BankDirectorsduTes,responsibilityandliability
• Compliancerole….OnprudenTalregulaTons• PromptCorrecTveAcTons)RegulaTons2008
Corporate Governance (CG)
CG includes all structures, processes, policies, systems and procedures whereby the bank/FI or controlling company is governed.
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BOTGuideline…CGas..…. the manner in which the business and affairs of individualinsTtuTonsaregovernedbytheirboardsofdirectorsandseniormanagement,andinparTcular,howbankinginsTtuTons:
– setcorporateobjecTves;– operatethebank’sbusinessonaday-to-daybasis;– meettheobligaTonofaccountabilitytotheirshareholdersand take into account the interests of other recognizedstakeholders;
– align corporate acTviTes and behavior with theexpectaTon that banks will operate in a safe and soundmanner, and in compliance with applicable laws andregulaTons;and
– Protecttheinterestsofdepositors.
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BoardGovernanceFramework
Audit&RiskCommiQee
HR&RemuneraTonCommiQee
LoansCommiQees
BoardCommiQees
Strategy
BoardofDirectors• AchievementofstrategicobjecTvesandvaluecreaTon• FulfilresponsibiliTesandduTesinlawandprescribedfuncTons
BoardOpe
raTo
ns
ChairmanBoardMeeTngs
ReporTng&Disclosure
InternalControls&Assurance
OtherCommiQee
InternalAudit ExternalAudit AssuranceInsTtuTons Management
CombinedAssuranceModel
GovernanceSystemandControls
CorporatePolicies&Procedures
BoardGovernanceInstruments
MonitoringandEvaluaTon KeyAreaso
fRespo
nsibility
CEO&Management
Shareholders
Inform
aTon
and
Com
mun
icaT
on
CorporateSecretary
5Regulators(BOT;BRELA;CMSA/DSE;NBAA/IFRS)BestPracTces:TBAchartadaptedfromKPMG
Main Source of CG • LocalandinternaTonalsourcesofCGforBanksandFinancialInsTtuTons
• BankingandFinanceAct,2006andregulaTonsmadeunderitbytheRegulator
• CMSA;CompanyAct2002;NBAA1972andIFRS;BRELA;TRA
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Main Source of CG • TheCorePrinciplesforEffec2veBankingSupervision,BaselCommiQee–(1997,2006&2011)
• KingI(1994)&KingII(2001)• PrinciplesofCorporateGovernance,OECD(21June1999)
• TanzaniaBankersAssociaTon
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BoxA:BankingSupervisoryCGInstruments1. TheBankingandFinancialInsTtuTons(CapitalAdequacy)RegulaTons,
2008(New)2. BankingandFinancialInsTtuTons(TanzaniaMortgageRefinance
Company)RegulaTons,2011(New)3. BankingandFinancialInsTtuTons(DevelopmentFinance)RegulaTons,
2011(New)4. BankingandFinancialInsTtuTons(InternalControlandInternalAudit)
RegulaTons,2005(New)5. CreditReferenceDatabankRegulaTon20136. CreditReferenceBureauRegulaTon20137. GuidelinesforAgentBankingForBankingInsTtuTons20138. BureaudeChangeOperators9. TheForeignExchange(BureaudeChange)Act,1992
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BoxA:BankingSupervisoryCGInstruments
9 BankingandFinancialInsTtuTons(FinancialLeasing)RegulaTons,201110 BankingandFinancialInsTtuTons(MortgageFinance)RegulaTons,201111 BankingandFinancialInsTtuTons(IndependentAuditors)RegulaTons,
200812 TheSocialSecuritySchemesInvestmentGuidelines,201213 BankingandFinancialInsTtuTons(ManagementofRiskAssets)
RegulaTons,200814 BankingandFinancialInsTtuTons(CreditConcentraTon)RegulaTons,
200815 BankingandFinancialInsTtuTons(ForeignExchangeExposureLimit)
RegulaTons,200816 BankingandFinancialInsTtuTons(Licensing)RegulaTons,200817 BankingandFinancialInsTtuTons(PhysicalSecurityMeasures)RegulaTons,
20089
BoxA:BankingSupervisoryInstruments
18 BankingandFinancialInsTtuTons(LiquidityManagement)RegulaTons,200819 BankingandFinancialInsTtuTons(PromptCorrecTveAcTon)RegulaTons,200820 BankingandFinancialInsTtuTons(PublicaTonofFinancialStatements)RegulaTons,200821 TheForeignExchange(BureaudeChange)RegulaTons,1999(Repealed)22 TheForeignExchange(BureaudeChange)RegulaTons,200823 BankingandFinancialInsTtuTonsAct,200624 SupervisoryMethodologies,Acts,GuidelinesandCircularinplace25 LicensingCondiTons26 ApplicaTonFormforBureaudeChangeLicense(PDF)27 ApprovedAuditors28 RiskManagementGuidelinesforBanksandFinancialInsTtuTons(NewRevised)29 RiskBasedSupervisionFramework30 OutsourcingGuidelinesforBanksandFinancialInsTtuTons,200831 BoardofDirectorsGuidelinesforBanksandFinancialInsTtuTons,200832 BusinessConTnuityManagementGuidelinesForBanksandFinancialInsTtuTons,200933 CriteriaforApprovingandRegisteringExternalAuditorsofLicensedBanksandFinancial
InsTtuTonsSource:BOTwebsite 10
CG in Banks is special… why?
• Banks operate in a complex business environment competitive
– Fulfil a central role in an economy – Theyareenginesofeconomicgrowth– Banksprovidemonetarytransmissionmechanisms
– Require ‘fit for purpose’ for its directors • Safeguards depositors interests
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WhyCGmaQersforBanks
• IntermediaTonrole(anditsfailurewouldresulttofinancialcrisis).
• Dealinpeople’ssavings,informaTonandtrust• Theyprovidefinance–vitalwherecapitalmarketsarenotyetfullydeveloped.
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CGensuresthat
§ accountabilitytotheirshareholdersandallstakeholders
§ operateinasafeandsoundmanner,§ complywithapplicablelawsandregulaTons§ Protecttheinterestsofdepositors
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GeneralConduct–expectedfromGuidelines
• The proper conduct of a bank orfinancial insTtuTon requires that theboardofdirectorsfuncTonappropriatelyandathighstandards.
• adirector,mustcommandahighlevelofintegrity, honesty, competence andability to adhere to good corporategovernance principles. (BOT fit forpurpose)
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Theobjec>vesofBOTGuidelines• PromoTon and maintenance of publicconfidenceinbankinginsTtuTons;
• Establishment of standards for corporategovernanceprocessesandstructures;
• Provision of guidance to directors for properdischargeoftheirfiduciaryresponsibiliTes.
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Du>esandResponsibili>esoftheBoard• AppointmentofExecuTveOfficers• EffecTveOversightoftheBankingInsTtuTon'sAffairs• RegulatoryCompliance• SemngandReviewingPoliciesandObjecTves• Developingastrategicplan• Ensuringarm’slengthtransacTonswithinsiders• Semng and enforcing clear lines of responsibility andaccountability.
• MaintenanceofAdequateCapital• EffecTveuTlizaTonofInternalandExternalAuditors’work.• Ensuring that the banking insTtuTon has a beneficialinfluenceontheeconomyofitscommunity.
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Directors’Responsibili>es
• Non compliance with a memorandum ofundertaking to ensure safe and soundoperaTonsofhisbankinginsTtuTon.
• Non-compliancewith secrecy provisions of theBankingandFinancialInsTtuTonsAct2006.
• I nvo l vement i n f r aud o r de l i be ra temismanagement.
• Non-compliancewitharm'slengthprinciple.• NotinhibiTnghimselffromaQendingameeTng
which intends to deliberate or approve atransacToninwhichheisthebeneficiary.
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Directors’Liability• adirectormaybefined,removedfromoffice,ordisqualified
fromholdinganyposiTonorofficeinanybanking insTtuTonincaseofviolaTonofprovisionsoftheBAFIitsorregulaTons.
• each director has a duty of care and loyalty to the bankinginsTtuTon'sinterests.
• adirectorisliablefornon-diligentandnegligentperformanceofthejobofdirector.
• each director is responsible for exercising raTonal andindependentjudgment.
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BoardmeeTngs
• Meet at least quarterly, to discuss the businessaffairsofthebankinginsTtuTon.
• Minimum contents of the reports to besubmiQedtoBoDmeeTngs
• At least annually, the board of directors shouldsetimplementaTontargets.
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AFendanceatmee>ngsoftheboardofdirectors
• Every member of the board should aQend at least75%oftheboardmeeTngsofthebankinginsTtuTonineachyear.
• Adirectorwhohas,whetherdirectlyor indirectly,apersonal interest in an exisTng or proposedtransacTonshoulddeclarehispersonal interestandinhibithim/herself.
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Evalua>onoftheBoardofDirectors
• RegularlyreviewitsmixofskillsandexperienceandotherqualiTesinordertoassesstheeffecTvenessoftheboardanditscommiQees.
• AcopyofthereviewreportbesubmiQedtoBOTImmediaterepor>ngtotheBank• AchangeinthecomposiTonoftheboardofdirectorsoritscommiQees
shouldbereportedtotheBank:– astatementregardingthereasonsfortheresignaTonordismissal,– asignedstatementbythedirectorregardingthereasonsforhis
resignaTonordismissal;
• ExcepTonaleventsthatconsTtuteadeparturefromtheproperconductofbankingbusiness,orinfringementoftheprovisionsofthelaw,orsubstanTveviolaTonoftheinterestsoftheinsTtuTons’stakeholders.
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Termsofappointment,remunera>onandre>rement
• The board of directors should put in place a policyspellingoutclearly:– appointment,– remuneraTon,and– reTrement terms for the members of the board, oftheirinsTtuTons.
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Riskmanagement• The board of directors should review all policies – at least
annually• Theboardofdirectorsshouldensurethatitisinformedofall
newacTviTesandapprovesstrategicacTviTesofthebankinginsTtuTonaperithasclearunderstandingofthefollowing:– therisksinvolvedinthatnewkindofacTvity,– the mechanisms the banking insTtuTon will use for the managing,
measuringandcontrollingoftherisks,– the quanTtaTve restricTons required in connecTon with the risks
embodiedinthenewacTvity,– the appropriate personnel, sources of finance, and technical and
technologicalinfrastructureforthenewacTvity,and;– themanagementofthenewacTvityandwhethercanbeadaptedto
theexisTngsituaToninthebankinginsTtuTon.
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Onmembership:size,composi>on,etc
• Membershipofnotlessthanfive,majorityofwhommustbe non-execuTve and have banking or relatedexperience.;
• The chairperson of the board must be a non-execuTvedirector;
• Each banking insTtuTon should appoint at least twoTanzanianstoitsboard;and
• A board member should not simultaneously serve as aboard member or in any execuTve capacity in otherbankinginsTtuToninTanzania.
• To avoid conflict of interest, no individual who is amember o f NaTona l Assembly or House o fRepresentaTvesor localgovernmentauthority shouldbeappointedasdirectorofabankinginsTtuTon.
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OwnershipandManagement
• No individualshareholderwithafivepercentumormoreshareholding in a banking insTtuTon should form part ofmanagementofthebankinginsTtuTon.
• No individual shareholderwitha tenper centumormoreshareholding in abanking insTtuTon shouldbeappointedas Chairperson or Deputy Chairperson of the board ofdirectorsofabankinginsTtuTon.
• Noindividualshareholderwhohadasignificantinterestina failed banking insTtuTon should acquire a significantinterestinabankinginsTtuTon.
• No individual who was involved in themanagement of afailed banking insTtuTon should be allowed to hold aposiTonofaccountabilityinabankinginsTtuTon.
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Prac>cingProfessionals
• In order to tap experTse of pracTcing professionals, abanking insTtuTon may appoint such professionals asboarddirectors– notemployedbyorpartnersinafirmwhichisengagedtoconduct audit of or consultancy work for the bankinginsTtuTon;
• PracTcing professionalswho are appointed as directorsof banking insTtuTons should exercise the highestdegreeofintegrityandprofessionalism.
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CriteriaforFitandProperPersons
• Possession of formal qualificaTons and management orbusinessorprofessionalexperienceofatleastfiveyears,preferably,possessionofaproventrackrecordinbankingindustry or related acTviTes; on- convicTon in anycriminal
• Non involvement as a member of the management ofboard of directors, with a banking insTtuTon whoseregistraTon or license has been revoked or cancelled orwhichhasgoneintoliquidaTon.
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CriteriaforFitandProperPersons
• absence of default record of any creditaccommodaTon taken by him or his relatedparTesfromanybankinginsTtuTon.
• Absence of bankruptcy record or suspension ofpaymentsorcomposiTonwithhiscreditors.
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PermanentConflictofInterests–Disqualifica>onfromServing
• Apersonshouldnot serveasadirector ifhisbusiness or permanent occupaTon creates apermanent conflict of interests between himand the insTtuTon, or if it is reasonable toassume that such conflict may existpermanently.
• Aperson shall not be appointed a director ifhe was a director of another bankinginsTtuTon and less than a year has passedsinceheceasedtoserveasadirectorof thatinsTtuTonunlessthepermissionoftheBankisobtained.(COOLINGPERIOD)
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BOARDCOMMITTEESTypesofCommiFeesTheboardofdirectorsshouldformanauditcommiQeeandsuch
othercommiQeesas itmaybenecessary fordischargeof itsfuncTons.
Composi>onofBoardcommiFeesThe board of directors should specify the composiTon and
funcTons of every commiQee formed and the terms andcondiTons upon which the commiQee would exercise itsfuncTons.
• TheboardcommiQeesshouldconsistsolelyofnonexecuTvedirectors,andthenumberofcommiQeemembersshouldnotbelessthanthree;
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Minimumcapitalforcommunitybanks(r.7.1);TZS250millionorsuchhigheramountastheBankmayprescribe
– Shallestablishbranch,agencyorotherofficeifhascapitalofTZS500millionwithpriorapprovaloftheBank(r.7.2);
• MinimumcapitalforMFCandFICCO(r.8);asprescribedin– BankingandFinancialInsTtuTons(MicrofinanceCompaniesandMicrocreditAcTviTes)RegulaTons,2005
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Restric>onsandlimita>ons
§ onDividends(Sec.19)§ NodeclaraTonifcontravenescapitalrequirement
§ LiquidAssetsRa>o(Sec.21)§ AccountsandIndependentAuditors(Sec.22)
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InternalControls(Sec.23)
§ Boards’responsibility§ AuditCommiFeeoftheBoard
§ Chairedbynon–execu>vemember
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LargeExposures/SingleBorrowerslimit(Sec.25)
§ RefertoConcentra>onofCreditandotherExposurelimitsRegula>ons
§ ConnectedLending(Sec.26)§ ManagementofRiskAssetsRegula>ons• Limita>onsoninvestmentsinCompaniesengagedinac>vi>esnotauthorizedandinFixedAssets(Sec.28&29)
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DepositInsurancefund(Sec.36to42)
• ManagedbyDepositInsuranceBoard
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ProhibiTonontakingdepositswhileinsolvent(Sec.43)
• Unlawfultocollectdepositifknowntobeinsolvent
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ExhibiTonofLicense(sec.44)
• ConspicuousposiToninpublicpart
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ExhibiTonofFinancialStatements(sec.45)
• LatestAuditedStatements
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AbandonedProperty(Sec.46&47)
• SurrendertoBOTatendofeachcalendaryear
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FidelityandSecrecy(sec.48)
• NodivulgingofanyinformaTonrelaTngtoitscustomersortheiraffairs
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FairlendingandcollecTonpracTces(Sec.49)
• Existenceofcontract
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LiquidaTon,SeizureandreorganizaTon(Sec.50to61)
• ResponsibiliTesundereachstage.
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LIQUIDITYREQUIREMENTS
• LiquidityManagementPolicies(r.5);responsibilityoftheboardofdirectorsandinlinewithRiskManagementGuidelines,2005;
• ConTngencyPlan(r.6)• MinimumLiquidAssetRaTon(r.7);20percent• LoantodepositraTo(r.8);Maximumlimit80percent
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BankingandFinancialIns>tu>ons(PromptCorrec>veAc>ons)Regula>ons
2008
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Introduction
• Made under Sections 34 and 71 of the BFIA, 2006
• The Regulations contains – Mandatory actions in response to capital
triggers; and – Additional discretionary actions open to the
Bank
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Objectives
• Ensure timely and effective actions – Necessary for dealing with weakening banking
institutions
• Enhance transparency – Both Regulator and the regulated know actions to
be taken to address weakening capital
• Maintain confidence in Tanzanian banking sector – Safety and soundness!!!!!
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Corrective Actions • Regulation 5 provides major mandatory
actions if a bank is: - – adequately capitalised banking institution
but likely to incur loss causing it to be undercapitalised; and/or
– business is conducted in an unsound manner
• Any Three actions are required: – to submit written plan of corrective actions
that: - • Identifies existing weaknesses in administration
and operations 47
Corrective Actions • determines the corrective measures for
remedying the weaknesses; and • offers realistic time-frame for taking the
actions – prohibition from declaration and payment of
dividends which would result into failure to meet the requirements of Capital Adequacy Regulations
– intensification of oversight and monitoring in accordance with principles of risk-based supervision
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Corrective Actions • Regulation 6 prescribes three
discretionary actions that may be taken: – Civil monetary penalties – Cease and desist orders – Suspension or removal of any director,
officer or person(s) in management position
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Corrective Actions
• Reg. 7 prescribes mandatory actions for case of undercapitalisation (<10): - – Measures prescribed in regulation 5 – Require a capital restoration plan within 45
days • Specifying steps to be taken to restore capital • Specifying levels of capital to be attained in each
quarter of the plan
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Corrective Actions
• Reg. 8 highlights the discretionary measures of BOT which may include – appointing a suitable person who shall
• advise and assist the institution in designing and fulfilling capital restoration plan
• Regularly submit progress report to the Bank • The regulator shall fix the remuneration of such
person which shall be paid by the concerned institution
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Part II – Corrective Actions • Reg. 9 covers mandatory actions for the
case of significant undercapitalisation (<6) – Measures prescribed in regulation 7 – Prohibit transactions with officers, directors,
shareholders and related interests except: • Payment of outstanding obligations • Transactions authorised by the Bank to facilitate
capital restoration
– Prohibit bonuses or raises in salary, emoluments and other benefits entitled to directors and officers; and
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Corrective Actions – Prohibit new branches or any other expansion
of operations
• Reg. 10 highlights the discretionary measures which include – restrictions on growth – restrictions on the rate of interest on deposits – order to cease lending of any other business
activities
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Corrective Actions • Reg. 11 prescribes mandatory actions for
case of critical undercapitalisation (<4) – actions prescribed in regulation 9 – assist in handling the crisis – appoint a statutory manager or liquidator within
90 days of becoming critically undercapitalised unless
• Core capital is greater than two percent • Operating in substantial compliance with an
approved capital restoration plan
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Corrective Actions • Reg. 12 provides that if an undercapitalised
or significantly capitalised institution – fails to submit recapitalisation plan; or – submits an un-acceptable plan
• The Bank shall not later than 90 days of the original notification – deem the institution to be critically
undercapitalised – take actions prescribed in regulation 11
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PUBLICATIONOFFINANCIALSTATEMENTSREG.2008
• Reg.4objecTvesofRegulaTonsareto– ensurethateverybankorfinancialinsTtuTonmaintainsaleveloftransparencyadequatetoenabledepositorsandcreditorsandthepublicatlargetomakeinformeddecisions;
– promoteandmaintainpublicconfidenceintheTanzanianbankingsector;and
– enhancemarketdisciplinebyprovidingfinancialinformaTontovariousstakeholders.
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PUBLICATIONOFFINANCIALSTATEMENTS
• QuarterlyfinancialreporTng(r.5)– tobepublishedatleastonceinapaperofgeneralcirculaTon
– bepublishedwithin45daysaperendofquarter– acommunitybank,shallinaddiTontothereq.sub-reg.1,displayitsquarterlyaccountsinpublicplaceswithintheareasinwhichthebankoperates
– acopyofquarterlyandauditedfinstmtobesubmiQedtoBOT
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PUBLICATIONOFFINANCIALSTATEMENTS
• Auditedfinancialstatements(r.6)– ShallbepublishedatleastonceeveryyearinthenewspapersofwidecirculaToninTanzania
– Shallbepublishedwithin15daysaperapprovaloftheBoardbutnotlaterthan105daysaperendoffinancialyear
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PUBLICATIONOFFINANCIALSTATEMENTS
• ExhibiTonofauditedFS(r.7)– AtallTmesshouldbeexhibitedinaconspicuousposiToninthepublicpartofitsprincipalplaceofbusinessandinbranchesandagencies
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BoardProcess-ChartersØ Boardcharter–funcTonsandresponsibiliTesØ CommiQeecharters–role,objecTvesandpowersØ DelegatedauthoriTes–board,commiQees,CEO,staff
Ø AccountabiliTeslinkedtoauthoriTesØ DelegaTonspolicydocumentreviewedannuallyØ Detailedcorporategovernancestatement
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Board Process - Ethics Ø Codeofconduct–statementofethicalstandardsØ ConfidenTalityacriTcalrequirementØ Conflictsofinteresttobedisclosed
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BoardProcess–SupportforDirectors
Ø FormalinducTonprogramØ Directors’handbook/charterØ ConTnuingeducaTonØ Accesstoindependentprofessionaladvice
KH-62
FutureCGrequirementforbanks
• Overthenextseveralyears…morereformsonregulatoryframework(Basle11toBasle111)whichwillimpactonDirectorsroleonCapitalizaTon,managementofrisk,transparencyoraddiTonaldisclosureanditsTming.
• Regulatorssupervisionwillincreasinglyberiskbased,coverawiderangeofrisksandmoreuseofquanTtaTveapproaches.ThereforeCGwillrequireDirectorsoversighttobeoffsite,real-TmeusingIT
• MoreinvestmentinITarchitectureandconTnuousplauormupgrade
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QandA
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