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Stricter Common Rules of Corporate Governance for FSA-Supervised Financial Entities

Stricter Common Rules of Corporate Governance for FSA-Supervised Financial Entities

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In 2016, the Romanian Financial Supervisory Authority (FSA) has continued to harmonize the standards of integrity, transparency, and prudent management applicable to all the entities under its supervision: capital market entities (i.e., investment firms, asset management companies, undertakings for collective investment, central depositories, market operators, clearing houses, and central counterparties), insurance/reinsurance companies, and private pension fund managers.

Thus, similar legal requirements are now applicable to such entities in terms of: (i) IT operational risk management; (ii) assessment and approval of management and key staff; (iii) criteria and prudential assessment for the acquisition of shares in such entities; and (iv) corporate governance principles to be applied by the supervised entities (e.g., on management’s/supervisory bodies’/key staff’s duties, separation of functions, transparency/internal data communication and confidentiality, conflicts of interests, risk management, and appropriate remuneration policies). 

The latest FSA Regulation, No. 2/2016, which establishes common corporate governance rules, will become applicable on January 1, 2017. It transposes the legislative improvement proposals of professional associations, and it aligns the market with the best international practices. Under this regulation, the supervised entities will be required to provide the FSA with a written statement of compliance with its governance rules and to include in their annual reports explanatory notes on the events that occurred during the year. This new enactment is expected to have an effective impact in practice and to translate into an efficient implementation tool.

Before this new regulation, corporate governance principles were either inconsistently scattered in numerous legal enactments for different types of FSA-supervised entities (although there was no reason for the differing treatment) and partially included in the corporate governance code applicable only to issuers listed on the Bucharest Stock Exchange – or they were not formalized in regulations at all, having only a “best practice” status. Of course, the new regulation is not to be read as an exhaustive corporate governance code, as each type of FSA-supervised entity will also have to observe the particular governance framework pertaining to its scope of business.

Besides its stronger coercive force and the benefit of having codified the key governance rules applicable to numerous types of FSA-supervised entities in a single piece of legislation, the main value-added features brought by FSA Regulation No. 2/2016 to the local players on FSA-supervised markets are mentioned below.

First, the regulation defines the generally applicable key features of conflicts of interests and requires entities to set up safe internal communication channels established by whistleblowing policies. Second, it takes into account the fact that most of the supervised entities are part of financial groups covering a broader range of financial services and that it is critical to apply uniform and consistent corporate governance principles throughout the group and to consider the group’s business for the purpose of risk management procedures and for the assessment and management of conflicts of interests, with FSA-supervised parent companies located in Romania encouraged to balance the interests of their subsidiaries and to consider their contribution to the long-term interests of the entire group. Third, it establishes principles for internal data flows and reporting by clarifying the core responsibility of the executive management in ensuring due and timely information of the supervisory bodies on the company’s activity and appropriate FSA reporting, as well as key staff’s obligation to voluntarily report whenever they deem appropriate (not only upon request or at regular time periods). Lastly, it requires a biannual review of the risk management system and the business plans for continuing operations and emergency situations.

In addition, increased responsibility is placed on the board of directors as the supervised entity’s policy-drafting body, which must prepare appropriate internal procedures and regulations to transpose the corporate governance principles provided by FSA Regulation No. 2/2016. 

As a final remark, the new regulation seeks to boost investor confidence in the Romanian market. Its full observance will require administrative efforts from the local FSA-supervised entities, many of which already started to set up compliant internal rules, structures, and data flows.

By Silvana Ivan, Partner, Tuca Zbarcea & Asociatii 
This Article was originally published in Issue 3.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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Țuca Zbârcea & Asociații is a full-service independent law firm, employing cross-disciplinary teams of lawyers, insolvency practitioners, tax consultants, IP counsellors, economists and staff members. It also operates a secondary law office in Cluj-Napoca (Romania), and has a ‘best-friend’ agreement with a leading law firm in the Republic of Moldova. In addition, thanks to the firm’s dedicated Foreign Desks, the team provides the full range of services to international investors seeking to gain a foothold or expand their existing operations in Romania. Since 2019, the firm and its tax arm are collaborating with Andersen Global in Romania.

Țuca Zbârcea & Asociaţii is providing legal services in every aspect of business, covering all major areas of practice: corporate and M&A; litigation and international arbitration; corporate tax; public procurement; TMT; employment; insurance; banking and finance; capital markets; competition; healthcare and pharmaceutical; energy and natural resources; environmental; intellectual property; real estate; regulatory legal services.

Țuca Zbârcea & Asociaţii is a First-Tier law firm in all international legal directories and a multiple award-winning law firm both locally and internationally. It received the CEE Deal of the Year Award (DOTY Awards 2021) and the Law Firm of the Year Award: Romania (IFLR Europe Awards 2021). 

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