General Information & Client Services
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
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 Insights

IAIS Publishes Drafts of Revised ICP 8, ICP 15, ICP 16, and ICP 20

IAIS published the drafts of revised Insurance Core Principles on Public Disclosure (ICP 20), Investments (ICP 15), Enterprise Risk Management for Solvency Purposes (ICP 16), and Risk Management and Internal Controls (ICP 8), along with a revised draft of the glossary on enterprise risk management (ERM).

November 14, 2018 WebPage Regulatory News

MAS Amends Notice 637 on Capital Adequacy Requirements in Singapore

MAS published the final, revised Notice 637 on the risk-based capital adequacy requirements in Singapore.

November 13, 2018 WebPage Regulatory News

ESMA Updates Q&A on Implementation of CSD Regulation and MAR

ESMA updated questions and answers (Q&A) documents on the implementation of the Central Securities Depository (CSD) Regulation and Market Abuse Regulation (MAR).

November 12, 2018 WebPage Regulatory News

FSB Finalizes and Publishes the Cyber Lexicon

FSB published a cyber lexicon, following the public consultation earlier this year.

November 12, 2018 WebPage Regulatory News

SRB Updates Liability Data Reporting Template for 2019

SRB published version 2.7.1 of the Liability Data Reporting (LDR) Template.

November 12, 2018 WebPage Regulatory News

ECB to Conduct Comprehensive Assessment of Six Bulgarian Banks

ECB will undertake a comprehensive assessment of six Bulgarian banks. The exercise, comprising an asset quality review and a stress test, follows Bulgaria’s submission of a request to establish close cooperation with ECB on July 18, 2018.

November 12, 2018 WebPage Regulatory News

IMF Publishes Reports on the 2018 Article IV Consultation with Chile

IMF published its staff report and selected issues report under the 2018 Article IV consultation with Chile.

November 09, 2018 WebPage Regulatory News

PRA Issues PS27/18 on Implementing the Extension of SM&CR to Insurers

PRA published the policy statement PS27/18, which provides feedback to responses to the consultation paper CP20/18, on implementing the extension of the Senior Managers and Certification Regime (SM&CR) to insurers (Part 2).

November 09, 2018 WebPage Regulatory News

EBA Single Rulebook Q&A: First Update for November 2018

EBA published answers to seven questions under the Single Rulebook question and answer (Q&A) updates for this week.

November 09, 2018 WebPage Regulatory News

FED Finalizes the Large Financial Institution Rating System

FED finalized the new supervisory rating system for Large Financial Institutions (LFIs), to better align with the current supervisory programs and practices for these firms.

November 09, 2018 WebPage Regulatory News
RESULTS 1 - 10 OF 2204