Regulatory Alerts2020-03-10
Frequently Asked Questions Regarding the Corporate Governance Manual for Banks
The Central Bank of Iraq issued this frequently asked questions list to clarify corporate governance requirements for banking sector boards and staff. It mandates that independent board members alone may hold credit up to 5% of bank capital, requires principal shareholding calculations between a defined minimum and maximum threshold, and restricts the Company Secretary position to dedicated non-board appointees. Additionally, it clarifies that Sharia Supervision Board independence extends beyond executive management to include non-independent board members, ensuring alignment with international best practices.
- 1 - List of Frequently Asked Questions (FAQs) Regarding the Corporate Governance Manual for Banks: Objective: This list aims to provide answers to recurring questions arising in the minds of boards of directors and personnel working in the Iraqi banking sector, specifically regarding how to handle certain aspects related to corporate governance systems for banks. This list serves as an important and fundamental reference for the aforementioned current and new members. Content: 1 Question: What is the role of an alternate board member in the corporate governance system? Proposed Answer: There is no specific role for an alternate board member within the governance system. Under the amended Companies Law No. 21 of 1997, alternate members are designated for the primary board members and exercise their role only in the event of an emergency situation at the bank. 2 Question: What is the regulatory treatment regarding the number and quality of current board members to achieve the required composition under the manual? Proposed Answer: The primary objective of having a specific number and quality of board members should align with the tasks assigned to them, ensuring sound and effective bank performance in line with international best practices and the effective application of the manual issued by this bank. 3 Question: Paragraph (4,2,3) of Article (4) regarding the independence conditions for board members allows obtaining credit not exceeding 5% of bank capital. Does this apply to all board members or only independent members?
- 2 - Proposed Answer: This applies only to the independent board members, provided that all other independence conditions for the member are met. 4 Question: What is meant by a principal shareholding in the bank? Proposed Answer: This refers to the number of shares owned by a board member, which must not be less than 2,000 shares based on the Companies Law and must not exceed 5% of the bank's total shares for an independent member elected within the board composition. All banks are required to determine principal shareholding as a figure ranging between the minimum and maximum limits specified in this point, within their respective governance manuals after obtaining approval from the Central Bank. 5 Question: What is the role of the Compliance Officer in the board's ratification process for decisions and policies, particularly given the established practice of the Compliance Officer signing meeting minutes? Proposed Answer: The Compliance Officer's role is limited to attending board meetings as an observer without participating in the board's decisions. Their signature on the board meeting minutes serves solely to confirm attendance, as certified by the company secretary. 6 Question: What qualifications and experiences must the Company Secretary possess? Proposed Answer: These are determined through the bank's approved systems and procedures during recruitment and appointment. The individual must take all necessary measures to ensure the ability to perform the tasks and duties specified in the Corporate Governance Manual for Banks issued by this bank. 7 Question: Can the Company Secretary be a board member or an executive employee within the bank? Proposed Answer: This is not permitted. The bank must appoint a specific individual to serve as Company Secretary, appointed exclusively for this purpose, to ensure the proper execution of the secretary's tasks and duties. 8 Question: Paragraph (5,2) of Article (11) regarding the independence conditions for the head and members of the Sharia Supervision Board in Islamic banks states that there must be no kinship up to the second degree with senior executive officials. Does this apply only to executive board members or otherwise? Proposed Answer: The kinship condition for the head and members of the Sharia Supervision Board extends to related parties, executive management, and non-independent board members.
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