How-to guide: Corporate governance in financial services (UK)

This guide will assist in-house counsel, private practice lawyers, and risk and compliance teams in understanding the corporate governance responsibility under the Companies Act 2006, the ‘comply or explain’ principles of UK Corporate Governance Codes (allowing certain companies to adhere to the principles or explain deviations) and financial regulation requirements under the Financial Services and Markets Act 2000 (as amended) (FSMA). The guide sets out a high-level overview of the rules, practices and principles that are in place to manage and control firms and provide oversight of financial markets and the protection of consumers in the UK.

This guide covers:

An overview of corporate governance
Legislative and regulatory framework
Expectations of the board and cultivating a healthy culture

This guide can be used in conjunction with the following Checklist: Running an effective board meeting.

Step 1 – An overview of corporate governance

1.1 What does corporate governance mean?

Corporate governance refers to the way that firms are run, how they make decisions and the system of rules, frameworks and procedures that are put in place (in line with the legislative and regulatory framework set out in section 2 below). The corporate governance framework adopted should be appropriate to the size and nature of the firm and not all firms will take the same approach. See Corporate Governance Institute – What is good corporate governance?

Firms that are well governed are more likely to be sustainable in the long-term. Good corporate governance could also serve as a viable defence for a firm facing allegations of wrongdoing or malpractice. Firms with ineffective governance often fail to identify issues and this often goes to the root cause of risk.

The UK approach to corporate governance is made up of statute, codes and regulatory and industry guidance. In 1992, the first code or set of principles of good corporate governance in the world was developed by the Cadbury Committee in the UK and coined the definition of corporate governance as the ‘system by which companies are directed and controlled’ – see Cadbury Report (1992). These recommendations laid the foundation for the system of corporate governance in the UK and governance codes have been added to at regular intervals. The 2024 UK Corporate Governance Code came into effect on 1 January 2025, replacing the 2018 UK Corporate Governance Code (see section 2.3 below). The UK Corporate Governance Code is updated by the Financial Reporting Council (FRC). However, Provision 29, which requires boards to monitor and review the company’s risk management and internal controls framework and at least annually carry out a review of its effectiveness, will not take effect on 1 January 2026. See UK Corporate Governance Code 2024: Internal Controls webinar recording here and Key Changes.

Following changes to the FCA Listing Rules, the 2024 UK Corporate Governance Code applies to all companies listed in the commercial companies category or the closed-ended investment funds category. Previously the Code applied to premium-listed companies. Please see the FCA consultation response and press release.

It is more than 15 years since the financial crisis of 2008. Lack of appropriate checks and balances exposed the sector to significant risks and had an impact on investor confidence in financial institutions and how they were managed. From a UK financial services perspective, the Walker review (2009), the Parliamentary Commission on Banking Standards (created to restore trust in the UK banking sector in 2012), and the Turner review (2009) were pivotal on shifting regulatory focus towards better risk management and effective corporate governance.

Where companies are incorporated in England and Wales, the statutory provisions of the Companies Act 2006 will also apply.

The Financial Conduct Authority (FCA) as conduct regulator often highlights concerns about firms or operational incidents by reference to poor practice in governance frameworks. The FCA ‘expects leaders in firms to manage the drivers of behaviour in their firms to create and maintain cultures which reduce the potential for harm’. See the FCA’s website – Culture and governance and Our approach to supervision.

1.2 What does a corporate governance framework look like?

Corporate governance is not just about managerial accountability and risk management but incorporates broader considerations around systems and controls and how decisions are taken. This includes accurate reporting and management information (MI), diversity and ethical practices, executive remuneration and transparent engagement across stakeholders. Stakeholders in a company will normally include shareholders, employees, customers, key suppliers, lenders and regulators. See ICSA – (now known as the Chartered Governance Institute) – ‘The Stakeholder Voice in Board Decision Making’.

Having a proportionate and effective governance framework is key for all firms and is not just the domain of public companies. There is no one-size-fits-all model; however, executive ‘buy-in’ and support of the decisions taken by the board (or board committee) is critical. Regular and open communication downstream from senior management to employees is also important so that employees feel valued and to encourage support of the initiatives taken by the leadership team.

Step 2 – Legislative and regulatory framework

The rules and regulations around corporate governance are set out in primary legislation, common law and in various governance codes and best practice regulatory and industry guidance.

For the purposes of this guide, we will focus on the rules and regulations around the effectiveness of the corporate governance of the regulated firm and oversight by the executive leadership team (including the board, directors and senior managers), and consider requirements under the:

Publicly traded companies are subject to other governance requirements under capital markets regulations (eg, Listing Rules, Prospectus Regulation Rules and the Disclosure and Transparency Rules). See FCA listing regime: final rules and feedback. Further governance provisions for those investing money on behalf of UK savers and pensioners are set out in the UK Stewardship Code 2020 but neither it nor the requirements under capital markets regulations are considered further in this guide.

2.1 Companies Act 2006

The Companies Act 2006 is the main source of company law in the UK and regulates the duties owed by directors to their firm. Directors are responsible for the day-to-day management of the firm and directors must act (both collectively and individually) in accordance with the general duties in sections 171-177 of the Companies Act 2006. See Companies House Guidance – Being a company director.

It is important that directors understand the remit and responsibility of their role by ensuring good corporate governance practices. These include the duty to act within their powers; to promote the long-term success of the company; to exercise independent judgement and reasonable care, skill and diligence; and to avoid conflicts of interest. Companies are entitled to the benefit of impartial director-level decision-making. Directors must not abuse their positions for personal benefit (whether financial or non-financial) including receiving third-party benefits. Where a director may have an interest in a proposed transaction or arrangement with the company, they are under a duty to disclose this to the other directors. The Institute of Directors is currently consulting on a new code of conduct for directors which although voluntary in nature would provide a level of guidance for directors and their compliance obligations.

2.2 Fiduciary duties of directors

Certain common law principles known as ‘fiduciary duties’ form the basis of standards of professional conduct owed by all directors to the company. They are based on common law rules and equitable principles, including to:

act in good faith;
act honestly and responsibly (eg, not to accept benefits from third parties);
act under the company’s constitution (commonly known as the articles of association and memorandum of the company);
act in the interests of creditors (eg, where insolvency is imminent or insolvent liquidation or administration is probable) (see decision of the Supreme Court in BTI 2014 LLC v Sequana SA and others (2022) UKSC 25); and
not to use the company’s information, property or any opportunities regarding the company for their own or anyone else’s benefit, unless permitted by the company.

The overriding duty is that of acting in good faith and in the best interests of the company. This means that directors should make decisions to serve the company rather than serving their own self-interest. Breach of this duty can have severe consequences including risk of personal sanction and establishing a director’s liability will commonly turn on the specific facts of the case. See Companies House Guidance – Being a company director and 7 duties of a company director.

2.3 UK Corporate Governance Code

The UK Corporate Governance Code is a code of practice applicable to listed companies on the London Stock Exchange, regardless of where they are incorporated although sometimes other companies that are not required to follow it choose to do so. It is maintained by the Financial Reporting Council (FRC), which is currently the UK’s independent regulator of auditors, accountants and actuaries. The 2024 Corporate Governance Code came into effect on 1 January 2025, replacing the 2018 Corporate Governance Code. However, provision 29 will only apply to financial years starting on or after 1 January 2026. Until then, the 2018 Governance Code remains applicable where relevant.

The 2024 Governance Code is separated into five sections:

board leadership and company purpose - board decision-making, reporting, culture and engagement;
division of responsibilities – board roles, board papers and the role of the company secretary and board committees;
composition, succession and evaluation - promoting diversity and inclusion, succession planning and board performance reviews;
audit, risk and internal control – establishing effective risk management and internal control frameworks (which includes establishing an audit committee of independent non-executive directors) with a minimum membership of 2-3 depending on the size of the company; and
remuneration – looks at remuneration committee, remuneration policies including the use of certain provisions (eg, clawback provisions that would enable the company to recover and withhold sums or share awards).

It operates on a ‘comply or explain’ basis. This means a company details the provisions it has complied with and where it has not followed the principles of the code it must explain which principles it has not complied with and why. This offers flexibility to companies given that ‘one size doesn’t fit all’ and when departing from the Governance Code, companies should explain how their arrangements are more appropriate and beneficial in the interests of good governance. See FRC guidance – ‘Improving the quality of ’comply or explain’ reporting’ and Appendix – Overlap with FCA Handbook.

The FRC has published a guidance note to the 2024 Corporate Governance Code to provide advice, further detail and examples to support directors and their advisers. See Corporate Governance Code Guidance. This guidance incorporates previous published FRC guidance which includes links to other sources of information and examples of good practice including:

Guidance on Risk Management, Internal Control and Related Financial and Business Reporting (2014);
Guidance on Audit Committees (2016); and
Guidance on Board Effectiveness (2018).

Following the publication of the 2024 UK Corporate Governance Code, the FCA is expected to update the FCA Handbook to reflect the latest developments. On 6 December 2024, the FCA published Quarterly Consultation Paper 46 (CP 24/26), which sought feedback on various amendments. Chapter 6 of the consultation paper discusses proposed amendments to update the FCA Handbook references to align with the 2024 Corporate Governance Code. The consultation closed for comments on chapters 2,3,5,6 and 7 on 13 January 2025 (and 27 January for chapter 4), and the FCA will publish feedback on responses in a Handbook Notice once comments have been reviewed.

On 17 July 2024, during the King’s Speech, the government announced the introduction of the draft Audit Reform and Corporate Governance Bill, a significant piece of legislation aimed at modernising the UK’s corporate governance and audit landscape. The bill, which will establish the Auditing, Reporting and Governance Authority (ARGA) a new regulator to uphold standards, is designed to boost confidence among investors, employees, and consumers by ensuring more robust oversight of corporate practices. The briefing note to the King’s Speech (pages 44-45) outlines the changes that will be brought about by the Bill's introduction.

The FRC published its annual review of Corporate Governance Reporting 2024 on 26 November 2024, offering insights as companies transitioned to the revised UK Corporate Governance Code. While progress was being made in preparing for the Code's implementation in January 2025, the review found that 25 out of 130 companies still failed to report clearly on the effectiveness of their internal controls.

2.4 The Wates Code

In-scope large private UK-incorporated companies are required to disclose their corporate governance arrangements in their directors’ report and on their website under the Companies (Miscellaneous Reporting) Regulations 2018 (Miscellaneous Reporting Regulations).

The Miscellaneous Reporting Regulations were introduced on 17 July 2018 and apply in relation to the financial years of companies beginning on or after 1 January 2019. A framework for compliance under the Miscellaneous Reporting Regulations is set out in The Wates Corporate Governance Principles for Large Private Companies (the Wates Code). The Wates Code consists of six high-level principles of good corporate governance including purpose and leadership, board composition, director responsibilities, opportunity and risk, remuneration and stakeholder relationships and engagement.

The reporting requirements apply to all companies that satisfy either or both of the following conditions for the financial year, and are not otherwise exempt:

more than 2000 (global) employees;
a turnover of more than £200 million and a balance sheet of more than £2 billion.

In addition to the requirement to disclose corporate governance arrangements, in-scope companies are also required to set out how directors have had regard to the matters set out in sections 172(1)(a) to (f) of the Companies Act 2006 (the duty to promote the success of the company) and explain how they have engaged with suppliers and customers in a business relationship with the company. For more information see Department for Business, Energy & Industrial Strategy – ‘Corporate Governance – The Companies (Miscellaneous Reporting) Regulations Q&A’.

and the assessment of reporting against the Wates Code and corporate governance principles began with the first review in February 2022. The FRC published its second review in August 2024. This review analysed reports for the financial year 2021/22, identifying how many in-scope companies included the required statement in their annual report and if the approach of companies in-scope at the time of the first review (published in February 2022) had changed over time.

Out of 1,815 large private companies within scope of the research, 547 (30%) chose to apply the Wates Code in 2021/22. The review also presents the FRC and various user groups views on the quality of the disclosures and potential improvements. For more details on the outcome of the review, please see here.

2.5 Financial services regulation

Additional statutory and regulatory duties apply within the UK financial services sector under the Financial Services and Markets Act 2000 (as amended) (FSMA) and FCA Handbook and PRA Rulebook obligations, and many individuals (including senior managers) are held individually accountable as a result of personal regulation.

Any financial services firm engaged in regulated activity in the UK is likely to require authorisation under Part 4A FSMA unless they can rely on an exclusion or an exemption applies. The bulk of the UK’s regulated financial services firms are regulated solely by the FCA. Certain banks, building societies, credit unions, insurers and major investment firms are ‘dual-regulated’ by the FCA and the PRA. Dual-regulated firms are subject to different requirements than FCA solo-regulated firms (which are the key focus of this guide).

Authorised firms must adhere to certain baseline standards that they must meet (and continue) to meet to retain their Part 4A permission. Strong governance is a key component of these ‘threshold conditions’ – see schedule 6, FSMA and COND (FCA Handbook). If a firm fails to meet these standards it will face regulatory action. The FCA has authority to impose requirements to vary or cancel the firm’s Part 4A permission.

Broadly, they include matters such as the location of offices (head office and management and control in the UK), appropriate resources (both financial and non-financial) to measure and manage risk, ensuring that personnel holding senior management functions are fit and proper, and ensuring that a firm’s business model is suitable for the regulated activities it undertakes. Firms must be able to be effectively supervised by the applicable regulator and this includes being open and cooperative in their interactions.

Examples of what the FCA consider when determining suitability of a firm are whether the firm conducts its business with integrity and in compliance with proper standards and the nature of its management.

The FCA’s rules Principles for Business (known as PRIN) are a set of 12 obligations that generally apply to most firms with the aim of protecting consumers. Integral to PRIN are principles 6 and 7 which oblige firms to treat customers fairly and communicate information in a way that is fair, clear and not misleading. These have been further supplemented with principle 12 which came into force with the implementation of the Consumer Duty in July 2023. This sets higher standards for in-scope financial services firms to deliver good outcomes for retail customers.

Further rules and guidance are outlined in the FCA Handbook such as the Senior Management Arrangements, Systems and Controls Sourcebook (SYSC), which sets out important requirements on governance structures, conflicts of interest and systems and controls, the Conduct of Business Sourcebook (COBS), which adds further detailed guidance around financial promotions for investments (although note other sectoral conduct of business sourcebooks exist eg, for mortgages and home finance (MCOBS)). See How-to guides: Overview of the conduct of business rules – scope and application and Understanding the rules of communications with clients, including financial promotions.

In addition to prescribed financial services regulation, financial services firms will also be required to comply with existing obligations (eg, data privacy regulations when processing personal data). See How-to guide: How to comply with data processing principles under the GDPR.

2.5.1 Individual accountability and the Senior Managers and Certification Regime

Individuals (including senior managers and executives) must meet specific standards of fitness and propriety and are subject to the Senior Managers and Certification Regime (SMCR), which holds them accountable for the activities of their firm together with the products and services they deliver. The SMCR applies differently to solo- and dual-regulated firms. Solo-regulated firms categorised as enhanced, core and limited scope firms are responsible for identifying and determining which category applies. Which roles apply depend on the nature and type of the business. Both the FCA and the PRA share oversight of the SMCR. The SMCR is covered from SYSC 23 to SYSC 27 in the FCA Handbook. In the PRA Rulebook, there are requirements across various sector Rulebooks. See FCA webpage on the application of the SMCR – SM&CR categorisation for solo-regulated firms - and the Senior Managers Regime (from Bank of England webpage).

Fitness and propriety (F&P)

Those with the most senior key roles in a firm (known as SMF) and certification staff need to be fit and proper to carry out their roles and approval from the regulator may be required to perform these functions (see chapter 10c of the Supervision Manual (SUP). This includes assessments by reference to honesty, integrity and reputation; competence and capability; and financial soundness. These can be built into HR processes and performance management reviews. When an individual has been assessed as fit and proper to perform a function, a firm must provide a certificate to confirm this and the activities that the individual will be involved in. This certificate will be valid for 12 months. The FCA set out their expectations of firms on the FCA webpage – Fitness and Propriety (F&P) – and the current version of the FCA Handbook provides guidance for firms on the suitability of individuals – see Fit and Proper test for Employees and Senior Personnel (FIT) which sets out the criteria that regulators will use when considering whether certain personnel are fit and proper for their roles (see FIT 1.1.1. for scope of application). See also SYSC 22 which contains provisions on the nature of regulatory references applicable to all SMCR firms, and in particular rules in SYSC 22.2 on getting, giving and updating individual references performing controlled functions or undertaking a role falling under the Certification Regime as described more fully below).

The SMCR framework is made up of three component parts:

Senior Managers Regime

SMFs are most senior decision makers in a firm, and they need FCA or PRA approval before starting their roles. Examples of SMFs include the chief executive function (SMF1) and money laundering reporting function (SMF 17).

As part of the application and request for SMF approval, firms must obtain appropriate employer references (going back six years) and criminal reference checks. For information about applications to hold an SMF, see the FCA’s Approved Persons page.

Individual SMF duties and responsibilities are set out in a statement of responsibilities (SOR) prepared as part of the application for approval. The SOR sets out what they are responsible and accountable for. Firms should build regular reviews into their processes (including an annual assessment of fitness and propriety of those holding an SMF) and regular training (keeping training records and identified development needs). SMF also have a duty to report anything that could affect their ongoing fitness and propriety.

The FCA or the PRA can take enforcement action against individual senior managers (by checking the SOR to identify who is responsible) under sections 66A(5) or 66B(5), FSMA. A core concept in the SMCR is determining whether the senior manager has taken ‘reasonable steps’ to prevent or avoid a breach (ie, the steps which a competent senior manager would have taken). Possible sanctions include financial penalties, statements of censure and suspension from undertaking certain SMF. It is possible to check the details of any individual carrying out regulated activities on a client’s behalf, especially current roles and any disciplinary or regulatory action on their record. See Directory of certified and assessed persons for more information; this forms part of the Financial Services Register which is a public record of firms, individuals and others that are or have been authorised by the FCA or the PRA. For further information see SYSC 24 in the FCA Handbook (for all firms) and PRA Supervisory Statement 28/15 and the PRA Rulebook (for dual-regulated firms).

Certification Regime

The Certification Regime covers functions that are not SMFs but applies to employees in positions that could pose a risk of significant harm to the firm or its customers but that do not hold the position of senior manager (certification staff) (see SYSC 27). Unlike the Senior Managers Regime, certification staff do not need to be pre-approved by the FCA or the PRA, but the firm needs to identify their certification staff and check and certify they are fit and proper to perform their role, both when recruited and at least once a year. Examples of certification staff are those with responsibility for business units or where the role requires qualifications (eg, financial advisers arranging investments). Very small firms may not have any certification staff. See the FCA’s website – The Certification Regime.

Conduct Rules

Conduct Rules set minimum standards of behaviour in financial services. There are six Individual FCA Conduct Rules that apply to almost all staff at firms. In addition, individuals performing SMFs are required to adhere to four senior manager conduct rules.

Firms must ensure that all persons subject to the Conduct Rules are aware of the rules that apply to them and must take reasonable steps to ensure that those employees understand how the rules apply to them. This includes providing suitable training. Any actions taken by the firm against an employee for breach of the Conduct Rules must be notified to the regulator (SUP 15). For non-SMF staff subject to the Conduct Rules, firms must annually report the number of Conduct Rule breaches resulting in disciplinary action. Disciplinary action means issuing a formal written warning, suspension of dismissal, or the reduction or recovery of remuneration. A breach that does not lead to one of these outcomes should not be reported.

Further information about the Conduct Rules, how they apply and examples of the type of behaviour that could breach each rule, is contained in the Code of Conduct sourcebook (COCON) in the FCA Handbook. In the PRA Rulebook, requirements are set out across various sectoral Rulebooks and dual-regulated firms should familiarise themselves with these requirements and the notification requirements around Conduct Rule breaches.

Proposals for change

On 30 March 2023, the government launched a call for evidence alongside the FCA and PRA’s joint discussion paper on the SMCR. The review aims to assess the operational effectiveness of the regime, with a regulatory focus on areas such as the authorisation process and references, as outlined in a series of questions in the Call for Evidence. The intention to review the SMCR was announced in December 2022 as part of the Edinburgh Reforms. The discussion period has now closed, and feedback is awaited.

Step 3 – Expectations of the board and cultivating a healthy culture

Corporate culture is a combination of values, attitudes and behaviours demonstrated by a firm’s operations and its relations with stakeholders. Good governance is linked to a positive corporate culture with provision 2 of the 2024 UK Corporate Governance Code further noting that while boards must continue to assess and monitor culture, they must also assess and monitor how the desired culture has been embedded. All directors must act with integrity, lead by example and promote the desired organisational culture.

3.1 Embedding the desired culture

It is the responsibility of everyone to focus on the culture of financial services firms, and board members and senior leaders should be ambassadors for ‘healthy’ standards where people feel comfortable to express themselves and their views. Companies should have whistle-blowing policies and practices to enable and support people to speak up. See How-to guide: Understanding the legal protections for whistleblowers and Understanding the role of effective whistleblowing in fostering an ethical and open workplace culture.

Staff engagement and monitoring surveys and employee interviews can also be used to get a sense of employee satisfaction and identify where improvements could be made. See How-to guide: How to understand and implement the ‘G’ in environmental, social and governance.

It is not a one-size-fits-all approach and the FCA do not prescribe what a firm’s culture should be; however, the FCA focus on four key drivers that they believe can lead to harm:

purpose;
leadership;
approach to rewarding and managing people; and
governance.

See FCA – Culture and governance and FRC report – Corporate culture and the role of boards.

Examples of culture problems

The Corporate Governance Code Guidance provides some examples of possible culture problems:

silo thinking;
dominant chief executive;
leadership arrogance;
pressure to meet the numbers or overambitious targets;
high staff turnover;
lack of access to information;
low levels of meaningful engagement between leadership and employees;
lack of openness to challenge;
tolerance of regulatory or code of ethics breaches;
short-term focus;
misaligned incentives;
sub-cultures; and
fear of speaking up.

3.2 Board leadership and purpose

A strong and well-functioning board sets the business strategy of the firm and provides effective governance and leadership. It is the responsibility of the board to ensure that there are internal systems and controls including governance and risk management frameworks. The board’s authority is derived from provisions set out in the articles of association which set out the day-to-day management of the company.

It is essential for top-level senior managers and the board to understand the risk appetite of the firm and the associated risks. Integral to this is sign-off by the board of the firm’s policies, procedures and processes and holding the executives to account on delivery of the stated objectives to address the legal requirements. The board may also have to take decisions on legal action by the company against directors. Where a board is dealing with matters outside their level of expertise, it is prudent to bring in third-party advisers to support them.

Board discussion on major issues is generally led by the executive team. Any conflicts of interest should be managed and recorded. The board should challenge where they identify flaws and consider the information required from management prior to adopting the proposed strategy. The minutes should document proceedings in writing and record all discussions including those around meeting regulatory and legal requirements.

The board must have oversight of firm resources (both financial and non-financial) to inform decision-making on proposals on business strategy and to address risk management and internal controls. This also requires access to robust and well-targeted management information (MI) and in-built processes of continual monitoring and review (eg, is the business model still appropriate? Is the firm providing good outcomes for retail customers in line with their Consumer Duty obligations?). See How-to guide: The FCA’s Consumer Duty: putting the needs of customers first and Checklist: Embedding the Consumer Duty: practical considerations.

3.2.1 What does an effective board look like?

To be effective a board should be made up of a diverse group of individuals with a collective mix of knowledge, industry experience and skills to understand the business model, make informed decisions about the business strategy, address risk oversight and to discharge its duties and responsibilities. UK financial regulators have been considering ways to improve diversity and inclusion (D&I) in financial services firms recognising that this would lead to better internal governance, decision-making and risk management. This was outlined in consultations from the FCA and the PRA with anticipated proposals aimed at improving D&I in regulated firms. The FCA and PRA have recently announced they have no plans to take this work further noting that this was in response to the ‘broad range of feedback received, expected legislative developments and to avoid additional burdens on firms at this time.’

The FCA will continue to prioritise measures to address non-financial misconduct, such as bullying and harassment, with next steps anticipated by the end of June 2025. In addition, the board should ensure that the firm establishes and maintains remuneration and HR policies which should align with the business strategy and longer-term aims of the firm. Firms should also note an increasing regulatory focus to tackle non-financial misconduct.

See FRC – ‘Guidance on board effectiveness’, which can be used as a point of reference.

3.2.2 Board performance review

The size of a board often depends on the nature and complexity of a firm; however, these should be kept under review and adapted as the firm’s business evolves. Board performance reviews should be built into procedures so that board member performance can be kept under review. See SS5/16 Corporate governance: Board responsibilities, which whilst produced as a guide for the boards of firms regulated by the PRA, serves as a useful ‘best practice’ signpost.

3.2.3 The critical role of chair

Boards should have a chair to lead the meeting, promote transparent discussions and encourage open debate. The role of chair requires a mix of leadership skills, diplomacy and an ability to navigate strategic hurdles. Commonly, the chair and CEO lead the meeting. The chair should ensure that everyone has a fair contribution and that nobody monopolises the meeting to the detriment of others and that decisions are taken collectively on major issues. The chair is setting the ‘tone from the top’ for the firm to have a good culture and sets the standards for the board. Ideally, the chair and CEO should not be the same person.

3.2.4 FCA concerns around governance of overseas firms

Firms with overseas parents need to be particularly aware of UK regulatory expectations of governance and regulations. This is particularly the case where decisions are taken overseas. Regulatory focus is turning attention to the quality of debate and oversight and about how operations are structured in the UK.

3.2.5 Balance

Boards of financial services firms are generally made up of a mix of executive directors and a CEO with delegated authority from the board. Non-executive directors (NEDs) may also be appointed to provide independent oversight and supervisory functions. NEDs are not employees of the company and do not have day-to-day management responsibility, but they should understand the business model and strategy and have access to all information and MI to do so.

A balance of directors and NEDs on a board can enable decisions to be taken fairly and objectively and the impartiality of a NED can help where executive directors may be struggling to agree on a particular decision or where fresh eyes may spot ‘red flags’ for the firm. Addressing skills and training needs of both directors and NEDs is an important consideration particularly given the emergence of new social, environmental and governance risks to business (eg, sustainability or AI-usage). See Commonwealth Climate and Law Initiative – Company Directors should consider company’s nature-related risks (including climate risks): Landmark English Law Legal Opinion.

3.2.6 Defined roles and responsibilities

There should be clear lines of accountability and responsibility for decision-making and a transparent framework setting this out. The onus is on the firm to ensure that the roles and responsibilities are understood and ensure that the suitability and F&P of staff in senior executive roles is kept under regular review. Discussions around roles, responsibility and risk should appear regularly in board meeting agendas.

3.2.7 Quality of MI

The quality of MI provided to the board is fundamental. The chair should manage the content and extent of MI provided and given that NEDs do not have day-to-day management responsibility the MI should enable them to fully understand the matters being discussed be relevant to the specific business and associated risks.

3.2.8 Succession planning

Board members should be provided with an induction programme and training encouraged to ‘refresh’ knowledge. With people frequently moving organisations, strategic boardroom succession planning is advised to ensure continuity and provide for contingency in the event of retirement or removal of a particular board member.

Additional resources

Ernst & Young – ‘Board effectiveness – continuing the journey’
PRA – SS5/16 – Corporate governance: board responsibilities

Filed under

Topics

Corporate governance

Organisations

Financial Conduct Authority (UK)

Laws

Corporate Governance Code 2018 (UK)