Information on entry into force of amendments to "Corporate Governance Standards in Banks"

01-10-2024

Baku, October 1, 2024: The Central Bank of the Republic of Azerbaijan continues initiatives to bring banking supervision and regulation in line with the latest standards, including modernization of the normative legal framework in the field of corporate governance in banks within the framework of the strategic goals defined in the “Financial Sector Development Strategy for 2024-2026”.

As part of these initiatives, the Central Bank's document "Recommendations on Corporate Governance Standards for Banks" was adopted, as previously reported (https://www.cbar.az/press-release-4804/recommendations-on-corporate-governance-standards-for-banks-approved).This document reflects the Central Bank's future strategic view on regulation in this area and aims to ensure that banks are prepared for the planned supervisory requirements in this area.

It should be noted that, following the aforementioned initiatives, amendments to the "Corporate Governance Standards in Banks" came into effect on September 25, 2024. In contrast to the above-mentioned document, these Standards are not of a recommendatory nature and contain the requirements of the Central Bank for the banks in the area of corporate governance.

According to the latest amendments to the Standards, the requirement to include independent members in the Supervisory Boards of banks will also apply to state-owned banks from September 8, 2025. This innovation, applied for the first time in the field of corporate governance in our country, serves to apply a unified approach to all banks, regardless of their shareholder structure, and thereby improve the governance mechanisms in banks.

Other amendments include the requirement that a candidate for the position of an independent member of the Supervisory Board should not have been an employee of a person belonging to the Bank in the last three years, and the time limit for the independence status of an independent member was set at six years.

The independence criteria also define special requirements for the banks' employees. According to the new requirements, a candidate to become an independent member of the Supervisory Board should not be employed by the bank. A former employee of the bank may be appointed as an independent member after an interruption of at least two-thirds of the period of service in the bank (minimum 3 years).

The amendments to the Standards clarify requirements for Compliance Committee composition and rotation of the Board Chair, Chief Risk Officer and Chief Compliance Officer.

The main purpose of these amendments is to strengthen the function of corporate governance in banks on an ongoing basis and to increase the transparency of corporate governance.

More information on Corporate Governance Standards in Banks is available at:

https://uploads.cbar.az/assets/3ff8beba727780c6b2d6f9339.pdf