The Central Bank and Financial Regulator today announced the commencement of a public consultation on new Irish corporate governance standards for banks and insurance companies. Consultation Paper CP41 on Corporate Governance Requirements for Credit Institutions and Insurance Undertakings sets out minimum requirements as to how banks and insurance companies should organise the governance of their institutions including membership of the Board of Directors, the role of the Chairman and the operation of various board committees.

It is proposed that the requirements will apply to all credit institutions and insurers licensed or authorised by the Financial Regulator including Irish licensed and authorised subsidiaries of international financial services groups. The consultation paper sets out the minimum standards and expectations that will apply to the boards of directors of banks and insurers.

Today’s newly appointed president of the Insurance Institute of Ireland, Denis Kelleher, an executive director at New Ireland Assurance Company plc, has today added his voice of support for a new era of regulation in the financial services sector, that will strengthen Ireland’s international reputation and address the many market challenges the industry currently faces.

Speaking at his official inauguration today as president of the Insurance Institute of Ireland, Denis Kelleher said: "I very much welcome the renewed focus on more robust regulation and professional standards. Given the damaging fallout that has arisen from the recent international and domestic financial crisis, it is more important than ever that we place professional standards, compliance, education and codes of ethics as a number one priority, in order to re-establish trust, credibility and confidence among the industry’s stakeholders."

The new proposals include:

• A minimum of five directors on the Board;
• Requirements regarding the role and number of the independent non-executive directors;
• Limits on the number of directorships which directors may hold to ensure they can comply with the expected demands of Board membership of a credit institution or insurance company;
• Clear separation of the roles of chairman and CEO;
• A prohibition on an individual who has been a CEO, director or senior manager during the previous five years from becoming chairman of that institution;
• Criteria for director independence and consideration of conflicts of interest;
• A requirement that Board membership is reviewed at a minimum every three years;
• A requirement that Boards set the risk appetite for the institution and monitor adherence to this on an ongoing basis;
• Minimum requirements for Board committees;
• The establishment of a remuneration committee comprising a majority of independent non executive directors;
• A requirement for an annual confirmation of compliance to be submitted to the Central Bank.

The Institute of Directors in Ireland (IoD) has welcomed the consultation paper published today by Matthew Elderfield, Head of Financial Regulation, on the introduction of new corporate governance standards for the finance sector.

Maura Quinn, chief executive of the Institute of Directors in Ireland, said: “The IoD welcomes the consultation paper published today by the Financial Regulator. Today’s publication is a positive step in reform of the finance sector and we look forward to taking part in the consultation process.”

The IoD said the proposals outlined today are in keeping with the combined code and will be essential to improving corporate governance standards in our financial and insurance institutions. With a wide ranging scope from minimum board size, to board reviews, to the requirement for individual committees, the proposals will ensure that there is proper and robust reporting and supervision in place across the sector.

In addition, limiting the number of directorships which a board member can hold will reduce the potential for conflict of interest and allow for members to commit the necessary time and effort to fulfil their responsibilities.

The recommendation that the role of the chief executive and chairman be separated is also a crucial element of good corporate governance as is the presence of non executive directors on each board to provide an independent and objective perspective.

Quinn continued: “What we now need to ensure is that those who sit on all boards are appropriately selected, fully qualified and trained for their position and the responsibilities that come with it. This is a necessary step to improve and strengthen corporate governance frameworks throughout Ireland.”