The PRA at the Bank of England has just issued a supervisory statement on key aspects of good governance for regulated banks and insurers. The statement identifies the board as the centre of good governance and underscores their role in maintaining safety and soundness. It further states: "Failures of governance or management of risk by boards have been a key factor in many of the major financial sector failures of recent years" The PRA guidance includes: setting strategy, culture, risk appetite, board knowledge and experience, remuneration, committees and subsidiaries. Given my particular area of interest here, it was very interesting to note the following:
- Boards are expected to ensure a culture of risk awareness and ethical behaviour,
- Business strategies are to be supported by well articulated risk appetite statements which are owned by the board of directors but understood by all staff, and linked to the risk control framework,
- Subsidiary boards are expected to include NEDs whom have sufficient understanding of the business. This knowledge is especially important around strategic decision-making and may require calling in specialist advice when appropriate, and
- Subsidiary governance shall ensure independence of the chairman and maintenance of an effective independent presence across the board of directors in order to meet its own responsibilities and consider potential conflicts of interest. Ring-fenced banks will be subject to cross-director limits.
For further information, check out this consultation on the BOE's website.
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