The Financial Stability Board (FSB), the high-level international body that monitors the global financial system and which has created a splash amongst investors with its climate disclosure task force, is turning its attention to corporate governance.
The FSB is chaired by Bank of England Governor Mark Carney, who was instrumental in creating the Task Force on Climate-related Financial Disclosures (TCFD) that is chaired by media mogul and former New York Mayor Michael Bloomberg.
Now the Basel, Switzerland-based body has announced a “thematic peer review” of the G20/OECD Principles of Corporate Governance. The FSB is asking its member organizations to identify how well the guidelines have been applied to financial institutions and where any gaps or weaknesses might exist.
“Effective corporate governance is critical to the proper functioning of the financial sector and financial stability more generally,” the FSB says. “Recent experience has provided ample evidence of the impact that corporate governance failures can have on financial institutions and markets.”
The FSB has sent a questionnaire to the national authorities that make up its membership to find out how the OECD guidelines are applied to publicly listed, regulated financial institutions. The primary aim of the review is to identify both the effective practices and weaknesses of the Principles, which were last updated in September 2015 with the aid of input from the G20 group of industrialised countries.
A spokesperson for the FSB also confirmed that attitudes towards remuneration policies would be examined in the review, particularly concerning the rules that govern how financial institutions vote on pay policies and how these votes are disclosed to shareholders.In their most recent form, the Principles focused on how institutions vote at investee companies, suggesting that they disclose their policies around corporate governance, voting and how ownership rights and stewardship duties are exercised.
They also strengthened pre-existing guidance on companies’ reporting with regards to ESG, clarifying that material social issues and human rights policies should be disclosed, alongside business ethics and the environment.
Individual jurisdictions have been asked to provide “a consolidated national response” to the questionnaire, covering any relevant sectors that fall within their jurisdiction. Responses will feed into a report from the FSB in early 2017.
The body also wants feedback from financial institutions, industry associations and other stakeholders. Suggested topics for responses include how local corporate governance frameworks promote transparent and fair markets, whether they promote the exercise of shareholder rights and how regulators can ensure that material information is reported on in a timely manner.
The FSB has requested that all feedback be submitted by September 9 via email, and has confirmed that individual submissions will not be made public.
Elsewhere, the Financial Reporting Council (FRC) announced this week that it was postponing plans to “name and shame” fund managers and pension funds that shirked their stewardship duties at investee companies. The UK watchdog currently collects stewardship disclosures from its signatories with a view to creating a ranking of the most responsible investors, but has postponed starting to rank firms until October or November this year.
David Styles, the FRC’s Director of Corporate Governance, said that though he had had meetings with some 80 signatories, a few have failed to report on stewardship activities to an acceptable standard and admitted that there had been “some people who don’t want to engage”.