Therefore, revision of the definition of independent director has been made, keeping in view the domestic regulatory/legal regime and international best practices. New definition is somewhat more stringent than the previous one. Thus it will help in identifying and preventing conflict of interest situation to a greater extent, it added.
According to BPRD Circular No 15 of 2016, issued on Wednesday, the definition of "Independent Director" given in the Prudential Regulations (PRs) for Corporate/Commercial Banking is amended.
Independent director means a director who is not connected or does not have any other relationship, whether pecuniary or otherwise, with the bank/DFI, its associated companies, subsidiaries, holding company or directors. The test of independence principally emanates from the fact whether such person can reasonably be perceived as being able to exercise independent business judgement without being subservient to any form of conflict of interest.
The circular said that provided that without prejudice to the generality of this explanation no director shall be considered independent if one or more of the following circumstances exist:
a) He/she has been an employee of the bank/DFI, any of its subsidiaries or holding company within the last three years.
b) b) He/she has been an employee or affiliate of any present or former external auditor/consultant/legal advisor of Bank/DFI within the last three years.
c) He/she is or has been the CEO of subsidiaries, associated company, associated undertaking or holding company in the last three years.
d) He/she has, or has had within the last three years, a material business relationship with the bank/DFI either directly or indirectly as a partner, major shareholder or Director of a body that has such a relationship with the bank/DFI. (The term major shareholder has been defined in the PRs.)
e) He/she has received remuneration in the three years preceding his/her appointment as a Director or receives additional remuneration, excluding retirement benefits from the bank/DFI apart from a Director''s fee or has participated in the bank/DFIs share option or a performance-related pay scheme.
f) He/she is a close relative of the bank/DFIs promoters, Directors or major shareholders. (Close relative means spouse(s), lineal ascendants and descendants and siblings.)
g) He/she holds cross-directorships or has significant links with other Directors through involvement in other companies or bodies.
h) He/she has served on the Board for more than three consecutive terms from the date of his first appointment provided that such person shall be deemed "Independent Director" after lapse of one term.
i) He/she is affiliated with a not-for-profit entity that received contributions from Bank/DFI exceeding Rs ten (10) million, or two (2) percent of such charitable organisation''s consolidated gross revenues during the current fiscal year or any of the last three completed fiscal years, whichever is higher.
j) He/she is nominated by the creditors of the bank/DFI or is in service of Pakistan or any statutory body or anybody or institution owned or controlled by the Government.
Accordingly, revised definition of Independent Director will be applicable with immediate effect for new appointments of Independent Directors on the Board of Directors of the banks/DFIs.
According to circular, as regards minimum number of Independent Directors, the banks/DFIs are hereby advised to ensure that by March 31, 2018, at least one third of their Board of Directors shall comprise of Independent Directors in line with the revised instructions. Accordingly, Declaration of Independence shall be furnished to SBP in line with the aforesaid definition. However, existing Independent Directors may continue till March 31, 2018 or expiry of their terms whichever is earlier.
Further, SBP encourages the enhanced role of Independent Directors in different committees/sub-committees of the Board of Directors of the banks/DFIs and recommends holding of a separate meeting of the Independent Directors at least once in a year.