MADISON, Wis.—The World Council of Credit Unions has sent a comment letter to the Basel Committee regarding its “Corporate Governance Principles for Banks,” indicating it supports the guidance in most respects but that it remains “concerned” are that some elements of the proposal could be read by supervisors as requiring unreasonably burdensome compliance requirements on smaller credit unions with limited staff resources.
Saying it does not believe that to be the Committee’s intent, WOCCU noted the International Credit Union Regulators’ Network in April 2013 promulgated a set of Guiding Principles for Enhancing Governance of Cooperative Financial Institutions using the Basel Committee’s 2010 corporate governance principles as a guide, but tailored its principles to the credit union and cooperative financial institution regulatory context.
“World Council believes that the ICURN Guiding Principles are an appropriate, proportional approach to corporate governance of credit unions and other cooperative financial institutions, and that the ICURN Guiding Principles are generally consistent with the Basel Committee’s proposed revisions to its guidelines on Corporate governance principles for banks,” WOCCU said.
WOCCU said it:
- Strongly supports the principle of proportionality as expressed in the proposal, especially the statement…that “[t]he implementation of these principles should be commensurate with the size, complexity, structure, economic significance and risk profile of the bank and the group (if any) to which it belongs. This means making reasonable adjustments where appropriate for banks with lower risk profiles, and being alert to the higher risks that may accompany more complex and publicly listed institutions.
- Supports the statement in that “this document does not advocate any specific board or governance structure” and urges the Committee to finalize this statement as proposed.
- Supports the board of directors’ overall responsibilities as expressed in Principle 1, and strongly supports the statement that “[t]he board has ultimate responsibility for the bank’s business strategy and financial soundness, key personnel decisions, internal organization and governance structure and practices, and risk management and compliance obligations.”
- Supports Paragraph 46 of Principle 2 (“Board qualifications and composition”), which says “[t]he board should be comprised of individuals with a balance of skills, diversity and expertise who collectively possess the necessary qualifications commensurate with the size, complexity and risk profile of the bank.”
- Supports most aspects of Principle 3 (“Board’s own structure and practices”), “however, at many credit unions the audit committee’s role as described in Paragraphs 67-69 is performed by the Supervisory Committee which is not part of the board of directors even though the Supervisory Committee is elected by the member-shareholders in the same manner as the board of directors.”
- Is concerned that the requirement in Principle 6 (“Risk management”) for institutions to employ a “Chief Risk Officer” (CRO) could be read by regulators as a mandate to require small credit unions with limited staff resources and/or less-than-high-risk profiles to employ a CRO based on “local governance requirements,” even though that does not appear to be the Committee’s intent.
- Is concerned that Paragraphs 115, 116, 117, and 118 in Principle 7 (“Risk identification, monitoring and controlling”) may be read to require small credit unions to invest in expensive stress tests that are not necessary for community financial institutions. “While we agree with Paragraph 115’s statement that ‘[t]he sophistication of the bank’s risk management . . . should keep pace with developments such as balance sheet and revenue growth,” we do not support the statements in Paragraph 118 that all institutions should perform internal stress tests’,” WOCCU said.
- Is concerned many smaller credit unions cannot afford to employ a full-time internal auditor and for that reason the internal audit function at credit unions has traditionally been performed by the Supervisory Committee discussed above under “Audit Committee.” WOCCU urged the Committee to clarify that an internal audit function performed by a Supervisory Committee or similar internal audit committee is consistent with the “independent and qualified internal audit function” discussed in Paragraphs 139-143 of Principle 10 (“Internal audit”).
- Wants clarification on compensation. “We urge the Committee to clarify that the “compensation structure” promoting “long term performance” does not require stock-based compensation because credit unions cannot issue common stock or stock options,” WOCCU wrote. “To the extent that a particular credit union is complex enough to need to have a long-term compensation structure, this policy goal can be achieved through bonuses and other forms of restricted cash and retirement compensation.”