Financial Crime World

BANKS MUST TOW THE LINE ON GOOD CORPORATE GOVERNANCE

Ensuring Stability in Uganda’s Banking Sector

In a bold move to guarantee the stability of Uganda’s banking sector, regulators have emphasized the importance of good corporate governance as a complement to strict regulation. According to officials at the Bank of Uganda (BOU), banks cannot rely solely on regulatory oversight to ensure efficient and safe operations. Instead, good corporate governance practices must be embedded in every bank’s culture.

Regulatory Framework for Good Corporate Governance

Section VII of the Financial Institutions Act devotes significant attention to providing a regulatory framework for good corporate governance in financial institutions. This is supplemented by a set of corporate governance regulations issued by the BOU in 2005. The regulations focus on four key themes:

  • Fiduciary Responsibilities: The Board of Directors must take ultimate responsibility for the performance of the bank and set its strategic policies.
  • Independent Oversight: The Board must be able to exercise oversight and hold management accountable. This can only be achieved if most directors are independent of management.
  • Risk Management: Boards must establish two sub-committees: a Risk Management Committee and an Asset Liability Management Committee, which ensure that the bank has adequate capital to maintain safe operations.
  • Independent Audit Function: Internal and external auditors play a crucial role in ensuring that financial statements accurately reflect a bank’s true financial position.

Importance of Good Corporate Governance

A senior official at the BOU emphasized that good corporate governance is essential to ensure that banks operate safely and efficiently. “The Board of Directors must take ultimate responsibility for the performance of the bank and set its strategic policies,” the official said.

In conclusion, the BOU’s message is clear: good corporate governance is essential for sound banking practices. Banks must prioritize good governance to ensure that depositors’ funds are protected and the financial system operates efficiently and safely.