SEC(2010)669 - Corporate Governance in Financial Institutions: Lessons to be drawn from the current financial crisis, best practices - Accompanying document to the Green Paper on Corporate Governance in Financial Institutions

official title

 

reference by COM-number85	SEC(2010)669
CELEX number88	52010SC0669

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• 1. 

  The Report of the High-Level Group on Financial Supervision in the EU published on 25 February 2009. The Group was chaired by Mr Jacques de Larosière.
  
   
• 2. 

  Commission Recommendation 2009/385/EC of 30 April 2009 complementing Recommendations 2004/913/EC and 2005/162/EC as regards the regime for the remuneration of directors of listed companies (OJ L 120, 15.5.2009).
  
   
• 3. 

  The term 'board' used in this report refers to the board in the unitary board system, in particular in its oversight function and to the supervisory board in the dual board system. Where the executive management is concerned, it is clearly specified in the report. The terms 'management' or 'executive board members/executive directors' cover the executive members of the unitary board as well as the members of the management board in the dual board structure. Where the text refers to 'non-executive board members/non-executive directors', it covers non-executive members of the unitary board and the members of the supervisory board in the dual structure.
  
   
• 4. 

  See OECD (June 2009).
  
   
• 5. 

  See Annex 1 on methodology.
  
   
• 6. 

  See Mateos de Cabo, R., Gimeno, R., Nieto, M.J., Gender Diversity on European Banks' Board of Directors: Traces of Discrimination, July 2009; Hagendorff, J. and Keasey, K., Value of Board Diversity in Banking: Evidence from the Market for Corporate Control, December 2008; Higgs, D., Review of the role and effectiveness of non-executive directors , January 2003.
  
   
• 7. 

  See the Principle 6 of BCBS guidance Enhancing corporate governance for banking institutions.
  
   
• 8. 

  See De Larosière report (2009); see also for central banks, Bank for International Settlements, Issues in the Governance of Central Banks , A report from the Central Bank Governance Group, May 2009. Also, interviewed financial institutions were in general very critical about the quality of supervision; however it seems to result form the interviews that central banks are less criticised than other independent prudential supervisors.
  
   
• 9. 

  See OECD (November 2009).
  
   
• 10. 

  Directives 2004/39/EC (MiFID) and 2006/73/EC (Implementing MiFID) already require investment firms and credit institutions providing investment services and activities to establish, implement and maintain an effective conflicts of interest policy which cover all relevant persons in the firm, including directors. However, these Directives are of recent application and it will be crucial to examine how they have been applied in practice and if their requirements are sufficient.
  
   
• 11. 

  During the seminar of 12 October 2009, several panellists emphasised that external independent assessment on a multi-year basis (each 3-4 years) based on in-depth interviews of board members and the management should replace self-evaluation based on a questionnaire.
  
   
• 12. 

  OECD (March 2010), p. 20.
  
   
• 13. 

  See section 3 'Risk Management' of this staff working paper.
  
   
• 14. 

  Most of the interviewed financial institutions with a separate risk committee have a practice of cross participation between audit and risk committees.
  
   
• 15. 

  De Larosière Report (2009), pp. 8 to 9.
  
   
• 16. 

  For example, the CRO was placed under rather than at equal level to the CFO.
  
   
• 17. 

  For recommendations in this field see for instance: Basel Committee on Banking Supervision (March 2010); OECD (February 2010); Walker, D. (November 2009).
  
   
• 18. 

  Regarding risk exposure, IASB is currently working on the 'Management Commentary' which is an element of communication from companies to capital markets adding information to the financial statements. IASB issued draft guidance in June 2009 which should help financial statements users to understand "the entity's risk exposures, its strategies for managing risks and the effectiveness of those strategies". The comments received should be processed mid-2010.
  
   
• 19. 

  Ibid, pp. 34-38.
  
   
• 20. 

  See also SSG (2009).
  
   
• 21. 

  See also IIF (July 2008), p.40.
  
   
• 22. 

  OECD (June 2009); Kirkpatrick, G. (2009); Walker, D. (November 2009).
  
   
• 23. 

  See also FT article "Don't blame shareholders for the crisis" by Anthony Bolton, president, investment at Fidelity International:
   
• 24. 

  For the purpose of this report, institutional shareholders/investors are considered to be professional investors which invest on behalf of or for the benefit of beneficiaries, including but not limited to pension funds, hedge funds, insurance companies and banks.
  
   
• 25. 

  Only 28 of the 100 biggest European pension funds (including Switzerland and Norway) are signatories of the UN PRI. Regarding EU countries the distribution is the following: Sweden-6, Denmark-5, The Netherlands-4, UK- 4, Finland-3, Ireland-1, Belgium-1, France-1. (www.unpri.org)
  
   
• 26. 

  FT article 'Tackling ownerless corporations' by Pauline Skypala of November 8 2009, report of the University of Exeter Business School: Responsible investment in fund management: it works, but when?
  
   
• 27. 

  See also Section 3 above.
  
   
• 28. 

  Shareholders have mentioned a number of problems associated with European acting in concert rules which can be summarised as legal uncertainty on the scope of the rules and include: - the existence of different definitions of acting in concert in the Transparency Directive, Takeover Bids Directive and (Level 3 guidance to the) Acquisitions Directive; - differences in interpretation of the definitions by national competent authorities; - uncertainty about the scope of the rules, for instance on when cooperation between shareholders should be regarded as a
   
• 29. 

  Directive 2007/36/EC
  
   
• 30. 

  Erkens, D., Hung, M., Matos P., (November 2009).
  
   
• 31. 

  Walker, D. (November 2009).
  
   
• 32. 

  See, for example, 'Rémunérations incontrôlées, les bases financiers de effet de cliquet', Pierre-Henri Leroy in 'Enjeux éthiques de la crise', 2009
  
   
• 33. 

  The ICGN Statement of Principles on Institutional Shareholder Responsibilities considers it good practice that institutional investors recognise and address conflicts of interest to safeguard the interest of beneficiaries.
  
   
• 34. 

  See also Section 3 above.
  
   
• 35. 

  Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC, OJ L 390 of 31.12.2004, p.38.
  
   
• 36. 

  See De Larosière report (2009), pp. 41 to 42; Guido Tabellini, Why did bank supervision fail? in The First Global Financial Crisis of the 21st Century, June 2008;
  
   
• 37. 

  See, for example, OECD (November 2009), p.27.
  
   
• 38. 

  Ibid.
  
   
• 39. 

  See, for example, BCBS (March 2010). For possible recommendations see also, for instance, BCBS (March 2010); OECD (February 2010).
  
   
• 40. 

  A report released on 11 March 2010 by the US examiner, Anton Valukas, about the Lehman Brothers bankruptcy, expressed serious concerns about the use of repurchase agreements made by Lehman to present its end-year balance sheet in a too favourable light, as well as the silence of Lehman's auditors in this respect.
  
   
• 41. 

  The ISAs standards (ISA 260, ISA 250.22) and probably most sets of auditing standards in the EU include such duty. However, neither the frequency nor the specific situations are spelled out in these standards.
  
   
• 42. 

  House of Commons Treasury Committee (2009) Article 239 " From 2009, banks will be required to report greater detail of their risk positions under new regulations introduced by Basel II, called
   
• 43. 

  The Report of the High-Level Group on Financial Supervision in the EU published on 25 February 2009. The Group was chaired by Mr Jacques de Larosière.
  
   
• 44. 

  Commission Recommendation 2009/385/EC of 30 April 2009 complementing Recommendations 2004/913/EC and 2005/162/EC as regards the regime for the remuneration of directors of listed companies (OJ L 120, 15.5.2009).
  
   
• 45. 

  The term 'board' used in this report refers to the board in the unitary board system, in particular in its oversight function and to the supervisory board in the dual board system. Where the executive management is concerned, it is clearly specified in the report. The terms 'management' or 'executive board members/executive directors' cover the executive members of the unitary board as well as the members of the management board in the dual board structure. Where the text refers to 'non-executive board members/non-executive directors', it covers non-executive members of the unitary board and the members of the supervisory board in the dual structure.
  
   
• 46. 

  See OECD (June 2009).
  
   
• 47. 

  See Annex 1 on methodology.
  
   
• 48. 

  See Mateos de Cabo, R., Gimeno, R., Nieto, M.J., Gender Diversity on European Banks' Board of Directors: Traces of Discrimination, July 2009; Hagendorff, J. and Keasey, K., Value of Board Diversity in Banking: Evidence from the Market for Corporate Control, December 2008; Higgs, D., Review of the role and effectiveness of non-executive directors , January 2003.
  
   
• 49. 

  See the Principle 6 of BCBS guidance Enhancing corporate governance for banking institutions.
  
   
• 50. 

  See De Larosière report (2009); see also for central banks, Bank for International Settlements, Issues in the Governance of Central Banks , A report from the Central Bank Governance Group, May 2009. Also, interviewed financial institutions were in general very critical about the quality of supervision; however it seems to result form the interviews that central banks are less criticised than other independent prudential supervisors.
  
   
• 51. 

  See OECD (November 2009).
  
   
• 52. 

  Directives 2004/39/EC (MiFID) and 2006/73/EC (Implementing MiFID) already require investment firms and credit institutions providing investment services and activities to establish, implement and maintain an effective conflicts of interest policy which cover all relevant persons in the firm, including directors. However, these Directives are of recent application and it will be crucial to examine how they have been applied in practice and if their requirements are sufficient.
  
   
• 53. 

  During the seminar of 12 October 2009, several panellists emphasised that external independent assessment on a multi-year basis (each 3-4 years) based on in-depth interviews of board members and the management should replace self-evaluation based on a questionnaire.
  
   
• 54. 

  OECD (March 2010), p. 20.
  
   
• 55. 

  See section 3 'Risk Management' of this staff working paper.
  
   
• 56. 

  Most of the interviewed financial institutions with a separate risk committee have a practice of cross participation between audit and risk committees.
  
   
• 57. 

  De Larosière Report (2009), pp. 8 to 9.
  
   
• 58. 

  For example, the CRO was placed under rather than at equal level to the CFO.
  
   
• 59. 

  For recommendations in this field see for instance: Basel Committee on Banking Supervision (March 2010); OECD (February 2010); Walker, D. (November 2009).
  
   
• 60. 

  Regarding risk exposure, IASB is currently working on the 'Management Commentary' which is an element of communication from companies to capital markets adding information to the financial statements. IASB issued draft guidance in June 2009 which should help financial statements users to understand "the entity's risk exposures, its strategies for managing risks and the effectiveness of those strategies". The comments received should be processed mid-2010.
  
   
• 61. 

  Ibid, pp. 34-38.
  
   
• 62. 

  See also SSG (2009).
  
   
• 63. 

  See also IIF (July 2008), p.40.
  
   
• 64. 

  OECD (June 2009); Kirkpatrick, G. (2009); Walker, D. (November 2009).
  
   
• 65. 

  See also FT article "Don't blame shareholders for the crisis" by Anthony Bolton, president, investment at Fidelity International:
   
• 66. 

  For the purpose of this report, institutional shareholders/investors are considered to be professional investors which invest on behalf of or for the benefit of beneficiaries, including but not limited to pension funds, hedge funds, insurance companies and banks.
  
   
• 67. 

  Only 28 of the 100 biggest European pension funds (including Switzerland and Norway) are signatories of the UN PRI. Regarding EU countries the distribution is the following: Sweden-6, Denmark-5, The Netherlands-4, UK- 4, Finland-3, Ireland-1, Belgium-1, France-1. (www.unpri.org)
  
   
• 68. 

  FT article 'Tackling ownerless corporations' by Pauline Skypala of November 8 2009, report of the University of Exeter Business School: Responsible investment in fund management: it works, but when?
  
   
• 69. 

  See also Section 3 above.
  
   
• 70. 

  Shareholders have mentioned a number of problems associated with European acting in concert rules which can be summarised as legal uncertainty on the scope of the rules and include: - the existence of different definitions of acting in concert in the Transparency Directive, Takeover Bids Directive and (Level 3 guidance to the) Acquisitions Directive; - differences in interpretation of the definitions by national competent authorities; - uncertainty about the scope of the rules, for instance on when cooperation between shareholders should be regarded as a
   
• 71. 

  Directive 2007/36/EC
  
   
• 72. 

  Erkens, D., Hung, M., Matos P., (November 2009).
  
   
• 73. 

  Walker, D. (November 2009).
  
   
• 74. 

  See, for example, 'Rémunérations incontrôlées, les bases financiers de effet de cliquet', Pierre-Henri Leroy in 'Enjeux éthiques de la crise', 2009
  
   
• 75. 

  The ICGN Statement of Principles on Institutional Shareholder Responsibilities considers it good practice that institutional investors recognise and address conflicts of interest to safeguard the interest of beneficiaries.
  
   
• 76. 

  See also Section 3 above.
  
   
• 77. 

  Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC, OJ L 390 of 31.12.2004, p.38.
  
   
• 78. 

  See De Larosière report (2009), pp. 41 to 42; Guido Tabellini, Why did bank supervision fail? in The First Global Financial Crisis of the 21st Century, June 2008;
  
   
• 79. 

  See, for example, OECD (November 2009), p.27.
  
   
• 80. 

  Ibid.
  
   
• 81. 

  See, for example, BCBS (March 2010). For possible recommendations see also, for instance, BCBS (March 2010); OECD (February 2010).
  
   
• 82. 

  A report released on 11 March 2010 by the US examiner, Anton Valukas, about the Lehman Brothers bankruptcy, expressed serious concerns about the use of repurchase agreements made by Lehman to present its end-year balance sheet in a too favourable light, as well as the silence of Lehman's auditors in this respect.
  
   
• 83. 

  The ISAs standards (ISA 260, ISA 250.22) and probably most sets of auditing standards in the EU include such duty. However, neither the frequency nor the specific situations are spelled out in these standards.
  
   
• 84. 

  House of Commons Treasury Committee (2009) Article 239 " From 2009, banks will be required to report greater detail of their risk positions under new regulations introduced by Basel II, called
   
• 85. 

  De Europese Commissie kent nummers toe aan officiële documenten van de Europese Unie. De Commissie maakt onderscheid in een aantal typen documenten door middel van het toekennen van verschillende nummerseries. Het onderscheid is gebaseerd op het soort document en/of de instelling van de Unie van wie het document afkomstig is.
   
• 86. 

  De Raad van de Europese Unie kent aan wetgevingsdossiers een uniek toe. Dit nummer bestaat uit een vijfcijferig volgnummer gevolgd door een schuine streep met de laatste twee cijfers van het jaartal, bijvoorbeeld 12345/00 - een document met nummer 12345 uit het jaar 2000.
   
• 87. 

  Het interinstitutionele nummer is een nummerreeks die binnen de Europese Unie toegekend wordt aan voorstellen voor regelgeving van de Europese Commissie.
  Binnen de Europese Unie worden nog een aantal andere nummerseries gebruikt. Iedere instelling heeft één of meerdere sets documenten met ieder een eigen nummering. Die reeksen komen niet overeen met elkaar of het interinstitutioneel nummer.
   
• 88. 

  Deze databank van de Europese Unie biedt de mogelijkheid de actuele werkzaamheden (workflow) van de Europese instellingen (Europees Parlement, Raad, ESC, Comité van de Regio's, Europese Centrale Bank, Hof van Justitie enz.) te volgen. EURlex volgt alle voorstellen (zoals wetgevende en begrotingsdossiers) en mededelingen van de Commissie, vanaf het moment dat ze aan de Raad of het Europees Parlement worden voorgelegd.
   
• 89. 

  Als dag van bekendmaking van een Europees besluit geldt de dag waarop het besluit in het Publicatieblad wordt bekendgemaakt, en daardoor in alle officiële talen van de Europese Unie bij het Publicatiebureau beschikbaar is.