GCC banking regulators defend record on corporate governance

In the wake of the 2008 financial crisis, the GCC and global banking sector has been forced to defend the credibility of its risk management processes and has introduced a raft of new regulations including the Basel III international guidelines on risk management from the Bank of International Settlements. "We have taken a lead on corporate governance since 2010," said Prashant Govil, Financial Sector Specialist, Central Bank of Bahrain (CBB), who was speaking at the Risk Middle East 2014 conference in Dubai this week. He conceded that corporate governance was lacking at the time of the crisis but said there is now talk about developing a common code of corporate governance in the GCC region. "It is about ensuring that conduct is shown," he added. “ "In Bahrain, the central bank interviews any newly appointed heads of risk and compliance. If they do not pass the interviews, they do not get that job," said Mr Govil. Similarly in Kuwait, there are some specific rules regarding the risk management role. A chief risk officer reports to the CEO rather than the CFO.hideFurthermore, a risk manager cannot be removed for their job without an exit interview. "These kind of things are very important," said Prasanna Seshachellam, Director, Supervision, Dubai Financial Services Authority. "The Middle East has them, the UK and the US do not." Not all GCC markets are as prescriptive when it comes to corporate governance. "We do have a code on corporate governance but it is more guidance than rules-based," added Mr Seshachellam. "We believe firms can do this better themselves. We give them the freedom to formulate their own rules on corporate governance as long as they achieve the objective." The priority for regulators, said Mr Seshachellam, is to have more intense supervision. Currently the GCC regulators are concerned about implementing Basel III. "Trust is what prudential regulation addresses," said Mr Seshachellam. Basel III has been completed in a more hurried manner than its predecessor. Whereas Basel II took seven to eight years to come to fruition, Basel III has been completed in 18 months. However, there was little choice on this timeframe given the extent of political will behind the regulation. "There is also less discretion with Basel III because they want consistency across product lines and regions," said Mr Seshachellam. "The crisis showed governments the cost of fixing the banking sector. They want to make it easier for banks to be wound down." For GCC-based banks there are two issues. Firstly, the number of global bank subsidiaries operating in the region creates complexities for regulators when determining the status of the subsidiaries to the parent bank. And, for the indigenous banks, there is relative inexperience with international regulations. "Banks in the GCC are more dependent on regulators and central banks to move forward, they require more hand-holding," said Mr Govil. "That is why the regulations are more risk-based. At the CBB we consult with the industry when we introduce new regulations so that there is less opposition and no surprises."

GCC banking regulators defend record on corporate governance

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