AM BEST CALLS FOR EFFECTIVE CORPORATE GOVERNANCE ON FTX CRYPTOCURRENCY EXCHANGE FAILURE

KUALA LUMPUR, Dec 6 (Bernama) -- The collapse of the cryptocurrency exchange FTX has highlighted the importance of effective corporate governance, according to global credit rating agency, AM Best.

In its commentary, titled “Corporate Governance Lessons for Insurers in the Wake of the Failure of FTX,”, AM Best said that the series of events leading to FTX’s collapse should provide a sobering warning for the insurance industry.

It noted that FTX surprisingly did not have a board of directors.

“An experienced, informed and independent board is vital for effective governance practices, to ensure insurance companies are run and challenged in an appropriate way,” said AM Best director of analytics, Michael Dunckley.

He said that as part of its rating process, AM Best would assess the substance of an insurer’s governance, as well as its stated policies.

“The board should be able to effectively hold senior management to account and ensure that stakeholders’ interests are protected,” he said.

Ultimately, it said, FTX suffered from a concentration of power in the hands of a single individual, combined with a lack of experience amongst its senior management team.

AM Best said it typically takes a favourable view of an insurance company's enterprise risk management frameworks, which incorporate lessons learned from recent events and emerging issues.

“Equally, AM Best expects insurers with strong governance practices to be better able to manage risks.

“A lack of transparency with external parties in terms of financial reporting or making misleading public statements is a powerful indicator of poor corporate governance and can precede a substantial decline in a company’s financial strength,” the rating agency said.

AM Best added that it incorporates an assessment of the regulatory environment into credit rating analysis, particularly through the assessment of country risk, and believes that well-developed and effective regulatory regimes put a strong focus on effective corporate governance.

-- BERNAMA