KUALA LUMPUR (Aug 3): Bank Negara Malaysia (BNM) has issued an enhanced standards corporate governance aimed at raising the bar for financial institutions.

In a statement today, the central bank said good governance is a critical component of sound financial institutions and plays a key role in maintaining public confidence in the financial system.

The key changes introduced in the standard include strengthened requirements on board composition, including a requirement for boards to have a majority of independent directors.

The revised standard enhanced expectations for the board and its committees, which involves a requirement to approve and maintain credible recovery and resolution plans under conditions of stress.

BNM added there is an expectation for boards to set a tenure limit for independent directors, which should not generally exceed nine years.

"The revised standards strengthen the conditions for strong and effective boards, with greater emphasis on a sound risk culture and remuneration system in promoting prudent risk-taking," it said.

In addition, BNM said the standards address issues arising from more complex organisational structures and business models of financial institutions that have expanded in size and across borders.

"Collectively, this aims to set the gold standard for corporate governance in Malaysia, in line with the important role of financial institutions in the financial system and wider economy," it said.

Under the enhanced standards, financial institutions are required to adopt a code of ethics that promotes ethical, prudent and professional behaviour, supported by a transparent whistleblowing policy.

There are also expanded requirements on remuneration arrangements which promote a sound risk culture and are aligned with prudent risk-taking.

In addition, the central bank strengthened the expectations for effective group-wide governance arrangements.

"The above standards will take effect immediately, subject to a transition period for certain requirements," BNM said.