Corporate governance expectations of the board of directors in regulated firms

Setting strategy

Culture

Risk management and risk appetite

Board composition

Setting strategy

A crucial role of the Board is to set and approve the firm's strategy. Of particular importance is that the Board must ensure:

• The strategy is aligned with its approved risk appetite, and
• It oversees the strategy implementation by the firm's executive directors and senior management.

Regulatory expectation

The Board can demonstrate its strategy:

• Considers the customer impact of its strategy;
• Is aligned with its risk management framework and risk appetite. In practice, this also means that Boards can demonstrate that its strategy incorporates and addresses the firm's regulatory obligations;
• Is monitored throughout the period for which the strategy is relevant and that it contributes to the firm making appropriate decisions that are aligned with a sustainable business model;
• Has been allocated sufficient time and resources for development, discussion and implementation at a non-executive director, executive director and senior management level.

Risk management and risk appetite

As already referenced, a firm's strategy must be aligned with its risk appetite. As a result, an appropriately defined, tailored and measurable risk management framework and risk appetite are crucial to facilitate the Board to define a fit for the purpose strategy.

It is the responsibility of the Board to approve its risk appetite and utilise it to monitor and ensure management implement the strategy within the firm's risk appetite.

Regulatory expectation

It is expected that the Board can demonstrate that its risk appetite:

• Has been understood, reviewed and challenged before its approval;
• Is actively monitored by it and senior management to ensure the firm remains within its risk appetite.
• Is utilised to identify potential and actual events that require the firm to take appropriate proactive and reactive actions to ensure:

• • The firm remains within or returns to its risk appetite;
  • Its risk management and control framework is fit for purpose; and
  • The firm escalates and reports appropriate issues internally (i.e. within Board and management committees) and externally (e.g. the Central Bank of Ireland).

Roles of executive and non-executive directors

Whilst executive directors have management responsibilities for which they are directly accountable to the Board. They do have additional responsibilities. It is also their responsibility to manage the day to day business and operations of the firm in the pursuit of achieving its strategy approved within its risk appetite.

The responsibilities of non-executive directors mean they must both support and oversee management's actions. Specifically, that management's actions are aligned with the achievement of the strategy.

Regulatory expectation

It is expected that executive and non-executive directors can demonstrate and evidence that they are taking reasonable steps in the discharging of their roles and responsibilities, as outlined in their terms of reference and individual role descriptions. 

Management information and transparency

A fundamental element required to allow the Board to perform its role and responsibilities is that management provides it with management information (MI) in a timely, accurate, and complete manner. Furthermore, this MI should be aligned with providing the Board with oversight of management actions to achieve the approved strategy and operate within the approved risk appetite.

Regulatory expectation

It is expected that the Chair of the Board, the Chair of Board sub-committees and other non-executive executive directors play an active role in defining and stipulating the type and frequency of MI the committees should receive. This is important, as it is this MI and reporting that Chairs of committees and non-executive directors will rely on when reviewing and challenging the actions of management and supporting them in demonstrating they are taking reasonable steps in the performance of their role and responsibilities.

From a management perspective, it is expected that they will exercise due skill, care, and diligence to prepare this MI, and they will also escalate relevant issues and/or topics to the Board that require its attention.