New rules finalised for bank corporate governance

NEWS RELEASE
Date 22 December 2010

New rules finalised for bank corporate governance

The Reserve Bank has released its new corporate governance requirements for registered banks, following consultation (http://www.rbnz.govt.nz/finstab/banking/regulation/0094291.html).

The Bank issued a consultation paper on corporate governance in June 2010, aimed mainly at strengthening the independence of locally-incorporated banks. It has now adapted those proposals in response to feedback.

Deputy Governor Grant Spencer said the overhaul complements changes the Reserve Bank has already made in other areas, such as its local incorporation and outsourcing policies.

“The governance changes are aimed at reinforcing the expectation that overseas-owned locally-incorporated banks will operate independently, in a way more likely to protect New Zealand’s financial stability in a crisis,” he said.

Key changes to the existing corporate governance regime include:

• imposing a minimum board size of five;
•
• requiring at least half of the directors on a board to be independent and at least half of those independent directors to be resident in New Zealand;
•
• tightening the definition of an ‘independent’ director; and
•
• providing guidelines around the individual and collective knowledge and experience required from bank boards.
Mr Spencer said the new rules will apply to all locally-incorporated banks; however, the Reserve Bank does not anticipate significant changes will be required to existing bank boards.

Consultation on changes to banks’ Conditions of Registration – required to bring the changes into effect for each bank – will be carried out in the first quarter of 2011, after which a one-year transition period will apply.

The new policy document, along with a feedback statement and regulatory impact assessment, can be downloaded from the Reserve Bank’s website.

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