Board Member EventSenior executive accountability regimeMay 2019

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Agenda

Welcome

Topic Presenter(s) Timing

Introduction Colm McDonnell 3.00-3.10pm

Keynote

Senior Executive Accountability Regime Proposal and General Expectations

Derville Rowland, CBI 3.10-3.30pm

Session 1: Being Prepared –Elements to Consider

Sean Smith 3.30-4.00pm

Break – 5 mins

Session 2: Practical Steps to Consider

James Beasley 4.05-4.35pm

Session 3: Regulatory Briefing -Market Insights and Areas of Focus

Bronagh Shiel 4.35pm-4.50pm

Final questions & close Colm McDonnell 4.55-5.00pm

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Introduction

Colm McDonnell

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The Senior Executive Accountability Regime: Our Expectations and Insights for Boards

Derville Rowland

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Session 1

Being Prepared – Elements to Consider- Practical Steps to Consider - Roundtable Discussion- Feedback on Discussion

Sean SmithPartner – Risk Advisory

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Practical considerations before implementation

Start early

Senior

Management

Support and Clear

Ownership

• Give the topic sufficient time for discussion and debate and find an approach that works best for your firm – avoid unintended consequences. Demonstrate that you are embracing today and future obligations in a meaningful and purposeful way.

• Tone from the Top and leadership buy-in – culture of ownership and accountability

• Consider who will lead and own the implementation and embedding – Board, compliance, HR….all?

• Get the right team in place and establish a defined project management model to breakdown each step and clearly assign ownership – Program vis-à-vis BAU. Methodologies should be considered in depth before application e.g. mapping methodology

Getting started

• Build on current expectations including Fitness & Probity - consider the practical implications of enhancing current requirements and consider future changes

• Calibration – how deep and wide should you go? Should you benchmark?

• Identify the opportunities, not just a compliance exercise e.g. can be used to drive performance

• Review a sample of previous incidents to understand the challenges of the practical application of the regime

Awareness and

Training

• A strong communication plan to assist in establishing a solid dialogue between senior management, the proposed certified population and the wider firm to ensure greater engagement

• Ongoing awareness and understanding of how this could impact individuals including assurance on the level of compliance and the expectations on what this means

• Strong MI is key, should this be at individual level or should it be collective?

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Practical considerations before implementation

Start early

Outsourcing

• If senior management responsibilities are outsourced and how is this managed - documented roles, responsibilities,

objectives and regularly assessment of performance

• Appoint a senior person with responsibility for the outsourced role i.e. a direct reporting line for the delegate, preferably

independent from the functional reporting line

• Consider approach to matrix reporting lines and SEAR

Strategic

Approach

• Fully understand how much work could be involved when it comes to implementation and ongoing embedding – agree what

is required upfront to avoid rework and unforeseen issues

• Ensure that your governance arrangements are fit for purpose and appropriate for your firms scale and complexity –

consider impacts on the committee structure, reporting lines and performance management

• Consider how to identify areas of responsibility and accountability across the firm – top up vis-à-vis bottom down approach,

individual vis-à-vis collective. Compliance universe vs thematic approach.

• Consider who is in scope and who is not. Err on the side of caution

• Strategic consideration of linkage to your strategy, business model, risk frameworks, culture program and broader culture

initiatives e.g. speak up

• Engage with individuals potentially within scope early and obtain their acknowledgement/acceptance – clear SOR

Succession

Planning

• Refine role profiles and job descriptions, if required, to ensure that they accurately reflect the responsibilities, reporting lines and delegated authorities etc.

• Process to identify and develop potential successors for key responsibilities and accountabilities through systematic evaluation and training - increase the availability of experienced and capable staff that are prepared to assume these roles as and if they become available

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Practical considerations before implementation

Start early

Benefits of ‘getting accountability right’

• Key opportunities to improve your organisation’s governance, risk and culture – more transparency and accountability can improve decision

making

• Greater ability to demonstrate ongoing compliance with Fitness & Probity and Corporate Governance Code applicable for your firm

• Enables better tracking of responsibilities against performance and alignment to your firm’s strategy and objectives

• Supports setting expectations around culture, behaviour, performance and the role that each individual plays

• There is already the expectation to be demonstrating good governance and driving individual accountability – focusing on this area will

facilitate you in meeting regulatory expectations

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Questions to consider

Are you prepared to manage the potential changes and increasing regulatory requirements?

How will you ensure buy-in across your firm at all levels and across the 3 lines of defence?

How will this impact other key initiatives that are ongoing within your firm or on the horizon?

How will you gain confidence that management information is providing the necessary level of detail and insights to demonstrate that your firm is taking reasonable steps to identify, assess, measure and reporting on accountability?

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Session 2

Practical Steps to Consider- Overview of lessons learned from UK SMCR implementation- Roundtable Discussion- Feedback on Discussion

James BeasleyDirector – Deloitte UK

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SMCR Application

Banking and Insurance post-implementation review findings

• Firms underestimate the certification regime at

their peril;

• Evidencing “reasonable steps” needs to be practical

and sustainable;

• Tightening up board disciplines in light of SMCR;

• Focus on group and subsidiary relationships and

management of conflicts of interest from the

regulators;

• Firms taking greater care over the approach to

strategic prioritisation;

• Execution risk and the approach to material

transformation programmes;

• Regulators’ continued focus on culture;

• New SMF responsibilities for regulatory hot topics.

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Implementation

Delivering the programme – lessons learned

Appropriate sequencing of workstreams

Programme Ownership

Documenting rationale

Regulatory interaction

Cross-Functional Involvement

A considerable number of firms spent a lot of initial time on the Senior Managers aspects of the programme, only to find that changes needed for “fit and proper and conduct monitoring” processes have a longer than expected implementation time.

Some firms experienced significant debate over which individual should lead the SMR project. Smaller firms often nominated the CEO as sponsor, in line with expectation for this individual to be accountable for regime on BAU basis.

Once timings on the new regime are clearer, those firms with a supervisor may want to plan the timing of an initial regulatory interaction as well as grandfathering timescales.

Board involvement

Once timings on the new regime are clearer, those firms with a supervisor may want to plan the timing of an initial regulatory interaction as well as grandfathering timescales.

There can be significant discussion over key areas such as allocation of responsibilities. The regulations require a firm “to keep a record of its reasoning” so clear design documentation is important.

Working groups typically need good coordination across Compliance, Legal, CoSec, HR and in some cases COO and IT.

Programme considerations

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Reasonable Steps

NED considerations & debate points in other firms

Outsourcing –

intragroup and

external third party

Reporting and

assurance on the

regime

Conflation of individual

versus committee

responsibilities

Remuneration

interactions between

Group and subsidiariesAction-taking to

help shape MI

On-going discussion on

depth and quality of

challenge.

Material change /

technology

programmes

Taking on a new SMF role

or area of responsibility

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Questions to consider

How will responsibility for ongoing compliance with the regime be apportioned? What might change in order to be successful?

How might you and your firm approach documenting and evidencing reasonable steps?

What impact might the regime have on board disciplines? i.e.

• Minutes and the degree of attribution

• NED appraisals

• Skills Matrices

• Board induction and training

• Board and executive succession planning

What other tools might NEDs use to demonstrate reasonable steps?

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Session 3

Regulatory Briefing - Market Insights and Areas of Focus

Bronagh Shiel Senior Manager – Risk Advisory

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Regulatory Briefing

Governance and Culture

To address the root causes of misconduct there is an intensified regulatory oversight of firms’ governance and

risk & control management frameworks.

Increased focus on diversity and inclusion at

board/senior management level, especially as a way of avoiding group-think

and ensuring effective challenge.

Access and Vulnerable Customers

Concern about financial exclusion, particularly as a result of growing digital distribution, means that regulators continue to

scrutinise the levels of access that more

“vulnerable” groups have to financial

services and products.

Regulators are also focusing on firms’

policies and practices to ensure that

vulnerable consumers are not put at risk by

poor firm conduct.

Scrutiny of Business Model to the Changing Risk

Environment

As a decade of accommodating

monetary policy comes to an end, political

uncertainty increases, and technological

innovation disrupts and transforms the way

financial services are delivered, regulators are

stepping up their scrutiny of how firms

are responding to these risks.

Protection and Use of Data

With greater use of consumers’ personal data it is important to

prevent another possible “Cambridge Analytical

moment” given the harm it could do to consumers’ trust.

With GDPR and PSD2 in place, regulators have both the basis and the tools to take a closer look at firms’ use of

data.

2019 financial services – some constants

Testing for Cyber Vulnerabilities

As technological change and the rise of digital

business models continue, cyber-

related risks have risen up the regulatory

agenda, and means heightened scrutiny of

firms’ cyber resilience.

Model Risk Management

to Senior management

and boards to improve their understanding of the strengths and

weaknesses of internal models that are used for regulatory

capital, strategic decision making and other areas; as well as their governance and

oversight of such models.

Banking Sector Themes Capital Markets Sector Themes

Prudential Resolvability ILAAP,ICAAP,SREP & Stress

Testing

Financial Crime Landscape Algorithmic & Electronic Trading

Payment for Research

Transaction Reporting

Traded Risk

MarginClearing & Settlement

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Regulatory Briefing

Shift from implementing new regulation to ongoing

supervision

A shift away from regulatory reform and policy initiatives, with regulators

and looking to assess how new regulatory requirements have

been implemented.

Firms need to ensure that regulations have been suitably

embedded and should look to optimise their approaches where

possible.

This could for example include GDPR, PSDII, EBA Guidelines on

Internal Governance.

It is important that banks can demonstrate that regulations have been suitably embedded

Building Resilience to

operational disruptions

Increasing exposure to both IT and cyber risks, as well as

increasing awareness of the harm that operational issues can

cause, means heightened scrutiny of activity on

operational resilience.

Firms will need to show they understand their risk exposures and have the capability to deal

with any potential disruptions.

IBOR Transition

Pressure to transition away from LIBOR, with greater

regulatory scrutiny of whether firms are reducing their

exposure to LIBOR.

The need to prepare for a transition away from both

EONIA and Euribor.

Climate Change and Sustainability

Global, EU and national regulators are in the process of defining their expectations for

climate change risk management.

Amidst rising investor pressure and industry action, central banks and regulators will increasingly focus on the

financial risks that arise from climate change, and expect

firms to work towards managing them.

2019 financial services – cross sector themes

Value for money

A growing emphasis on the economic consequences that poor value products and

services have on consumers.

Regulators continue to focus on firms’ fees and charges across customer groups, and on the

transparency and comparability of products, and

will expect firms to apply clear and fair charging structures.

Also a focus on policies and procedures to ensure

vulnerable customers are not put at risk by poor conduct.

Insurance Sector Themes Investment Management Sector Themes

Business Model

Changing Roles

Pricing & Distribution Solvency II Review

Value for Money

Payment for Research Fund Governance

Product Governance & Distribution

Fund Liquidity & Leverage

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Questions & close