The State Bank of Pakistan (SBP) on Tuesday announced to waive the requirement of rotation of the "Key Executives" for Development Financial Institutions (DFIs). In order to strengthen corporate governance regime in line with the international best practices, SBP had developed a comprehensive Fit and Proper Test (FPT) Criteria for Board members, Chief Executive Officers (CEOs) and Key Executives of Banks/DFIs.
In order to make the FPT Criteria more objective and to ensure succession planning and diversity of the knowledge/experience base of the management, last year SBP revised the instructions and banks and DFIs were asked to rotate the Key Executives' positions after a specific time.
SBP, through BPRD Circular No 05 of 2015 issued on March 12, 2015, directed the Board of Directors of Banks and DFIs to formulate an organisation-wide rotation policy within three (3) months, inter-alia ensuring that the "Key Executives" are rotating appropriately after having served on a particular position for a reasonable time (five to six years).
In addition, banks and DFIs were also advised that for those Key Executives who have already completed six years in the same position, the rotation should take effect immediately after implementation of rotation policy. Banks and DFIs were allowed that under extreme situations only, the positions of Head of IT, Treasury, HR and Islamic Banking may be exempted from compulsory rotation.
However, the State Bank on Tuesday has announced to waive the Key Executives' rotation requirement for DFIs only. In this regard a BPRD Circular Letter No 19 of 2016 has been sent to Chief Executive Officers/Managing Directors of all Development Finance Institutions (DFIs) on June 14, 2016. According to circular, requirement of rotation of the Key Executives for DFIs is hereby waived until further instructions. With this waiver, key executives of DFIs can enjoy a position over five or six years, however, banks will remain required to fulfil this condition.
It may be mentioned here that as per SBP's defined criteria, the term "Key Executive" mean key executives of Banks/DFIs and including any executive, acting as second to CEO, by whatever name called, and including the Chief Operating Officer (COO) and Deputy Managing Director.
In addition, having functional responsibilities of Chief Financial Officer/Head of Finance/Head of Accounts, Head of Internal Audit, Country Treasurer/Head of Treasury Operations, Head of Risk Management, Head of Operations, Head of Compliance, Head of Human Resource (HR), Head of Information Technology (IT), Head of Islamic Banking, Overseas Executives, Head of Credit and/or Corporate/ SME/ Consumer/ Wholesale/ Retail etc, Company Secretary and any other executive directly reporting to the CEO/President and/or COO are also include in the list of Key Executive.