Corporate governance in the financial services sector of small island economies: a case study of Mauritius

Abstract

This study investigates the practices of corporate governance in the financial services sector of small island economies with special reference to banks and insurance companies in Mauritius with a view to assess the level of compliance. The financial sector is today an important economic pillar on which the government is relying given the imminent recession in the sugar industry. In this respect financial institutions play a key role because they are the core set of the financial sector. It is therefore important for people to have confidence in both banks and insurance companies of their country. This is possible by ensuring compliance with good governance. In Mauritius, the Central Bank has issued its guidelines on good corporate governance for banks and this guide is made in line with the Corporate Governance Code issued by the National Committee on Corporate Governance. Banks are also required to comply with the codes as per the Banking Act 2004 and the Financial Reporting Act 2004. In a similar vein insurance companies should comply with the National Code on Corporate Governance and relevant laws related to good governance of insurance business, such as the Insurance Act 2005, the Financial Services Commission guidelines on Corporate Governance and the Financial Services Development Act 2002. In addition insurance companies should also comply with the Companies Act 2001 and the Financial Reporting Act 2004. This paper initially reports on the practice of corporate governance in the financial services sector of small island economies by drawing data from the Financial Sector Assessment Programme of the International Monetary Fund. A content analysis of the annual reports of companies in the sector is used to assess the level of compliance to corporate governance code in Mauritius and concludes that compliance rate is above 70% as regards board’s composition, audit committee, disclosure of policies and practices. This study reports that there are few cases of noncompliance with the National Code but good governance is necessary in the financial services sector to inspire stakeholders confidence.