Bankers will be aware that amendments currently in the pipeline to the Banking Supervision (Bailiwick of Guernsey) Law 1994 will create obligations for them in respect of corporate governance and risk management. The Commission intends to issue guidelines in support of those requirements. We were encouraged to produce these guidelines by the IMF Mission who recommended that we issue a guidance paper on corporate governance and suggested that senior management and the board of banks confirm compliance with the guideline on an annual basis.
The real purpose behind the guidelines is to help you meet your obligations by summarizing best practice and indicating where you can find detailed explanations of our expectations of a sound corporate governance regime. Here we would commend for your attention the comprehensive paper published by the Canada Deposit Insurance Corporation.
Our intention is not to create a set of bureaucratic requirements for their own sake. Good corporate governance is essential to the operational effectiveness of banks and enhances corporate reputation. Commitment to best practice in corporate governance requires an active concern for and understanding of responsibilities and diligent discharge of those responsibilities in a prudent manner. Directors and managers must fully understand the nature of the business being undertaken by the bank and understand the nature of the risks from the bank's business and the systems and procedures established to control and manage those risks and they must be suitably qualified and competent to perform effective oversight and management of the bank.
The Board of Directors is responsible for setting strategic direction, corporate values and risk appetite. They should establish a risk management framework using supporting committees and to ensure that effective policies, procedures and controls are in place to ensure the prudent management of risk. This framework should be reviewed to determine that it is appropriate for the nature and scale of the business and that it is effective delegation to management where appropriate. The Code of Practice for Banks which came into operation on 9 September 2002 requires banks to have in place comprehensive risk management processes to identify, measure, monitor and control material risks. These processes must be adequate for the size and nature of the activities of the bank and must be periodically adjusted in light of the changing risk profile of the bank and external market developments. These processes must include appropriate board and senior management oversight.
The guidelines are not intended to be prescriptive and we do not expect you to replace or rework procedures that are already in place if they serve their purpose. To reiterate what is in the paper, the guidelines are primarily aimed at the Board of Directors of banks operating as subsidiaries. For branches, we recognize that corporate governance responsibility rests with head office senior management and this should be communicated to the Guernsey branch through the branch management committee or the senior manager in Guernsey depending on the particular branch management structure. We would welcome comments from branch managers on material they could provide us which evidences the information they already feed into their parent bank's corporate governance process.
The Commission invites comments on the Guidelines from subsidiary banks and branches which should be received by 23 June 2003.