Functional corporate governance in the very important aspect of day-to-day life of the bank. This phenomenon can be observed throughout the relationship of permanent (obligatory) bodies of a joint stock company.

Principal corporate governance bodies of the bank are:

• General meeting (of shareholders);
• Board of Directors;
• Executive Directors;
• Audit Committee.

General Meeting

A bank’s General Meeting is responsible to:

• Enact the bank’s bylaws.
• Review the annual report on the bank's operations with an independent external auditor’s report.
• Elect and recall members of the bank’s Board of Directors.
• Decide on distribution of profits.
• Decide on capital increases and decreases.
• Decide on restructuring and closing of the bank.
• Establish the amount of compensation for members of the Board of Directors.
• Decide on other issues as specified in the bylaws.

Board of Directors

The Board of Directors governs a bank and oversee its business activities.

Foreign citizens may be elected members of the Board of Directors.

The Board of Directors can have at least five members, provided that at least two members of the Board of Directors must be persons independent from the Bank. A person independent from the bank shall be considered a person:

• Not holding a qualified participation in the bank or in a superior company in the banking group to which the bank belongs.
• That has not been employed in that bank or its subsidiary in the last three years.

Employees of the bank may not be members of the Board of Directors.

However, executive directors of the bank may be members of the Board of Directors, provided that the total number of the executive directors in the Board of Directors may not exceed one third of the total number of the members of the Board of Directors.

Chairman of the Board of Directors shall be elected by the Board of Directors from among their members.

Executive director cannot be elected chairman of the Board of Directors. The chairman and members of the Board of Directors shall be elected for the period of four years and they may be re-elected.

A member of the Board of Directors may only be a person holding a university degree, of recognized personal reputation and professional qualifications, professional ability and experience in managing a bank by applying the rules of prudent business.

A member of the Board of Directors may not be elected without prior approval of the CBoM.

A member of the Board of Director may not be:

• A person who controls or is a member of the board of directors or an executive director of a bank or financial institution, a legal person controlled by other bank of financial institution, or a financial holding;
• A person who is connected with a legal person in which the bank has qualified participation, or which is subordinate member of a banking group to which the bank belongs;
• A person who has been employed in the CBoM for the last 12 months and had the insight in the data on banks’ operations considered as a secret which understanding could lead to the competitive advantage in respect to other banks;
• A person who has been the Director General or a member of the Managing Board of the Deposit Protection Fund over the last 12 months;
• A person whose assets has been subject to bankruptcy proceedings or significant enforcement has been conducted over personal property;
• A person who had been on leading positions in a bank or other business organization at the time when such organization was subject to bankruptcy or liquidation proceedings, unless the CBoM establishes that the person was not responsible for such bankruptcy or liquidation;
• A person who had been a member of the Board of Directors or an executive officer in the bank at the time when the interim administration was introduced in a bank;
• A person who has been subject to a safety measure prohibiting further conduct of professional work, business activity or duty, imposed by a competent court;
• A person who has been sentenced for a crime which makes him or her not worthy of performing the function of member of the Board of Directors;
• A person to which the bank has a total exposure exceeding 2% of own funds or a person who is the owner, member of the Board of Directors or a director of a business organization to which the bank has a large exposure.

The Board of Directors must:

• Establish and maintain a risk management system for the risks to which the bank has been
• Exposed in its operations;
• Determine the bank’s objectives and strategies and ensure their implementation;
• Determine risk management policies and procedures for all the risks to which the bank has been exposed in its operations;
• Define the bank’s annual plan, including financial plan as well;
• Adopt the bank’s annual financial statements together with external auditor’s report and reports on the bank’s operations during the year;
• Approve transactions that may significantly affect the structure of the bank’s balance sheet and risks taken in its operations, in accordance with the risk management policies and procedures;
• Periodically consider and evaluate exemptions from the established policies and procedures;
• Adopt the internal audit annual plan and internal audit reports;
• Establish bases for the functioning of internal control systems adequate to the size, complexity of operations and the level of assumed risk;
• Review the CBoMs examination reports;
• Elect executive directors and other persons responsible for managing the bank’s operations in individual areas and set their salaries;
• Elect the bank’s external auditor;
• Appoint members of the audit committee;
• Review annual report of the audit committee;
• Prepare proposals of decisions to be approved by the General Meeting and take care of their implementation;
• Enact the bank’s general acts, except those enacted by the General Meeting;
• Enact ethical code of conduct for bank employees;
• Approve the introduction of new products and services in the bank’s operations;
• Convene meetings of the General Meeting;
• Perform other duties as specified in the law and the bank bylaws.

In addition to aforementioned, the Board of Directors have to:

• Establish the risk management system for all the risks to which the bank has been exposed in its operations;
• Ensure that any operation of the bank is in accordance with the law, the CBoM’s regulations and the bank’s internal policies and procedures, as well as that any measures imposed by the CBoM have been complied with;
• Be responsible for the operational safety and financial stability of the bank;
• Be responsible for the accuracy of all bank operating reports that are published and submitted to the General Meeting, the CBoM and competent authorities.

The Board of Directors may form standing or temporary bodies for the supervision over the risk management in individual areas of the bank’s operations, for the proposal of the amount of salaries, for the proposal of election of executive directors and certain categories of employees with special powers and responsibilities, and the like. The composition and scope of work of the bodies must be specified in more details in the bank’s regulations, in accordance with the law and banking regulations.

Executive Directors

A bank must have at least two executive directors, of which one shall be the Chief Executive Officer.

Only a person holding a university degree, of recognized personal reputation and professional qualifications, professional ability and experience at managerial positions in a bank or in the financial sector may be elected executive director, provided that there are no obstacles set out in the Banking Law.

Foreign citizens may be elected executive directors, and at least one executive director must speak the language that is in official use in Montenegro.

Executive directors shall be full-time employees of the bank.

A person that has obtained prior approval of the CBoM may be elected executive director.

Executive directors shall be responsible for the organization and management of the bank and supervise the work of the employees of the bank on daily basis.

The Chief Executive Officer shall represent the bank and act on its behalf.

The Chief Executive Officer must provide the signature of at least one more executive director when undertaking legal actions for and on behalf of the bank.

Executive directors is responsible to, in particular:

• Implement the specified strategies of the bank;
• Implement decisions of the bank’s General Meeting and Board of Directors;
• Decide on business transactions in line with the bank’s internal acts;
• Ensure that bank employees are familiar with the regulations and other acts of the bank regulating their labor obligations;
• Ensure security and regular monitoring of the IT system of the bank;
• Inform the Board of Directors on actions that are not in accordance with the regulations and other acts of the bank;
• Report to the Board of Directors in accordance with the bank’s acts;
• Immediately inform the Board of Directors and the CBoM on any deterioration or potential deterioration of the financial condition of the bank, as well as on other facts that may significantly impact the financial condition of the bank;
• Decide on other issues that are not under the competence of the bank’s General Meeting and Board of Directors.

Executive directors shall be responsible for managing all risks the bank is exposed to in its operations and performing other obligations in accordance with the law and the bank’s bylaws.

Audit Committee

The Audit Committee shall consist of at least three members, the majority of which are not connected to the bank and have experience on the positions in the area of finance.

Bank executive directors shall not be elected as members of the Audit Committee.

The Audit Committee is responsible to:

• Analyse and monitor the functioning of the system for managing risks the bank is exposed to in its operations and proposes the improvement of risk management strategies, policies and procedures;
• Analyze and monitor the functioning of internal control systems;
• discuss internal audit programs and reports and give opinion on internal audit findings; monitor the implementation of internal audit recommendations;
• Analyse financial reports of the bank prior to its submission to the Board of Directors;
• Evaluate the quality of reports and information before they are submitted to the Board of Directors, including but not limited to: application of accounting policies and procedures; decisions requiring high level of evaluation; impact of unusual transactions on financial reports; quality of policies of data gathering; changes occurred as consequence of completed audits; assumptions on permanency of operations; compliance with International Financial Reporting Standards and regulations; give opinion on the selection of external auditor and propose an audit fee.

The Audit Committee shall draw up proposals, opinions and standpoints on the issues within their scope of work that are to be decided by the Board of Directors.

The Audit Committee shall submit annual reports on its work to the Board of Directors.

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