CEBS seminar on internal governance

The importance of stronger adherence by the European banking industry to Internal Governance Principles issued by the Committee of European Banking Supervisors was emphasised during a training programme for European regulators held in Malta on May 20 and 21.

The updating of CEBS Guidelines on the Supervisory Review Process for the banking sector and the enhancement of supervisory techniques with respect to internal governance processes were two of the main issues discussed at the CEBS training event focused on the practical internal governance issues that emerged in the course of the financial crisis. The training exercise, which was co-hosted and supported by the MFSA, was for the first time also opened to delegates from the banking industry.

Experts in the field of internal and corporate governance provided an overview of corporate governance, fiduciary duties of directors and internal governance within the banking industry. Bernd Rummel from the CEBS Secretariat provided an insight about the new European financial supervisory framework and its effect on banking organisations. Within the new framework, the current European Supervisory Committees will be replaced by three new European Supervisory Authorities as from 2011, namely: European Banking Authority (to replace CEBS); European Insurance and Occupational Pensions Authority (to replace CEIOPS) and European Securities and Markets Authority (to replace CESR).

Mr Rummel also elaborated on CEBS work on corporate and internal governance in the context of the CEBS Guidelines on the Supervisory Review Process. Internal Governance Principles were examined by reference to guidelines on validation, interest rate risk in banking book, stress testing, outsourcing and concentration risk and other issues. The discussion was based on a survey on internal governance conducted by CEBS in 2009 to assess the implementation of guidelines by supervisors and authorities and to identify topics for further investigation arising from the financial crisis.

The survey found that while member states had adopted the internal governance guidelines, the take-up within certain regulated institutions had in certain cases been found to be lacking. The survey also found instances of a lack of proactive, long-term oriented management approach, inadequate oversight by the management body in its internal supervisory function and failure to stop excessive risk taking which have to be addressed. An update of the CEBS guidelines on internal governance is expected to be completed by September.

The programme included presentations given by MFSA officials on the internal governance structure within MFSA; an overview of local company legislation within the context of corporate governance; general aspects of corporate governance including regulation, requirements during the application stage and as an on-going process and practical aspects of the regulation and supervision of acquisitions and mergers.

The training event was attended by around 90 Maltese and foreign delegates.