**Julian W. Francis
Central Bank of the Bahamas**

**Banking Sector Takes The Lead**

A “Bahamas Directors Forum on Corporate Governance” was held at the British Colonial Hilton in Nassau this past week. Addressing participants, the Central Bank Governor pointed to the lead corporate governance role undertaken by the banking sector – primarily because capital and financial assets are allocated to a major extent through the banking system. *”As financial intermediaries, banks have to decide how to best allocate this capital and subsequently manage the risk associated with this task,”*he said. *”The better the governance structure, the better the policies and procedures, the better the management of the organisation, the better these risks are managed.”*

Speaking to the international initiatives relating to international jurisdictions generally, the Governor said the maintenance of sound corporate governance processes and structures at every level of the Bahamian economy – government, the Central Bank and the other regulators, private financial institutions, and private corporate entities in general – is imperative for the continued well being of the economy.

He took this opportunity to report on Central Bank of The Bahamas initiatives on good governance, noting that it was one of the first central banks to release comprehensive guidelines on corporate governance in December 2001. Sector Directors now have to certify that their organisations are in compliance with the Central Bank’s corporate governance standards on an annual basis; specifically, written certification is required to be submitted to the Central Bank within 120 days of each calendar year.

The guidelines on corporate governance represent an additional element in the Central Bank’s continuing programme to introduce and strengthen international best practices for the management and operation of banks and trust companies in The Bahamas. *”Our primary goal is to reinforce the awareness of all persons in positions of authority, that they are responsible for the good governance of their institutions,”* Governor Francis said. *”The board has to be aware that the buck literally stops with them, and that they will be required to demonstrate their effective execution of these responsibilities.”*

The Central Bank also has issued guidelines, interim guidelines or draft guidelines on credit risk management to the commercial and offshore banking industry, managing issues such as liquidity, interest rate risk and compliance, minimum standards of disclosure in relation to its licensees’ accounting policies, minimum standards for the outsourcing of material functions, minimum standards for letters of comfort — with future plans reportedly including releases on e-banking, capital adequacy and dormant accounts. Commenting on the busy agenda, the Governor says this reflects the way in which doing business has changed, and makes transparent the way the sector is regulated.

There are Guidelines as well on “Minimum Physical Presence Requirements for Banks and Trust Companies Licensed in The Bahamas”. By June 30, 2004 all public licensees are required to establish a physical presence. The Governor has said that only a small number of restricted licensees and branches of foreign banks meeting a strict criteria will be permitted to continue under management arrangements with licensees having a physical presence. The referenced guidelines apply to institutions that are currently fully physically present, or are transitioning to full physical presence by the June deadline.

*”After an initial period of some transition, licensees generally have shown their commitment to remaining in the jurisdiction and establishing a meaningful physical presence,”* according to the Governor.