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.
- 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
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