As discussed in the Introduction, CLS Group Holdings AG, a Swiss corporation, is the parent holding company for the CLS group and is owned by seventy-six shareholders, each of which (with limited exceptions) is a Settlement Member or an affiliate of a Settlement Member. CLS Group Holdings is the sole owner of CLS UK Intermediate Holdings, a United Kingdom company. CLS UK Intermediate Holdings in turn owns CLS Bank and CLS Services. CLS Bank owns 51% of CLSAS, a Delaware limited liability company, with the remaining 49% owned by Traiana Inc., a subsidiary of ICAP plc.
Diagram 4 below details the CLS group’s corporate structure.
Diagram 4
2.2.1 CLS Group Governance Arrangements
The CLS group’s governance arrangements are mandated by applicable law, and by the organizational and constitutional documents of the CLS group entities. In addition, on an ongoing basis, the CLS group adheres to the Swiss Code of Best Practice for Corporate Governance, the UK Corporate Governance Code, and laws, rules and regulations applicable to systemically important FMUs, Edge Act corporations, and bank holding companies subject to regulation and supervision by the Federal Reserve, as required.
At their annual general meetings (each, an “Annual General Meeting”), the CLS Group Holdings shareholders elect directors to the CLS Group Board, approve CLS Group Holdings’
financials and the independent auditor, and undertake any other business reserved for shareholders. Governance arrangements relating to CLS Group Holdings shareholders are addressed in the Articles of Association of CLS Group Holdings (the “CLS Group Holdings Articles”), which may be amended pursuant to a shareholders meeting. CLS Group Holdings shareholders meetings must be held each year and extraordinary shareholders meetings may be called as often as necessary, and in all cases required by applicable law. An Annual General Meeting and an extraordinary meeting of the CLS Group Holdings shareholders were held in each of 2012, 2013 and 2014.
The Organizational Regulations of CLS Group Holdings (the “Organizational Regulations”) establish the organization and administration of CLS Group Holdings and of the CLS group as a whole, and define the responsibilities and authorities of the respective CLS group executives and
executive bodies, including the CLS Group Board, Board Committees, the Chairman and Deputy Chairman, the CEO and the EMC. The Organizational Regulations contain, among other things, the charters of the seven CLS Group Board Committees, and the nominating process and qualifications for new directors of the CLS Group Board. The Organizational Regulations may be amended by the CLS Group Board. Additional governance arrangements relating to the CLS Group Board and the EMC are also documented in the CLS group’s Directors’ Governance Handbook (the “Directors’ Handbook”) and the CLS group’s Executive Management Handbook (the “Executive Handbook”), respectively.
As provided in the Organizational Regulations, the CLS Group Board approves the governance structure of CLS Group Holdings and the CLS group as a whole. Under the CLS Group Holdings Articles, the CLS Group Board may consist of a minimum of two and a maximum of twenty-six members. As of September 30, 2014, there are twenty-four directors of the CLS Group Board.
Disclosure of CLS Group Governance Arrangements
The CLS Group Holdings Annual Report and consolidated accounts, containing an overview of the governance arrangements for CLS Group Holdings and its subsidiaries, is published annually on the CLS group corporate (public) website where it is publicly available to FX market participants as well as shareholders, Settlement Members, and regulators. The CLS Group Holdings Articles are also publicly available on the CLS group corporate (public) website. The constitutional documents of CLS Group Holdings and subsidiary entities, including the Directors’
Handbook and Executive Handbook, policies, codes of conduct and other governance-related materials, are provided as requested to the Federal Reserve and the CLS Oversight Committee.
The CLS group’s governance arrangements are disclosed annually to its owners, the CLS Group Holdings shareholders. During each Annual General Meeting, the Chairman presents on CLS group’s governance, including an explanation of the roles and responsibilities of the CLS Group Board, the EMC, Risk Management, Audit, Compliance, and Regulatory Affairs. Since CLS Bank’s Settlement Members are also shareholders of CLS Group Holdings, Settlement Members receive the same presentation on governance arrangements provided to shareholders at the Annual General Meeting.
Accountability to Stakeholders
The CLS Group Board and the CLS Bank Board are subject to periodic internal and external governance reviews. The results of these reviews are provided to the Nominating and Governance Committee and the CLS Group Board, and are shared with the Federal Reserve along with the CLS group responses.
2.2.2 CLS Bank Governance Arrangements
CLS Bank’s governance arrangements are addressed in its Articles of Association (the “CLS Bank Articles”), which may be amended by the sole shareholder of CLS Bank, (CLS UK Intermediate Holdings) subject to approval by CLS Bank’s regulator. Additional governance provisions relating to CLS Bank are also addressed in its by-laws (the “CLS Bank By-laws”).
The CLS Bank By-laws may be amended by CLS Bank’s sole shareholder, as well as by the CLS Bank Board (any by-law adopted by the CLS Bank Board may be amended or repealed by the CLS Bank sole shareholder).
2.2.3 CLS UK Intermediate Holdings Governance Arrangements
CLS UK Intermediate Holdings, located in London with representative offices in Tokyo and Hong Kong, acts as an intermediate holding company and ensures the effective implementation of CLS Group Holdings resolutions in connection with CLS Bank and CLS Services. Governance arrangements relating to CLS UK Intermediate Holdings are addressed in the CLS UK Intermediate Holdings certificate of incorporation, and articles of association. To the extent they are filed with UK Companies House, the CLS UK Intermediate Holdings certificate of incorporation, and articles of association may be disclosed to the public upon request. As a standard practice, there are two CLS UK Intermediate Holdings board members; each is an officer of the CLS group’s executive management.
2.2.4 CLS Services Governance Arrangements
CLS Services, located in London, provides certain administrative, operational and technology related services to CLS Bank pursuant to a Master Services Agreement between CLS Bank and CLS Services. Governance arrangements relating to CLS Services are addressed in the CLS Services certificate of incorporation, and articles of association. To the extent they are filed with UK Companies House, the CLS Services certificate of incorporation, and articles of association may be disclosed to the public upon request. As a standard practice, there are two CLS Services board members; each is an officer of the CLS group’s executive management.
2.2.5 CLSAS Governance Arrangements
Governance arrangements relating to CLSAS are addressed in its certificate of formation, as well as in its amended and restated limited liability company agreement (the “CLSAS LLC Agreement”). The CLSAS LLC Agreement includes the CLSAS by-laws (the “CLSAS By-laws”) and defines the roles and responsibilities of Aggregation Participants, directors/board and officers. CLSAS’s business and affairs are managed under the direction of the CLSAS board. So long as CLS Bank is the largest holder of common units of CLSAS, CLS Bank may nominate two directors to the CLSAS board, which include the current CEO and another member of the EMC.
So long as Traiana (together with its affiliates) holds at least ten percent of the outstanding common units of CLSAS, Traiana may nominate one director to the CLSAS board. Certain governance matters are also described in the CLSAS Founding Aggregation Participants Agreement (the “CLSAS FAPA Agreement”) with respect to additional nominations and appointments to the CLSAS board, as well as certain requirements for amendments to the CLSAS LLC Agreement, CLSAS By-laws and CLSAS FAPA Agreement. As of September 30, 2014, there are twelve directors of the CLSAS board. Meetings of CLSAS Members and the CLSAS board are presided over by the CLSAS CEO who is, at any given time, the CLS Bank CEO.
2.2.6 CLS Group Board Directors
Members of the CLS Group Board are elected for a term of office of three years by the CLS Group Holdings shareholders at their annual meeting. Directors may be re-elected after such term, except that no such board member may serve for more than six years in aggregate.40 There is no aggregate term limit for a director who is also a member of the EMC, so long as he or she remains a member of the EMC. The CEO is the only director on the CLS Group Board who is also a member of the EMC.
40Directors who were in office on December 22, 2011 may continue to serve for up to eight years in aggregate. In addition, pursuant to the CLS Group Articles, if a director is elected as Chairman of the Board, his or her term may be extended for an additional three years, up to a maximum of nine years of CLS Group Board service.
Non-executive directors are individuals who are not employed by, or otherwise engaged by, any CLS group entity. As of September 30, 2014, eighteen of the non-executive directors of the CLS Group Board are employed by or affiliated with a CLS Group Holdings shareholder. Outside Directors are non-executive directors who are not employed by, or affiliated with, CLS Group Holdings shareholders. The Organizational Regulations require that at least four Outside Directors, including the Chairman, serve on the CLS Group Board. As of September 30, 2014, there are five Outside Directors, including the Chairman, on the CLS Group Board.
The Chairman and Deputy Chairman of the CLS Group Board are elected by the CLS Group Board. The role of the CLS Group Chairman is separate and distinct from the CEO, who heads the CLS group’s executive management. The Chairman is responsible for the leadership of the CLS Group Board, communication with CLS Group Holdings shareholders, and for presiding over CLS Group Board and CLS Group Holdings shareholder meetings. The Chairman also supervises compliance with, and implementation of, the resolutions of the CLS Group Board, and speaks on behalf of the CLS Group Board and the CLS group entities with various regulatory and oversight authorities, including the Federal Reserve and the CLS Oversight Committee. As discussed under Key Consideration 3, the CLS Group Board has established seven committees (each, a “Committee”) to support it in carrying out its oversight responsibilities.
2.2.7 Oversight of the Executive Management Committee
The CLS Group Board has delegated responsibility for undertaking the business and operational activities of the CLS group to the EMC, headed by the CEO. The CEO and the EMC conduct the day-to-day management of CLS Group Holdings and the CLS group as a whole. The CLS group’s corporate structure is described in the CLS Group Holdings Annual Report and consolidated accounts, detailed above in Section 2.2, communicated to CLS Group Holdings shareholders, and made publicly available as discussed under Principle 23.
Key Consideration 3. The roles and responsibilities of an FMI’s board of directors (or equivalent) should be clearly specified, and there should be documented procedures for its functioning, including procedures to identify, address, and manage member conflicts of interest. The board should review both its overall performance and the performance of its individual board members regularly.