The regulator

1
The regulators role in the governance of
Norwegian banks

• Bjørn Skogstad Aamo
• Seminar on Corporate Governance in Banking
• BI Norwegian School of Management, 11 May 2004

2
Main points

• Mission and Strategy of Kredittilsynet
• Financial legislation and licensing requirements
• The Governing bodies of Norwegian banks
• The regulation on Internal Controls
• The role of on-site inspections
• Investigations of bonus payments and annual
  reports
• The role of the Auditor

3
Mission and strategy of Kredittilsynet

• Institutions
• responsibility for business operations rests
  with the board and management of the institutions
  themselves.
• promote satisfactory capital strength, risk
  awareness, management and control in institutions
  under its supervision.
• Market and market places
• Users of financial services
• Kredittilsynets performance of its activity
• Basel core principles for Effective Banking
  Supervision as a reference point

4
Financial legislation and licensing requirements

• Specific banking legislation
• Financial Institutions Act
• Commercial Banks Act
• Savings Banks Act
• Licence to carry on banking activities
• Comply with the banking acts
• Capital is to be in reasonable proportion to the
  business
• Board members, managing directors or other
  persons directly in charge of the business are to
  be fit and proper.

5
The Governing bodies of Norwegian banks

• The main responsibility rests with the board of
  directors. 
• Except for the managing director, and an
  employee-representative, both the chairman and
  other members are non-executives.
• The non-executive members are elected by the
  Committee of representatives.
• Strict requirements to avoid conflicts of
  interests.

6
Independent control bodies
Governing bodies
Control committee

• General assembly
• Committee ofrepresentatives

External auditor
Election committee
Board of Directors
Internal auditor

• Audit committee
• Compensation committee
• Others

Managing director
7
The regulation on Internal Control

• The regulations main items are
• Determination and definition of the boards
  responsibility
• A demand for overall risk assessment
• A demand for manager supervision and reporting
• A demand for internal audit or independent
  confirmation

8
The role of on-site inspections

• Kredittilsynet shall ensure that the
  institutions it supervises operate in an
  appropriate and proper manner in accordance with
  law and provisions issued pursuant to law ().
• Section 3 of the Financial Supervision Act

9

• The main objective of the supervision is
• Preserve stability in the financial market
• To verify compliance with rules and regulations
• Ensure adequate solidity and high quality of risk
  management and control systems
• Consumer protection

10

• Focus during an inspection (50 60 annually) is
• normally
• Strategy
• Management of risks and major risks
• Management and control systems
• Financial status and outlook
• IT, security and recovery plans
• Ethical guidelines

11
Investigation of bonus payments and annual reports

• For bonus payments the findings concluded that
• Agreements were thoroughly treated in the
  financial institutions governing bodies.
• The bonus agreement was mainly kept on a moderate
  level.
• For annual reports the preliminary findings
  indicates
• Full compliance 4-5 institutions
• Partly compliance 8-10 institutions
• Non-compliance 8-10 institutions

12
The role of the External Auditor

• Main duties of the auditors are as follows
• To value and express oneself regarding the annual
  accounts, including the assumption of continued
  operation
• To value and express oneself if the management
  has complied with its obligations to ensure
  proper and clear accounting
• To value and express oneself if the management
  have arranged for satisfactory asset management
  and that proper controls are in place
• Contribute to prevent and detect errors and
  irregularities

13
Concluding remarks

• Legislation and regulation should give a clear
  framework for licensing and the role of the
  banks governing bodies.
• On-site and other supervisory work should
  encourage and ensure a high standard for the
  performance of the board and the compliance
  functions that report to the board.
• An independent and competent supervisory
  institution may contribute to the general good
  functioning of the financial system and the
  confidence that the public should have in the
  financial institutions.