Why the FCA Values Non-Executive Directors: Guardians of Governance and Compliance
In our previous articles, we explored the critical importance of board governance. Simply put, a strong governance framework is vital for any regulated institution, serving as the foundation for well-structured and compliant operations. Here, we focus on the role of Non-Executive Directors.
The Financial Conduct Authority (FCA) in the UK has clear expectations for Non-Executive Directors (NEDs) in regulated financial institutions. These expectations focus on ensuring strong governance, accountability, and proper oversight. Key responsibilities of NEDs include:
Independent Oversight: NEDs are expected to provide independent scrutiny of the executive team’s decisions, ensuring that the firm is run in a way that is prudent and responsible.
Challenge and Support: They should challenge the executives constructively on strategic matters, risk management, and overall performance, while also supporting the development and implementation of strategies.
Risk Management and Control: NEDs must ensure the firm has robust risk management frameworks and internal controls. They should monitor and review these systems regularly to ensure they are effective.
Compliance with Regulations: NEDs must ensure that the firm adheres to regulatory requirements and operates within the law. This includes understanding the regulatory environment and ensuring the firm meets its obligations under the FCA’s rules.
Culture and Values: NEDs play a role in promoting and embedding a healthy corporate culture. They should ensure that the firm’s values are upheld, and that ethical behaviour is prioritised.
Accountability: NEDs are accountable for the decisions they take and the governance of the firm. They must be able to demonstrate that they have acted in the best interests of the firm, its customers, and other stakeholders.
Commitment and Competence: The FCA expects NEDs to be competent, have relevant skills and experience, and commit sufficient time to their role. They should also engage in continuous professional development to stay informed about industry changes.
Role on Committees: NEDs may sit on key committees (e.g., Audit, Risk, Remuneration) and are expected to contribute effectively to these roles, bringing independent judgement to their functions.
SM&CR Responsibilities: Where the Senior Managers and Certification Regime (SM&CR) regime applies, NEDs may have specific responsibilities assigned to them and are held accountable for their areas of oversight.
In summary, the FCA expects NEDs to play a crucial role in ensuring that the financial institution is well-governed, compliant with regulations, and operates in a manner that promotes trust and stability in the financial system.