FED Finalizes Guidance on Board Effectiveness at Large Banks
FED finalized the guidance on effectiveness of the Board of Directors and released the results of its review of 27 Supervision and Regulation and Consumer Affairs letters (SR Letters) that contain guidance on the roles and responsibilities for Boards of Directors of holding companies. Post review, FED decided to revise twelve SR Letters, make inactive nine SR Letters, and retain six SR letters without change. The supervisory guidance on Board effectiveness applies to all domestic bank holding companies and domestic savings and loan holding companies with consolidated assets of USD 100 billion or more. The guidance also applies to systemically important nonbank financial companies designated by the Financial Stability Oversight Council for supervision by FED.
The supervisory guidance on the effectiveness of Board of Directors adopts a principles-based approach to describe attributes of effective boards and provides illustrative examples of effective practices. The guidance notes that an effective board:
- oversees the development of strategy and reviews, approves, and periodically monitors the firm's strategy and risk appetite.
- directs senior management to provide directors with information that is sufficient in scope, detail, and analysis to enable the board to make sound, well-informed decisions and consider potential risks.
- oversees and holds senior management accountable for effectively implementing the firm's strategy, consistent with its risk appetite, while maintaining an effective risk management framework and system of internal controls.
- assesses and supports—through its risk and audit committees—the stature and independence of the firm's independent risk management and internal audit functions.
- considers whether the Board composition, governance structure, and practices support the firm's safety and soundness and promote compliance with laws and regulations (based on factors such as the firm's asset size, complexity, scope of operations, risk profile, and other changes that occur over time).
Firms subject to the large financial institution rating system are assigned three component ratings: Capital Planning and Positions, Liquidity Risk Management and Positions, and Governance and Controls. The supervisory assessment of Board effectiveness is one of the elements within the Governance and Controls component rating. As the board effectiveness guidance builds on the principles set forth in the large financial institution ratings framework, FED intends to use the board effectiveness guidance in informing its assessment of the governance and controls at all firms subject to the large financial institution rating system.
Related Links
- Notification on Guidance
- Guidance (PDF)
- Review of Supervisory Expectations
- Changes to Supervisory Letters (PDF)
Keywords: Americas, US, Banking, Governance, Large Banks, Guidance, Operational Risk, FED
Previous Article
EU Rule Amends Requirement for European Single Electronic FormatRelated Articles
EC Consults on PSD2 and Open Finance; EU Reaches Agreement on DORA
The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.
EC Mandates ESAs to Propose Amendments to SFDR Technical Standards
The European Commission (EC) has issued two letters mandating the European Supervisory Authorities (ESAs) to jointly propose amendments to the regulatory technical standards under Sustainable Finance Disclosure Regulation or SFDR.
EBA Examines Supervisory Practices, Issues Deposits Reporting Template
The European Banking Authority (EBA) published its annual report on convergence of supervisory practices for 2021. Additionally, following a request from the European Commission (EC),
US Agency Publications Address Basel, Reporting, and CECL Developments
The Farm Credit Administration published, in the Federal Register, the final rule on implementation of the Current Expected Credit Losses (CECL) methodology for allowances
SEC Extends Comment Period on Climate Risk Disclosures
The U.S. Securities and Exchange Commission (SEC) looks set to intensify focus on crypto-assets and cyber risk and extended the comment period on the proposed rules to enhance and standardize climate-related disclosures for investors.
APRA Reduces Committed Liquidity Facility, Issues Other Updates
The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility and issued an update on the operational preparedness for zero and negative market interest rates.
CMF Consults on Basel Rules, Presents Roadmap to Address Climate Risks
The Commission for the Financial Market (CMF) in Chile published capital adequacy ratios (as of February 2022, January 2022, and December 2021) for 17 banks and for the banking system.
PRA Issues Statement on NPEs and Policy on Trading Activity Wind-Down
The Prudential Regulation Authority (PRA) issued a statement on the European Banking Authority (EBA) guidelines on management of non-performing exposures (NPEs) and forborne exposures.
EBA Updates Standards for 2023 Benchmarking of Internal Approaches
The European Banking Authority (EBA) updated the implementing technical standards that specify the data collection for the 2023 supervisory benchmarking exercise in relation to the internal approaches used in market risk, credit risk, and IFRS 9 accounting.
EIOPA Responds to Stakeholder Views on Blockchain in Insurance
The European Insurance and Occupational Pensions Authority (EIOPA) published a feedback statement on the responses received to the consultation on blockchain and smart contracts in insurance.
