Within the Bank Act of Canada, Part VI—Corporate Governance, provides explicit guidelines concerning the governance structure of financial institutions. In particular, Sections 193 to 195 guide the establishment and functions of various committees composed of directors. This post will touch on key aspects of this section and some of the insights provided in The 2024 Annotated Bank Act (Thomson Reuters, 2023).
According to the Bank Act, a Board of Directors has the authority to establish committees that facilitate efficient decision-making and oversight. These committees, integral to the governance framework, ensure that the bank operates within the confines of regulatory standards while effectively managing risks and safeguarding stakeholders’ interests. Some are mandatory, like the audit and conduct review committees, and others can be created when deemed necessary by the board.
The cornerstone of corporate governance is the audit committee, which assumes the responsibility of overseeing the bank’s financial reporting process. By meticulously reviewing financial statements, internal controls, and compliance with accounting standards, this committee plays a pivotal role in maintaining the integrity and transparency of the bank’s financial reporting. Importantly, the majority of its members must be unaffiliated directors and none may be an employee of the bank itself.
The same membership requirements apply to the conduct review committee. This committee ensures that banks establish procedures to comply with Part XI, and they review those procedures to gauge their effectiveness. Further, conduct review committees must evaluate the practices of the bank to identify any transactions that may have a material effect on the stability or solvency of the bank itself.
In Section 195.1, the Bank Act requires that directors of a bank designate a committee responsible for the consumer protection provisions. Similar to the audit and conduct review committees, the majority of its members must be unaffiliated and none may be officers of the bank. Each meeting of the committee must report to the banks’ directors and report on what was discussed, and banks must report to the Commissioner of the Financial Consumer Agency of Canada.
Part VI also allows for the creation of special committees to address specific issues or projects. While temporary in nature, these committees are instrumental in dealing with targeted challenges and dissolve upon the completion of their assigned tasks. By delineating the functions and responsibilities of these committees, Part VI of the Bank Act fosters sound corporate governance practices within Canadian banks. The establishment of these committees reflects a commitment to transparency, risk management, and effective decision-making, ultimately contributing to the overall stability and success of the banking sector. For more information on Part VI, including a detailed overview of related regulations and other guidelines, check out The 2024 Annotated Bank Act (Thomson Reuters, 2023).