March 22, 2019 Independent Non-Executive Directors (‘INEDs’) in the banking sector

Introduction

A recent roundtable report[1] has highlighted the importance of the role of INEDs and a well-developed company secretarial and governance structure in the banking sector.

The introduction by the UK Financial Conduct Authority (‘FCA’) of the Senior Managers and Certification Regime (‘SM&CR’) has focused the minds of many INEDs on their personal responsibilities.

As a result, a competent company secretarial function is now vital for all banks, large and small. If you’d like to discuss your company secretarial requirements please contact Elemental via [email protected] or 020 3286 6229.

Good Governance and the SM&CR

There is no consensus of the key facts and standards that constitute good governance. The SM&CR regime, introduced in March 2016, is a principles-based regime which presents a challenge of interpretation to banks.

The SM&CR is separated into three parts:

• The Senior Managers regime;
• The Certification regime; and
• Conduct Rules.

Senior Managers (including committee chairs and the senior independent director) need FCA approval before starting their roles. Banks must provide a ‘responsibilities map’ to the FCA and certify on an annual basis that senior managers are suitable to do their jobs.

The Certification Regime applies to employees whose role means it’s possible for them to cause significant harm to the bank or customers. These people don’t need to be approved by the FCA, but banks must check and certify that they are fit and proper to perform their role at least annually.

The Conduct Rules are high-level standards of behaviour that apply to almost everyone in the banking sector. There are also some Conduct Rules that only apply to senior managers.

Firms need to make sure staff are trained in and know that the Conduct Rules apply to them, and to notify the FCA when someone breaches a conduct rule.

Board minutes

Considering the SM&CR, INEDs should ensure that board minutes reflect their views. INEDs should not personally sign off minutes particularly if a statement suggesting agreement was reached unanimously if this was not the case.

As a result, having a knowledgeable and professional company secretary service is vital to ensure that minutes are recorded to a high standard.

International & Cultural differences

Banking is an international sector. Many banks will have foreign parent companies. Such banks are often challenged in ensuring compliance because the parent companies do not understand or do not explain the personal accountability of their board members in the UK.

If you find it difficult to front up, analyse and appraise colleagues from different countries and cultures, we recommend you engage Elemental to undertake a thorough board review.

Conclusion

The advent of the SM&CR has resulted in the position of Company Secretary becoming a key role. A Company Secretary can provide INEDs with the comfort that their actions are being recognised and evidenced.

Please contact Elemental for more information about our Company Secretary services.

Elemental Cosec Limited

March 2019

Useful resources and links:

FCA’s webpage for the Senior Management and Certification Regime: banking: https://www.fca.org.uk/firms/senior-managers-certification-regime/banking

FCA Handbook: https://www.handbook.fca.org.uk/

This overview has been provided for general information only. It does not purport to be complete and should not be relied upon and advice should always be taken if you are in any doubt as to the relevant rules.

[1] ‘The evolution of the Independent Non-Executive Director under the Senior Managers Regime’ by Anthony James Executive Search, www.anthonyjameses.com