Corporate Governance Reform Professor Blanaid Clarke Trinity College Dublin Law Reform Commission Annual Conference 11th December 2012

Presentation I. What went wrong? II. Recent Regulatory Initiatives III. Next Steps Corporate Governance Failings Irish EU 2

I. Global Corporate Governance Failings in Financial Institutions (Hopt, 2012) Risk Management and Internal Control Failures Deficiencies in the Profile and Practice of directors and Senior Management Complex and Opaque Corporate and Bank Structures Perverse Incentives Failures in Disclosure and Transparency Weak Market for Corporate Control 3

Domestic Corporate Governance Failings ( Regling and Watson, 2010) Management failed to appreciate the risk entailed by the significant concentration of bank assets in property related activities. Lending guidelines and processes were widely circumvented. Poor remuneration policies were tolerated which encouraged and rewarded risk‐taking. There were “very specific and serious breaches of basic governance principles” in specific institutions 4

II. Regulatory Initiatives Ireland PRISM Supervisory Engagement Model and new Enforcement Model Fitness and Probity regime Corporate Governance Code for Credit Institutions Central Bank Supervision and Enforcement Bill Irish Corporate Governance Annex 2010 Companies Consolidation and Reform Bill Department of Justice, White Collar Crime Consultation 5

Enforcement powers 6 Supervisory measures and stronger enforcement tools (including combination of both) to address concerns about regulated entities and their senior management/individuals “assertive risk-based approach underpinned by a credible threat of enforcement” Principles: “proportionate, consistent, targeted and transparent”

Settlement Agreements and Monetary Penalties 7 56 Administrative Sanctions Settlement Agreements (other work includes refusals, revocations, F&P and supervisory warnings) €20,671,000 Monetary Penalties

Fitness and Probity Central Bank Reform Act 2010, Part III Financial service Providers (not credit unions) Pre-Approval Controlled Functions (Chief Executive Officer, Heads of Compliance, Risk, and Internal Audit). Controlled Functions Fitness and Probity Standards (Competent and Capable; Honest, Ethical, Financially Sound) 8

Corporate Governance Code for Credit Institutions and Insurance Undertakings -Composition of the Board -Chairman -CEO -Independent Non-Executive Directors -Directors -Role of the Board -Appointments -Risk Appetite -Meetings -Committees -Compliance Statement to the Central Bank 9

Central Bank (Supervision & Enforcement) Bill Penalty up to €10,000,000 for body corporate or 10% of turnover (whichever highest) and €1,000,000 for natural person Suspension of authorisation Revocation of authorisation Directions - single, wide ranging directions regime Skilled persons reports - power to require reports at the cost of the firm 10 Authorised Officers - single appointment regime and wide ranging powers Regulations - detailed and expansive powers to make regulations Facilitates assistance to overseas supervisors Gives protection to whistleblowers Court power to make restitution orders

Other Irish Initiatives Irish Annex Companies Consolidation and Reform Bill 11

White Collar Crime Discussion Document (October 2010), Submissions published (April 2011) – Definition – Investigating and Prosecuting White collar Crime – Protection for Whistleblowers – Legislation – Sanctions – Structures Section 57 of the Criminal Justice (Theft and Fraud Offences) Act 2001 Criminal Justice Act

EU Regulatory Initiatives Corporate Governance Green Paper on Corporate Governance in Financial Institutions (2010) Feedback (July 2012) – Boards of Directors – Risk Related Functions – External Auditors – Supervisory Authorities – Shareholders – Implementation of Corporate Governance Principles – Remuneration – Conflicts of Interest Proposed Amendments to the Capital Requirements Directive (2011) Commission Recommendation on Remuneration Policies in the Financial Services Sector (2009) Green Paper on General Corporate Governance (2011) Proposed Directive on Women on Boards (2012) 13

EU Regulatory Initiatives Company Law Green Paper on Auditing (2010) and Proposals (2011) Reflection Group on the Future of Company Law (2011) Consultation on the Future of European Company Law (February 2012)Feedback (July 2012) 14

The European Banking Authority Single Supervisory Banking Mechanism 15

III. Next Steps 1.Review of Existing regulatory regimes to assess effectiveness in respect of agreed objectives and consistency 2.Consider EU regulation/guidance and best Practice in other jurisdictions 3.Develop, where appropriate, a co-ordinated approach in terms of information gathering, case building and enforcement 16