SA’s regulator of the banking sector, the Prudential Authority (PA), is looking to tighten the board independence of the country’s lenders.
To this end, the regulator has issued a public comment draft directive requiring banks and controlling companies to have in place and implement a policy promoting the principle of board independence.
The PA said the effective corporate governance in banks and controlling companies is critical to the proper functioning of the banking sector and the economy as a whole. In particular, the directive seeks to clearly specify that the board’s chair and the chairs of its subcommittees should be independent nonexecutive directors.
“The policy must clearly specify that the chair of the board must be an independent nonexecutive director, provided that the policy shall also make adequate provision for cases when the chair may become nonindependent for some reason for a period of time or is conflicted on a specific matter, such as, for example, by making provision for the appointment of a lead independent director,” the directive reads.
The directive goes on to state that no person who has been an executive director, CEO or designated external auditor of the bank or controlling company at any time during the preceding 12 months can be appointed as a nonexecutive director of the bank or controlling company.
“For the purposes of this proposed directive, unless specifically otherwise stated, executive manager, executive management or senior executive management shall have the same meaning as executive officer, as defined in the Banks Act,” it reads.
The directive says that at a minimum a director does not qualify to be described as independent if the director is a substantial shareholder of the bank or controlling company, among other things.
The directive says a substantial shareholder is a person whose voting rights in respect of the issued shares of such bank or controlling company that are exercisable by such person together with the voting rights attached to the shares of such bank or controlling company that are already held and exercisable by such person, amount to more than 5% of the total nominal value or the total voting rights in respect of all the issued shares of the bank.
People who have over the preceding three years served material professional advisers or consultants to the bank will not also be deemed as independent directors.
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