No details are given of clients or assignments but the case studies below give a flavour of what I do and I’ve included some comments at the end of each one. The organisations referred to, the situations described and the work carried out are anonymised composites, drawing on features of a number of similar assignments and the work involved in those.
A reset following rapid growth: governance as part of the reset toolkit
Financial institution ‘A’ had diversified into new areas of business and the firm had grown rapidly. The board welcomed the firm’s performance but regulators asked a number of questions about the business, covering risk management, systems and controls and how the board had challenged the strategy and the move into higher-risk business. Regulators then extended their review to consider board effectiveness, the skills and experience of senior management, governance (particularly, decision-making processes) across the business and various aspects of the relationship with customers.
The work involved:
- Supporting the board in discussions with regulators and responding to information requests;
- Supporting the board’s review (and challenge) of strategic options for the business, along with its review of risk appetite and risk management in the context of those options;
- Reviewing aspects of governance (including systems and controls) within the business, including whether what happened in practice was aligned with policies, procedures and decision-making frameworks;
- Reporting on the review findings and making recommendations;
- Preparing the board for meetings with regulators and regulators’ review of the board; and
- Helping the board reassure regulators and other stakeholders that the business was in safe hands.
By the end of the work, the firm had a good working relationship with regulators, a sustainable long-term strategy allowing it to resume growth in line with the risk appetite and more robust, effective governance. Other stakeholders supported the changes too.
Comment: Rapid growth is a key indicator that a firm will land on regulators’ radar. Robust governance helps to reassure regulators that the business is in safe hands and it’s important for firms to know how and when to present their case to regulators. Depending on the firm’s activities, size and customer base, some aspects of governance will be more significant and will need to be addressed ahead of other governance matters.
It’s also essential for both the firm and directors to show board challenge to management through a period of rapid growth, particularly if there’s diversification into new areas of business or new target markets.
Governance review
I was asked by financial institution ‘B’ to carry out a governance review. This was initiated by the non-executive directors who were seeking assurance that the company’s governance was in good shape following a period of growth. It was also expected that a regulatory review meeting would be held soon and there was an upcoming investment round.
Adjustments were made in light of the review findings and, soon after, a regulatory review meeting – the first the board and senior management had been through – went smoothly.
Comment: As firms reach a critical size – in terms of business, staff and other measures – regulators and investors expect to see more mature governance across the business. This might involve appointing additional independent non-executive directors, holding board meetings more frequently, reviewing decision-making processes across the business and making changes to MI and reporting, as well as transitioning to a more mature risk management framework.
Bank authorisation application: a governance and structuring point
As part of its discussions with potential investors, bank applicant ‘C’ needed to settle a structure for the proposed new group. This had to take account of investor priorities but also the close attention paid by regulators to group relationships and dependencies, resources that would be available to the bank and its business, funding flows, capital, wind-down arrangements, controllers and decision-making processes.
This was one strand of the wider activity of setting up the bank and completing the authorisation application. I worked with the applicant, investors and tax advisers to reach a structure that investors were happy with and that could be put to regulators with confidence that it was aligned with their expectations and addressed likely areas of concern.
Comment: Setting up a bank involves a raft of decisions about how the bank will operate and these involve balancing practical and commercial drivers with regulatory requirements and the (often unpublished) expectations of regulators. There will be adjustments along the way, particularly as a bank reaches greater maturity, but it’s helpful to start with a governance framework that can be adapted to grow with the business.
Preparing for a regulatory visit or review
Financial institution ‘D’ was told that it had been selected for a regulatory thematic review covering firms in a sector of the market in which it operated. The first stage of the work would involve a desktop review of information provided by firms selected for the review in response to an information request. The second stage would involve meeting those carrying out the work and a possible third stage (to be confirmed) would involve interviews with more senior staff, including any SMF senior managers.
The work involved supporting the firm in its preparation, including:
- Reviewing documents sent in response to the information request;
- Identifying points from those that regulators were likely to ask about;
- Explaining to those meeting regulators what those meetings would involve and what regulators like to see;
- Having mock ‘meetings’ – or presentations – as practice sessions;
- Providing feedback and answering questions; and
- Discussing points with senior staff and running through possible questions and points to make as preparation for interviews.
Regulators asked some follow-up questions, which were addressed. Feedback was positive.
Comment: There are two key points when facing a thematic or similar review: support the people who’ll be meeting regulators (and that will almost certainly involve those with customer contact) and close the points quickly. Everyone meeting regulators should be confident at the meeting, seeing it as an opportunity to explain the work that’s done and understanding what regulators are looking for. Any issues should be identified beforehand and raised with regulators.
Closing points quickly helps everyone to move on and can avoid regulatory questions straying into other areas of the business – and see the next case study.
Closing points raised by regulators
Financial institution ‘E’ had been selected for a thematic review and all had seemed to be going well. However, it was taking a while to close points and it was then selected for further reviews. The scopes of the various reviews overlapped and the firm felt it couldn’t get clear of the questions.
The work here involved getting regulators comfortable with what was being done to close points and with the firm and its business more generally. One of the key ways this was done was to show how the governance framework operated and that this was effective. I worked with the firm on responses to regulators and there were no further follow-up questions.
Comment: Closing points can help to reset the relationship with regulators and it also avoids time needing to be spent on information requests, follow-up questions and, often, frustration on the part of the firm and regulators. Governance is a key tool in reaching closure, including where points have been running for a while.
SMF interview preparation
It’s hard to know what to pick as a case study because I’ve prepped a lot of candidates for SMF interviews. In some cases, there’s plenty of time to schedule prep sessions but in other cases there’s only a day or two. Here’s an example that involves a fairly comfortable timeline.
I was approached by financial institution ‘F’ to support SMF interview preparation for an executive team candidate. The interview was in two weeks’ time and this would be the first SMF position the candidate would hold. The firm was having a few interactions with regulators on matters relating to the business, most of which applied to areas of the business for which the candidate would be responsible.
The work involved:
- Reviewing the application pack sent to regulators and providing comments on that for follow-up action before the interview;
- Providing a list of questions to consider before the first mock interview;
- Carrying out two mock interviews;
- Providing the list of questions used for the mock interviews and also providing feedback, suggested reading and some training points; and
- Having a debrief session with the candidate after the interview and identifying points to follow up with regulators.
The candidate was approved by regulators to perform the SMF applied for.
Comment: My experience is that the preparatory question list is crucial and it should be tailored to the candidate, the firm and the SMF applied for. It’s important for both the candidate and the firm that the interview goes well and that candidates are confident that they’re putting their best foot forward when they’re interviewed by regulators.