Banking/finance

As a bank examinier write a letter to the bank based on your finding Subheading..Background…Issue…Consideration and recommendation Your are to quote from the banking act and prudential guidelines in italics to substantiate your points

Assignment Two
You are a bank examiner at the Caribbean Central United Bank “CCUB” of The Hilltop, Scilly Island and on 5 to 12 March 2015 you conducted a site examination of the only bank in Salt Island named National Salt Island Bank (“NSIB”) located in The Pond. You are required to review the facts as listed below based on your site visit and write to NSIB indicating your findings and recommendations.
NSIB is an indigenous private bank located on Salt Island and was incorporated on 29 February 1984. Salt Island has a population of 8,000 to 9,000 persons. NSIB has 30 employees and 8 board members. NSIB has assets of $900,000,000 Eastern Caribbean Dollars and has seen consistent growth in assets over the years. NSIB’s profitability and capital adequacy ratios are within the required limits as set out by the CCUB.
The Board of Directors consists of 8 members and they are listed below along with years of experience as a director along with qualifications. All directors are shareholders of NSIB.
Name of Director Position Years as Director Qualifications
John Turtle Chairman Since Inception High School Diploma – however a successful hotelier. Currently, he is the Minister of Finance in the Salt Island’s government.
Peter Lionfish Vice Chairman 6 years High School Diploma – Successful businessman –Heavy Equipment
Howard Shark Corporate Secretary/Operations Manager Bachelor Arts in Business Administration. Twenty years banking experience.
Riskin Crabbe Managing Director Diploma – Graduate School of Banking
Joseph Seashell Director 5 years High School Diploma – 15 years banking experience – Worked as Credit Manager
Jim Octopus Director 7 years High School Diploma – Successful businessman – Food chain
Sharon Sand Director 3 years High School Diploma – Successful businesswoman – Jewelry
William Fishtail Director 5 years High School Diploma – Successful businessman – Restaurateur

The Board of Directors meets monthly. Mr. Crabbe is the Managing Director and is a national of Salt Island and is new to the job; he previously worked at an international bank in Tanzania. Mr. Crabbe is often assisted by Mr. SeaShell who has fifteen (15) years of banking experience as a Credit Manager.
NSIB has assets in the amount of EC$900,000,000. The examiners noted that a significant part of the assets had been transferred to another company valued at EC$30,000,000. The Board of Directors in a previous meeting agreed that NSIB should transfer all buildings to a holding company. This transaction is not within the ordinary course of business.
The independent auditors report was recently published and shows that the accounts are not in accordance with the International Financial Reporting Standards because the directors had different views on the valuation of certain assets mainly the investment portfolio.
Currently, NSIB has loans of EC$400,000,000 with consistent growth of about 10% over the past 5 years. With the majority of the population located in the eastern end of the island, the Board of Directors decided to close the branch in Mango Lane in the western side of the island as it is not profitable. The Board of Directors decided to place three Automated Teller Machines in strategic areas in the eastern part of the island to cater to customers. Mr. Turtle is angry about the closure of the branch in Mango Lane since he is the ultimate beneficial owner of the company that had a lease agreement with NSIB. The Board of Directors was not aware that Mr. Turtle was the ultimate beneficial owner of the company since it had a complex structure.
On reviewing the shareholder’s listing, it was noted that Mr. Octopus a shareholder since inception with shareholdings of 25% is engaged to Ms. Sand and who holds shareholding of 3% having acquired her shares in 2000.
Mr. Lionfish has been a director of NSIB for about 6 years. Recently, he has been experiencing some problems in honouring his commitments due to the downturn in the economy and his businesses have been unable to generate sufficient income to cover expenses. Mr. Lionfish’s overdrafts have exceeded the limits by twenty percent and there has been no activity on those overdrawn accounts in 5 months. Further Mr. Lionfish’s loans are 6 months in arrears at NSIB.
NSIB recently invested in an indigenous insurance company called National Insurance Company “NICO” on Conch Island with shareholdings of 5%. One of NSIB’s directors, Mr. Fishtail was nominated to sit on the Board of Directors of NICO. Due to poor management decisions in February 2013, NICO went into receivership and had its license revoked.

You are also required to review the Banking Act attached cited as “Banking Act, R.S.SI. c. B11” (Only Part One and Four of the Act) as well as the “Guidelines on Corporate Governance for Institutions licensed to conduct banking business under the Banking Act” as issued by the Eastern Caribbean Central Bank and to draft a letter to the Chairman of the Bank indicating your findings, analysis and recommendations.
All quotations cited from the Banking Act and the Guidelines on Corporate Governance for Institutions licensed to conduct banking business under the Banking Act are to be in quotation marks and in italics.
The letter is to be no more than 1500 words in length and should include the following headings (Background, Issues, Consideration and Recommendations)
Course work should be typed, single and a half space with 1″ margins on all sides. 12 pt. Times New Roman font. The paragraphs of the letter should be numbered.

United Caribbean Central Bank
The View, Sandy Island

Mr. John Lionfish
Chairman, The National Salt Island Bank
The Pond
SALT ISLAND

Dear Mr. Lionfish:

Please find attached an analysis and possible recommendations re my findings after carrying out an examination of your site during the period 10th to 14th September, 2012. This was necessary to determine whether the Bank is in compliance with the “Banking Act R.S.A.c. B11” and the “Guidelines on Corporate Governance for Institutions licensed to conduct banking business under the Banking Act” as issued by the Eastern Caribbean Central Bank. I hope I would be granted an opportunity to speak with you personally about my experience and that my findings could assist with the advancement of your firm in ensuring compliance with applicable laws, regulations and guidelines.

1. BACKGROUND
The National Salt Island bank has been ‘turning heads’ and numerous questions have been raised about the conduct of senior employees and the state of the business itself. The Board of the directors constantly acts out of there scope in decision making instead of making approving movements. The business fails to keep up to International Financial Reporting Standards (IFRS) and members elected to represent the company on the Board are not qualified or deemed fit to undertake the position.

2. THE ISSUE

1. There are only 15 employees who are employed with NSIB and 6 board members
2. Four directors while not having any tertiary or formal qualifications are businessmen in the areas of hospitality, fishing and heavy equipment.
3. The Board of Directors meets every six months or sooner if required.
4. Mr. Reef the corporate secretary had been ill for the past year thus no minutes has been kept of meetings.
5. In addition, the independent auditors report has been published and it indicates that the accounts are not in accordance with the International Financial Reporting Standards as the directors had very strong opinions on the valuation of certain assets mainly the investment portfolio.
6. Furthermore, a visit to the bank revealed that the Christmas decorations were still up and the banking license certificate could not be seen.
7. The Board of Directors has decided to open a branch in the western side of the island to cater to those customers. On December 1st, 2011 the bank held and opening for the new premises with this at hand the documents which authorized the move was requested. On requesting such documents the only document which was presented was Board minutes.
8. Two shareholders Mr. Seashells who owns 25% shares in the business and Ms. Dolphin owning 3% which she acquired in 2000 got married.
9. The Board of Directors has agreed that NSIB should transfer the property to a holding company for NSIB. This is an indigenous bank which the board of directors as agreed upon to be transferred into a holding company.
10. Mr. Turtlenest has been a director of NSIB for over 10 years and has been facing problem due to economic down turn, unable to meet commitments and exceeding overdraft with a loan 6 months in arrears.
11. NSIB recently invested in an indigenous insurance company called National Insurance Company “NICO” on Conch Island with shareholdings of 5%. One of NSIB’s directors, Mr. Fishtail was nominated to sit on the Board of Directors of NICO. The business became insolvent and had its license revoked and it’s being question if Mr. Fishtail is fit and proper to continue sitting on the board

3. CONSIDERATION AND RECOMMENDATIONS
1. Careful analysis of the issues faced by the bank reveals that the problems exist primarily due to the lack of competence and improper behavior on the part of the persons running and operating the day to day activities of the bank: The Board of Directors. It is evident, that though the Chairman of the company is quite knowledgeable about the bank’s situation and has experience, his assistant decision makers are not. Their areas of expertise are not related to banking and thus, have led to chaos within the company. In order for Financial companies to promote effective and efficient internal auditing and act in the interest of the company they must have members with experience in Banking, Finance, Accounting or other related fields, and these members must maintain competence at the time their appointment. As stated in the ECCB guidelines 3.1.2 “Members of the board should possess expertise and experience relevant to the principal issues that the institution faces, including, but not limited to, internal controls, capital management, banking risks and corporate planning”. It is the belief of the examiner therefore; that such a critical situation warrants an immediate general meeting in which competent members should be elected to oversee operations of the company. This must be done keeping in mind “The size of the board should be dictated by the nature of the institution, including its scale of business, and the complexity and diversity of its activities” and “Changes to the board’s composition should be managed without undue disruption”. For it is often said ‘a good Board can’t make a company, but a bad one will inevitably kill it’ (Barry Weinman). Moreover, this lack of knowledge and competence on the part of the Board of Directors have trickled down into the day to day operations: not having structured Minutes, an assistant Secretary or proper auditor’s report and holding meetings every six months or sooner if need be. Record keeping is very important in businesses for they show strengths and weakness, profit or loss levels, track histories and track progresses. If decisions are taken at meetings and they are not documented for future follow ups, then the company will most definitely be ‘spinning top in mud’. The researcher recommends that the Chairman makes it his duty to see that that minutes are being kept by not only appointing a Corporate Secretary but also an assistant secretary. This person should function in this position until the next general elections is called. Consequently, he should conduct meetings within the company in accordance with ECCB guidelines 1.5.1 which states that the “Frequency of meetings should be dictated by the nature of operations and size of the institution. However, board meetings should be held at least quarterly”. This document does not stop there but provides further support in revealing “The chairperson of the board should ensure that clear and complete minutes of board meetings are maintained and circulated to members and that the minutes accurately and adequately reflect the deliberations, decisions and actions taken at these meetings” and that “The board should disclose its approach to corporate governance in its annual accounts. This information should be prepared, audited and disclosed in accordance with recognized standards for accounting, financial and non-financial disclosure, and audit. The institution should at a minimum meet the requirements of the International Accounting Standards (IAS) or the International Financial Reporting Standards (IFRS)”. It is crucial that he sees to it that the accounts published in the independent auditors report is in accordance with the International Financial Reporting Standards. To remedy this, the research proposes proper record and book keeping (accounting) training for a six month period of either Mr. Reef and Mr. Sands who have been educated at the tertiary level and have over 15 years banking experience having worked at the Bank.
2. The Banking License certificate was not publicly displayed; under part 1 of the Banking Act, section 6, it states that “a copy of the certificate of license under this act to a financial institution shall be displayed and kept displayed in a conspicuous place in the public part of licensed financial institution”. This is necessary as it provides a sense of security and soundness as customer will feel secure to do business. I therefore will like to recommend that a staff activity committee be put in place to deal with function/festive activities or an interior decorator be employed to erect and to put down the decoration no later by January 8th of the following year.

3. There was no evidence of the authorization for opening a new branch –The Banking Act, Section 9: states that: “unless there is an approval from the Minister from the Central Bank, no financial institution shall transfer the whole or any substantial part of its assets unless in the normal course of business”. Also license #7 states that: “no financial institution shall open a new place of business or change the location of an existing place of business in Anguilla without the prior approval of the Minister, after consultation with the Central Bank.” The board of directors agreed to transfer the property valuing $30,000,000.00 to a holding company for the banks and no documentation was presented apart from the minutes to show evidence of the move. We therefore request that the documentation of approval from the minister be submitted to us.

4. Finally, the propriety of the members is very glaring in their inability to upkeep their financial commitments (loan payment). The ECCB guidelines 3.1.1 states “Directors must meet the fit and proper criteria for directors as required in section 26 of the Banking Act5. Which states, (2) In determining whether a person is a fit and proper person to hold any particular position, regard shall be had to— (a) the person’s probity, competence and soundness of judgment for fulfilling the responsibilities of that position; (b) the diligence with which that person is fulfilling or likely to fulfill the responsibilities of that position; and (c) whether the interests of depositors or potential depositors of the licensed financial institution are, or are likely to be, in any way threatened by that person holding that position. The general recommendation of a Supervisory Committee or the employment of a third party (for example personal auditor) to perform review procedures on a periodic basis (at least quarterly) to compensate for the lack of segregation of duties and to strengthen the internal controls is applicable for the correction of the later problem and likewise all the issues faced by the company.

Sincerely

Raulda Alexander

BANK SITE EXAMINER

Bibliography:
• Banking Act Preliminary
• Eastern Caribbean Central Bank Guidelines on Corporate Governance for Institutions Licensed to Conduct Banking Business Under the Banking Act.

BANKING ACT

PRELIMINARY

Interpretation
1. In this Act—

“affiliate”, in relation to a financial institution (“F”), means—
(a) a company which is or has at any relevant time been—

(i) a holding company or subsidiary of F,

(ii) a subsidiary of a holding company of F, or

(iii)a holding company of a holding company or a subsidiary of a subsidiary of F;

(b) any company over which F has control;

(d) any company which has common ownership with F;

(e) any company which has the same beneficial owner and share common management and interlinked businesses with F,

and “affiliation” shall be construed accordingly;

“Agreement” means the Agreement establishing the Eastern Caribbean Central Bank made on the 5th day of July, 1983, the text of which is set out in the Schedule to the Eastern Caribbean Central Bank Agreement Act;

“assigned capital” means the net assets derived from the funds of a foreign financial institution that such an institution is required to keep during the term of its licence in Salt Island in accordance with the regulations that the Minister after consultation with the Central Bank may prescribe;

“auditor” means an external auditor that is—

(a) a person who is a member of a professional body of accountants which the Minister has specified by regulation; or

(b) any other person approved by the Minister, acting on the recommendation of the Central Bank;

“bank” means any financial institution whose operations include the acceptance of deposits subject to the transfer by the depositor by cheque;

“banking business” means the business of receiving funds through—
(a) the acceptance of monetary deposits which are repayable on demand or after notice or any similar operation,

(b) the sale or placement of bonds, certificates, notes or other securities,
and the use of such funds, either in whole or in part, for loans or investment and includes any other activity recognised by the Central Bank as constituting customary banking practice and which a financial institution may additionally be authorised to do;

“board” means the board of directors or other body responsible for the management of a financial institution;

“borrower group” means—
(a) a family group comprising an individual and that individual’s spouse, parent, child, brother or sister where each member of the group is substantially dependent upon the same income sources;

(b) a company in which the family group indicated in paragraph (a) has control;

(d) a group of persons in which the credit worthiness, ability to generate funds or the future viability of each, depends on one or other member of the group;

(e) a group of persons in which one member has power directly or indirectly to control the other members;

(f) any other group of persons as may be determined by the Central Bank;

“business of a financial nature” means the collection of funds in the form of deposits, shares, loans, premiums, and the investment of such funds in loans, shares and other securities and includes the types of businesses set out in Schedule 2 but does not include banking business;

“Central Bank” means the Eastern Caribbean Central Bank established under Article 3 of the Agreement;

“connected” or “related” means where the interest of 2 or more persons or groups of persons are so interrelated that they should be considered as a single unit or borrower group;

“control” means the ability of a person to secure, through voting rights or power in a licensed financial institution or other company or by an agreement or other powers conferred by the bylaws, articles of association or other document regulating the operations of a licensed financial institution or other company, that the business and affairs of the licensed financial institution or other company are conducted in accordance with the wishes of that person;

“Council” means the Monetary Council established under Article 7 of the Agreement;

“credit institution” means any financial institution, other than a bank, whose business is that of money lending or the granting of credit facilities;

“director” includes any person occupying the position of director of a company by whatever name called and includes a person in accordance with whose directions or instructions the directors of a company are accustomed to act;

“exposure” includes advances, credit facilities, guarantees, repurchase agreements, swap agreements and equity investments;

“financial group”, in relation to a financial institution, means that financial institution and any affiliate thereof, which conducts banking business or business of a financial nature;

“financial institution” includes any person doing banking business, and all offices and branches of a financial institution in Salt Island shall be deemed to be one financial institution;

“foreign financial institution” means a financial institution formed under the laws of a country other than Salt Island which carries on banking business in Salt Island;

“holding company” means a body corporate that controls a body corporate;

“international financial institutions” means the International Monetary Fund, the International Bank for Reconstruction and Development, the International Development Bank and the International Finance Corporation;

“licensed financial institution” means a financial institution licensed under the provisions of this Act;

“local financial institution” means a financial institution formed under the laws of Salt Island;

“Minister” means the Minister responsible for finance;

“Participating Governments” has the meaning assigned to it in the Agreement;

“person” includes a public body, company, partnership, trust, association or body of persons whether corporate or unincorporate; “place of business” means any office, including a mobile office, of a financial institution in Salt Island;

“principal place of business” in relation to–
(a) a local financial institution, means its principal office in Salt Island; and

(b) a foreign financial institution, means the office designated in its licence;

“significant shareholder” means a person who, either alone or with an affiliate or related or connected person, is entitled to exercise or control 20% or more of the voting rights at any general meeting of the licensed financial institution or another company of which the licensed financial institution is a subsidiary;

“subsidiary” means a body corporate that is controlled by another body corporate;

“unsecured”, in relation to advances or credit facilities, means—
(a) advances or credit facilities granted without security; or

(b) in the case of advances or credit facilities against security, any part of such advances or credit facilities which at any given time exceeds the market value of the assets comprising the security given, or which exceeds the valuation approved by the Central Bank whenever it deems that no market value exists for those assets.

PART 1
LICENCES

Requirement for licence

2. (1) A person shall not carry on banking business or hold himself out as carrying on banking business in Salt Island without a licence granted by the Minister.

(2) A financial institution which, immediately before 1 January, 2006, holds a valid licence to carry on banking business in Salt Island shall be deemed to have been granted a licence under section 4.

(3) Notwithstanding the provisions of subsection (2), the Minister shall, within such period commencing on 1 January 2006 as the Minister, after consultation with the Central Bank, may determine, issue to a financial institution a new licence certificate under this Act.

(4) Any person intending to carry on banking business in Salt Island shall, before commencing such business, apply for a licence under the provisions of section 4.

(5) Any person who contravenes the provisions of subsection (1) commits an offence and is liable on summary conviction—

(a) in the case of a financial institution, to a fine of $500,000, and in the case of a continuing offence, to a further penalty of $5,000 for each day on which the offence is continued after conviction thereof;

(b) in the case of a director or a manager, to a fine of $250,000 or to imprisonment for a term of 3 years or to both , and in the case of a continuing offence, to a further penalty of $2,500 for each day on which the offence is continued after conviction thereof.

Examination of books of person carrying on banking business without a licence

3. (1) If the Central Bank has reasonable cause to suspect that—

(a) any person is carrying on banking business without a licence granted under this Act; and

(b) evidence of contravention of section 2(1) is to be found on any premises in Salt Island,
the Central Bank may, after consultation with the Minister, lay an information on oath before the Magistrate, and it shall be lawful for such Magistrate by warrant signed by the Magistrate, to authorize an officer or officers of the Central Bank named in such warrant to enter and search such premises with a police officer and seize any books, accounts, records and other documents, cheques and securities (in this section referred to as the “relevant documents”) and any cash as may be found on the premises relating to the conduct of banking business, to ascertain whether the person is carrying on banking business without a licence.

(2) Any such warrant may authorize—

(a) the Central Bank to detain the relevant documents for a period not exceeding 30 days;

(b) the officer or officers to make copies of the relevant documents; and

(3) It shall be lawful for any officer or officers, in whose name a warrant has been granted pursuant to subsection (1), in the case of resistance, to break open any door and to force and remove any other impediment or obstruction to such entry, search or seizure.

(4) A person refusing to make available for examination any books, accounts and records having been requested to do so by the Central Bank commits an offence and is liable on summary conviction to a fine of $5,000 or to imprisonment for a term of 6 months or to both.

(5) Without prejudice to section 2(5), where a person is found under subsection (1) to be conducting banking business without a licence, the Minister may, on the recommendation of the Central Bank, appoint a receiver for the person under section 43(f).

(6) A person holding funds which the person has obtained by carrying on banking business without being in possession of a licence granted under this Act shall repay such funds in accordance with the directions of the Central Bank.

(7) The Minister may request the Central Bank to undertake the actions under subsection (1) where the Minister has reasonable cause to suspect that the conditions in paragraphs (1)(a) and (b) exist.

Application for licence

4. (1) In order to obtain a licence as a financial institution, a person shall apply in writing to the Minister and submit the documents and other information as specified in Schedule 1.

(2) In considering an application for a licence, the Minister shall request the Central Bank to conduct such investigation as it may consider necessary to ascertain—

(a) the validity of the documents submitted in accordance with Schedule 1;

(b) the financial condition and history of the applicant;

(d) whether the proposed directors and other persons who are to constitute the management of the financial institution are fit and proper persons in accordance with the criteria set out in section 26;

(e) the adequacy of the capital structure;
(f) the earning prospects of the applicant;

(g) the convenience and needs of the community to be served by the granting of the licence;

(h) the suitability of the significant shareholders;

(i) the transparency of the ownership structure;

(j) the source of initial capital; and

(k) whether the proposed legal and managerial structures will hinder effective supervision of the financial institution.

(3) A foreign financial institution which intends to open a branch or an affiliate within Salt Island must, in addition to submitting the documents and other information required under subsection (1), submit with its application—

(a) a certificate showing that the home banking supervisor of the jurisdiction in which it was incorporated, formed or organised has no objection to its application for a licence to do business in Salt Island; and

(b) evidence satisfactory to the Central Bank that it is subject to comprehensive supervision on a consolidated basis by the appropriate authorities in its home country.

(4) Within a reasonable time of its receipt of the application for a licence, the Central Bank shall make its recommendations to the Minister.

(5) Within 30 days of the receipt of the recommendations of the Central Bank, the Minister shall either grant the licence and may place any restrictions as the Minister considers to be prudent in respect of the licence or, if the Minister is of the opinion that it would be undesirable in the public interest to grant the licence, he may refuse to grant the licence and need not give any reason for so refusing but shall inform the applicant that he has refused to grant the licence.

(6) A financial institution shall not be granted a licence under this section unless it fulfils the capital requirements specified in section 12.

(7) The Minister, after consultation with the Central Bank, may, by regulation, amend the Schedules.

Restricted words, names and practices

5. (1) No financial institution shall be granted or continue to hold a licence under a name which so closely resembles the name of an existing financial institution in the territories of the Participating Governments or elsewhere as would be likely, in the opinion of the Minister, after consultation with the Central Bank, to mislead the public.

(2) Except with the written consent of the Minister after consultation with the Central Bank, no person, other than a licensed financial institution, shall—

(a) use the words “bank”, “financial institution”, “savings” or “loan”, or any of their derivatives or any mutations thereof in any language, or any other word indicating the carrying on of banking business, in the name, description or title under which such person is carrying on business in Salt Island or make any representation to such effect in any other manner whatsoever for the purpose of indicating that such person is carrying on banking business in Salt Island:

Provided that nothing shall prohibit an association of institutions licensed under this Act formed for the pursuit of common interests from using the words “bank”, “financial institution”, “savings”, or “loan” or any of their mutations or derivatives in any language as a part of its name or description of its activities;

(b) make or continue to make representations in any billhead, letter, letterhead, circular, paper, notice, advertisement or in any other manner whatsoever that such person is carrying on banking business; or

(3) Any person who contravenes the provisions of this section commits an offence and is liable on summary conviction to a fine of $250,000 or to imprisonment for a term of 5 years or to both; and, in the case of a continuing offence, to a further penalty of $2,000 for each day on which the offence is continued after conviction thereof.

Display of licence certificate

6. A copy of the certificate of any licence granted under this Act to a financial institution shall be displayed and kept displayed in a conspicuous place in the public part of any place of business of the licensed financial institution.

Authorisation of location and approval of new business premises

7. (1) Any licence granted under this Act shall authorise the licensed financial institution to carry on banking business in Salt Island at the place of business designated in the licence and at such other place as the Minister may, after consultation with the Central Bank, in writing authorise.

(2) No financial institution shall open a new place of business or change the location of an existing place of business in Salt Island without the prior approval of the Minister, after consultation with the Central Bank.

(3) No financial institution shall close an existing place of business in Salt Island without having given 90 days prior notification to the Minister and the Central Bank.

(4) No local financial institution shall open a place of business elsewhere than in Salt Island without the prior approval of the Minister after consultation with the Central Bank.

(5) No local financial institution shall close a place of business outside of Salt Island without having given 21 days prior notification to the Minister and the Central Bank.

(6) The Minister, acting on the recommendation of the Central Bank, may direct the closing of a branch of a local financial institution operating outside of the territories of the Participating Governments or impose limitations on the activities of such a financial institution, if the Central Bank determines that the supervision by the host country supervisor is not adequate relative to the risks that the branch presents to the viability or soundness of the local financial institution.

(7) No financial institution may establish or change the location of an electronic banking system in a place other than a place of business approved under subsection (2), without having given 30 days prior notification to the Minister and the Central Bank.

(8) A financial institution operating under a valid licence before 1 January 2006 that established an electronic banking system that was operating on 1 January 2006 in a place, other than a place of business, shall notify the Central Bank of the location of each such electronic banking system within 60 days after 1 January 2006.

(9) Any person who contravenes a provision of this section commits an offence and is liable on summary conviction to a fine of $250,000 or to imprisonment for a term of 5 years or to both; and, in the case of a continuing offence, to a further penalty of $2,000 for each day on which the offence is continued after conviction thereof.

Voting

8. (1) Subject to subsection (7), except with the approval of the Central Bank, no person shall hold or acquire either directly or indirectly—

(a) such of the paid-up capital of a local financial institution which would confer upon such person more than 20% of the total voting rights of all the members at a general meeting of the local financial institution; or

(b) in the case of a local financial institution not having share capital, more than 20% of the total voting rights of all the members entitled to vote at a general meeting of the local financial institution.

(2) Where the Central Bank determines that the interests of a group of 2 or more members of a local financial institution are connected or related, the total holdings of those members shall be combined and deemed to be the holdings of a single member.

(3) A local financial institution must submit a report quarterly to the Central Bank on the names and addresses of any person who owns 5% or more of the total voting rights of the local financial institution and, where such a person is a nominee, the name and address of any beneficial owner for whom such a person holds the shares or other ownership interests.

(4) In the event that the Central Bank determines that the provisions of subsection (1) have been violated, the Central Bank may issue an order under section 21 requiring the divestment of so much of the offending interest as is necessary to secure compliance with the provisions of subsection (1).

(5) A director of a local financial institution who knows or ought reasonably to know of a transfer made in violation of subsection (1) and who fails to disclose it to the Central Bank commits an offence and is liable on summary conviction to a fine of $2,000 or to imprisonment for a term of 3 months.

(6) Any person who knowingly acquires an interest in violation of subsection (1) commits an offence and is liable on summary conviction to a fine of $5,000 or to imprisonment for a term of 6 months.

(7) Subsection (1) shall not apply to the Government or to any person who immediately before 1 January 2006 has acquired more than 20% of the total voting rights of all the members of the local financial institution, but no such person shall, without the consent of the Central Bank, acquire any additional shares which shall have the effect of increasing that person’s percentage of the voting rights.

Actions of fundamental change requiring approval

9. (1) Unless the approval of the Minister, acting upon the recommendation of the Central Bank, is first obtained, no financial institution shall—

(a) transfer the whole or any substantial part of its assets or liabilities in Salt Island other than in the ordinary course of its business;

(b) effect a reduction of its paid up or, as the case may be, assigned capital established under section 12;

(d) enter into a merger or consolidation within Salt Island; or

(e) in the case of a local financial institution, amend the instrument or charter under which it is formed in Salt Island.

(2) Every foreign financial institution shall notify the Minister and the Central Bank of any amendment to the instrument or charter under which it is formed within 60 days of such amendment.

(3) In recommending any proposed action under subsection (1), the Central Bank shall be guided by the criteria specified in section 4(2).

Revocation of licence and declaration of discontinuance of service

10. (1) The Minister, acting upon the recommendation of the Central Bank, may revoke any licence to carry on banking business in Salt Island if the licensed financial institution—

(a) fails to commence operations within a period of 12 months following the granting of the licence;

(b) fails to comply with the conditions of its licence or the measures required by the Central Bank in accordance with section 21;

(d) ceases to carry on banking business in Salt Island;

(e) is conducting its affairs in a manner detrimental to the national interest or to the interest of its depositors;

(f) fails to maintain sufficient capital or liquidity to meet its liabilities;

(g) has not fulfilled or is unlikely to fulfil the minimum criteria for licensing under this Act; or

(h) merges or amalgamates with another company or institution and the licence is no longer required.

(2) Before revoking any licence under subsection (1), the Minister shall serve the financial institution concerned with a notice in writing of his intention to do so, specifying therein the grounds upon which he proposes to make the revocation and shall require the financial institution to submit to him, within a specified period being not less than 30 days, a written statement of objections to the making of the revocation and thereafter the Minister shall advise the financial institution of his decision.

(3) Where the decision referred to in subsection (2) is to revoke the licence, the notice shall include a statement of the reasons for the decision.

(4) Notice under subsection (2) shall be served at the last known address of the financial institution or shall be published in the Gazette or in a newspaper of general circulation in Salt Island.

(5) If any financial institution is aggrieved by any decision made under subsection (1), that financial institution may appeal to the High Court within 14 days of such decision.

(6) Where a licence to carry on banking business in Salt Island has been revoked, the Minister shall as soon as possible thereafter cause a notice of revocation to be published in the Gazette and in a newspaper of general circulation in Salt Island and cause such other steps to be taken as he considers necessary to inform the public of such revocation.

Licence fees and penalty for default

11. (1) Every financial institution shall pay such annual licence fee as the Minister may, by regulation, prescribe.

(2) The Minister, after consultation with the Central Bank, may prescribe different licence fees in respect of different classes or categories of financial institutions and such fees shall apply uniformly to such classes or categories.

(3) All licence fees payable under this Act shall be paid to the Financial Services Commission established under section 2 of the Financial Services Commission Act.

(4) A person who fails to comply with any requirement of this section and, where such person is a company, the company and every director, manager, secretary or other officer of the company who knowingly authorises or permits the default, commits an offence and each is liable on summary conviction to a fine of $10,000 and, in the case of a continuing offence, to a further penalty of $100 for each day on which the offence is continued after conviction thereof.

PART 4
MISCELLANEOUS

Minimum criteria for determining whether a person is fit and proper

26. (1) Every person who is or is likely to be a director, controlling shareholder or manager of the licensed financial institution must be a fit and proper person to hold the particular position which he holds or is likely to hold.

(2) In determining whether a person is a fit and proper person to hold any particular position, regard shall be had to—

(a) the person’s probity, competence and soundness of judgment for fulfilling the responsibilities of that position;

(b) the diligence with which that person is fulfilling or likely to fulfil the responsibilities of that position; and

(c) whether the interests of depositors or potential depositors of the licensed financial institution are, or are likely to be, in any way threatened by that person holding that position.

(3) Without prejudice to the generality of subsections (1) and (2), regard may be had to the previous conduct and activities in business or financial matters of the person in question and, in particular, to any evidence that the person has—

(a) committed an offence involving fraud or other dishonesty or violence;

(b) contravened any provision made by or under an enactment designed for protecting members of the public against financial loss due to dishonesty, incompetence or malpractice by persons concerned in the provision of banking, insurance, investment or other financial services or the management of companies or against financial loss due to the conduct of a discharged or undischarged bankrupt;

(c) engaged in any business practices appearing to the board to be deceitful or oppressive or otherwise improper (whether unlawful or not) or which otherwise reflect discredit on that person’s method of conducting business;

(d) an employment record which leads the board to believe that the person carried out an act of impropriety in the handling of his employer’s business; or

(e) engaged in or been associated with any other business practices or otherwise conducted himself in such a way as to cast doubt on his competence and soundness of judgment.

Removal and disqualification of director

27. (1) Any person who is a director, manager or other officer concerned with the management of a financial institution shall cease to hold office—

(a) upon notification by the board of a finding by two-thirds of its members—

(i) of that person’s permanent incapacity or serious neglect of, or misconduct in, office, or

(ii) that the person is not a fit and proper person in accordance with the criteria specified in paragraphs 26(3)(a) and (b); or

(b) if that person—

(i) is or was convicted of an offence under this Act,

(ii) has been declared bankrupt or is compounding with, or suspending payment to, that person’s creditors, or

(iii)has been convicted in a court of law of any offence involving fraud, dishonesty, or violence.

(2) Any person who has been—

(a) sentenced for an offence involving a term of imprisonment of not less than 6 months or in default of the payment to a fine;

(b) a director or manager of a company which has been wound-up by a court or has been placed in receivership;

(c) a director or manager of, or directly or indirectly concerned in the management of, a former licensed financial institution, the licence of which has been revoked, unless such revocation was due to—

(i) its amalgamation with another licensed financial institution or company, or
(ii) its voluntary winding up,

shall not, without the express approval of the Minister, after consultation with the Central Bank, act or continue to act as a director or manager, or be directly or indirectly concerned in any way in the management of any licensed financial institution. (3) A person who contravenes any provision of subsection (1) or (2) commits an offence and is liable on summary conviction to a fine of $10,000 or to imprisonment for a term of 1 year or to both and, in the case of a continuing offence, to a further penalty of $500 for each day on which the offence is continued after conviction thereof.

Declaration and registration of related interest and conflicts of interest by director

28. (1) Every director of a financial institution who is in any manner whatsoever directly or indirectly interested in loans, advances, contracts or transactions from that financial institution shall as soon as possible declare the nature of his interest to the board or other body responsible for the management of that institution and shall cause such declaration to be circulated immediately to all the members of the board.

(2) For the purpose of subsection (1), a declaration by a director of a financial institution to the effect that the director is to be regarded as interested in any loan, advance, contract or other transaction which may, after the date of the notice, be made by the financial institution shall be deemed to be a sufficient declaration of interest in relation to any loan, advance, contract or other transaction so made if—

(a) the declaration specifies the nature and extent of the interest of the director; and

(b) the interest of the director is not different in nature from, or greater in extent than, the nature and extent so specified in such notice at the time any advance is made.

(3) Every director of a financial institution who holds any office or possesses any property whereby, whether directly or indirectly, duties or interests might be created in conflict with his duties or interests as such director in Salt Island shall declare the fact, nature, character and extent of the conflict at the first meeting of the board held—

(a) after assuming office as a director of the financial institution; or

(b) if already a director, after he commences to hold office or to possess the property.

(4) Every director of a financial institution who qualifies as an interested director under the provisions of this section shall cause to be brought up and read any declaration made under subsection (1) or (3) at the next meeting of the board after it is given, and shall cause to be recorded any declaration made under this section in the minutes of the meeting at which it was made or at which it was brought up or read.

(5) A director who contravenes subsection (1) or (3) commits an offence and is liable on summary conviction to a fine of $10,000 or to imprisonment for a term of 1 year or to both.

Responsibility for deceiving statements and obstruction of audit or authorised examination

29. Any director, manager, secretary, employee or agent of a financial institution who—

(a) with intent to deceive—
(i) makes any false or misleading statement or entry in any book, account, report or statement of the financial institution, or

(ii) omits any statement or entry that should be made in any book, account, report or statement of the financial institution; or

(b) obstructs or endeavours to obstruct—

(i) the proper performance by an auditor of his duties in accordance with the provisions of this Act, or

(ii) a lawful examination of the financial institution by a duly authorised examiner appointed by the Central Bank;

commits an offence and is liable on summary conviction to a fine of $15,000 or to imprisonment for a term of 2 years or to both.

Management’s duty of compliance with the requirements of the laws

30. Any director, manager, secretary or other officer concerned in the management of a financial institution who—

(a) fails to take all reasonable steps to secure compliance by the financial institution with the requirements of this Act; or

(b) is implicated in the commission of an offence under section 25;

commits an offence and is liable on summary conviction to a fine of $15,000 or to imprisonment for a term of 2 years or to both.

Liability of directors, officers and partners

31. (1) Where an offence under this Act has been committed by a body of persons which is—

(a) a body corporate, society or other body of persons, every person who, at the time of the commission of the offence, was a director, manager, secretary or other officer of the body corporate, society or other body of persons as well as that body corporate, society or other body of persons commits the offence; or

(b) a partnership or firm, every partner of the partnership or firm as well as that partnership or firm commits the offence,

and each is liable to be proceeded against and punished accordingly.

(2) No person referred to in subsection (1) shall be found guilty of an offence under that subsection where the person proves that—

(a) the act constituting the offence took place without his knowledge or consent; or

(b) he exercised all due diligence to prevent the commission of the offence.

Secrecy of information

32. (1) Subject to subsection (2), no person who has acquired knowledge in his capacity as director, manager, secretary, officer, employee or agent of any financial institution or as its auditor or receiver or official liquidator, or as director, officer, employee or agent of the Central Bank, shall disclose to any person or governmental authority the identity, assets, liabilities, transactions or other information in respect of a depositor or customer of a financial institution except—

(a) with the written authorization of the depositor or customer or of his heirs or legal personal representatives;

(b) for the purpose of the performance of his duties within the scope of his employment in conformity with the provisions of this Act;

(d) under the provisions of any law of Salt Island or agreement among the Participating Governments.

(2) Nothing in subsection (1) shall prevent—

(a) a financial institution from providing to a person, upon a legitimate business request, a general credit rating, a summary of which will be provided to the depositor or customer upon request;

(b) the Central Bank from—
(i) sharing any information received or any report prepared by the Central Bank in the performance of its duties under this Act with any local or foreign authority responsible for the supervision or regulation of a financial institution or for maintaining the integrity of the financial system, or

(ii) providing access to any officer of a foreign authority responsible for the supervision or regulation of financial institutions in order to assess the safety and soundness of a foreign financial institution, on a reciprocal basis and subject to an agreement of confidentiality and a Memorandum of Understanding between the Central Bank and such authorities.

Working days of financial institutions

33. (1) All financial institutions in Salt Island shall remain open for business during such hours and on such days, except public holidays, as may be agreed to by the Minister, after consultation with the Central Bank.

(2) Any obligation which can only be fulfilled at a financial institution which would fall due on any day or at any particular hour on which the financial institution is not open for business under subsection (1) shall be deemed to fall due on the first working day thereafter.

(3) The Minister after consultation with the Central Bank, may, by regulation, declare any day on which no financial institution may be open for business, without regard to whether such day is a public holiday.

Regulations

34. The Minister, upon the recommendation of the Central Bank, may make such regulations as may be required from time to time for giving effect to the provisions of this Act, and, without limiting the generality of the foregoing, may make regulations respecting—

(a) the reports or other information to be supplied by persons to whom licences have been granted and any other matter associated with their use;

(b) the records to be kept, returns and reports to be made to the Central Bank or the Minister by persons who are appointed as auditors under this Act;

(c) the character of the records to be kept by any financial institution and the form of the reports and returns to be made by the financial institution and fixing the times when such reports and returns shall be made;

(d) such forms as may be necessary for the administration of this Act;

(e) the penalties that may be imposed for violations of regulations made under this Act and may also prescribe the penalties to be imposed on summary conviction, but no such penalty shall exceed a fine of $10,000 or of a term of imprisonment of 12 months;

(f) the capital adequacy requirements and capital ratios to be maintained by a licensed financial institution.

Compounding of offences

35. (1) Subject to subsection (2), the Minister, after consultation with the Central Bank, may, if the Minister is satisfied that any person has committed an offence under this Act, or under any regulation made under this Act, compound the offence by accepting from the person a sum not exceeding $5,000.

(2) The power conferred by subsection (1) shall only be exercised where the person admits that he has committed the offence and agrees in writing to the offence being dealt with under this section.

(3) If any proceedings are brought against a person for an offence under this Act or under any regulation made under this Act, it shall be a defence if the person proves that the offence with which he is charged has been compounded under this section.

(4) Any sum of money received under this section shall be dealt with as if the sum of money were a fine imposed by a court.

Prudential guidelines

36. The Central Bank may issue prudential guidelines and related orders in administering the provisions of this Act to a financial institution and its affiliate and, without limiting the generality of the foregoing, may issue guidelines respecting—

(a) policies, practices and procedures for evaluating—

(i) the quality of assets,
(ii) the adequacy of loan loss provisions, and
(iii)loan loss reserves;

(b) a system of loan classification, provisioning and write-offs;

(d) rules for non-accrual of income on non-performing or impaired assets;

(e) the suspension and reversal of accrued interest;

(f) policies, procedures and systems for identifying, monitoring and controlling country risk, transfer risk, market risk, liquidity risk, interest rate risk, operational risk and such other risks as the Central Bank shall specify;

(g) liquidity requirements and ratios;

(h) treatment of assets and investments;

(i) treatment of loans and other credit facilities;

(j) related party transactions;

(k) corporate governance;

(l) auditors;

(m) disclosure; and

(n) anti-money laundering and combating the financing of terrorism matters.

GUIDELINES FOR CASE STUDY

• ALL CITATIONS FROM THE CASES AND LEGISLATION (DOCUMENT ATTACHED) ARE TO BE IN QUOTATION MARKS AND IN ITALICS

• CRITICCALLY ANALYZE THE CONTENT AND NOT SUMMARISE THE CASE

EASTERN CARIBBEAN CENTRAL BANK
GUIDELINES ON CORPORATE GOVERNANCE
FOR INSTITUTIONS LICENSED
TO CONDUCT BANKING BUSINESS UNDER THE BANKING ACT
April 2006
BSD DOC#313139v2
TABLE OF CONTENTS
INTRODUCTION ………………………………………………………………………………………………………….. i
I Overview…………………………………………………………………………………………………………..i
II Interpretation …………………………………………………………………………………………………….i
III Authority ………………………………………………………………………………………………………….iv
IV Application……………………………………………………………………………………………………….iv
V Commencement…………………………………………………………………. ……v
GUIDELINES ………………………………………………………………………………………………………….1
SECTION 1 – RESPONSIBILITIES OF THE BOARD OF DIRECTORS …………………..1
1.1 Implementing Sound Governance Practices …………………………………………………………1
1.2 Adequate Structure of the Board…………………………………………………………………………2
1.3 Strategic Planning …………………………………………………………………………………………….2
1.4 Establishing Committees of the Board ………………………………………………………………..3
1.5 Board Meetings and Information………………………………………………………………………..4
1.6 Independent Functioning of the Board ………………………………………………………………..5
1.7 Demarcation of Responsibilities between the Board and Management ……………………5
1.8 Management of Risk …………………………………………………………………………………………6
1.9 Integrity of Internal Control and Management Information Systems……………………….7
1.10 Integrity in Conducting Operations ……………………………………………………………………8
1.11 Appointing and Monitoring Senior Management…………………………………………………9
1.12 Remuneration………………………………………………………………………………………………….10
1.13 Annual Review………………………………………………………………………………………………..10
1.14 Transparency in Governance …………………………………………………………………………….11
SECTION 2 – AUDIT OR COMPLIANCE COMMITTEE…………………………………………………… 12
SECTION 3 – DIRECTORS ………………………………………………………………………………………………… 14
3.1 Qualifications of Directors………………………………………………………………………………….14
3.2 Duties of Directors…………………………………………………………………………………………….14
3.3 Determination of Directors’ Independence……………………………………………………………15
3.4 Orientation of Directors ……………………………………………………………………………………..16
SECTION 4 – RESPONSIBILITY OF SENIOR MANAGEMENT ……………………………………….. 17
SECTION 5 – RELATIONSHIP WITH SUPERVISORY BODY………………………………………….. 18
SECTION 6 – GOVERNANCE OF SUBSIDIARIES AND HOLDING COMPANIES …………… 20
SECTION 7 – SHAREHOLDERS………………………………………………………………………………………… 21
i
Banking Prudential Guidelines No.2 of 2006
The Eastern Caribbean Central Bank, in exercise of the powers conferred on it by section 36 of
the Banking Act1
makes the following Prudential Guidelines –
INTRODUCTION
I Overview
a) Corporate governance refers to the processes, structures and information used for
directing and overseeing the management of an institution. This encompasses the
relationships and mechanisms utilised for achieving accountability between an
institution’s board of directors, management, shareholders and other stakeholders.
Corporate governance also defines the structure through which the division of power and
responsibility in the organisation is determined and developed. Effective corporate
governance is an essential element in the safe and sound functioning of a financial
institution.
b) The ECCB recognises that corporate governance processes will vary from institution to
institution. However, each institution is expected to create a governance framework that
promotes high standards of professional conduct, prudent and diligent discharge of
duties, and ensures compliance with applicable laws, regulations and guidelines.
c) The ECCB has established these guidelines to facilitate the development of adequate
corporate governance structures by institutions. In addition, subject to the requirements of

1
Anguilla Banking Act No. 9 of 2005;
Antigua and Barbuda Banking Act No. 14 of 2005;
Dominica Banking Act No. 16 of 2005;
Grenada Banking Act No. 19 of 2005;
Montserrat Banking Act No. 2 of 2005;
Saint Christopher and Nevis Banking Act No. 4 of 2004;
Saint Lucia – Not yet passed;
Saint Vincent and The Grenadines – Not yet passed.
ii
these guidelines, where applicable institutions should also incorporate the Corporate
Governance Principles for Caribbean Countries2
within their structure.
II Interpretation
“Affiliate” has the meaning assigned to it in the Banking Act.
“Auditor” has the meaning assigned to it in the Banking Act.
“Banking Act” means the Banking Act in force in that territory.
“Board” means the board of directors of an institution, which is the body ultimately responsible
for the management of that institution.
“Conflict of Interest” means a real or apparent incompatibility between an entity’s private
interests and its public or fiduciary duties.
“Cross-Directorship” refers to a director or a senior manager of an institution, who is also part
of the board or senior management of another institution, or has such significant links or
involvement with the other institution that the director or senior manager could be considered
associated with the other institution.
“Executive Director” means a director who participates directly in the management of the
institution.
“Immediate Family” refers to any person or persons who can be expected to influence or be
influenced by that individual. This generally includes:
(a) A spouse, domestic partner or child

2
Draft Corporate Governance Principles for Caribbean Countries have already been formulated by the Caribbean
Technical Working Group on Corporate Governance (CTWG) and can be found at the following web address:
http://www.ecseonline.com/pdf/communique%20for%20CCGF.pdf.
iii
(b) Any person living in a common household;
(c) A grandparent, parent, brother or sister;
(d) The spouse or domestic partner of a child, parent, brother or sister
“Independent Director” means a non-executive director who is free of any business or other
relationships that would materially interfere with, or could reasonably be perceived to materially
interfere with, the exercise of his unfettered decision making pertaining to the institution.
“Institution” means a financial institution licensed to conduct banking business under the
Banking Act.
“Non-Executive Director” means a director who does not participate directly in the
management of the institution.
“Participating Governments” has the meaning assigned to it in the ECCB Agreement Act.
“Related Party” in relation to an institution means-
(a) The directors and staff of the institution;
(b) An affiliate of the institution;
(c) Any director, partner, senior officer or guarantor of an affiliate of the institution, or
their immediate family;
(d) Any entity in which a director or senior officer of the institution assumes the role of
director, partner, officer or guarantor;
(e) The auditor and senior officers of the institution’s audit firm;
(f) A significant shareholder of the institution, a significant shareholder’s senior officers,
partner or immediate family member or an entity that a significant shareholder
controls or is controlled by;
(g) A director or senior officer of an entity that controls or is controlled by the institution
and includes their partners or immediate family members;
iv
(h) Any person who maintains a trust on behalf of the institution or its affiliate and
includes any director, partner, senior officer or guarantor of the trust or their
immediate family;
(i) A person or class of persons identified under section 16(1)(a) or section 16(1)(c) of
the Banking Act3
;
(j) A person or class of persons who has been designated by the ECCB as a related party
because of their past or present interest in or relationship with the institution, being
such that it can be reasonably expected that this related party can influence the
decision of the institution regarding a transaction.
“Self-dealing” means any transaction with a related party, that is not on terms and conditions
that are the same or similar to that offered to a non-related party and which could generate a
lesser return to the institution than with a non-related party.
“Senior Management” or “Senior Officer” of an institution means:
(a) The chief executive officer, deputy chief executive officer, chief operating officer,
chief financial officer, internal auditor, company secretary, or manager of a
significant business unit of the institution; or
(b) A person with similar responsibilities or with a position similar to that identified in
item (a); or
(c) Any person who can make a policy decision.
“Significant Shareholder” has the meaning assigned to it in the Banking Act.
“Transaction” means a transfer of benefits, resources, obligations, or the provision of services,
regardless of whether a price is charged.
III Application
a) These guidelines apply to all institutions licensed under the Banking Act. They set out
the minimum standards that the ECCB expects licensees to adopt in respect of their
corporate governance and are based on best practices, relevant laws and governance

3
There may be a variation in the numbering in the Banking Acts of the individual ECCU territories. The Banking
Act, 2005 of Anguilla refers to section 15(1)(a) and 15(1)(c), respectively.
v
codes. These guidelines are not intended to be prescriptive, but rather to serve as an
advisory to boards of directors and to the management of institutions licensed under the
Banking Act.
b) Where an institution’s board of directors has chosen alternative corporate governance
standards, the board will be required to demonstrate to the ECCB that the alternative
standards adopted, have at least an equivalent effect of ensuring sound corporate
governance. Institutions that are part of larger international financial groups are
encouraged to take advantage of the availability of group structured governance
processes that are in keeping with the basic principles articulated in these guidelines.
IV COMMENCEMENT
These guidelines shall cause into effect on 15 May 2006.
Page 1 of 23
GUIDELINES
SECTION 1 – RESPONSIBILITIES OF THE BOARD OF DIRECTORS
1.1 Implementing Sound Governance Practices
Objective: The development of adequate policies and controls, and the establishment of an
adequate corporate structure to implement these policies and controls.

An assessment of the board’s effectiveness should be based on the quality and scope of the
governance processes and how effectively these are implemented and maintained. The board’s
effectiveness would be influenced by its ability to implement and maintain a sound corporate
governance system that ensures:
1.1.1 Competent management through a comprehensive framework that clearly outlines levels of
responsibility and accountability throughout the organisation.
1.1.2 Integrity in the conduct of management.
1.1.3 Integrity in financial reporting.
1.1.4 Timely review of key executive and board members remuneration, and a formal and
transparent board nomination process.
1.1.5 That the institution’s operations are conducted prudently and within the framework of
relevant laws, regulations and guidelines and that a reasonable balance is struck between the
institution’s objectives, risk management and control functions.
1.1.6 That controls are in place to protect the assets of the institution.
1.1.7 That the interests of shareholders, employees, customers and other stakeholders are
considered when creating and implementing policy.
Page 2 of 23
1.1.8 That consideration is given to the amount of time that proposed board appointees are able to
devote to their duties as a director.
1.1.9 That the performance of the board, its committees and individual directors are reviewed and
evaluated periodically, to determine whether there is a need to make changes or supplement
the complement of directors.
1.2 Adequate Board Structure
Objective: To ensure that the board has adequate manpower and expertise to provide
adequate oversight of the institution.
1.2.1 The size of the board should be dictated by the nature of the institution, including its scale of
business, and the complexity and diversity of its activities. Changes to the board’s
composition should be managed without undue disruption.
1.2.2 Collectively, members of the board should demonstrate a broad range of complementary
skills and expertise, industry and regulatory knowledge and diversity of perspectives to build
a capable, responsive and effective board.
1.3 Strategic Planning
Objective: To ensure that the organisation’s vision and purposes are clearly defined, and that
goals are set to achieve its objectives.
1.3.1 The board must approve the strategic plan of the institution with appropriate measurable
benchmarks. The strategic planning process should include the establishment of corporate
values and the effective oversight of the implementation of these values. Corporate values
should address corruption and self-dealing, the management of conflicts of interest, and the
establishment of ethical standards and policies that are in the best interest of the institution.
1.3.2 The board must set limits for the various activities and risks undertaken within the
institution. Where possible, authorisation of these limits should be tied to the seniority of an
Page 3 of 23
officer, a particular office or a group of individuals responsible or knowledgeable in the
area.
1.3.3 The board must approve the budget of the institution.
1.3.4 The board must ensure that the strategic plan conforms with applicable laws, regulations,
guidelines and internal policies.
1.4 Establishing Committees of the Board
Objective: To effectively allocate tasks and responsibilities at the board level
1.4.1 Committees of the board should be established with clearly defined objectives, authorities,
responsibilities and tenure. These committees should be required to report regularly to the
full board.
1.4.2 By resolution, the board should establish the mandate and the scope of authority of each
committee. Each committee of the board should conduct an annual evaluation of its own
effectiveness. In the evaluation, each committee should compare its performance with the
requirements of its written mandate. The board should review each committee’s evaluation.
1.4.3 To reinforce the independence of the board, the inclusion of management on these
committees should be the exception rather than the rule. From time to time, management
may be invited to attend the meetings as needed to provide operational inputs.
Page 4 of 23
1.5 Board Meetings and Information
Objectives: To ensure sourcing and dissemination of relevant information at the board level.
Board meetings serve as key fora where executives and directors share information and deliberate
on the institution’s performance, plans and policies. Frequent meetings allow for better
communication between management and directors. All directors are expected to attend and
actively participate in all meetings of the board. The same is expected of directors assigned to
committees or subcommittees of the board. The following should be instituted with respect to board
meetings:
1.5.1 Frequency of meetings should be dictated by the nature of operations and size of the
institution. However, board meetings should be held at least quarterly.
1.5.2 The chairperson of the board should have primary responsibility for setting the agenda of
board meetings and ensuring that information is made available to the members. All
relevant information including, the agenda, board minutes and papers, should be forwarded
to all directors before the meeting, with sufficient time to facilitate adequate review.
1.5.3 The chairperson of the board should decide on the adequacy of information and give
instructions to management to ensure that the board’s information needs are met. In addition
to the information (strategic plan and budget comparison) to assess the quantitative
performance of the institution, the board should also receive information on the observance
of prudential norms, customer satisfaction, service quality, market share, market reaction,
etc.
1.5.4 The chairperson of the board should ensure that clear and complete minutes of board
meetings are maintained and circulated to members, and that the minutes accurately and
adequately reflect the deliberations, decisions and actions taken at these meetings.
Page 5 of 23
1.6 Independent Functioning of the Board
Objective: To promote segregation between the formulation and the execution of policy for
control purposes.
1.6.1 The ability of the board to function independently of management is central to effective
corporate governance. The board must demonstrate its ability to act independently of
management.
1.6.2 The board should implement appropriate structures and procedures to achieve and maintain
its independence. The structures and procedures implemented should allow for the clear
division of responsibilities between the board and management to facilitate a balance of
power and authority.
1.6.3 Separate persons should hold the posts of chairman and chief executive officer.
1.6.4 The board should include no more than two executive directors to facilitate accountability
and transparency.
1.7 Demarcation of Responsibilities between the Board and Management
Objective: To ensure that clear lines of responsibility and accountability exist within the
organisation.
1.7.1 The board should classify and document its own authorities and responsibilities, including
those of its chairperson. It should also document the authority and responsibility of senior
management, including the system of checks and balances for senior management. In
addition, the board must ensure that clear lines of responsibility and accountability are
established throughout the institution, and that the balance of responsibilities and
accountabilities are adequately and periodically reviewed.
1.7.2 Whereas management is responsible for the day-to-day operation of the institution by virtue
of the authority vested in it by the board, the board’s primary responsibility is to provide
Page 6 of 23
oversight of the institution to ensure that the interests of the company and its shareholders
are served.
1.7.3 The board is responsible for approving job descriptions for all senior officers.
1.7.4 The board should always remain responsible for the overall stewardship of the institution
and must be prepared to question, scrutinise and monitor, in a proactive manner, its
performance, and the performance of its committees, individual directors and management.
1.8 Management of Risk
Objective: To ensure that the risks undertaken are understood, under control and well
compensated.
Risk management systems and practices will differ depending on the scope and size of the
institution and the nature of the institution’s risk exposures. However, every institution should have
integrated policies that, taken together, establishes the institution’s corporate philosophy on risk
pertaining to its principal activities.
1.8.1 The board should ensure that the institution’s policies and systems establish a prudent
balance between the risks incurred and the potential returns to the institution.
1.8.2 Although management is responsible for identifying and assessing risks associated with new
products and services, and should ensure that appropriate procedures and controls are
implemented to manage these risks, the board should approve the introduction of all new
products and services.
1.8.3 In order to facilitate its oversight, the board should establish a specialised risk management
committee with the mandate to establish, implement and review the adequacy of risk
management policies and systems within the institution, and to monitor their effectiveness.
Page 7 of 23
1.9 Integrity of Internal Control and Management Information Systems
Objectives: To ensure that adequate controls are in place and that information is obtained in a
timely manner so that corrective action is taken where necessary.
Implicit in the effective discharge of a board’s responsibilities is the adequate functioning of welldesigned
internal controls and management information systems.
1.9.1 The board should ensure that senior management provides sound recommendations and
advice on the organisational structure, objectives, strategies, plans and major policies of the
institution.
1.9.2 The board is responsible for the integrity of data and information provided by the institution.
The board should meet regularly, or as required, with the banking supervisor, or appoint a
liaison board member to deal with regulatory matters. The board should ensure that the
appropriate action is taken on instructions or recommendations from the regulatory or
supervisory authority.
1.9.3 The roles of internal and external auditors are crucial in ensuring an effective control
environment. As such, the board and management can enhance their effectiveness by
ensuring that the internal audit function is duly recognised in the organisation and that its
profile is enhanced. The board should also use, as appropriate, the services of external
auditors to independently verify information received from management. It should also
ensure that it receives a copy of the external auditors’ management letter, together with
management’s action plan to deal with the deficiencies identified in the management letter
and to follow up where necessary to ensure that these deficiencies are addressed. For further
guidance, refer to ECCB’s Guideline for selecting External Auditors of a licensed financial
institution and ECCB’s Guideline for the Internal Auditor of a licensed financial institution.
Page 8 of 23
1.10 Integrity in Conducting Operations
Objective: To facilitate a high degree of integrity and fairness within the institution’s
operations.
1.10.1 The board should put in place a code of conduct for employees, directors and stakeholders
of the institution, setting out the institution’s ethical values and standards. At a minimum,
the code should deal with the improper use of confidential information, conflicts of interest,
protection and use of the institution’s assets (both financial and non-financial), corruption,
compliance with laws and regulations, insider trading, and fit and proper criteria for
directors. This code should be adequately communicated to the employees, directors and
stakeholders and in the case of employees and directors, the code should be included in reorientation
programmes conducted from time to time. The code should have effective
reporting and enforcement mechanisms and violations of the code should be addressed
promptly and effectively.
1.10.2 The board should put in place procedures to ensure compliance with the Banking Act, and
all other relevant Acts and Regulations and Guidelines. The board should also ensure that
adequate systems are in place to identify, report and follow-up on deviations by an
appropriate level of management.
1.10.3 Policies regarding conflicts of interest, fair treatment of customers and information sharing
with stakeholders should be clearly set out.
1.10.4 Clear complaints procedures should be established to deal effectively with customer
complaints.
Page 9 of 23
1.11 Appointing and Monitoring Senior Management
Objective: To facilitate a competent team to execute the policies and plans of the board
1.11.1 The board’s appointment of competent senior management is vital given that the board
delegates through management. The most important appointment is that of the chief
executive officer or managing director. This should be a person with high integrity,
technical competence and a proven track record in the industry. The board’s approval is also
crucial when appointing individuals to other senior management positions.
1.11.2 The board should set performance based compensation policies, goals and standards for
senior management. The board should assess the chief executive officer’s performance
against the objectives that were previously established in the strategic plan.
1.11.3 The board should ensure that adequate programmes to continuously train and develop
management are instituted.
1.11.4 The board should also give priority to the ongoing management of the institution by
formulating an orderly succession plan.
1.11.5 The board is responsible for removing incompetent management personnel.
Page 10 of 23
1.12 Remuneration
Objective: To facilitate fair compensation within the organisation
1.12.1 The board should approve the compensation package to attract and retain competent senior
management personnel and employees. Compensation should be established with due
regard to the institution’s strategic plan and objectives.
1.12.2 There should be full and clear disclosure in the financial statements of the total number of
executive, non-executive and independent directors. The disclosure in the financial
statements should include the collective earnings of the directorship, broken down into
headings such as fees, share options, benefits, bonuses, etc.
1.13 Annual Review
Objective: To determine whether the board is fulfilling its own responsibilities.
1.13.1 At least annually, the board should assess and document whether the institution’s objectives
are being met and whether it is fulfilling its responsibilities. The board should consider the
input of management in this regard and make adjustments where necessary.
1.13.2 The board should review the performance and compensation of senior management at least
annually.
1.13.3 The board should review the institution’s capital adequacy considering the institution’s risk
tolerance, its existing risk exposures and its future plans.
Page 11 of 23
1.14 Transparency in Governance
Objective: To facilitate the adequate disclosure of information.
1.14.1 The board should be satisfied that procedures are in place to ensure that the institution’s
disclosure obligations are met, and to ensure that the information being disseminated is true,
timely and accurate.
1.14.2 The board should disclose its approach to corporate governance in its annual accounts. This
information should be prepared, audited and disclosed in accordance with recognised
standards for accounting, financial and non-financial disclosure, and audit. The institution
should at a minimum meet the requirements of the International Accounting Standards (IAS)
or the International Financial Reporting Standards (IFRS).
1.14.3 The board shall ensure that an annual audit is conducted by an independent, competent and
qualified auditor in accordance with Section 19 of the Banking Act4
.
1.14.4 Channels for disseminating information should allow for fair, timely and cost-efficient
access to relevant information by users.
1.14.5 Disclosure in the financial statements should include, but not be limited to, material
information on:
(i) The financial and operating results of the institution.
(ii) The institution’s objectives.
(iii) Governance structures and policies.
(iv) Major share ownership and voting rights.
(v) Shareholding of each director in the institution.
(vi) Members of the board and key executives. For board members, disclosure should
also include their qualifications, the shareholder(s) they represent (if any), and
whether they are executive, non-executive or independent directors.
(vii) Foreseeable risk factors.
(viii) Related party transactions.

4
There may be a variation in the numbering in the Banking Acts of the individual ECCU territories.
Page 12 of 23
SECTION 2 – AUDIT AND/OR COMPLIANCE COMMITTEE
Objective: An Audit or Compliance Committee should be established to provide oversight of
the institution’s operations and ensure compliance within and by the institution.
The audit or compliance committee’s size needs to be proportionate to its duties and its terms of
reference will necessarily vary according to the size, complexity and risk profile of the institution.
This committee should be comprised principally of non-executive directors and should include
members who have some financial expertise and a sound understanding of the industry in which the
institution operates. The audit and/or compliance committee has a crucial role in monitoring and
strengthening the institution’s control environment and should:
2.1 Review the annual financial statements of the institution before they are approved by the
board and oversee the bank’s financial disclosure obligations;
2.2 Oversee the performance of the external and internal audit functions with regard to
effectiveness, objectivity and independence;
2.3 Monitor management’s reporting on internal controls and their responses to internal and
external audit reports/letters. While it is management’s responsibility to design and
implement an effective system of internal control, the audit or compliance committee must
ensure that management discharges this responsibility;
2.4 Recommend the retention or dismissal of the external auditors;
2.5 Ensure that consultants are not subsequently hired as auditors within a three year period;
2.6 Discuss the external auditor’s engagement and management letters before they are presented
to the entire board and follow-up on issues raised in the management letter.
2.7 Promote transparency and encourage confidence in the institution’s financial reporting;
Page 13 of 23
2.8 Establish a code of conduct and ensure that the board of directors, management, staff and
stakeholders of the institution meet the requirements of the code of conduct;
2.9 Ensure that all data and information provided by the institution are accurate and timely;
2.10 Oversee senior management’s activities to ensure that the organisation is in compliance with
all laws, regulations, guidelines, regulatory and supervisory requirements, accepted business
practices and ethical standards;
2.11 Ensure that directors maintain the fit and proper requirements as determined by the Banking
Act;
2.12 Review all proposed transactions that are material as outlined in section 5 of the guidelines
on related party transactions;
2.13 Review and approve all new financial products, where this duty is not being carried out by
the board;
2.14 Submit reports and recommend corrective action to the board where there is non-compliance
with any of the above items.
2.15 Have unfettered access to management. Have access to the auditors (external and internal)
without management present and have the right to seek explanations and additional
information from management and the auditors where required.
Page 14 of 23
SECTION 3 – DIRECTORS
3.1 Qualifications of Directors
Objective: To ensure that directors are competent to discharge their duties.
3.1.1 Directors must meet the fit and proper criteria for directors as required in section 26 of the
Banking Act5
.
3.1.2 Members of the board should possess expertise and experience relevant to the principal
issues that the institution faces, including, but not limited to, internal controls, capital
management, banking risks and corporate planning.
3.2 Duties of Directors
Objective: To identify a director’s key responsibilities to the board and the organisation in
general.
All directors of a financial institution have a duty to the financial institution to:
3.2.1 Perform their functions with diligence and care, and with a degree of competence as can
reasonably be expected from persons holding that position.
3.2.2 Review key risks in the institution’s operations and supervise the management of those
risks.
3.2.3 Independently assess the institution’s policies, processes and procedures, to identify and
initiate management action on issues requiring improvement.
3.2.4 Disclose any potential conflicts of interest as required by the Banking Act.
3.2.5 Recognise and guard against conflicts of interest in dealings with the institution.

5
There may be a variation in the numbering in the Banking Acts of the individual ECCU territories.
Page 15 of 23
3.2.6 Develop, at least, a basic knowledge of the institution’s operations, relevant laws,
regulations, guidelines, other regulatory requirements, and the customs and practices that
govern that institution.
3.2.7 Develop the relevant knowledge and skills to perform effectively on any board committee
assigned.
3.2.8 Exercise independence in decision-making and problem solving, and act as much as is
reasonably possible on a fully informed basis.
3.2.9 Devote sufficient time to their responsibilities and act only within the scope of their
authority.
3.3 Determination of Directors’ Independence
Objective: To facilitate a greater degree of unbiased policymaking within the organisation.
Institutions should strive to maintain at least a 20 per cent ratio of independent directors to nonindependent
directors on the board. The board should review factors influencing a director’s
independence at the time that person is proposed for election or re-election. During this deliberative
process, the board should consider the nature, extent and materiality of the director’s relationship
with the institution.
In the determination of a director’s independence, consideration should be given to whether the
person:
3.3.1 Was employed by the institution within the last five years; or
3.3.2 Within the last five years, had a material relationship with the institution either directly, or
as an advisor, partner, shareholder, director or senior employee of a body that has or had
such a relationship with the institution; or
Page 16 of 23
3.3.3 Received or receives additional remuneration from the institution apart from a director’s fee,
participates in the institution’s share option or a performance-related pay scheme, or is a
member of the institution’s pension scheme, or receives other forms of deferred
compensation not contingent upon continued service; or
3.3.4 Represents a significant shareholder on the board; or
3.3.5 Has served on the board for more than ten years.
3.4 Orientation of Directors
Objective: To facilitate directors’ continuous adjustment to the changing business
environment.
3.4.1 Institutions should establish an orientation programme for new directors as well as periodic
refresher programmes for the existing directors. The orientation should focus on the
responsibilities and legal obligations of a director and the board as a whole.
3.4.2 The orientation programme should include a review of the institution’s financial condition,
risk management processes, audit and compliance functions and codes of conduct.
3.4.3 The orientation programme should also include a discussion on the nature of the institution’s
business, prevailing conditions in the banking industry, corporate strategy and shareholder
expectations.
3.4.4 There should be a forum or avenues for directors to discuss issues with experts.
Page 17 of 23
SECTION 4 – RESPONSIBILITIES OF SENIOR MANAGEMENT
Objective: To identify senior management’s responsibilities in the corporate governance
process.
The bank’s senior management is responsible for the day-to-day operations of the institution and
serves as a link between the board and staff, and vice versa. The senior management should be
responsible for:
4.1 Implementing the bank’s strategic plan;
4.2 Keeping directors adequately informed of the performance of the institution through reports,
including financial and management reports, and reports prepared by internal auditors,
external auditors and the compliance officer;
4.3 Advising the board on the appropriate organisational structure;
4.4 Implementing and maintaining risk management and control systems appropriate to the
scale, nature and complexity of the institution, including policies and procedures;
4.5 Delineating and documenting the areas of responsibility for each staff member. Reporting
lines must be clear and appropriate in the context of the scale, nature and complexity of the
bank;
4.6 Communicating the bank’s strategic direction, reporting lines and risk tolerances throughout
the organisation; and
4.7 Overseeing management information systems to enable the delivery of timely and accurate
information.
Page 18 of 23
SECTION 5 – RELATIONSHIP WITH SUPERVISORY BODY
Objective: To facilitate open communication between the board of directors and the Eastern
Caribbean Central Bank.
5.1 Based on the annual review considered under Section 1.13 of the guidelines, the board and
management should be able to demonstrate to the ECCB:
(i) The overall effectiveness of their policies to protect the interests of depositors, creditors,
shareholders and other stakeholders.
(ii) Their ability to effectively identify, measure, manage and control significant business
activities and the risks associated with those activities.
(iii) That the institution’s control environment is appropriate and effective, taking into
account the institution’s unique character, approach to governance, management and
communications style, organisational structure, resource availability, procedures and
controls and the conduct of its staff.
(iv) That the institution can address effectively, risk and control issues raised through
internal and external audit, relevant supervisory authorities and other sources.
(v) That changes to significant policies and procedures are appropriately reviewed and
approved.
(vi) That the institution’s internal controls provide reasonable assurance of the integrity and
reliability of its records.
(vii) That internal controls are based on documented policies and procedures and are
implemented by trained personnel whose duties have been segregated appropriately, and
that adherence to established internal controls is continuously monitored.
(viii) That the management information systems and accounting records are complete,
accurate and current.
(ix) That management and staff maintain high corporate values and ethical standards, that are
based on the institution’s established code of conduct.
5.2 In order to effectively carry out the above responsibilities, the board must:
(i) Understand the regulatory environment within which it and its subsidiaries operate;
(ii) Be informed of the results of examinations conducted by the Eastern Caribbean Central
Bank and other regulators where applicable;
(iii) Require appropriate follow-up on remedial actions, recommendations or deficiencies
identified by the regulators, including following up with senior management to
Page 19 of 23
determine if the weaknesses found are an indication that similar problems may exist
elsewhere in the organisation;
(iv) Consider the findings of regulators in its ongoing evaluation of senior management,
recognising that primary responsibility for identifying weaknesses rests with the board
and senior management; and
(v) Be open to sharing with regulators information relevant to the regulators’ oversight of
the institution.
Page 20 of 23
SECTION 6 – GOVERNANCE OF SUBSIDIARIES AND HOLDING COMPANIES
Objective: To encourage adequate oversight of a company affiliated to a financial institution.
6.1 The board should be aware of all material risks and other issues that may ultimately affect
the institution. As some of these risks may originate in subsidiaries, the parent board must be
able to exercise adequate oversight over the activities of the subsidiary to control these risks.
6.2 The corporate governance responsibilities of boards of subsidiary financial institutions are
the same as those of the board of a regulated parent financial institution. The corporate
governance responsibilities of a regulated holding company board is the same as those of a
regulated financial institution.
6.3 The board of a parent or holding company of a financial institution should determine what
board structures for its subsidiaries would best contribute to an effective chain of oversight.
This section does not suggest that the boards of subsidiary institutions should replicate all
corporate governance activities of parent boards or that parent boards should assume
responsibility for the performance of specific duties of subsidiary boards.
6.4 A parent financial institution should pay special attention to the performance, composition
and activities of subsidiary boards, especially where:
i) The activities of a subsidiary are significantly different or independent from the core
business of the parent;
ii) Additional expertise is required to provide oversight of the subsidiary’s activities;
iii) There is potential for conflicts of interest between the various stakeholders of the parent
company and the subsidiary;
iv) There is a need for close oversight of some activities of the subsidiary that, although the
activity may not be material by some measure, it might give rise to material reputational,
legal or regulatory risks for the financial institution as a whole; or
v) The subsidiary operates in a jurisdiction that has substantially different expectations of
governance.
Page 21 of 23
SECTION 7 – SHAREHOLDERS
Objective: To facilitate more shareholder involvement in the governance of the institution.
7.1 The corporate governance framework should ensure that the rights of stakeholders are
respected and that where these rights are violated, there is an opportunity to obtain redress
for the violation.
7.2 Stakeholders who participate in the corporate governance process should have access to
pertinent information.
7.3 The corporate governance framework of an institution should ensure the equitable treatment
of all shareholders, including minority shareholders.
7.4 Eligible shareholders should have the opportunity to participate effectively in shareholders’
meetings; they should be informed of the rules, including the procedures that govern these
meetings.
7.5 Shareholders should be furnished with sufficient information regarding the location and
agenda of general meetings.
7.6 Opportunity should be provided for shareholders to question the board and to place items on
the agenda at general meetings, subject to reasonable limitations.
7.7 The corporate governance framework should specify conditions for the appointment and
removal of directors by shareholders.
7.8 The corporate governance framework should specify actions that require shareholder
authorisation.
7.9 Shareholders should be able to vote in person or by proxy.
7.10 The corporate governance framework should ensure that stakeholders, including employees,
have an avenue to report and/or communicate their concerns about illegal or unethical
practices.
Page 22 of 23
Made by the Eastern Caribbean Central Bank this 15th day of May 2006.
K Dwight Venner
Governor

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