Skilled Person
Lot B – Governance, Accountability, Strategy and Culture
Governance and culture are arguably the root cause of all regulatory and compliance issues.
With its focus on fundamental and foundational matters, Lot B topics are often, but not always, paired with other panels.
In recent years, regulators have placed increasing scrutiny on the governance arrangements within the firms they regulate. One of the key elements that regulators consider when investigating a firm or an issue, is the effectiveness of the governance arrangements in place.
You should have in place governance arrangements that are robust but appropriate for your business model. Similarly, when it comes to culture one size does not fit all and Firms, working within the legal and regulatory framework, must decide and be able to demonstrate what works best for them.
“The role of regulation in culture is not to attempt sweeping rules, but rather to use rules and supervision to create the right incentives and to provide tools to diagnose the key characteristics. And, we can prompt and persuade.”
— Andrew Bailey, FCA
Considerations for firms
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SMCR
Your Board should be collectively responsible for decisions you make but there must be individual accountability. SMCR encourages senior individuals to take responsibility for decisions and for actions falling out of those decisions. This makes it easier for firms, and regulators, to hold individuals to account when things go wrong. The regulator will be looking to understand how responsibilities have been allocated and whether they are being followed in practice.
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Structure
Boards and committees should have the right balance of members to ensure a diverse and appropriate composition that suitably reflects your Firm’s purpose. Regulators will be keen to understand membership, attendance, and the skills, diversity and experience of individuals relative to your business model.
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Risk management
Risk management is a key component of effective governance frameworks. The Regulator will be looking to see how you have defined your risk appetite and its application in your decision-making process.
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MI and escalations
Boards and committees must exercise, and be able to demonstrate, ongoing and effective oversight of items they have delegated. Under a s166 the quality and provision of MI will likely need to be reviewed to assess how senior management are kept informed of key business developments and risks. Executive management have a key role to play in terms of reporting and escalating the right information across your governance framework.
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Culture
Each firm's culture is different. The regulator is looking to understand how your culture is aligned to your strategy and the extent to which it being used to create value in a sound and prudent manner and manage the risk of customer harm.