Irish regulator to take hard line on corporate governance

The Central Bank of Ireland has issued a new corporate governance code for financial institutions and warned that failure to comply will lead to sanctions.

Due to take effect from January 1st 2011, the statutory code uses a two-tier system that contains specific requirements for institutions deemed as "major" and core standards for all banks and insurers.

It states that major banks must have a minimum of seven directors on the board, while other companies need at least five.

Other requirements include a clear distinction between the role of chief executive and chairman, as well as reviews of board membership taking place every three years at least.

Head of financial regulation Matthew Elderfield said the central bank had deliberately sought to take a tougher stance on corporate governance than regulators in other countries.

"We do not want to simply match best practice internationally, but wish to set a higher standard," he commented.

Under the new code, any individual who has held a directorship or senior management position during the previous five years will not be allowed to become chairman of the same institution.

The central bank published a draft version of the regulations in April and Mr Elderfield has spoken of the need to prevent the "spectacular failures of corporate governance" that contributed to the financial crisis.