Code enforces stringent penalties for non-compliance

Thursday, 11th November 2010:

At a William Fry breakfast briefing this morning business professionals heard that Financial Institutions could face fines of up to Eur5 million for breaching a new Corporate Governance Code, set out by the Central Bank of Ireland and the Financial Regulator. The code, it was discussed, could also lead to a reluctance in individuals to become non-executive directories due to increased time commitment.

The Corporate Governance Code will come into effect from January 1st 2011 and applies to Irish banks, building societies and most, insurance companies and reinsurance companies Financial Institutions have until June 30th 2011 to implement the extensive changes required by the code, but they have until 31 December 2011 to deal with any changes required to board composition.

Speaking this morning at a William Fry breakfast briefing titled, ‘New Fitness and Probity Requirements in Financial Services’, John Larkin, Partner at William Fry, said: “This introduction of this code is in general to be welcomed and brings clarity to companies who wish to ensure that they have good corporate governance within their organisations.  The Corporate Governance Code  incorporates severe and wide ranging penalties for companies who do not comply. Corporate bodies could face fines of up to Eur5 million and individuals responsible within a firm could face fines of up to Eur500,000.”

Part of the new code requires board members to meet at least quarterly and board members of major institutions must meet in at least eleven calendar months of any year. This rule applies to non-executive directors also. The code also requires Financial Institutions to implement a considerable amount of documentation including, a well defined organisational structure, formal letter of appointment for directors, an annual formal review of the board and board members.     

“ It is clear that companies affected by the Code will need to get to grips with its requirements immediately and start planning their transition to being fully compliant – particularly if the company is categorised as a major insitutionl. Whistle-blowing obligations are imposed on directors where they have reported a material concern to the board, and that concern has not been satisfactorily addressed within five business days”.  Mr Larkin continued.

Also speaking at William Fry’s breakfast briefing, Maura Roe of William Fry’s Employment Department said: “The Central Bank Reform Act 2010 establishes a new statutory regime under which regulated financial service providers must ensure that candidates for directorships and senior positions within their organization are “fit and proper” to hold the position.   This will involve gathering comprehensive information and undertaking extensive background checks on the candidate, including education and qualifications, work experience, references and criminal and financial history.  Employers in financial services will need to take account of this new regime in their recruitment procedures”