European banking regulators focus on BoD appropriateness and effectiveness

The focus on governance

Internal governance is one of the top supervisory priorities of the ECB’s Single Supervisory Mechanism (SSM) and one of the key elements of the Supervisory Review and Evaluation Process (SREP).

Sound governance is critical for business model sustainability, particularly in today’s challenging environment in which banks face economic, financial, competitive and regulatory headwinds. In this regard, the SSM has high and specific expectations regarding banks’ boards, including the following:

• Boards should have an adequate composition and effective organisation in order to ensure the capacity to independently challenge, approve and oversee management’s implementation of the bank’s strategic objectives, governance and corporate culture;
• Boards should include a risk perspective on strategic discussions and demonstrate effective oversight of risk and control functions;
• Boards should be strongly involved in the validation process and monitoring of the risk appetite framework.

An in-depth assessment of the institutions’ management bodies and their risk appetite frameworks was conducted in 2015 across all significant institutions in the euro area through a thematic review. Both the SSM and the European Stability Mechanism (ESM) continue to assess board effectiveness and conduct screening exercises in order to promote adequate and sound governance arrangements.

How can we help?

A regular external assessment of the effectiveness of your Board is an excellent way of adding value to your organisation and ensuring effective decision making at the top of the organisation. This is the function of the Deloitte Board Evaluation service. With governance as a key component of SREP, our service will enhance your readiness for any assessments by SSM and ESM.

Our approach incorporates a number of techniques including reviewing board documentation, sitting in board meetings to assess board dynamics, challenging board members through interviews and running case studies.

Download our Board Evaluation Services brochure and get in touch with us for more information about our service offering.