, investors, depositors and others to keep a close watch on the financial institutions, but also provide an opportunity for other regulators also to be closely involved in supervising these institutions. for example, listed banks and financial institutions are not only under the supervisory arm of the central banks, but also the securities & exchange commissions. in multi - regulatory and multi - supervisory systems like what is still prevalent in our part of the world, it is necessary to ensure that the regulatory and supervisory burden be shared by all who are responsible for regulating and supervising banking and financial institutions. this will also provide an opportunity to mitigate concentration of regulatory risks. in multi - regulatory regimes, it is particularly relevant to ensure that appropriate cg principles are laid down, so that all regulators are aware of the principles behind these governance rules that are introduced in the interest of the wider financial system stability. in promoting sound cg, it is also necessary to develop an effective legal framework that specifies the rights and obligations of the institution, be it a bank or a finance company or other, its directors, shareholders and other stakeholders. the regulators, on their part, should initiate action to build capacity in cg at various levels, including the chairmen, the boards of directors and senior management of banks and financial institutions. the legal framework should also provide for disclosure requirements, facilitating the enforcement of the law. further, it is essential to encourage an effective financial news media, which deals with the importance of cg and educate the public. they should play a more responsible role in disseminating accurate information to the public and initiating a meaningful discussion on the subject. conclusion the developments in corporate governance that are taking place all over the world are increasingly complex. it is almost impossible for those who are not undertaking full - time studies on the subject to keep pace with these developments. yet, all of us who are interested in systems that stimulate business and keep the wheels of economies moving at a rapid space, would continue to have a strong interest in the subject. i am also hopeful that, the banking and financial community will continue to promote and foster these studies and practices since these provide the lubrication for the smooth functioning of our complicated financial systems in our ever - changing corporate regimes. we also know that a large portion of global business is in the banking sector. in addition, all business entities, maintain direct relationships with banks and financial institutions. in that context, the preeminent position that is applicable to the banks and enjoyed by them cannot be over

ajith nivard cabraal : importance of corporate governance for the banking and financial sector keynote address by mr ajith nivard cabraal, governor of the central bank of sri lanka, at the 9th south asia management forum, dhaka, 24 – 25 february 2007. * * * what is governance and why have governance? governance may be said to be all about effective, transparent and accountable administration of affairs of an institution by its management, while protecting the interests of its stakeholders including shareholders, creditors, regulators and the public. modern corporate governance practices have evolved over time and different codes of best practice on corporate governance have been developed by various organisations. e. g. the oecd code of corporate governance, the basel code of corporate governance for banks and financial institutions, etc. at the same time, several fundamental corporate governance principles have now evolved and have received worldwide acceptance, and guidelines under each such principle have been comprehensively developed by corporate governance activists, practitioners, researchers, and others. these principles generally relate to the responsibilities of the board, directors, chairmen, ceos, senior management, board appointed committees, auditors, shareholders and regulators. accountability, internal controls, related party transactions, conflicts of interest, information disclosures have also been extensively dealt with and targeted in the formulation of these principles. corporate governance principles had its origins in the 19th century although the term corporate governance itself came into vogue in the latter part of the 1980s. the need to focus on good practices of corporate governance mainly arose as a response to the separation of ownership and control following the formation of joint stock companies. the owners or shareholders of these joint stock companies, who were not involved in day to day operational issues, required assurances that those in control of the company, the directors and managers, were safeguarding their investments and accurately reporting the financial outcome of their business activities. thus, directors were the original targets of corporate governance, and practices and principles were designed to protect the interests of the shareholders from misdemeanours of directors. however, current thinking recognizes a company ’ s obligations to society more generally in the form of all stakeholders, and it has been this new thinking that has driven the study and practice of good corporate governance to the levels it has reached today. perhaps it is also such thinking that accounts for the hectic pace at which developments have taken place and are taking place in the practice as well. since the latter part of 2001, the very lively and often controversial debate on corporate governance became