Understanding the corporate governance directive issued by the Bank of Ghana for Rural and Community Banks (Part III)

The Bank of Ghana (BoG), has issued new corporate governance directives for Rural and Community Banks (RCBs) in the country. The new corporate governance directive came into force in May 2021. Samuel Terkpertey Tetteh (Esq.), Manager, Legal Services at the ARB Apex Bank PLChas been serialising the directive for easier reading and understanding. Part Iwas carried in Issue # 14; Part II in Issue # 15. This is the final part of the serialised directive.

The Chief Executive Officer

The Board may appoint the Chief Executive Officer (CEO) who shall hold office for a term of four (4) years. The term of the CEO may be renewed for two more terms
after the expiration of the first term. Therefore the CEO of a Bank shall serve for a maximum period of 12 years.

Separation of Powers

The positions of the Board Chairperson and the Chief Executive Officer (CEO) shall be distinct and separate from each other.
The CEO shall attend all Board and Committee meetings as an ex-officio member to present management reports, he shall take part in all discussions but shall have no voting rights at the Board or Committee meetings. The Chairperson and CEO of an RCB should not be related persons.
Directors shall refrain from performing management functions and interfering with managerial duties.

Transitional Provisions Compliance

All RCBs shall by December 31, 2021 ensure full compliance of the provisions relating to:
a. Business strategy,
b. Board qualification and composition,
c. Board size and structure,
d. Board Secretary,
e. Separation of powers,
f. Other engagement of directors, and
g. Board Committees.

Tenure of office of Directors

A Director of an RCB who has served as a director in the RCB for nine (9) years or more prior to the coming into effect of the directive shall not be eligible for another term upon the expiration of the current term as a director in that RCB.

Tenure of office of Chairperson

A Board Chairperson who has served in that capacity for more than six (6) years prior to the coming into effect of the directive shall not be eligible for another term in office as Board Chairperson upon the expiration of the current term.

Where the appointment of the Board Chairperson does not stipulate a fixed term and the Board Chairperson has served for a period of more than six (6) years in that RCB, the RCB shall by September 30, 2021, submit a succession plan for the appointment of a new Board Chairperson to the Bank of Ghana and make the appointment of the new Board Chairperson latest by March 31, 2022.

Where an RCB has no written term for Board Chairpersons and a person has served less than six
(6) years cumulatively in that capacity, the RCB shall by September 30, 2021, furnish the Bank of Ghana with a written document stipulating a fixed term of office for the Board Chairperson.

Tenure of Office of CEO

The term of office for a CEO of an RCB indicated in a fixed term contract before the coming into force of this Directive may run in full and shall not be renewed where that CEO has cumulatively served for more than twelve (12) years in that RCB.

A renewal or extension of a contract for the CEO shall not be for any additional term that brings the cumulative years of service of the CEO to more than twelve (12) years.

A CEO who has served more than eight (8) years may either serve an additional term of up to four(4) years or the number of outstanding years to his compulsory retirement, whichever comes first, subject to approval of Bank of Ghana.

Disclosure and Transparency

An RCB shall by January 10 of the ensuing year, submit a list of its significant Shareholders, Directors and Key Management Personnel to the Bank of Ghana. The governance of the RCB shall be sufficiently transparent to its shareholders, depositors and other relevant stakeholders and shall be disclosed in its Annual Report and Audited Financial Statements.

The disclosure on the governance of an RCB shall include material information on the governance structures and policies, in particular the content of any corporate governance code or policy and the process by which it is implemented, major share ownership, voting rights, and related party transactions of the RCB.

To promote increased share acquisition for increased capital formation for RCBs, voting at AGMs shall be conducted on a poll-voting basis whereby voting is proportional to the number of shares held by the members.

Ethics and Professionalism

RCBs are required to establish and review regularly, a Code of Ethics which shall apply to the Board, Key Management Personnel, Staff, and any other relevant person the RCB may consider appropriate. The Code of Ethics should among others:

A. set out practices necessary to maintain confidence in the integrity of the RCB,
B. commit the RCB, its Board, Key Management Personnel, and Staff to the highest standards of professional behavior, business conduct and sustainable business practices,
C. establish a policy to guide equity participation in the shares of the RCB by Directors, Key Management Personnel and Staff, and

D be signed off by Directors, Key Management Personnel, and Staff on an annual basis as an indication that they understand the Code of Ethics and Sanctions for breaching the policy.

THE INTERNAL AUDITOR

An RCB is required to have an Internal Auditor who shall be an independent Key Management Person and not operationally involved in the day-to-day activities of the bank.

Qualification

The Internal Auditor shall have the competence to examine all areas in which the RCB operates and shall:

A. have the professional competence tocollect and analyse financial information, evaluate audit evidence, and

B. possess sufficient knowledge of auditing techniques and methodologies,

C. report directly to the Board or the Board’s Audit, Risk, and Compliance Committee and have
direct access to the Board and its committees. Interaction betweent he Board and the Internal Auditor shall be regular and comprehensively documented, and

D. be guided by an Internal Audit Charter that shall be approved by the Board. The Internal Audit Charter shall set out the purpose, authority and responsibility of the Internal Auditor in accordance with the requirements of the Institute of Internal Auditors

THE EXTERNAL AUDITOR

An RCB is required to appoint qualified Auditors to be its External Auditors subject to the approval of the Bank of Ghana.

Where an RCB fails to appoint an External Auditor, or where it becomes desirable, the Bank of Ghana may on behalf of the RCB appoint an External Auditor forsuch periods as it deems fit on terms as may be determined.

Where the Bank of Ghana appoints an External Auditor for an RCB, the Bank of Ghana may also fix the remuneration of such External Auditors which shall be paid by the RCB.

Qualification

A person or firm may not be approved by the Bank of Ghana to serve as an External Auditor of an RCB unless that firm or person complies with the conditions in relation to the discharge of his or its duties as the Bank of Ghana may determine. The person or firm must be independent and qualified to be an External Auditor of a financial institution as required by law.

Tenure

The External Auditor so appointed by an RCB shall hold office for a maximum term of six (6) years.

The External Auditor may be re-appointed after five (5) years had elapsed from the date of expiration of his/ its previous term

The Role of the Internal and External Auditors

The internal auditor shall provide an independent assurance to the Board and support the Board and Key Management Personnel in promoting an effective governance process and the long-term soundness of the RCB.

The internal audit function shall have a clear mandate, be accountable to the Board, and be independent of the audited activities.

Termination/ Removal/ Resignation

No RCB shall remove or change its External Auditors before the expiration of its term except with the approval of the Bank of Ghana.

An External Auditor of an RCB who resigns or asked by the RCB to resign shall notify the Bank of Ghana of the circumstances and reasons behind the call for his/ its resignation. Where the Internal Auditor is to be removed from his or her position, the reasons for the removal shall be disclosed to the Bank of Ghana.

The Compliance Officer

An RCB shall appoint a Compliance Officer who shall be a key management personnel with the required competence, experience, and knowledge to discharge his duties and responsibilities. Where the size of the RCB does not support a separate structure to carry out the compliance function, the Internal Auditor may perform all compliance functions. The Compliance Officer shall functionally report to the Board of Directors through the Chief Executive Officer.

Duties of the Compliance Officer

The Compliance Officer shall be responsible for monitoring and reporting on the adherence or otherwise of the RCB to various obligations in its business relations with customers.

The Compliance Officer shall assist management and the Board in respect of the following:

01. The requirements of law and other regulatory and ethical demands in respect of customer relations and anti- money laundering as well as Corporate Governance Directives,

02. Reducing the likelihood of violation of the laws and regulations, and

03. Preventing any breach of confidence by officeholders to prevent financial losses to the RCB.