513 Presentation

Welcome to the Presentation on
OECD AND BSEC ROLES

TO ENSURE GOOD GOVERNANCE
OF THE BANKING INDUSTRY
Presenters
Abdul Mozid 190743
S. M. Mahruf Billah 190745
Khokon Kumar pall 190746
 Banking sector portraits the whole economy of a
country.
 Recent financial scams and increasing default

loan size in the banks of Bangladesh have
brought the banking sector of Bangladesh under
criticism.
 Such fraudulent activities indicate lack of good

governance in the banking sector and its
improper practices among the banks.
Role of OECD to Ensure Good Governance
 The OECD has developed some Principles of

Corporate Governance that may help policy
makers like central bank, securities commissions
as well as the regulated entities like banks, other
publicly traded companies etc. to evaluate and
improve the legal, regulatory, and institutional
framework for corporate governance.
 However, the principles developed by OECD are

also applicable for non-financial companies.
 The principles, first issued in 1999 by OECD, have

become the international benchmark in corporate
governance for policy makers, investors,
corporations and other stakeholders worldwide.
 OECD publishes policy briefs on corporate

governance issues in banks after having
roundtable meetings with the experts from
different countries to provide targeted practical
recommendations to policy makers, banking
supervisors, banking associations and individual
banks. The recommendations are made in
consisting with the OECD Principles of Corporate
Governance.
Principle-1: Ensuring the basis of an effective

corporate governance framework
 The corporate governance framework should promote

transparent, fair and efficient markets.
 It should be consistent with the rule of law.
 It should clearly articulate the division of responsibilities

among different supervisory authorities.
 Supervisory, regulatory and enforcement authorities

should have the authority, integrity and resources to fulfill
their duties in a professional and objective manner.
Principle-2: The rights and equitable treatment of

shareholders and key ownership functions
 The corporate governance framework should protect and

facilitate the exercise of shareholders’ rights and ensure
the equitable treatment of all shareholders, including
minority and foreign shareholders.
 All shareholders should have the opportunity to obtain

effective redress for violation of their rights.
 Members of the board and key executives should be

required to disclose to the board whether they, directly,
indirectly or on behalf of third parties, have a material
interest in any transaction or matter directly affecting the
corporation.
Principle-2: The rights and equitable treatment of

shareholders and key ownership functions
 Basic shareholder rights should include the right to:
i. secure methods of ownership registration;

ii. convey or transfer shares;
iii. obtain relevant and material information on the
corporation on a timely and regular basis;
iv. participate and vote in general shareholder meetings;
v. elect and remove members of the board; and
vi. share in the profits of the corporation.
Principle-3: Institutional investors, stock markets,

and other intermediaries
 The corporate governance framework should provide

sound incentives throughout the investment chain and
provide for stock markets to function in a way that
contributes to good corporate governance.
 Institutional investors acting in a fiduciary capacity
should disclose their corporate governance and voting
policies with respect to their investments
 Insider trading and market manipulation should be
prohibited and the applicable rules enforced.
Principle-4: The role of stakeholders in corporate

governance
 The corporate governance framework should recognize

the rights of stakeholders established by law or through
mutual agreements and encourage active co-operation
between corporations and stakeholders in creating
wealth, jobs, and the sustainability of financially sound
enterprises.
 Mechanisms for employee participation should be
permitted to develop.
 Where stakeholders participate in the corporate
governance process, they should have access to relevant,
sufficient and reliable information on a timely and
regular basis.
Principle-5: Disclosure and transparency
 The corporate governance framework should ensure that

timely and accurate disclosure is made on all material
matters regarding the corporation, including the financial
situation, performance, ownership, and governance of
the company.
 An annual audit should be conducted by an independent,

competent and qualified, auditor in accordance with
high-quality auditing standards
Principle-6: The responsibilities of the board
 The corporate governance framework should ensure the

strategic guidance of the company, the effective
monitoring of management by the board, and the board’s
accountability to the company and the shareholders.
 Where board decisions may affect different shareholder

groups differently, the board should treat all shareholders
fairly.
 The board should apply high ethical standards. It should

take into account the interests of stakeholders.
 After setting corporate governance principles, OECD

issued Policy Brief developing a task force team that
identifies corporate governance issues that affect banks
and the banking sector.
Recommendations for Asian Banks by OECD Task Force
 The boards of banks should act in line with their fiduciary

duties.
 Boards should set the right tone at the top.
 Competence, integrity and qualifications are a pre-

requisite for an effective board.
 The board should be able to exercise objective and

independent judgment.
 Bank boards have found it beneficial to establish certain

specialized committees.
 Boards should manage related party transactions using

independent directors.
 Jurisdictions in Asia should examine whether their current

regulatory firewall framework needs to be reinforced .
 Related party transactions should be a priority for

supervisors.
 Banks within groups of companies are commonplace in

Asia and need special attention.
 Public disclosure is crucial for ensuring sound corporate

governance of banks and promoting financial stability.
 State-owned commercial banks should be a role model for

good corporate governance.
 Good corporate governance and privatization are

complementary.
 Asian banks should play an important role in improving

the corporate governance structure of their corporate
borrowers.
 Asian banking supervisors should take the lead to improve

corporate governance of banks in Asia.
Role of BSEC to Ensure Good Governance
 Though banking sector of Bangladesh is regulated by

Bangladesh Bank, the banks which are listed in the stock
exchanges in Bangladesh need to comply the corporate
governance related instructions of BSEC.
 BSEC first issued corporate governance related guidelines
on 09 January, 2006.
 On 07 August, 2012, BSEC revised the guidelines with to
ensure good governance in the listed companies.
 However, later on 03 June, 2018, BSEC repealed the
previous guidelines/codes and issued a new Corporate
Governance Code with some changes.
Board of Directors
 Total members of the board must be within 5 to 20.
 AT least one-fifth (1/5) directors must be independent
directors.
 Independent directors must not be a sponsor of the bank
nor hold less than 1% share of the paid-up shares.
 Independent director must not be a TREC (Trading Right
Entitlement Certificate) holder or be a member or
director or officer of any stock exchange.
 The independent director(s) shall be appointed by the
Board and approved by the shareholders in the Annual
General Meeting (AGM).
Board of Directors (Cont’d)

 The post of independent director(s) cannot remain vacant
for more than 90 (ninety) days and the tenure of office of
an independent director shall be for a period of 3 (three)
years, which may be extended for 1 (one) tenure only.
 Independent director must be knowledgeable and must
have 10 years experience in related field.
 The positions of the Chairperson of the Board and the
Managing Director (MD) and/or Chief Executive Officer
(CEO) of the company shall be filled by different
individuals and the Managing Director (MD) and/or Chief
Executive Officer (CEO) of a listed company shall not hold
the same position in another listed company.
Board of Directors (Cont’d)

 The Chairperson of the Board shall be elected from among
the non-executive directors of the company.
 The company shall conduct its Board meetings and record
the minutes of the meetings.
Governance of Board of Directors of Subsidiary Company

 Provisions relating to the composition of the Board of the
holding company shall be made applicable to the
composition of the Board of the subsidiary company.
 At least 1 (one) independent director on the Board of the
holding company shall be a director on the Board of the
subsidiary company;
 The minutes of the Board meeting of the subsidiary
company shall be placed for review at the following Board
meeting of the holding company;
 The Audit Committee of the holding company shall also
review the financial statements, in particular the
investments made by the subsidiary company.
MD or CEO, CFO, HIAC and Company Secretary (CS)
 The Board shall appoint an MD or CEO), a Company

Secretary (CS), a CFO and a Head of Internal Audit and
Compliance (HIAC).
 All of the positions shall be filled by different individuals
and they shall not hold any executive position in any other
company at the same time.
 The Board shall clearly define respective roles,
responsibilities and duties of the CFO, the HIAC and the
CS;
 The MD or CEO, CS, CFO and HIAC shall not be removed
from their position without approval of the Board as well
as immediate dissemination to the Commission and stock
exchange(s).
MD or CEO, CFO, HIAC and Company Secretary (CS)
 The MD or CEO, CS, CFO and HIAC of the company shall

attend the meetings of the Board.
 The MD or CEO and CFO shall certify to the Board that
they have reviewed financial statements for the year.
 The MD or CEO and CFO shall also certify that there are,
to the best of knowledge and belief, no transactions
entered into by the company during the year which are
fraudulent, illegal or in violation of the code of conduct
for the company’s Board or its members.
 The certification of the MD or CEO and CFO shall be
disclosed in the Annual Report.
Board of Directors’ Committee
 For ensuring good governance in the company, the Board

shall have at least two sub-committees:
i. Audit Committee; and
ii. Nomination and Remuneration Committee.

Audit Committee
 The company shall have an Audit Committee as a

subcommittee of the Board.
 The Audit Committee shall assist the Board in ensuring

that the financial statements reflect true and fair view of
the state of affairs of the company and in ensuring a good
monitoring system within the business.
Audit Committee (Cont’d)
 The Audit Committee shall be composed of at least 3

(three) members.
 The Board shall appoint members of the Audit Committee

who shall be non-executive directors of the company
excepting Chairperson of the Board and shall include at
least 1 (one) independent director.
 All members of the audit committee should be “financially

literate” and at least 1 (one) member shall have
accounting or related financial management background
and 10 (ten) years of such experience.
Audit Committee (Cont’d)
 The company secretary shall act as the secretary of the

Committee.
 The quorum of the Audit Committee meeting shall not

constitute without at least 1 (one) independent director.
 Chairperson of the Audit Committee shall remain present

in the Annual General Meeting (AGM).
 The Audit Committee shall conduct at least its four

meetings in a financial year, provided that any emergency
meeting in addition to regular meeting may be convened
at the request of any one of the members of the
Committee.
Nomination and Remuneration Committee (NRC)
 The company shall have a Nomination and Remuneration

Committee (NRC) as a sub-committee of the Board.
 The NRC shall assist the Board in formulation of the

nomination criteria or policy for determining
qualifications, positive attributes, experiences and
independence of directors and top level executive as well
as a policy for formal process of considering remuneration
of directors, top level executive.
 The Committee shall comprise of at least three members

including an independent director and the chairperson
shall be an independent director.
Nomination and Remuneration Committee (Cont’d)
 All members of the Committee shall be non-executive

directors.
 Members of the Committee shall be nominated and

appointed by the Board.
 The company secretary shall act as the secretary of the

Committee.
 The quorum of the NRC meeting shall not constitute

without attendance of at least an independent director.
 The NRC shall conduct at least one meeting in a financial

year.
External or Statutory Auditors
 No partner or employees of the external audit firms shall

possess any share of the company they audit at least
during the tenure of their audit assignment of that
company; his or her family members also shall not hold
any shares in the said company: Provided that spouse,
son, daughter, father, mother, brother, sister, son-in-law
and daughter-in-law shall be considered as family
members.
 Representative of external or statutory auditors shall

remain present in the Shareholders’ Meeting (Annual
General Meeting or Extraordinary General Meeting) to
answer the queries of the shareholders.
Maintaining a website by the Company
 The company shall have an official website linked with the

website of the stock exchange.
 The company shall keep the website functional from the

date of listing. The company shall make available the
detailed disclosures on its website as required under the
listing regulations of the concerned stock exchange(s).
Reporting and Compliance of Corporate Governance
 The company shall obtain a certificate from a practicing

Professional Accountant or Secretary (Chartered
Accountant or Cost and Management Accountant or
Chartered Secretary) other than its statutory auditors or
audit firm on yearly basis regarding compliance of
conditions of Corporate Governance Code of the
Commission and shall such certificate shall be disclosed in
the Annual Report.
Thank You

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Welcome to the Presentation on

OECD AND BSEC ROLES

 Recent financial scams and increasing default

 Such fraudulent activities indicate lack of good

 The OECD has developed some Principles of

 However, the principles developed by OECD are

 The principles, first issued in 1999 by OECD, have

 OECD publishes policy briefs on corporate

Principle-1: Ensuring the basis of an effective

 The corporate governance framework should promote

 It should be consistent with the rule of law.

 It should clearly articulate the division of responsibilities

 Supervisory, regulatory and enforcement authorities

Principle-2: The rights and equitable treatment of

 The corporate governance framework should protect and

 All shareholders should have the opportunity to obtain

 Members of the board and key executives should be

Principle-2: The rights and equitable treatment of

 Basic shareholder rights should include the right to:

i. secure methods of ownership registration;

Principle-3: Institutional investors, stock markets,

 The corporate governance framework should provide

Principle-4: The role of stakeholders in corporate

 The corporate governance framework should recognize

Principle-5: Disclosure and transparency

 The corporate governance framework should ensure that

 An annual audit should be conducted by an independent,

Principle-6: The responsibilities of the board

 The corporate governance framework should ensure the

 Where board decisions may affect different shareholder

 The board should apply high ethical standards. It should

 After setting corporate governance principles, OECD

Recommendations for Asian Banks by OECD Task Force

 The boards of banks should act in line with their fiduciary

 Boards should set the right tone at the top.

 Competence, integrity and qualifications are a pre-

 The board should be able to exercise objective and

 Bank boards have found it beneficial to establish certain

Recommendations for Asian Banks by OECD Task Force

 Boards should manage related party transactions using

 Jurisdictions in Asia should examine whether their current

 Related party transactions should be a priority for

 Banks within groups of companies are commonplace in

 Public disclosure is crucial for ensuring sound corporate

Recommendations for Asian Banks by OECD Task Force

 State-owned commercial banks should be a role model for

 Good corporate governance and privatization are

 Asian banks should play an important role in improving

 Asian banking supervisors should take the lead to improve

 Though banking sector of Bangladesh is regulated by

Board of Directors (Cont’d)

Board of Directors (Cont’d)

Governance of Board of Directors of Subsidiary Company

MD or CEO, CFO, HIAC and Company Secretary (CS)

 The Board shall appoint an MD or CEO), a Company

MD or CEO, CFO, HIAC and Company Secretary (CS)

 The MD or CEO, CS, CFO and HIAC of the company shall

Board of Directors’ Committee

 For ensuring good governance in the company, the Board

i. Audit Committee; and