Muhammad bin Ibrahim: The challenges of corporate governance in the financial services sector Keynote address by Mr Muhammad bin Ibrahim, Deputy Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the University Malaya’s (in collaboration with the Asian Institute of Chartered Bankers and the International Centre for Education in Islamic Finance) Workshop on “The Challenges of Corporate Governance in the Financial Services Sector”, Kuala Lumpur, 6 August 2014. *  *  *  It is my pleasure to be at this workshop on the theme of “Challenges of Corporate Governance in the Financial Sector”. I would like to congratulate the University of Malaya, the Asian Institute of Chartered Bankers and the International Centre for Education in Islamic Finance for the joint effort to organise this event. I am also encouraged to see speakers from the world of academia, the financial industry and the public sector congregate to offer different perspectives on this important topic. My remarks today will touch on recent issues relating to corporate governance standards with particular emphasis on the financial sector. The growing emphasis on good governance The motivation for strengthening corporate governance in the financial sector is well-established. Unlike other industries, the financial sector plays an important intermediary role that relies heavily on public trust and confidence. Being highly visible entities, any lapse or failure in the governance of financial institutions, whether real or perceived, would attract adverse public reaction and could severely affect their reputation and public confidence.
However, if not balanced appropriately, this can also lead to complacency and “groupthink”, and as a result, the institution would remain stagnant and uncompetitive. Identifying and searching for new directors who are up to the task of governing complex financial institutions is not easy and takes time. It is due to these factors that the board needs to adopt a proactive and rigorous approach in the matter of board renewal and succession. Balance also needs to be achieved in the incentive structures for financial institutions’ board of directors. We are all aware that recent legal and regulatory developments in corporate governance have significantly raised the responsibilities and potential liabilities of board members. In order to attract and retain the right talent, it is essential to develop an appropriate remuneration package that is commensurate with the heavier and expanded responsibilities of directors. Similarly, financial institutions engaging in Islamic finance should also include a review on the remuneration of their Shariah committee members with the aim to attract and retain the best talents. But having an attractive remuneration package as described above is not enough. Having a dedicated budget for the development and training of directors will also be crucial in helping them to acquire new knowledge and skills that enable board members to effectively discharge their duties and responsibilities. In a complex and fast changing environment, individual directors need to remain apprised of emerging trends within the industry and economy. Experiences accumulated over the years will no doubt help directors in discharging their roles and responsibilities.