The Central Bank of The Bahamas regulates banks and trust companies operating in and from The Bahamas by directing them to follow certain licensing, supervisory, and reporting policies. This article summarizes some of the key policies in the Central Bank's Corporate Governance Guidelines and explains why the Central Bank has this process of corporate governance.

According to the Central Bank, “corporate governance refers to the processes, structures and information used for directing and overseeing the management of an organization.” The Central Bank is concerned with how Bahamian banks and trust companies direct their business affairs and manage compliance with the law. These entities are different from other businesses because most of their money and resources belong to their customers and because they are often highly leveraged. If one bank or trust company has financial or compliance problems, they can affect the economy and financial system as a whole.

Some of the Central Bank's policies center on spreading executive and management powers around to more than a few individuals. For example, one person can hold only four non-executive directorship positions in banks that are licensees of the Central Bank. Requirements also outline how executive management should facilitate communication between staff members and the Board of the bank or trust company. The Central Bank uses a top-down approach in its policies, stating that strong and competent Boards will assist banks and trust companies in meeting obligations to clients and stakeholders and in properly managing risk.

Risk management is very important for highly leveraged banks holding other people's money. The Central Bank directs banks to consider many different kinds of risk, to identify the most significant actual and potential risks, and to develop procedures for mitigating risk. An annual review and certification process to the Central bank assist in risk management and self-assessment. If problems have arisen during the year, the bank's Board must report them to the Central Bank and provide an action plan for fixing the problems.

Banks and trust companies should have independent non-executive directors to provide checks and balances for the institution. These directors must not have financial or material dependence on the bank, must not be an officer or employee, and must not have any other conflict of interest that could interfere with independent judgment about the bank's affairs. The Central Bank gives numerous examples of this type of conflict of interest in its Corporate Governance Guidelines.

To find out more about how the Central Bank regulates corporate governance for licencees, visit Gonsalves-Sabola Chambers online or call the office at +1 242 326 6400.