Governance – still on the radar

Governance – still on the radar

Two significant papers were issued on governance at the end of October. The European Banking Authority (EBA) published a consultation paper on a new version of its Guidelines on Internal Governance (last published in 2011). The EBA and ESMA issued jointly for consultation a set of draft guidelines on how a firm should itself assess the suitability of Board members and senior management, under the requirements of CRD4 and MiFID 2.

Senior Advisor, EMA Regulatory Centre of Excellence

KPMG in the UK

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On 28 October 2016, EBA published a consultation paper (PDF 490 KB) on a new version of its Guidelines on Internal Governance (last published in 2011). To a large extent these Guidelines are yet another 50-page run-through of the fundamentals of corporate governance. However, it is always useful to note where new material is introduced, because this may provide some insights into likely areas of supervisory review:

Risk culture

Importance of the Board fostering a sound risk culture, and of the executive management implementing this culture. The draft guidelines (section 9.1) refer specifically to the four areas identified by the Financial Stability Board for supervisory attention in assessing a firm's risk culture, namely tone from the top, accountability, communication and challenge, and incentives.

Board oversight

Increased emphasis on the responsibilities of the Board to exercise oversight of the firm's activities and its risk management framework.

Change processes

To ensure that the risks within a firm's change processes are properly considered and addressed.

New products

Section 14 of the draft guidelines picks up on the oversight and governance responsibilities of product manufacturers and distributors, drawing on earlier EBA guidelines on this.

Joint ESMA and EBA Guidelines

On the same day, EBA and ESMA jointly issued for consultation (PDF 913 KB) a set of draft guidelines on how a firm should itself assess the suitability of Board members and senior management, under the requirements of CRD 4 and MiFID 2.

These draft Guidelines set out criteria for the assessment by a firm of both the individual and collective knowledge, skills and experience of members of its Board and senior management, and of their good repute, honesty and integrity, and independence of mind.

In addition the Guidelines cover:

  • Requirements on Board members to commit sufficient time to perform their duties, and how the number of directorships held by Board members should be assessed;
  • How different aspects of diversity, educational and professional background, age, gender and geographical provenance should be taken into account in the recruitment process; and
  • The importance of induction and training to ensure initial and continuing suitability.

Regulatory challenges

KPMG’s Financial Services Regulatory Centers of Excellence can provide insights into the implications of the raft of regulatory change.

 
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