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Directorship

The role of the Non-executive Director and the Independent Non-Executive Director in MFSA licensed entities

By September 27, 2023October 2nd, 2023No Comments

Introduction

The importance of non-executive directors and that of independent non-executive directors is known and well-understood in the corporate world. The importance of these directors is more pronounced in companies that can impact the well-being of the public with their actions. The actions of companies operating in the Financial Services sector can affect not only their clients, but also the jurisdictions and the economies that they operate in and thus the importance and relevance of independent and non-executive directors in this industry is more evident. 

The Malta Financial Services Authority (“MFSA”) recognised the importance of these directors a long time ago and it has encouraged its licensed entities to appoint such directors on their boards for years. The importance and the role of non-executive directors and independent non-executive directors has been reiterated and is better described in the Corporate Governance Code that was issued by the MFSA in August 2022. 

The Non-Executive Director

This code defines a Non-Executive Director as “a Director who is not engaged in the daily management of the entity” whilst the term Executive Director is defined as “a Director who is contractually engaged to undertake the day-to-day executive management and decision making process of the entity.” The code states that a “Non-Executive Director has an important role in overseeing and monitoring management decision making within the entity” and in providing guidance on the composition of Boards of licensed entities, it notes that these should have an adequate combination of Executive and Non-Executive Directors, in accordance with the company’s nature, size and complexity. Whilst noting that executive and non-executive directors have the same responsibilities at law, the code notes that since Non-Executive Directors are not involved in the day-to-day running of the company, they can contribute new ideas and a more objective approach to the management team. 

The Code of Conduct also notes that licensed entities should appoint Non-Executive Directors of sufficient calibre, whose standing offers a balance and a mix of required skills to the Board. These directors are expected to possess a broad range of skills and should demonstrate their capacity to operate in difficult situations. In cases where the roles of the Chairperson and Chief Executive Officer or Beneficial Owner are combined, more Non-Executive Directors should be appointed to bring independent judgment and appropriate challenge during Board meetings. The code also states that certain functions (such as that of Chairman and that of member of the Remuneration Committee) should be assigned to Non-Executive Directors. Non-Executive Directors should also play a crucial role in ensuring that the company’s accounts show a true and fair reflection of the activities and financial performance of the company. Non-Executive Directors should also ensure that adequate internal control systems are in place and that they are being monitored regularly. 

The Independent Non-Executive Director

Non-Executive Directors may also be independent. The code defines an Independent Director as a Non-Executive Director who is free from any present and past business, family, or other relationship of any nature – with the entity, its controlling shareholder/s or the management of either – that could influence the Director’s objective and balanced judgment and reduce the member’s ability to take decisions independently.The code states that every licensed entity must have at least one Independent Non-Executive Director on its Board and that the Authority must be notified if an Independent Non-Executive Director ceases to be independent. 

Conclusion 

All of this underlines the importance of Non-Executive Directors and Independent Non-Executive Directors and highlights the MFSA’s expectations in these respects. In terms of obligations, in a nutshell, every licensed entity should have at least one Independent Non-Executive Director and a good balance of Non-Executive Directors and Executive Directors to contribute towards good corporate governance. Follow Stefan and Clive from STEP on their whirlwind work trip to Dublin Ireland earlier this month.

Corporate governance depends on trust and experience

Benetti Consulting offers the services of an independent director to companies in Malta, especially those in the financial services industry. 

Dr. Clint Bennetti is a qualified lawyer who graduated from the University of Malta with a specialisation in financial services. Dr Bennetti has occupied the role of director with the approval of the MFSA for a number of licensed entities such as collective investment schemes, asset managers and company services providers as well as for a number of unlicensed companies in various other industries.

Read more information about company directorship services here or contact us to schedule a call.

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Bennetti Consulting

Dr. Clint Bennetti
M.A. (Financial Services), LL.D.
139, Lelluxa, Hal Mula Street,
Zebbug ZBG 2418, Malta

T: +356 2146 3913
M: +356 7960 2467
E: info@bennetti.mt