28 Mag Board Responsibilities – PRA Consultation
The Prudential Regulation Authority (PRA) is responsible for the regulation and supervision of some 1,700 financial institutions including banks, credit unions and investment firms. Although its remit is confined to one sector, the nature of that sector allied to the fact that the PRA is essentially part of the Bank of England means that its thinking and approach can influence the wider marketplace.
Admittedly some of its pronouncements relate to the finer points of financial instruments but its latest consultation (CP18/15) may be of interest to the majority of corporations. The consultation, which closes on 14 September, is entitled ‘Corporate Governance: Board Responsibilities.’ In it the PRA sets out a series of proposals which seek to identify key aspects of good board governance.
In its introduction to the consultation the PRA highlights the fact that “Good governance is critical to delivering a sound and well-run business: and at the centre of good governance is an effective board.” It also highlights the importance of appointing board members who have a mix of skills and experience which enable them to make informed decisions and provide effective oversight.
Breaking down board responsibility into twelve areas enables the PRA to set expectations in areas such as strategy and culture, board composition and knowledge. The entire proposal is worth a read but we will just pick out a few areas here which could equally apply to the majority of boards even if they are not PRA regulated.
- The roles of executive and non executive directors. The PRA proposes that the chairman of the board should play a pivotal role in ensuring that executive and non-executive directors act in a cooperative and collegiate manner in which they provide mutual support. However, this does not inhibit non-executive directors from holding executives to account and from challenging their decisions.
- Board time and resources. The PRA expects that board members will give sufficient time to their duties and that non-executive directors should be provided with adequate support including office space and staff if required. The Chairman has a responsibility to ensure that board meetings are not staged managed and that there is time for open discussion.
- Risk appetite and risk management. The board is expected to support the business strategy with a well articulated and measurable statement of risk appetite. It is the board’s responsibility to ensure that the risk control framework is regularly reviewed and that it remains aligned with strategy.