Andrew Bailey, CEO of the PRA gave a speech earlier this month on corporate governance of banks and specifically the role of boards. Bailey points out that understanding how firms monitor risk is at the heart of what the PRA is all about. His words focus on three groups of governance actors: senior management, NEDs, and the supervisor. Senior management exercise judgement on strategy, risk appetite, and the overall risk assessment framework of the regulated firm.
As far as boards, Bailey indicates that the PRA seeks evidence for good forward-looking judgement, constructive and honest challenge from NEDs (what academics sometimes call cognitive conflict), and oversight of risk appetite frameworks and other duties. Clearly the PRA is seeking boards to exercise a certain level of risk awareness and understanding, underpinned by clear communication by the executive to ensure a robust dialogue. Over ten years ago, Jonathan Charkham, CBE, laid out the oversight roles of a bank director. Andrew Bailey's words appear to move well beyond oversight to an enhanced understanding of risk profiles, firm appetite and its linkage to strategy.
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