A MINIMUM of five directors will be required to sit on the boards of banks and insurance companies under new corporate governance rules due to come into force in the autumn.

In a consultation paper published yesterday, the Financial Regulator, Matthew Elderfield, set out proposals to improve the long-term sustainability of financial firms.

Once the new standards are brought in, a clear separation will be required between the roles of chairman and chief executive. In order to ensure the independence of the chairman, any individual who has been involved at a senior management or executive level in an institution within the past five years will be prohibited from advancing to this position.

The regulations will also impose new standards relating to the composition of boards of directors. Boards of financial institutions will be required to have at least five directors, and the majority of directors must be non-executive.

The number of directorships an individual can hold in banks and insurance companies will be limited to three to ensure they can comply with the demands of board membership.

Institutions will also be required to review their board membership at least every three years, and consideration will have to be given to potential conflicts of interest. The regulator has proposed that individuals should not be appointed to a board if a conflict of interest could emerge that would be “significant to the overall work of the board”.

In addition, under the proposed corporate governance regime the board of financial firms will have to ensure that the institution’s remuneration policy does not promote excessive risk-taking.

Banks and insurance companies will also be required to submit an annual compliance statement to the regulator.

The proposals are expected to be brought in by autumn, but financial firms will be given six months to introduce the changes.

Enhanced corporate governance rules are required as banks and insurers have shown an ability to impact on all aspects of the economy, the regulator said.

Speaking later at the Fintel Third Annual Global Financial Services Centres Conference, Mr Elderfield said: “There have been serious failures of corporate governance at a number of financial institutions in recent years. Over-dominant CEOs have gone unchecked, resulting in unacceptable costs to shareholders and the taxpayer.”