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SBP issues fit and proper test guidelines to banks, DFIs for appointment of key executives

KARACHI (April 06 2003) : The State Bank on Saturday further enlarged the scope of good governance, and decided that banks and development financial institutions (DFIs) will follow the guidelines contained in the 'Fit and Proper Test' (FPT) for appointment of key executives.

The State Bank issued a circular with guidelines for appointment of chief executives of banks and DFIs.

The guidelines have been given for the appointment of key executives, particularly those having following functional responsibilities:

a) Chief Financial Officer/Head of Finance/Head of Accounts

b) Head of Internal Audit

c) Country Treasurer

d) Head of Credit/Risk Management

c) Head of Operations

d) Head of Compliance

g) Head of Human Resource

No prior approval is required from State Bank for aforementioned appointments and each bank/DFI shall itself be responsible to ensure that FPT guidelines have been followed in letter and spirit.

The banks/DFIs shall report only brief information of such appointments as and when made, as per format given at Annexure II to the Director Banking Policy Department for information and record within 7 days from the date of joining of these executives.

3 In case it is found at subsequent stage/during the course of inspection that guidelines of FPT have not been followed or the incumbent is not a fit and proper person, strict punitive action will be taken under the relevant provisions of Banking Companies Ordinance, in addition to directing the banks/DFI5 to dispense with the services of concerned officer if recruited afresh; and in case of existing employee, the same to be transferred from the post immediately.

4 The banks/DFIs not meeting the 'Fit and Proper Test' in respect of their existing key executives may regularise the position within 180 days from the date of issuance of this circular.

A compliance report may please be furnished in this regard by October 15, 2003 positively. In the meantime, the particulars of incumbents in the above mentioned positions may be furnished on the enclosed Annexure II within 30 days from the date of issue of this circular.

FIT AND PROPER TEST FOR APPOINTMENT OF KEY EXECUTIVES

1 Honesty, Integrity and Reputation
(i) He/She has not been convicted of any criminal offence, particularly offences of dishonesty, fraud, financial crime or other offences under legislation relating to banking and financial services;

(ii) He/She has not been subject of any adverse findings or any settlement in civil/criminal proceedings particularly with regard to investments, financial/business, misconduct, fraud, formation or management of a body corporate etc.

(iii) He/She has not contravened any of the requirements and standards of regulatory system or the equivalent standards of requirements of other regulatory authorities, which would adversely reflect on the above areas.

2 Competence and Capability
He/She must have adequate professional qualification and experience commensurate to the job as determined by the bank.

3 Track Record
(1) He/She has not been removed/dismissed in the capacity of an employee, director/ chairman on account of financial frauds, moral turpitude, misconduct and misappropriation of funds.

(ii) No material adverse reports, from past employers of the person being considered for the key executive post.

4 Financial Soundness
He/She has not been in default of payment of dues owed to any financial institution and/or has not been declared as defaulter in payment of any taxes in individual capacity or as proprietary concern.

5 Conflict of Interest
(i) He/She does not head more than one functional areas that give rise to conflict of interest within the organisation. For example, the departments of Audit and Accounts cannot be headed by the same person.

(ii) He/She does not hold directorship in his/her personal capacity in a business concern that is also a client of the bank/DFI as well as in any other financial institution.

The term financial institution will include any bank, investment finance company, non-banking finance company, venture capital company, housing finance company, leasing company or modaraba company.

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