Good corporate governance is underpinned by a corporate culture that reinforces ethical, prudent and professional behaviour. This begins with the right “tone from the top”, where the core values established by the board and senior management shape the conduct and behaviour of all employees of the financial institution.
Responsibility mapping is a fundamental pillar within the governance framework that accords focus on the role of individuals holding leadership positions in financial institutions to promote actions and decisions in areas under their purview that are consistent with good governance and sound risk management. It complements existing standards1 issued by the Bank which promote the long-term financial soundness of financial institutions.
In recent years, the Bank has observed gaps in the span of control and influence of senior management, leading to heightened risks from inadequate oversight over the operations of the financial institution. This underscores the importance of ensuring responsibilities are clearly identified at the appropriate level of granularity and allocated to members of senior management who have the competence, authority and capabilities to effectively discharge them.
Responsibility mapping aims to—
(a) ensure that responsibilities for all functions of a financial institution, including those prescribed under any law or regulations2 or specified under any instrument issued pursuant to any applicable law3, are clearly allocated to members of senior management within the financial institution;
(b) clarify and strengthen the accountability of members of senior management to whom responsibilities are allocated, particularly in circumstances where there are shared responsibilities, collective decision-making as well as centralised functions and matrix reporting structures within groups; and
(c) encourage a financial institution to carefully consider whether the allocation of responsibilities to members of senior management is compatible with effective risk management practices, taking into account the size, scale and complexity of the financial institution’s operations.
Clarity and transparency in governance and accountability supported by clear documentation also facilitates meaningful engagements with the board and regulators on the operations and decision-making process of the financial institution.
The Bank expects the responsibility mapping framework to ultimately drive better ex-ante decisions by strengthening incentives for good conduct and culture, and encouraging financial institutions to identify and address barriers that may prevent members of senior management to whom responsibilities are allocated, from effectively discharging their obligations. Therefore, financial institutions shall determine how their governance structures surrounding business, operational, and control functions are organised, guided by the intended outcomes of this policy document.
Responsibility mapping is intended to exist in parallel with, rather than substitute, existing governance arrangements where decisions are made at designated collective decision-making forums. Therefore, financial institutions can continue to maintain collective decision-making within formal committees/groupings, drawing on contributions from individuals with distinct expertise and experience as a means of discharging corporate responsibilities over areas that cover a broad span of control.
The Bank will implement requirements relating to responsibility mapping in a manner that is fair and reasonable, as the primary objective is to foster appropriate conduct and behaviour of members of senior management that reinforces a sound culture and promotes the safety and sustainability of the financial institution. Accordingly, the Bank looks to the financial institutions to ensure that any misconduct or poor behaviour by members of senior management is met with appropriate consequences and any non-compliance with any requirement under this policy document is addressed in a timely manner. Except in cases of serious misconduct, the Bank generally does not expect to take enforcement actions as an immediate response to events of individual misconduct or poor behaviour.
This document belongs to Bank Negara Malaysia (BNM). Full access to the original source is available here: https://www.bnm.gov.my/banking-islamic-banking
