The adoption of sound corporate governance standards and practices by financial institutions serves to protect the critical role of financial institutions in intermediating funds to support the real economy. It ensures that financial institutions are managed in a sound and prudent manner, with due regard to the interests of depositors, policy owners and participants. This policy document sets out the Bank’s expectations for financial institutions to have in place effective corporate governance arrangements consistent with the long-term viability of a financial institution.
A financial institution’s corporate governance arrangements represent a fundamental component of the Bank’s supervisory assessments and are a key factor in determining the level of supervisory intensity applied to a financial institution. The board should have the competence, confidence and objectivity to challenge senior management and hold it to account. Accordingly, this policy document sets out strengthened expectations on directors’ oversight responsibilities and the composition of the board. The Bank will expect to see evidence of effective challenge by the board, particularly in relation to key strategic decisions. In turn, senior management is responsible and accountable for the sound and prudent day-to-day management of the financial institution in accordance with the direction of the board.
Good corporate governance also needs to be rooted in a corporate culture that reinforces ethical, prudent and professional behaviour. This begins with the right “tone from the top”, where the example set by the board and senior management shapes the core values for the financial institution.
The Bank expects financial institutions to implement the minimum standards set out in this policy document and demonstrate that their governance arrangements are operating effectively and remain appropriate given their size, nature of business, complexity of activities, structure and systemic importance. Financial institutions should also strive to continuously enhance these arrangements to reflect changing conditions and emerging sound practices, as appropriate. The Bank expects each financial institution to discharge its own legal and governance responsibilities as a separate entity, notwithstanding any group-wide arrangements that the financial institution may be relying on.
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
