Global banking regulators have unveiled a new set of corporate governance principles for banks that focus on the importance of risk governance.
The Basel Committee on Banking Supervision issued revised principles on Wednesday, which stress the importance of effective corporate governance for the safe and sound functioning of banks. In particular, the guidance emphasizes the importance of risk governance, the value of strong boards and board committees, along with effective control functions.
The revised principles expand the guidance on the role of boards of directors in overseeing the implementation of effective risk management systems. They also strengthen the guidance on risk governance, including the risk management roles played by business units, risk management teams, and internal audit and control functions. In addition, they recognize that compensation systems are a key component of the governance and incentive structure that boards and senior management can use to communicate acceptable risk-taking behaviour, and reinforce the bank’s operating and risk culture.
Although there is no single model of good corporate governance, the principles provide a framework for banks and regulators to achieve robust and transparent risk management and decision-making, the Basel Committee notes. In doing so, effective governance can help “promote public confidence and uphold the safety and soundness of the banking system,” the committee says.
The revised set of principles supersedes guidance published by the committee in 2010. A draft of the updated guidance was published for comment in October 2014.