Principles for sound corporate governance

1. Principles for sound corporate governance David Parody Commonwealth Secretariat Insurance Regulator’s Board Responsibility & Oversight Uganda, 9-11 March 2011

2. Agenda • International Standards • Basel Core Principles • IAIS • OECD • IMF Code of good practices on Transparency in Monetary and Financial Policies • Other considerations • Combined Code on Corporate Governance • Corporate Governance in Central Government Departments: Code of Good Practice

3. An Effective Regulatory Environment IAIS 1 - Conditions for effective insurance supervision OECD • The legal and regulatory requirements that affect corporate governance practices in a jurisdiction should be consistent with the rule of law, transparent and enforceable. • Insurance supervision relies upon • a policy, institutional and legal framework for financial sector supervision • a well developed and effective financial market infrastructure • efficient financial markets.

4. Objectives More on this tomorrow (Session1) IAIS 2 Supervisory objectives OECD • C. The division of responsibilities among different authorities in a jurisdiction should be clearly articulated and ensure that the public interest is served. • The principal objectives of insurance supervision are clearly defined. IMF Transparency • 5.1 The broad objective(s) and institutional framework of financial agencies should be clearly defined, preferably in relevant legislation or regulation.

5. Do as I say? Leading in corporate governance by example

6. Whom does sound corporate governance benefit? Me, Minister/Government/Parliament, The Country, External Reviewers (IMF, OECD, etc), The regulatory authority itself, The firms we regulate, Customers/The Public?

7. Accountability The Public Parliament Regulated Entities Minister Department Regulator

8. The Role of Corporate Governance OECD Text HMT Text • Each department should be managed by an effective board which, within the strategic framework set by the minister (or, in the case of a non-ministerial department, by legislation), supports the head of the department by advising ministers and taking ownership of the department’s performance • The corporate governance framework should ensure the strategic guidance of the company, the effective monitoring of management by the board, and the board’s accountability to the company and the shareholders. More on this tomorrow (Session4)

9. Leadership Discussion • The chairman is responsible for leadership of the board and ensuring its effectiveness on all aspects of its role. • As part of their role as members of a unitary board, non-executive directors should constructively challenge and help develop proposals on strategy. • Every regulator should be headed by an effective board which is collectively responsible for its long-term success. • There should be a clear division of responsibilities at the head of the regulator between the running of the board and the executive responsibility for the running of the regulator’s business. No one individual should have unfettered powers of decision.

10. Effectiveness Discussion • There should be a formal, rigorous and transparent procedure for the appointment of new directors to the board. • All directors should be able to allocate sufficient time to the company to discharge their responsibilities effectively. • The board’s membership should have a balance of skills and experience appropriate to directing the business of the regulator. • The board should include independent non-executive members to ensure that executive members are supported and constructively challenged in their role.

11. More on this tomorrow (Session4) • All directors should receive induction on joining the board and should regularly update and refresh their skills and knowledge. • The board should be supplied in a timely manner with information in a form and of a quality appropriate to enable it to discharge its duties. • The board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors. • All directors should be submitted for re-election at regular intervals, subject to continued satisfactory performance.

12. Accountability IAIS & IMF OECD • V. Disclosure and Transparency • The corporate governance framework should ensure that timely and accurate disclosure is made on all material matters regarding the corporation, including the financial situation, performance, ownership, and governance of the company. • ICP 4 Supervisory process • The supervisory authority conducts its functions in a transparent and accountable manner. • 6.1 • The conduct of policies by financial agencies should be transparent, compatible with confidentiality considerations and the need to preserve the effectiveness of actions by regulatory and oversight agencies.

13. More on this on Friday! Accountability Discussion • The board should maintain sound risk management and internal control systems. • The board should establish formal and transparent arrangements for considering how they should apply the corporate reporting and risk management and internal control principles and for maintaining an appropriate relationship with the company’s auditor. • The board should present a balanced and understandable assessment of the company’s position and prospects. • The board is responsible for determining the nature and extent of the significant risks it is willing to take in achieving its strategic objectives.

14. Remuneration Discussion • There should be a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual directors. No director should be involved in deciding his or her own remuneration. • Levels of remuneration should be sufficient to attract, retain and motivate directors of the quality required to run the regulator successfully, but a regulator should avoid paying more than is necessary for this purpose. A significant proportion of executive directors’ remuneration should be structured so as to link rewardsto corporate and individual performance. More on this subject tomorrow (session 4)

15. Stakeholder Discussion • There should be a dialogue with stakeholders based on the mutual understanding of objectives. The board as a whole has responsibility for ensuring that a satisfactory dialogue with stakeholders takes place.

16. Equitable Treatment IAIS 9 Corporate governance OECD III. The Equitable Treatment of Shareholders • The corporate governance framework should ensure the equitable treatment of all shareholders, including minority and foreign shareholders. All shareholders should have the opportunity to obtain effective redress for violation of their rights. • The corporate governance framework recognises and protects rights of all interested parties. The supervisory authority requires compliance with all applicable corporate governance standards.

17. More on this subject on Friday Internal Control IAIS CP 10 - Internal control & 18 Risk Management HMT • The board should ensure that effective arrangements are in place to provide assurance on risk management, governance and internal control. In this respect, the board should be independently advised by: • an audit committee chaired by an independent non-executive member; • an internal audit service operating in accordance with Government Internal Audit Standards. • The supervisory authority requires insurers to have in place internal controls that are adequate for the nature and scale of the business. The oversight and reporting systems allow the board and management to monitor and control the operations. • The supervisory authority requires insurers to recognise the range of risks that they face and to assess and manage them effectively.

18. Summary so far • Conditions for effective supervision • Objectives clearly defined • Leadership • Effectiveness • Accountability • Remuneration • Stakeholder involvement • Equitable treatment • Internal Controls • Risk Management

19. Self Assessment Complete the self assessment questionnaire

20. References/Sources • Basel Core Principles for Effective Banking Supervision (http://www.bis.org/publ/bcbs129.pdf) • Corporate Governance in Central Government Departments: Code of Good Practice (http://www.hm-treasury.gov.uk/d/corpgovernancecode280705.pdf) • Financial Reporting Council – The UK Corporate Governance Code (http://www.frc.org.uk/documents/pagemanager/Corporate_Governance/UK%20Corp%20Gov%20Code%20June%202010.pdf) • IAIS Insurance Core Principles and Methodology (http://www.iaisweb.org/__temp/Insurance_core_principles_and_methodology.pdf) • IMF Code of Good Practices on Transparency in Monetary & Financial Policies (http://www.imf.org/external/np/mae/mft/code/eng/code2e.pdf) • OECD Principles of Corporate Governance (http://www.oecd.org/dataoecd/32/18/31557724.pdf)