UK regulator pronounces on board responsibilities
A supervisory statement has been released by the UK's Prudential Regulation Authority (PRA) setting out board responsibilities (Corporate governance and Board responsibilities – SS5/16). It notes that ‘The purpose of this supervisory statement is to identify, for the boards of firms regulated by the PRA, those aspects of governance to which the PRA attaches particular importance and to which the PRA may devote particular attention in the course of its supervision. It is not intended to provide a comprehensive guide for boards of what constitutes good or effective governance’.
Notwithstanding this, the supervisory statement covers a number of key governance areas, such as the board’s role in setting strategy and risk appetite; oversight of culture, risk management and internal controls; board composition, skill set, board committees and the time commitment expected of directors; matters reserved for the board; delegations of authority; support and reporting provided to the board; subsidiary boards; and succession planning and remuneration.
Aligned with the current regulatory focus on culture, the supervisory statement notes that it is the responsibility of the board to articulate and maintain a culture of risk awareness and ethical behaviour for the entire organisation. The PRA explicitly calls on boards to have oversight of appropriate incentives to embed the behaviours the board wishes to see in play, as well as holding management to account for embedding and maintaining this culture.
The supervisory statement also states that the risk appetite is owned by the board and should support the business strategy, and that the risk appetite needs to be ‘expressed in terms that can be readily understood by employees throughout the business’. Moreover, the PRA sees the board as having the responsibility to use the risk appetite to ‘monitor and control actual and prospective risks and to inform key business decisions’.
The supervisory statement is available here.