The FSA has issued a guidance consultation/feedback on governance.
Although it is headed ‘Governance in retail firms’ the content is also relevant to wholesale firms.
The feedback stems from a series of breakfast meetings held by the Regulator in October and November last year.
It’s quite a light paper (three pages). Points of interest include the desire expressed by Non-Executive Directors (NEDs) for there to be more frequent contact between the FSA supervisors and the NEDs and the variation between firms in the degree of formality in their induction process. There is a reminder that firms should explain to the FSA what particular skills and experience they envisage a new NED bringing to the Board so that the individual can be assessed in that context.
Participants recognised the importance of regularly reviewing the effectiveness and the functioning of a Board. This is particularly important where a firm is growing rapidly as there is a danger of governance and controls not keeping pace with the business.
One possible criticism raised by participants was the difficulties they face in evidencing to the FSA effective challenges of decisions at Board level. It was commented that the FSA focuses too much on minutes. Challenge often occurs outside of formal Board discussions and hence Board minutes were only one indicator of challenge. The concern was acknowledged by the Panel but suggested that the firm and the FSA needed minutes to show why a decision has been made. However they agreed that FSA supervisors should look at a range of information such as committee meetings and informal discussions between executives and NEDs to build up a picture.