The credit union sector plays an increasingly important role in the Barbadian landscape as a provider of financial services. Concomitant with the growing prominence of the sector is the need to ensure that corporate governance practices are appropriate to ensure its safety and soundness. The Financial Services Commission (“the Commission”), as regulator, will shortly introduce enhanced corporate governance guidelines for all regulated sectors, inclusive of credit unions. This is especially crucial given the growing size, complexity and integration of credit unions into the financial system and their fiduciary obligation to over two hundred thousand members.
The Commission subscribes to best practices in financial cooperative supervision. As a founding member of the International Credit Union Regulators Network (ICRUN), an independent and not-for-profit association of global financial cooperative supervisors, the Commission endorses ICURN’s guidance on corporate governance. The below extract on the responsibilities of Boards and their qualifications is especially relevant to our domestic sector.
RESPONSIBILITIES OF THE BOARD
The board has overall responsibility for the cooperative financial institution[1] (“CFI”), including approving and overseeing implementation of strategic objectives, risk strategies, adopting best corporate governance practices and values, and oversight of management. The board should approve and monitor the overall business strategy, taking into account long-term financial interests, and exposure to and ability to manage risk effectively. In discharging these responsibilities, the board should take into account the interests of members, other relevant stakeholders and, where permitted, non-member depositors and borrowers, and ensure an effective relationship is maintained with its supervisor.
Corporate Values and Code of Conduct. The board should lead in establishing the ‘tone at the top’ and in setting professional and ethical standards and corporate values that promote integrity for itself, senior management and other employees. The officers and board committee members owe a duty to the CFI to operate the institution with reasonable prudence and in the best interests of the CFI and its members. The directors owe the members a duty of fair dealing with respect to issues of membership, ownership and corporate governance. In addition, the board should ensure transactions with related parties are subject to appropriate restrictions. In discharging these duties, directors may rely on reports, advice, and other information provided by the CFI’s employees, lawyers, consultants and committees of the board of which the director is not a member, unless the director has knowledge which would make such reliance unreasonable or in bad faith. These corporate values are communicated through a code of conduct that articulates acceptable and unacceptable behaviors.
Oversight of Senior Management The board should select and, when necessary, replace senior management and have in place an appropriate succession plan. In carrying out its role of oversight, the board should:
- Meet regularly with senior management,
- Monitor actions to ensure they are consistent with the strategy and policies approved by the board, including the risk tolerance/appetite;
- Question and review critically explanations and information provided;
- Set performance standards consistent with long term objectives, strategy and financial soundness of the CFI and monitor performance against the standards; and
- Ensure management’s knowledge and expertise remains appropriate for the nature of the business and the CFI’s risk profile.
The board should ensure the organisational structure facilitates effective decision making and good governance. This includes regularly reviewing policies and internal controls to determine areas needing improvement, as well as identifying and addressing significant risks and issues.
BOARD QUALIFICATIONS
The CFI should set out expectations desired regarding qualifications, for example, work experience, education, business-oriented degrees and professional designation and training requirements for directors. Where appropriate, each director should conduct an annual self-assessment to confirm competency and identify potential areas for growth and development. Board members should be and remain qualified, when appropriate for their positions, including through training. They should have a clear understanding of their role in corporate governance and be able to exercise sound and objective judgment about the affairs of the CFI.
Qualifications The board should possess, individually and collectively, appropriate experience, competencies, and personal qualities, including professionalism and personal integrity.
Training The board should ensure board members have access to programs of tailored initial and ongoing education on relevant issues. The board should dedicate sufficient time, budget, and other resources.
Composition The CFI should have an appropriate composition of board members, for example, taking into consideration demographics, geography, and professional qualifications. This is achieved by identifying and nominating candidates to ensure appropriate succession planning and strengthening itself to meet the CFI’s long-term oversight needs. Recruiting members from a broad population of candidates helps to enhance board perspective and ability to exercise objective judgment independent of senior management and personal interests. In identifying potential board members, the board should ensure candidates are qualified to serve as board members and are able to commit the necessary time and effort to fulfil their responsibilities and to undertake any required training requirements within the timeframes established by the CFI.
Source: International Credit Union Regulators’ Network: https://nebula.wsimg.com/08b67b19f7030ca74e8fca1fe6b122ab?AccessKeyId=EB21D0068BD759C2C465&disposition=0&alloworigin=1
The Financial Services Commission places increasing reliance on the effectiveness and appropriateness of corporate governance practices in determining a credit union’s risk ratings. Where a credit union exhibits unacceptable corporate governance practices it will invariably be determined to be more high-risk than an institution with a stronger governance framework.
ICURN’s guidelines support that Board Directors must be mindful of the importance of the tone they set at the top, as it should reflect the professional and ethical standards and corporate values that promote integrity for the Board, senior management, and other employees.
In conclusion, the Commission expects that as credit unions continue to grow and evolve, greater emphasis will be placed on a number of areas, namely; establishing and demonstrating appropriate corporate values and codes of conduct; maintaining oversight of senior management via an appropriate Board approved framework; placing greater emphasis on the recruitment of qualified voluntary persons for office; providing relevant training and using ongoing self-assessments; and quite importantly, ensuring that the composition of the Board consists of the required skill sets needed to contribute to effective oversight of the credit union’s operations. Stakeholders can soon expect the Commission to issue updated Corporate Governance guidelines, underpinning its efforts to enhance the standard of corporate governance practices in its regulated sectors.
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A CFI is the umbrella term used to include credit unions, savings and credit cooperatives, financial services cooperatives, and financial cooperatives. ↑