Financial Crime World

Financial Institutions’ Transparency in Governance Disclosures

A recent study has highlighted the importance of financial institutions’ transparency in governance disclosures, emphasizing that a minimum standard for disclosure is essential to ensure the stability and integrity of the financial system. The study notes that financial institutions must disclose information on their board selection process, management infrastructure, objectives, governance structure, and policies.

Board Selection Process

The study emphasizes that a financial institution’s board selection process is critical in ensuring effective governance. As such, it recommends that boards provide detailed disclosures on the skills, background, and experience of directors, as well as the criteria used to evaluate their suitability for the role.

  • Provide details on director qualifications, including education, work history, and relevant expertise
  • Disclose the criteria used to evaluate director suitability, such as board evaluation committees

Management Infrastructure

The study also highlights the importance of transparency in disclosure of management infrastructure, including the composition of board committees and their mandates. Financial institutions are advised to disclose:

  • The number of times these committees have met
  • Any significant decisions made by them
  • Composition of board committees (e.g., audit, risk, compensation)
  • Mandates and responsibilities of each committee

Objectives and Governance Structure

Financial institutions are urged to provide clear disclosures on their objectives, governance structure, and policies. This includes information on:

  • Processes in place for receiving shareholder feedback and dealing with concerns
  • Clear goals and strategies for the organization
  • Board composition and leadership structure

Remuneration Policy

The study recommends that financial institutions disclose their remuneration policy, including criteria for performance measurement, as well as the fees of directors, senior executives, and key employees.

  • Disclose remuneration policy and criteria for performance measurement
  • Provide details on director and executive compensation, including fees and bonuses

Voluntary Codes and Other Initiatives

In Mauritius, several initiatives promote transparency in governance practices:

  • National Code of Corporate Governance 2016: emphasizes accountability, fairness, transparency, and reporting to minimize risks within companies.
  • Code of Ethics and Code of Banking Practice issued by the Mauritius Bankers Association (MBA): promotes transparency and commitment towards customers and the community.

Registration and Oversight of Senior Management

The Banking Act 2004 requires:

  • Appointment and supervision of directors and senior officers of banks

  • Demonstration of fit and proper persons criteria before appointment or re-appointment

  • The Bank of Mauritius (BoM) has issued a Guideline detailing the fit and proper criteria for assessing the fitness and probity of directors, senior officers, and shareholders holding significant interests.

Conclusion

In conclusion, financial institutions’ transparency in governance disclosures is essential for ensuring the stability and integrity of the financial system. The study recommends that boards provide detailed disclosures on their board selection process, management infrastructure, objectives, governance structure, and policies. Additionally, financial institutions should disclose their remuneration policy, as well as adhere to voluntary codes and guidelines.

By doing so, financial institutions can ensure accountability for their actions and decisions, which is critical in maintaining trust and confidence in the financial system.