Board governance
Who is on the Board? What skills do they have – and what skills do they need? The role, structure and composition of the Board is critical to effective oversight. What’s required and appropriate will depend on the nature of the firm; at the same time there are universal principles to be drawn around how to promote effective escalation and challenge.
Executive governance
How does the executive exercise effective oversight of delegated matters? Since the introduction of the SMCR senior managers have focused on reasonable steps frameworks to demonstrate their compliance with these regulatory obligations. What does best practice look like, to ensure clarity for individuals? What information do executives need and how can this be presented to focus attention where it’s needed? What extra support does the executive need at critical points – on arrival in role, or to provide an attestation to regulators?
Conduct and culture
As conduct risks change, can your conduct risk management respond? The FCA has been clear that changes to working practices and market stresses as a result of Covid-19 will not excuse misconduct. Are staff at all levels clear on what conduct is acceptable – and able to identify conduct risks as these emerge? Can you limit the impact of periods of stress on culture? Does your response to non-financial misconduct support your culture?
Risk and control
The three lines of defence model has become near universal, expected by regulators for all but the smallest firms. Dynamic risk identification and management in the first line remains a priority for both firms and the regulators but brings with it some practical challenges. How do second and third line functions support a firm’s culture? When and how should you tweak the model and how do you know when it is working well?
Conflicts of interest
Conflicts can arise at many levels: identification and management of the associated risks is a key element of a healthy culture. Strict rules will apply in some contexts. Are your staff and management alert to potential conflicts? How are the risks built into product design or new business processes? How are intra-group conflicts managed, especially where individuals act as directors on group entity boards?
Internal reporting
Getting the right information to the right people is a perennial challenge: who is the decision maker that is going to solve the problem and how much information do they need? How do staff know what to escalate, and is there sufficient focus on cascade? Are reporting lines clear internally and what do they really mean in practice?
Holding people to account
Swift and effective disciplinary processes are vital to promoting a culture of trust, alongside the speak up and listen up campaigns that are now widespread. Do your disciplinary processes promote openness? How do you monitor whether your whistleblowing policy is effective? And that complainants don’t suffer long term career consequences?Featured content
Time to test your conduct risk management framework
8 August 2021
Firms must remain vigilant to changes to the conduct risks they may be exposed to and regulators’ expectations as to what “good” looks like. This post will help those charged with oversight and/or development of conduct risk management frameworks test whether their existing framework is still fit for purpose.
Conduct risk frameworks: adapting to change
3 August 2021
Conduct risk management remains central to the FCA’s agenda. Nikhil Rathi’s recent speech warned that “firms should expect us to be even more rigorous on upholding high standards – especially on governance, conflicts of interest and conduct”. This post explores the FCA’s approach to conduct risk management and the steps firms should be taking before the FCA’s “more rigorous” approach to conduct standards begins to bite.
Strength in diversity – representation and inclusion as drivers of good culture
8 July 2021
Financial services firms and their regulators are increasingly focussed on diversity and inclusion as drivers of positive culture and hence better conduct and regulatory outcomes. In the week the UK regulators publish a wide-ranging Discussion Paper, we consider aspects of diversity and inclusion where firms need to be ready for scrutiny from regulators and their staff, their investors and the broader public.
Revisiting your conduct rules implementation? Here’s how.
2 July 2021
As UK regulators continue to scrutinise firms’ implementation of the conduct rules, in this article we set out our thinking on how firms can assess their implementation of the rules to identify where improvements might be necessary.
Conduct risk and suitability: what is the next generation of PPI?
17 June 2021
Ten years after the High Court’s dismissal of the legal challenge to the FSA’s payment protection insurance (“PPI”) rules and approaching two years since the PPI claims deadline, seems like a fitting time to pause and reflect on the evolution since that time of approaches to conduct risk in retail financial services.
Governance, Culture and Accountability: an effective executive
27 May 2021
While the most senior executives will sit on the Board, their roles and responsibilities are distinct from and supplement those of the Board. In our latest post, we look back at previous articles on the role of the executive in corporate governance and highlighted just a few of the areas of particular challenge for firms in the regulated sector and their senior executives.
Board governance and executive governance – where to draw the line?
26 May 2021
Effective board governance and executive governance are both critical to ensuring the success of a firm but the distinction between the roles can be misunderstood or become blurred.
Scaling the climbing wall
20 May 2021
Read this blogpost to help you understand whether your firm’s escalation framework is effective, and whether “information cascade” is relevant to your organisation.
Decisions on data – why good MI is critical to Senior Manager oversight and decision making
17 May 2021
Creating thoughtful management information (MI) which provides Senior Managers with detailed insight into all matters within their remit (financial performance, risk tolerance, staffing issues, conduct risks etc.) remains a significant challenge for most firms and individual Senior Managers. That being the reality, what are the regulatory expectations with regards to MI? What are the general principles of good MI and what questions should firms and Senior Managers be asking themselves when assessing the quality of their MI?
Reasonable steps: what are they and how do you evidence them?
13 May 2021
Senior Managers must take “reasonable steps” to ensure that their business is effectively controlled, complies with relevant requirements and that they delegate effectively. Fair enough, but what does this mean in practice and how should Senior Managers evidence the reasonable steps they take? This post considers the key ingredients to a successful reasonable steps assurance framework.
Delegation: what does “good” look like
11 May 2021
Delegation is central to good management and the effective functioning of financial institutions. It is also an instrumental part of how Senior Managers discharge their regulatory responsibilities. In our latest post, we explore how Senior Managers can test whether their delegation functions effectively in practice and how it stacks up against the regulators’ expectations, particularly in light of the challenges of COVID-19 and the shift to ‘working from home’.
Corporate governance for UK branches – square peg, round hole
4 May 2021
Despite the significant number of banks in the UK operating via branch, most of the key principles of corporate governance relied upon by UK’s financial services regulators derive from rules and guidance applicable to UK listed companies. There are significant challenges with applying such principles to branches. This note explores the corporate governance expectations of UK branches, a selection of the key corporate governance challenges branches face and how they may be addressed.
Board effectiveness reviews and the proposed reforms/code
20 April 2021
It is a truth universally acknowledged that an effective Board is key to the success of a regulated financial services firm. Regular reviews of Board’s effectiveness can be a useful tool for improving a Board’s performance. But how to make sure that your Board Effectiveness Review is effective?
Board governance lessons arising from the Aviva plc Final Notice
15 April 2021
Last year’s Final Notice for Aviva raises five interesting questions for Boards to consider when reviewing their governance approach.
The Purposeful Board
6 April 2021
The FCA has said financial services is at a “tipping point” in a journey to healthy, purposeful, safe, diverse and inclusive cultures that create healthy returns for shareholders. We explore the expectations of, and key actions for, Boards in delivering this outcome.
Groupthink: is your Board immune to this risk?
1 April 2021
The potential risks associated with groupthink are as important to Boards as to executive management committees. In this post we consider when groupthink might affect Boards, when criticism has been levied by the regulators and questions you should critically ask yourself to check the effectiveness of your Board governance approach.
Governance for growth: Why challengers should not be tied to bank-style Board governance
18 March 2021
We have seen challenger banks and fintechs come under regulatory pressure to reform their governance structures along traditional bank lines as they scale. This has the comfort of familiarity, but it does not mean that it is always the right approach.
FCA CEO says diversity and inclusion are regulatory issues
18 March 2021
The FCA’s CEO has this week emphasised the role of diversity and inclusion in creating a positive culture to support fair outcomes for customers. What questions should you be asking to ensure your firm meets regulatory expectations?
Time to consider a Sludge Audit?
12 March 2021
The term “sludge audit” may not be part of the regulatory lexicon, but the idea that a business should walk in its customer’s shoes to understand the customer experience and potential drivers of poor outcomes is an activity that closely aligns to the FCA’s regulatory priorities.
A fine balance: NED roles in financial institutions
10 March 2021
Corporate failures, including that of Carillion, have focused minds in the financial services sector on the precise role played by non-executive directors. Ever-increasing scrutiny from regulators on individuals’ roles and responsibilities sits alongside a broader public debate about the effectiveness of boards and how they are evaluated. In this climate it is important for both the firm and the individual NEDs to understand what is – and is not – part of the NED job description.
Operational resilience: A case study for Boards
10 March 2021
The UK regulators are preparing to require firms to embed an operational resilience framework within BAU operations by 2024. The three-year transition hints at the significant design and implementation work that will need to be completed. This regulatory change, which comes hot on the heels of recent high-profile disruption in financial services and the Covid-19 pandemic, makes operational resilience the perfect case study when it comes to considering effective Board oversight and governance.
