Transcript Revenue Administration Sector

Corporate Governance: Facilitating
Transparency and Accountability
while Maintaining Owners’ Control
CARIBBEAN GROUP OF SECURITIES
REGULATORS (CGSR)
CONFERENCE AND WORKSHOP
MONTEGO BAY, JAMAICA
COURTNEY CHRISTIE-VEITCH
FINANCIAL SECTOR SUPERVISOR, CARTAC
NOVEMBER 6-8, 2013
The Essence of Corporate Governance – Integrity
"Those who conduct
themselves with
morality, integrity and
consistency need not
fear the forces of
inhumanity and
cruelty.“ Nelson
Mandela At the British Red
Cross Humanity Lecture, London,
England, 10 July 2003
Why Corporate Governance?
Ensure good stewardship over
organization’s operations
Safeguard Stakeholders interests
Guide actions of the Board
Accountability framework for Board
and Stakeholders
The Changing Face of Corporate Governance
Post 2008
Failed
Standards
Boards
Challenged
Improved
Priority
Areas
• Existing standards failed to provide the checks and balances that
companies need in order to cultivate sound business practices.
• Boards challenged to become more accountable and transparent
by shareholders/markets
• In 2010, the OECD published a set of recommendations for
improvements in priority areas such as remuneration, risk
management, board practices and exercise of shareholder rights.
The Changing Face of Corporate Governance
Post 2008
 Revisions to laws and regulations to strengthen




board oversight functions and investor protection
Enhanced disclosure and transparency
Increased publication of breaches and regulatory
actions
Heightened interest in CARTAC TA (T&T, Suriname,
ECCU, Jamaica, the Bahamas, Barbados, Belize,
among others)
Corporate Governance is more embedded in a firm’s
operations/not merely a compliance exercise
OECD Principles of Corporate Governance
Basis for the use of the OECD Principles
The Emerging Markets Committee of the
International Organization of Securities
Commissions (IOSCO) has recommended that its
members foster good corporate governance through
legislation, regulations and codes of good practices
using the OECD's " Principles of Corporate
Governance" as a benchmark.
Corporate Governance is applicable to all firms not
just the larger ones.
OECD Principles of Corporate Governance
 First released in May 1999 and revised in 2004
 The OECD Principles are one of the 12 key standards
for international financial stability of the Financial
Stability Board
 Principles form the basis for the corporate
governance component of the Report on the
Observance of Standards and Codes.
OECD Principles of Corporate Governance
Implementing the Principles
The OECD Principles: “are evolutionary in nature
and should be reviewed in light of significant
changes in circumstances”…(OECD)
“To remain competitive in a changing world,
corporations must innovate and adapt their
corporate governance practices so that they can
meet new demands and grasp new opportunities”…
(OECD)
Ensuring the Basis for an Effective Corporate
Governance Framework
“Most banks rely partly on deposit
insurance in lieu of reputation to
hold below-market-rate deposits.
And a broad range of protections
provided by the Securities and
Exchange Commission, the
Commodity Futures Trading
Commission, and myriad other
federal and state agencies has
similarly partially crowded out the
value of trust as a competitive
asset” Alan Greenspan, Former
Chairman of the Federal Reserves.
Ensuring the Basis for an Effective Corporate
Governance Framework
 Corporate Governance framework should:
promote transparent and efficient markets,
 be consistent with the rule of law and
 clearly articulate the division of responsibilities among
different supervisory, regulatory and enforcement
authorities

 Supervisory, Regulatory and Enforcement
Authorities should have the authority, integrity
and resources to fulfill their duties.

Rulings should be timely, transparent and fully explained
Ensuring the Basis for an Effective Corporate
Governance Framework
Outcome of Regulatory Breaches in BVI
2008 - 2013
Subject of Regulatory Breaches in BVI
2008 - 2013
Licence Expired
Licence Suspended
1, 4%
3%
7%
86%
4%
Takeover/Merger
Licence Revoked
23, 79%
5, 17%
Trust Companies
Investment Funds
Cease and Desist
Order
Source: BVIFSC
Insurance
Companies
Source: BVIFSC
Categories of Regulatory Breaches BVI
2008 0 2013
Failure to Appoint New Insurance
Manager
20, 63%
8, 25%
Failure to Prepare/Submit Audited
Financials
Failure to Pay Annual Fees
Source: BVIFSC
4, 12%
Other Violations include: (i) failure to implement remedial actions (ii) directors not fit
and proper (iii) improper valuations of bond holdings (iv) violation of anti-fraud
provisions (v) unregistered broker/dealer (vi) failure to seek approval for share transfer
(vii) failure to notify of resigning director (viii) failure to notify of new appointment of
director.
Regulatory Oversight
Country
Anguilla
Antigua and Barbuda
Bahamas
Barbados
Belize
Bermuda
British Virgin Islands
Cayman Islands
Dominica
Grenada
Guyana
Haiti
Jamaica
Montserratt
St Kitts and Nevis
St. Lucia
St. Vincent and the Granadines
Trinidad and Tobago
Turks and Caicos
Suriname
Central Bank
Monetary
Authority
X
X
X
Securities
Exchange
Commission
X
Financial
Services
Commission
X
X
X
X
X
X
X
X
ECSE
ECSE
TBSE
BARSE
BISE
BERSE
HKSE**
CSX
ECSE
ECSE
GASCI
HSE
JSE
ECSE
ECSE
ECSE
X
ECSE
X
X
X
X
X
X
X
X
X
Stock Exchange SRO
X
TTSE
X
X
SSE
**Effective Dec. ‘09, BVI incorporated companies are allowed to list on the Hong Kong Stock Exchange
(HKSE).
Regulatory Oversight
 Several institutions are involved in regulatory
oversights / prudential supervision in the region:

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Financial Services Commissions (FSCs)
Securities and Exchange Commissions (SECs)
Central Banks and Monetary Authorities
SRO – Stock Exchanges
 Regulators should monitor regulatory and listing
requirements; maintain effective consultation with
the public; maintain effective international dialogue
and cooperation with other regulators.
Role of Prudential Supervision
To protect consumers
To enhance the integrity of the
financial system
To help maintain competitive
markets and promote effective
competition in the interests of
consumers
How Supervisors Carry Out their Role
A judgmentbased
approach
A forwardlooking
approach
A risk-focused
approach
• The use of judgment in determining whether financial firms are
safe and sound;
• provide appropriate protection for policyholders, depositors or
investors
• Assess whether firms continue to meet prudential requirements.
• The assessment of firms not just against current risks, but also
against those risks that could plausibly arise in the future.
• Use of Stress Testing and Scenario Analysis to assess risks
• Focus on those issues and those firms that pose the greatest risk
to the stability of the financial system, depositors, investors and
policyholders
• Allocate scarce resources to greatest areas of need.
Rights of Shareholders and Key Ownership
Functions
“The most powerful
enforcement body in the
corporate system is the
shareholder body. Via pension
funds, provident funds,
insurance products and other
group investments, the public
makes up the largest owner of
many publicly listed
companies.” - (King Report,
Mervyn King, Retired Judge,
Supreme Court of South Africa.
The Big Bang - The 1986 reforms to the
London stock exchange under the Thatcher
Govt.– dubbed the “Big Bang” by traders –
free markets and unconstrained trading
helped to reposition Britain as a major world
financial centre.
MF Global: Wall Street biggest
Collapse Since Lehman - Misplace $1.6
billion of customers’ money; lost 75 percent
of shareholders’ money in two weeks.
Rights of Shareholders and Key Ownership
Functions
Rights to transfer shares; obtain relevant and material information;
participate in decisions on corporate change;
Rights to authorize additional shares; vote in general meetings;
Rights to voice opinions on remuneration policies for board/key exec.;
Rights and opportunity to ask questions of board members/external
auditors; participate in nomination of board members;
Rights to have sufficient and timely information on meeting dates, venues
and agenda.
Rights of Shareholders and Key Ownership
Functions
Questions:
 Do all licensees have a corporate governance
framework? Is it formalized? What are the
guiding principles?
 Have
Regulators issued corporate governance
regulations, guidelines or policies?
The Equitable Treatment of Shareholders
““All animals are equal, but
some animals are more equal
than others.”
― George Orwell, Animal
Farm.
Are all Shareholders equal, or
are some more equal than
others?
The Equitable Treatment of Shareholders
 The corporate governance framework should ensure
the equitable treatment of all shareholders, including
minority and foreign shareholders.
 Different classes of shares carry different rights
 All shares within the same class should have the
same rights
 All shareholders should have the opportunity to
obtain effective redress for violation of their rights.
The Equitable Treatment of Shareholders
Protection
from abusive
actions of
controlling
shareholders
Equity on
share
classes
Inappropriate
Related Party
Transactions and
impediments to
cross border voting
should be
disallowed
The Role of Stakeholders in Corporate Governance
““If a country does not have a
reputation for strong corporate
governance practices, capital
will flow elsewhere. If investors
are not confident with the level
of disclosure, capital will flow
elsewhere. If a country opts for
lax accounting and reporting
standards, capital will flow
elsewhere.” - Arthur Levitt
(Former Chairperson: US SEC)
The Role of Stakeholders in Corporate
Governance
 The corporate governance framework should:

recognize the rights of stake holders established by law or
through mutual agreements;

encourage active co-operation between corporations and
stakeholders in creating wealth and jobs;

Facilitate the sustainability of financially sound enterprises.
Disclosure and Transparency
Disclosure and Transparency
 The corporate governance framework should ensure
that timely and accurate disclosure is made on all
material matters regarding the corporation,
including:
 the financial situation,
 performance,
 ownership, and
 governance of the company.
The Responsibilities of the Board
“Great leaders are almost
always great simplifiers,
who can cut through
arguments,, debate, doubt
(whining, rhetoric and
turfmanship) to offer a
solution everyone can
understand”. …Colin
Powell
The Responsibilities of the Board
 The Corporate governance framework should ensure:
the strategic guidance of the company / tone from the top
 the effective monitoring of management by the board,
and
 the board’s accountability to the company and the
shareholders.
 BOD should:
 Comprise of effective mix of independent/non
executive and executive directors
 Be made up of directors with appropriate skills and
sufficient knowledge of the business

Policy Framework for Corporate Governance
– The Firm
• Corporate
Social
Responsibility
• Hotline/
Whistle
blowers
• Anti-bribery
and corruption
• Effective
Oversight –
IA/RM/Use test
• Take Over
Bids
Stewardship
Voting
Policy
Remuneration
Policy
Investor
Returns
• Anti-money
Laundering
and CFT
Corporate Governance Red Flags!
 Failure to make timely, adequate and accurate disclosures of
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
information to shareholders and the investing public
Failure to observe good accounting practices in reporting of
earnings and financial position
Conduct inconsistent with just and equitable principles of
trade
Unsatisfactory financial condition or operating results
Inability to meet current debt obligations or to adequately
finance operations
Abnormally low selling price or trading volume
Unwarranted use of company’s funds for the repurchase of
its equity securities
Source:TTSEC
Some Select Cases of Breaches and
Disclosures
Protection of Minority
Shareholders
Filing of annual reports,
comprehensive financial
statements and interim
financial statements
Disenfranchisement of
Shareholders – Failure
to participate in the
TTCD
• Court of appeal ruled that 4,000 former
minority shareholders were not eligible for
the court to determine the fair value of the
shares (TTSEC)
• Penalties imposed on Airports Authority of
Trinidad and and Tobago by TTSEC
2009/2010
• Furness Trinidad ltd shares were delisted
by the TTSEC upon the recommendation
of the TTSE due to the non participation of
Furness on the TT Central Depository to
facilitate the trading and settlement of all
securities electronically.
Some Select Cases of Breaches and
Disclosures
Effective and fair
market value for
securities not made
•Breach of TTSEC listing requirements which
prescribes that a sufficient proportion (normally 25%
of any class of issued equity capital or securities
convertible into equity capital to be in the hands of
the public, ie persons not associated with the
directors or major shareholders. Approx 90% of
issued share capital of Furness was in the hands of
one company in which the principal of Furness is a
major shareholder. (TTSEC)
Effective and fair
market value for
securities not made
•Breach of TTSEC listing requirements which
prescribes that a sufficient proportion (normally
25% of any class of issued equity capital or securities
convertible into equity capital to be in the hands of
the public. Only 1.21% of issued share capital of
Valpark was in the hands of the public at the time of
the ruling by TTSEC
Inability to meet
current obligation or
to adequately finance
operations
•On 12 May 2006, TTSE made application to the
TTSEC to authorize the de-listing of BWIA . The SEC
ordered the de-listing of BWIA on 22 December
2006. Rationale for delisting included inability to
meet current obligation or to adequately finance
operations, unsatisfactory financial condition or
operating results among others reasons.
Some Select Cases of Breaches and
Disclosures
Protection of the public,
investors, customers and
creditors
• Complaints allege that the fund, improperly valued its bond
holdings in an institution which had filed for bankruptcy.
Specifically, the complaint alleges that the fund failed to
appropriately mark down the value of these bonds to zero and
therefore caused the fund's NAV to be overstated. The complaints
further allege that the Fund allowed certain investors to redeem
their investments at par value before taking action to write down
the value of the bonds which had the effect of causing the Fund's
remaining investors to absorb the loss associated with these bonds.
BVIFSC Public Statement 2008, Reserve International Liquidity
Fund.
Unsafe and unsound
practices/failure to take
adequate steps to restore
capital adequacy ratio
• Licensed security dealer’s failure to pay over sums to certain
clients; failure to provide client statements; misrepresentations
made to FSC of total funds under management; failure to provide
the FSC with books, records, accounts and documents, among
other reasons. Cease and desist order, Lorreston Bailey, FSC
Jamaica, June 30, 2010
You cannot legislate integrity
however, as part of an effective
Corporate Governance
Framework, Shareholders and
Directors must be held to high
standards of fitness and propriety!
Group Exercise
Identify:
(i) current issues and challenges and
(ii) key success factors to capital market
development and regulation
Make use of practical examples from
your jurisdiction as much as possible.
Thank you!
Any questions?