FSC: Financial Holding Companies and Banks Should Establish Nomination Committees to Enhance Corporate Governance

The FSC stated today that existing regulations 'recommend' financial holding companies and banks to establish nomination committees, and currently only 7 financial holding companies and 6 domestic banks have them. The FSC has requested the Bankers Association to research changing this to a mandatory requirement ('should' to 'must'). Such committees can establish relevant standards for reviewing directors and periodically review directors' continuing education plans, aiming to strengthen corporate governance. Zhang Jia-kui, Deputy Director of the FSC's Banking Bureau, explained at a press conference that considering international trends and increasing emerging risks, along with previous suggestions from independent directors, the FSC sent a letter on April 7th to the Bankers Association requesting research on revising the Corporate Governance Best Practice Principles. The main research items include two points to further enhance corporate governance. First, current best practice principles already stipulate that financial holding companies and banks 'should' establish nomination committees, with independent directors forming the majority and serving as chair. To further strengthen corporate governance, it is suggested to amend this to 'must' establish nomination committees across the board in the future, without expanding it to all listed companies. Second, referencing current regulations for directors' continuing education for listed companies and considering the rapid changes in the financial environment, it is suggested to require independent directors of financial holding companies and domestic banks to increase their annual continuing education hours (e.g., an additional 3 hours per year) and specify that the content of continuing education should cover relevant professional fields required to cope with the rapid changes in the financial environment. When questioned by the media about the function of nomination committees, given that many independent directors are 'good friends' of the chairman, Zhang Jia-kui explained that the committee has four functions: establishing the professional knowledge required for board members, supervisors, and senior management, and using these standards to find and review relevant candidates; building performance evaluation metrics to assess the independence of independent directors; establishing or periodically reviewing directors' continuing education plans; and laying the foundation for corporate governance best practices. The committee's recommendations are then submitted to the board of directors for discussion. Regarding the consequences if companies do not comply with self-regulatory rules, Zhang Jia-kui stated that corrective measures will be taken. Shang Guang-qi, Deputy Secretary-General of the FSC, explained that no system is perfect, and the goal is to improve corporate governance through the system. Nomination committees are functional committees, and resolutions still need to be approved by the board. Currently, only remuneration committees and audit committees are mandatory for listed companies. However, internationally, the three major functional committees include nomination committees. As financial holding companies and banks are highly regulated industries, adjustments are hoped to be made through the self-regulatory rules of the association.