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August 16, 2016
Financial Stability Board to Review Governance Principles
    by Robert Kropp

The international body, formed to promote financial stability following the global financial crisis, seeks to determine how its member jurisdictions have implemented the G20/OECD Principles of Corporate Governance.

When the Securities & Exchange Commission (SEC) published a concept release on updating corporate reporting requirements, sustainable investors were quick to call for improved reporting on environmental and social factors. A similar effort, albeit on an international scale, has been undertaken to address corporate governance.

First developed in 1999 by the Organization for Economic Co-operation and Development (OECD), the OECD Principles of Corporate Governance “represent a shared understanding with respect to corporate governance standards and practices in areas such as transparency, disclosure, accountability, board oversight, shareholder rights and the role of key stakeholders,” the organization has stated. “They also provide recommendations for national policymakers on executive remuneration, the behavior of institutional investors and how stock markets should function.”

In 2015, the Principles were updated and endorsed by the G20 Finance Ministers, and were renamed the G20/ OECD Principles of Corporate Governance. The revised Principles provide guidance in six primary areas:
1. Ensuring the basis for an effective corporate governance framework;
2. The rights and equitable treatment of shareholders and key ownership functions;
3. Institutional investors, stock markets and other intermediaries (added in 2015, this chapter focuses on the fiduciary duty of institutional investors);
4. The role of stakeholders in corporate governance;
5. Disclosure and transparency; and
6. The responsibilities of the board.

Earlier this month, the
Financial Stability Board (FSB) launched a peer review on the implementation by its member jurisdictions of the Principles. “The overarching objective of the review is to take stock of how FSB member jurisdictions have applied the Principles to publicly listed, regulated financial institutions, identifying effective practices and areas where good progress has been made while noting gaps and areas of weakness,” the FSB states.

The Principles, according to the FSB, “call for measures to ensure the basis for an effective corporate governance framework including appropriate supervisory, regulatory and enforcement institutions. The rights of shareholders, including equitable treatment, and key ownership functions are specified. The Principles deal with the role of stakeholders in corporate governance and outline in a principles-based manner what is needed to ensure timely and accurate disclosure on all material matters regarding the corporation. Finally, they specify what is needed to ensure the strategic guidance of the company by its board and the effective monitoring of management.”

FSB's member jurisdictions—including, in the US, the Board of Governors of the Federal Reserve System; the Securities & Exchange Commission (SEC); and the US Department of Treasury—commit to the following:
1. implementing international financial standards;
2. undergoing an assessment under the IMF-World Bank Financial Sector Assessment Program (FSAP) every five years;
3. disclosing their degree of adherence of international standards, notably by publishing the detailed assessments prepared by the IMF and World Bank as a basis for the Reports on the Observance of Standards and Codes (ROSCs); and
4. undergoing periodic peer reviews using, among other evidence, reports prepared as part of the FSAP.

The FSB states that its comment period will continue until September 9th.


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