Central Bank of Libya Circular 15/2023: Framework for Evaluating the Board of Directors and Members of Banks Operating in Libya

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Central Bank of Libya P.O. Box 1103 Telex Address: MisrLibya - Tripoli - Libya

Reference: B.L.M No. 804 Circular B.L.M No. (15/2023) Date: 8 Ramadan 1444 Corresponding to: March 30, 2023

To: Presidents and Members of the Boards of Directors of Banks

Subject: Framework for Evaluating the Chairman and Members of the Boards of Directors of Banks Operating in Libya

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Based on the provisions of Law No. (1) of 2005 concerning Banks and its amendments, and in accordance with the standards issued by the Islamic Financial Services Board (IFSB) regarding risk management for Islamic banks.

With reference to Circular B.L.M No. (2010/13) issued on 2010/09/27, which circulated the decision of the Board of Directors of the Central Bank of Libya No. (20) of 2010, approving the Governance Guide for the Banking Sector.

With reference to Circular B.L.M No. (2023/08) issued on 2023/01/25, concerning the performance evaluation of General Managers at banks operating in Libya.

Therefore, we refer to you the framework for evaluating the Chairman and members of the Boards of Directors of banks operating in Libya, to be filled out semi-annually and submitted to the Banking and Currency Supervision Department immediately upon completion.

Peace be upon you,

Naji Muhammad Issa Director of the Banking and Currency Supervision Department

Copy to: Mr. / The Governor Mr. / Deputy Director of the Banking and Supervision Department Mr. / Deputy Director of the Banking and Currency Supervision Department for Office Supervision and Compliance Monitoring Mr. / Deputy Director of the Banking and Currency Supervision Department for Inspection Mr. / Deputy Director of the Banking and Currency Supervision Department for Islamic Banking Affairs Gentlemen / Banking Supervision in Benghazi Gentlemen / Compliance Directors at Banks (for follow-up) Gentlemen / Risk Management Directors at Banks

Instructions by Zail

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Central Bank of Libya CENTRAL BANK OF LIBYA Banking Supervision Department

Board of Directors Evaluation Framework For Banks Operating in Libya

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Banking Supervision Department

Board evaluation card according to the standards contained in the Governance Guide. Classification is according to numbers from 1 to 5, which are analyzed as follows:

1. Strongly Disagree.
2. Disagree.
3. Neutral.
4. Agree.
5. Strongly Agree.

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Banking Supervision Department

1. Board of Directors Operations

Evaluation Criteria	Strongly Disagree	Disagree	Neutral	Agree	Strongly Agree
1	The Board of Directors is composed, in a balanced manner, of members possessing skills and expertise in the banking or financial sector.
2	The Board of Directors is primarily composed of independent members.
3	At least one-third of the Board of Directors members are independent members according to independence standards.
4	The Chairman of the Board of Directors is an independent member.
5	The Chairman of the Board of Directors possesses experience and skills in the banking or financial sector.
6	Board of Directors members possess expertise in areas related to banking operations.
7	The Board of Directors has an approved written policy for the renewal and evaluation of its members.
8	Board of Directors members have a continuous training program, and can call upon external experts or consultants to acquire knowledge and skills.
9	The Board of Directors has rules and procedures governing its organization, operations, rights, obligations, and core activities. It updates them at least once a year.

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Banking Supervision Department

Evaluation Criteria	Strongly Disagree	Disagree	Neutral	Agree	Strongly Agree
10	Board members commit to attending and actively participating in meetings.
11	Files presented to the Board of Directors are referred to all board members at least (seven working days) before the Board of Directors meeting for proper preparation.

2. Board of Directors Responsibilities

Evaluation Criteria	Strongly Disagree	Disagree	Neutral	Agree	Strongly Agree
1	The Board of Directors sets strategic objectives and determines the bank's policy and principles of operation.
2	The Board of Directors ensures the adequacy of own funds according to Basel 2 instructions for the bank, according to Circular B.L.M. (2022/11) issued on 2022/10/6 regarding capital adequacy calculation.
3	Annual financial statements are prepared and approved in accordance with the requirements of Law No. (1) of 2005 and its amendments, and the Central Bank of Libya instructions.

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Banking Supervision Department

Evaluation Criteria	Strongly Disagree	Disagree	Neutral	Agree	Strongly Agree
4	The Board of Directors adopts the bank's remuneration system as well as the oversight processes for the remuneration system.
5	The Board of Directors meets periodically with (Executive Management) and the Internal Audit Department of the bank to identify difficulties and risks facing the bank.
6	Board of Directors members who hold specific roles in the bank are not affected by any internal or external factors or pressures.
7	The Board of Directors complies with Circular B.L.M. (2022/10) issued on 2022/10/6 regarding the Asset and Liability Committee (ALCO) to achieve sustainable growth, profitability, and financial adequacy for the bank, including setting long-term strategic objectives and managing Assets/Liabilities, strategic management of the balance sheet and protecting it from various risks, as well as liquidity risks, interest rate risks, and market risks.
8	The Board of Directors complies with Circular B.L.M. No. (4) of 2023, regarding disclosure requirements in periodic and annual reports according to Basel (III) requirements (Pillar 3).
9	The Board of Directors complies with Circular B.L.M. No. (2022/7) regarding the establishment of a unit to monitor the implementation of supervisory instructions issued by the Basel Committee on Banking Supervision, with its jurisdiction being to spread the culture of risk management concept by preparing and providing necessary training courses to transfer Basel decisions expertise to bank employees and hone the skills of banking staff working there.

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Banking Supervision Department

Evaluation Criteria	Strongly Disagree	Disagree	Neutral	Agree	Strongly Agree
10	The Board of Directors ensures that the bank management has a monitoring and follow-up system for risks that may arise from entering new business activities, entering new geographic areas, or dealing with new financial instruments.
11	The Board of Directors adopts risk governance and internal control arrangements and ensures implementation according to requirements related to the circular on risk management, specifically regarding internal control.
12	The Board of Directors ensures that the bank complies with the Banking and Currency Supervision Department instructions.
13	The Board of Directors ensures that management operates according to the strategy and policies defined and approved by it.
14	The Board monitors and evaluates the performance of department managers at the bank, including heads of supervisory functions.
15	The Board holds regular meetings with Executive Management to discuss the bank's status, especially to gather information and clarifications that may enlighten its judgment.
16	The Board ensures that the level of knowledge and expertise of department managers remains suitable for the nature of the bank's activities and its specific risk level.
17	The Board of Directors delegates some of its authorities and competencies to specialized committees without relieving itself of its responsibilities.

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Banking Supervision Department

Evaluation Criteria	Strongly Disagree	Disagree	Neutral	Agree	Strongly Agree
18	The Board of Directors establishes a procedure manual that enables it to ensure the effective attendance of its members in meetings.
19	The Board establishes specific rules, drawing on international best practices, regarding rotation of responsibilities within committees.

3. Operations of Specialized Committees

Evaluation Criteria	Strongly Disagree	Disagree	Neutral	Agree	Strongly Agree
1	The Board of Directors has formed an Audit Committee, a Risk Committee, and a Compliance Committee.
2	Committees emanating from the Board of Directors consist of independent members.
3	No member of the Board of Directors belongs to more than two specialized committees.
4	The Chairman and members of the Board of Directors do not chair other committees.
5	Specialized committees meet at least once every three months, and as needed.
6	The Board of Directors has determined a written document, supported by a legal basis or an equivalent document prepared and approved by it, which defines the delegation, procedures, and conditions for the operation of specialized committees. Each committee chair has this legal basis or equivalent document.

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Banking Supervision Department

Evaluation Criteria	Strongly Disagree	Disagree	Neutral	Agree	Strongly Agree
7	Different specialized committees analyze and address the observations of external auditors and the Banking and Currency Supervision Department.
8	The Audit Committee and the Risk Committee communicate and cooperate to facilitate the exchange of information and effective coverage of all risks to adjust the risk management system, if necessary.
9	Deliberations, decisions, and recommendations resulting from meetings, as well as divergent opinions expressed, are recorded in minutes signed by the chair of each committee, accompanied by an implementation deadline.
10	Minutes of specialized committees are submitted to the Board of Directors.
11	Each committee respects all tasks entrusted to it and stipulated in the Governance Circular circulated in Circular No. (13) of 2010.
12	Each committee emanating from the Board of Directors is subject to an annual evaluation alone or with the assistance of an external expert(s).
13	The Remuneration Committee works in close cooperation with the Risk Committee, which ensures that the remuneration system takes into account risks, own funds, liquidity, and revenue expectations.
14	The Board of Directors audit committee's core work consists of a report prepared by the Audit Department.

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Banking Supervision Department

Evaluation Criteria	Strongly Disagree	Disagree	Neutral	Agree	Strongly Agree
15	Audit Committee members have proven experience in the field of auditing, financial reporting, and accounting.
16	A secretary for the Audit Committee is provided by the Audit Department Manager.
17	Risk Committee members have proven experience in risk management.
18	Senior Management has a good knowledge of the nature and extent of risks to which the bank is exposed, the interrelationships between these different risks, as well as the capital and liquidity levels required to cover the risks to which the bank is exposed.
19	It is ensured that bank branches conduct a review of their policies and procedures at least once a year, especially regarding recorded changes in their activities and ensuring they adapt to the strategies and risk appetite approved by the Board of Directors.
20	Senior Management of the bank ensures the establishment of procedures to enhance the effective implementation of strategies and policies by relevant departments.
21	The Risk Committee receives from the Risk Management Department a quarterly report at least on the material risks to which the bank is exposed and the state of risk culture, risk appetite, specifically risk management, exceeding these limits, and applied mitigation measures.
22	A secretary for the Risk Committee is provided by the Risk Management Department Manager.

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Banking Supervision Department

4. Duties of the Chairman of the Board of Directors

Evaluation Criteria	Strongly Disagree	Disagree	Neutral	Agree	Strongly Agree
1	The Chairman of the Board of Directors ensures the smooth operation of the Board by ensuring compliance with the rules established for this purpose.
2	He ensures that decisions made by the Board of Directors are based on accurate and sufficiently established rules.
3	He enhances the culture of discussion within the Board of Directors, especially by building a relationship of trust with members and ensuring that dissenting opinions are expressed and studied.
4	Every member of the Board is aware of his roles and responsibilities as a member of the Board of Directors.
5	The Board of Directors has established a Code of Ethics and Professional Conduct for members and established a system to ensure its respect.

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Banking Supervision Department

5. Individual Performance Rates of Board of Directors Members

Evaluation Criteria	Strongly Disagree	Disagree	Neutral	Agree	Strongly Agree
1	I reviewed reports and documents before the convening of Board of Directors meetings.
2	I promote the bank's activities whenever the opportunity arises.
3	I regularly encourage Board of Directors members to express their opinions in Board meetings.
4	I identify strategic issues (internal or external) that have a direct impact on the bank's business.
5	I ensure the confidentiality of all Board of Directors decisions and defend those decisions once taken.

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Banking Supervision Department

Chapter	Number of Questions	Maximum Number of Points	Number of Points
Board Operations	xx	xx	xx
Board Responsibilities	xx	xx	xx
Operations of Specialized Committees	xx	xx	xx
Duties of the Board Chairman	xx	xx	xx
Individual Performance Rates of Board of Directors Members	xx	xx	xx
Total	xx	xx	xx

Final Grade / 100 - Number of Points / xx * 100 - Which means xx%

Recommendations:

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