TOUGHER SANCTIONS AIMED at banks, building societies and insurance companies will be introduced in the New Year as the Central Bank seeks to prevent a repeat of Ireland’s financial sector collapse over the past two years.

The Central Bank’s Corporate Governance Code for Credit Institutions and Insurance Firms sets out new rules regarding the membership of boards of directors at the institutions, and the responsibilities of those directors and their chairmen.

The code will apply to all existing directors and boards from 1 January, 2011, according to a statement from the Central Bank.

It takes a two-tier approach, with additional requirements for companies considered ‘major institutions’ by the Central Bank.

It requires boards to have five directors, and seven for a major institution. It also puts limits on the number of directorships directors can hold and calls for a “clear separation of the roles of Chairman and CEO”.

The code stipulates that the majority of a board’s composition should be non-executive directors, according to Elderfield.

Board membership will have to be reviewed every three years and the board will set out and monitor its organisations’ risk appetite.

Speaking about the new rules, Financial Regulator Matthew Elderfield said:

These requirements are more demanding than those in place in other jurisdictions as we have decided that in the area of corporate governance we do not want to simply match best practice internationally but wish to set a higher standard.

It’s time to bring fresh blood into the board room, which brings more challenge, asks more awkward questions and devotes more time to assessing risk.  Depositors, policyholders and, indeed, Irish taxpayers have the right to expect no less from the guardians of their money.

The Irish Times reports that the new measures were broadly welcomed and quotes Deloitte’s director of regulatory compliance as saying the code gives Ireland a “gold-plated regime”.

Yesterday, the registrar of credit unions James O’Brien said that credit unions may require major restructuring as not every branch would make it through the current economic climate with their exisiting structure.

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