General Information & Client Service
  • 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
March 22, 2018

Danièle Nouy of ECB spoke at the Second Banking Supervision Conference in Frankfurt, highlighting the progress made by banks in the area of sound governance. Although “banks have made progress” in this area since the start of European banking supervision in 2014, she pointed out areas in which the “progress has been too slow.”

She mentioned that banks must implement the recommendations issued by the Joint Supervisory Teams, with more work still to be done in the following five areas:

  • Improving awareness of the importance of the oversight function of boards. Banks should “clearly structure their boards” and the size of their boards should not “impede their work.”
  • Ensuring independence within the board. She supported the EBA guidelines in this area, as “independent board members play a key role in providing the checks and balances which are crucial for sound decision-making.”
  • Strengthening the link between the board and internal control functions. Risk management, compliance, and internal audit must inform the decisions that are taken at the top, with the heads of these areas reporting regularly and directly to the board of directors. Meanwhile, the board must assess whether internal control functions are working efficiently and effectively.
  • Integrating risk appetite frameworks within the organizational strategy. Both financial and non-financial risks must be integrated closely into the entire organization, linked to the overall strategy, and aligned with the remuneration policies.
  • Improving data quality. The largest banks need to comply with the principles on risk data aggregation and risk reporting issued by BCBS; “many banks are far from doing so.”

In the context of digitalization offering new opportunities, Ms. Nouy emphasized that banks must ensure that their “three lines of defense” model is adapted to the digital world. As a first line of defense, banks must define additional controls to ensure that IT systems are always available and secure. As a second line, they must define an IT risk strategy, also setting out the desired IT risk appetite. As for the third line of defense, banks must incorporate digitalization into their audit plans and the related methods and processes. Such changes and developments put governance frameworks to the test; it remains to be seen whether they be able to ensure that banks make sound decisions. She added that risk management is one of the supervisory priorities for 2018. In that context, ECB will assess the internal models banks use to determine their risk-weighted assets. ECB also expects banks to improve their internal capital and liquidity adequacy assessment processes (ICAAP and ILAAP).

In conclusion, Ms. Nouy reinforced that banks must improve and adapt their internal governance frameworks to address these challenges. Supervisors will take the stance of being “tough and intrusive” and plan to use all tools that have been developed in the recent years.


Related Link: Speech

Keywords: Europe, EU, Banking, Governance, Internal Controls, Board Oversight, ECB

Related Insights

US Agencies Propose Revisions to FFIEC Reports 031, 041, 051, and 101

US Agencies (FDIC, FED, and OCC) propose to extend for three years, with revision, FFIEC 031, FFIEC 041, FFIEC 051, and FFIEC 101.

February 21, 2019 WebPage Regulatory News

OFR Adopts Data Collection Rule on Centrally Cleared Repo Transactions

OFR adopted a final rule to establish a data collection covering centrally cleared funding transactions in the U.S. repurchase agreement (repo) market.

February 20, 2019 WebPage Regulatory News

FHFA Finalizes Rule on Federal Home Loan Bank Capital Requirements

FHFA published, in Federal Register, the final rule to adopt, as its own, portions of the regulations of the Federal Housing Finance Board pertaining to the capital requirements for the Federal Home Loan Banks.

February 20, 2019 WebPage Regulatory News

PRA Publishes PS4/19 on Loss-Absorbency Mechanism Under Solvency II

PRA published a policy statement (PS4/19) that provides feedback on responses to the consultation paper (CP27/18) on adjusting for the reduction of loss absorbency where own fund instruments are taxed on write down under Solvency II.

February 20, 2019 WebPage Regulatory News

SRB Publishes Framework for Performing Valuations in Resolution

The framework provides independent valuers and the general public with an indication of the expectations of SRB on the principles and methodologies for valuation reports, as set out in the legal framework.

February 19, 2019 WebPage Regulatory News

BIS Paper on Effect of Securities Lending on OTC Market Liquidity

BIS published a working paper that studies how securities lending affects over-the-counter market (OTC) liquidity.

February 19, 2019 WebPage Regulatory News

US Agencies Extend Consultation Period for the Proposed SA-CCR

US Agencies (FDIC, FED, and OCC) extended the comment period for a proposed rule to update their standards for how firms measure counterparty credit risk posed by derivative contracts.

February 18, 2019 WebPage Regulatory News

FED Extends Consultation Period for Stress Testing Rule

FED has published in the Federal Register a notice proposing amendments to the company run and supervisory stress test rules.

February 15, 2019 WebPage Regulatory News

EBA Single Rulebook Q&A: Third Update for February 2019

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

February 15, 2019 WebPage Regulatory News

SEC Proposes Rule on Risk Mitigation Techniques for Uncleared SBS

SEC proposed a rule that would require the application of specific risk-mitigation techniques to portfolios of security-based swaps (SBS) that are not submitted for clearing.

February 15, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2623