EC plans for corporate governance in the financial sector
17 March 2010
The EC is preparing a report that will most likely become a consultation on corporate governance in the financial sector. It is intended for publication on May 2010. The consultation will be open for three months. A legislative proposal will almost certainly follow in 2011.
During a breakfast briefing organized by a BCC Financial Service Task Force meeting on corporate governance in the financial sector. DG MARKT’s Zsofia Kerecsen (Unit F2 – Company law, corporate governance and finance crime) outlined the Commission’s plans.
The Commission is preparing a report that will most likely become a consultation on corporate governance in the financial sector. It is intended for publication on May 2010 and the consultation will be open for three months. A legislative proposal will almost certainly follow in 2011.
Since March 2009, the EC has been looking into the subject of corporate governance in financial services and interviewed 14 financial institutions. Zsofia Kerecsen explained that her unit spent several days in Goldman Sachs’ London offices interviewing board members, as well as people from the risk management department. They asked many questions in order to understand what went wrong in corporate governance, partly provoking the current crisis.
The Commission is looking at the following key areas:
1) Board members. In many cases they did not act in the long-term interests of the institution, or they did not have the necessary expertise to understand the complexity of the bank. In other cases, board members had many other duties outside the financial institution which did not allow them to focus solely on managing the bank.
2) Risk management department. Ms Kerecsen said that risk management did not work well in many banks as there was a lack of independence. Another problem is that direct reporting lines to senior risk staff did not exist.
3) Shareholders. The Commission wants institutional investors to be more involved in the corporate governance of the company and they are thinking of promoting a “stewardship code”.
4) Supervisory authorities. The main problem is that they focused too much on compliance, rather than on the proper functioning of the institutions.
5) External auditors. No alert was given by auditors on a bank’s particular situation before it collapsed. This has to be tackled and mechanisms put in place to ensure that auditors better inform on risk taken by financial institutions.
She concluded by saying that the Commission is considering extending Corporate Governance analysis to listed companies.
© European Commission
