Bank Negara updates Policy Document on Corporate Governance for Development Financial Institutions
21 February 2024
Bank Negara Malaysia issued a
Policy Document on Corporate Governance on 14 February 2024 (“
Policy Document”).
The Policy Document applies to prescribed Development Financial Institutions (individually a “
DFI”) under the Development Financial Institutions Act 2002.
The Policy Document requires a DFI to implement the minimum standards of corporate governance set out in the Policy Document and demonstrate that their governance arrangements are operating effectively, taking into consideration the size, nature of business, complexity and mandate of the DFI.
The requirements are set out in seven parts and three appendices of the Policy Document, which are as follows:
- Part A – Overview
- Part B – The Board of Directors
- Part C – Senior Management
- Part D – Culture and Remuneration
- Part E – Group Governance
- Part F – Transparency
- Part G – Transitional Arrangements
- Appendix 1 – Board Committee Responsibilities
- Appendix 2 – Application Procedures for Director and CEO Appointments
- Appendix 3 – Corporate Governance Disclosures
The Policy Document is deemed to have come into effect on 13 December 2019, i.e. the effective date of the previous policy document which is replaced by the Policy Document, save and except for paragraph 16.1 of Part C which comes into effect on 14 February 2024.
Paragraph 16.1 of the Policy Document, inter alia, sets out the key responsibilities of senior management of a DFI which, among others, includes:
- implementing business strategies while maintaining sound risk management practices, remuneration, funding strategies and plan1 as well as other policies approved or endorsed by the board;
- promoting a sound corporate culture which reinforces ethical, prudent and professional behaviour, and fostering development culture through implementation of the performance measurement framework that captures broader contributions of DFIs beyond the narrow focus of financing growth indicators;
- addressing actual or suspected breaches of regulatory requirements or internal policies in a timely and appropriate manner; and
- regularly updating the board with material information the board needs to carry out its oversight responsibilities, particularly in relation to the performance, financial condition, additionalities2 achievements of the DFI, internal control failures, including breaches of risk limits and legal and regulatory obligations, supervisory concerns and the remedial actions taken to address them.
Comment
Apart from enhancing several of the requirements in paragraph 16.1, the provisions in the Policy Document are substantially similar to those in the policy document which it replaces.
Alert by Faith Chan (Associate) of the Corporate Practice of Skrine.
1 The DFI’s funding strategies and plan must be in compliance and aligned to the requirements and expectations in the Policy Document on Corporate Strategic Plan issued on 27 May 2021 including any amendments or reissuance thereafter.
2 Additionalities refer to the positive impact attributable to DFIs beyond that which is delivered under a fully commercial or profit-driven environment. It is categorised into four areas, namely financial additionality (financing and investment to support strategic sectors and financial inclusion), design additionality (positive economic spillovers e.g. generating new employment, increasing income), demonstration additionality (crowding in private investments in new growth markets through innovating financial solutions) and policy additionality (active contribution to sound design and implementation of public policies).
This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.