4.1. Governance arrangements

Certain objective elements should indicate that an institution has serious weaknesses in its governance arrangements which may, in most cases in conjunction with other objective elements related to capital and liquidity, justify withdrawal of the authorisation. These elements include among other things:

• a. significant misstatements in regulatory reporting or financial statements, especially resulting in a refusal of opinion or providing a qualified opinion by the external auditor;
• b. a prolonged deadlock in the institution’s management body which leads to its inability to make critical decisions;
• c. an accumulation of material deficiencies in key areas of the governance arrangements, which together have material negative prudential impact on the institution.

For the purposes of paragraph 28(c) examples of such material deficiencies, which in combination can have a material negative prudential impact on the institution, can include:

• - inadequate strategic planning and formalisation of risk tolerance/appetite and its risk management framework, leading to the inability to identify, manage and report the risks the institution is or might be exposed to;
• - material weaknesses, deficiencies or issues that were not properly and/or in a timely manner reported to the management body;
• - inadequate internal control mechanisms;
• - major reputational depreciation resulting from the non-compliance with ‘fit and proper’ criteria of individuals with key functions in the institution;
• - major reputational depreciation arising from a lack of transparency in the conduct of business and operations or incomplete/inaccurate disclosure of information;
• - major litigation or disputes in the nomination and succession of individuals performing key functions in the institution;
• - major non-compliance with remuneration requirements.