Featured Product

    Danièle Nouy of ECB on the ECB Approach to Supervising Governance

    June 21, 2018

    During the keynote speech at the farewell seminar of Jan Sijbrand in Amsterdam, Danièle Nouy, Chair of the Supervisory Board of ECB, spoke about the ECB Banking Supervision’s approach to supervising governance. She outlined the contributions of DNB in this area and highlighted that ECB Banking Supervision has built a holistic and comprehensive approach to assessing governance. She described what banks have achieved so far in this area, what banks still need to improve, and where supervisors can still improve.

    While discussing the ECB approach to supervising bank governance, she outlined the tools being used by ECB. The tools included the fit and proper assessments; Supervisory Review and Evaluation Process or SREP, including risk appetite frameworks; the "deep-dive" tool; on-site inspections; and benchmarking banks from across the euro area. "All the tools I just mentioned have proven to be quite useful and we can already see that banks have significantly improved their governance and risk management," said Ms. Nouy. Banks have started to follow the recommendations on fit and proper assessments and self-assessment has become a common practice for bank boards. Banks are striving to enhance the structure and organization of their boards in line with the highest international standards. Some banks have split risk and audit committees while others have set up clear reporting lines to the risk and audit committees for certain functions. Additionally, banks have made progress in designing their risk appetite frameworks (RAFs). They have clarified the roles of the different stakeholders and internal audit functions have become increasingly involved in the independent review of their RAFs. 

    Next, she discussed the ways in which banks can implement further improvements in the area of governance. The size of banks’ boards should not impede their decision-making, especially in crisis situations that require quick decisions. The collective knowledge of boards can still be improved. Banks also need to maintain an adequate level of control. Under no circumstances should banks cut costs at the expense of risk management and of the quality of risk data aggregation and reporting. It is also important that banks’ budgetary processes are aligned with their risk appetite frameworks. RAFs should be further enhanced, particularly for non-financial risks such as compliance, reputational, IT, legal, and conduct risks. Moreover, banks should work toward a balance between risk and reward and remuneration schemes should be better aligned with RAFs. Finally, data quality should be improved, especially for data underlying the risk reports presented to banks’ boards or data used in designing the IT architecture. IT and management information systems are crucial for the ability of banks’ boards to easily obtain key information on the bank’s risk capacity, risk appetite, risk limits and risk profile across business lines and subsidiaries.

    Ms. Nouy highlighted that supervisors and regulators can further improve their toolkit. "Fit and proper rules are a case in point. They are an “old” part of the Capital Requirements Directive (CRD) IV, drafted under “minimal harmonization principles” and would benefit significantly from further harmonization." Policymakers should address three main issues to achieve this goal. First, all fit and proper assessments should be carried out before the candidate is appointed and takes up the new function. Second, a single methodology is needed to determine whether members of the management body are truly independent and have no conflicts of interest. At present, national law and supervisory practices on independence differ across the euro area, resulting in an uneven playing field for banks. Third, there needs to be full clarity on the definition of “key function holders.” Overall, she highlighted the importance of governance and emphasized that good governance is "a timeless asset for every bank."

     

    Related Link: Speech

    Keywords: Europe, EU, Banking, Banking Supervision, Governance, CRD IV, Risk Appetite, ECB

    Related Articles
    News

    MAS Concludes Blockchain Payments Prototype Shows Commercial Potential

    MAS and Temasek jointly released a report to mark the successful conclusion of the fifth and final phase of Project Ubin, which focused on building a blockchain-based multi-currency payments network prototype.

    July 13, 2020 WebPage Regulatory News
    News

    PRA Publishes Public Working Draft of XBRL Taxonomy 1.2.0 for Insurers

    PRA published a public working draft, or PWD, of version 1.2.0 of the BoE Insurance XBRL taxonomy, along with the related technical artefacts.

    July 13, 2020 WebPage Regulatory News
    News

    CPMI Report Sets Out Building Blocks to Enhance Cross-Border Payments

    CPMI published a report that sets out nineteen building blocks for a global roadmap to improve cross-border payments.

    July 13, 2020 WebPage Regulatory News
    News

    EBA Publishes Phase 2 of Technical Package on Reporting Framework 2.10

    EBA published phase 2 of the technical package on the reporting framework 2.10, providing the technical tools and specifications for implementation of EBA reporting requirements.

    July 10, 2020 WebPage Regulatory News
    News

    APRA Updates Reporting Validation Rules in July 2020

    APRA updated the lists of the Direct to APRA (D2A) validation rules for authorized deposit-taking institutions, insurers, and superannuation entities.

    July 10, 2020 WebPage Regulatory News
    News

    PRA to Partly Apply EBA Guidelines on Disclosures for COVID Measures

    PRA updated the statement that provides guidance to regulated firms on implementation of the EBA guidelines on reporting and disclosure of exposures subject to measures applied in response to the COVID-19 crisis.

    July 10, 2020 WebPage Regulatory News
    News

    EBA Updates List of Correlated Currencies Under CRR

    EBA updated the 2019 list of closely correlated currencies that was originally published in December 2013.

    July 10, 2020 WebPage Regulatory News
    News

    ESMA Guides on Securitization Repository Data Consistency Thresholds

    ESMA published the final report on the guidelines on securitization repository data completeness and consistency thresholds.

    July 10, 2020 WebPage Regulatory News
    News

    FASB Proposes to Delay Implementation of Insurance Contracts Standard

    FASB issued a proposed Accounting Standards Update that would grant insurance companies, adversely affected by the COVID-19 pandemic, an additional year to implement the Accounting Standards Update No. 2018-12 on targeted improvements to accounting for long-duration insurance contracts, or LDTI (Topic 944).

    July 09, 2020 WebPage Regulatory News
    News

    APRA Updates Regulatory Approach to Loan Deferrals Amid COVID Crisis

    APRA updated the regulatory approach for loans subject to repayment deferrals amid the COVID-19 crisis.

    July 09, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5480