In a speech delivered at the Financial Services Authority’s recent Retail Firms Conference, Hector Sants, chief executive of the FSA, warned that mortgage firms’ senior management teams must ensure their companies are making the right judgements to deliver the outcomes the regulator requires.
As we approach the Treating Customers Fairly deadline at the end of March, this is a timely reminder of how much responsibility rests on the shoulders of management.
Elsewhere in his speech, Sants referred to the FSA’s focus on using enforcement as a tool to change behaviour in the industry so everyone classed as senior management should consider their conduct carefully.
They should pay particular att-ention to what is needed by the end of this month, when all authorised firms must have evidence of management information in place as well as measures to test whether they are TCF-compliant.
It can sometimes be difficult for senior management teams to take a step back and look objectively at themselves and the way they run their businesses, particularly in smaller firms.
So perhaps it’s time for brokers to adopt some of the corporate governance strictures that have long been established in other industries.
Corporate governance is described by the Institute of Chartered Accountants in England and Wales as the process by which company objectives are established, achieved and monitored. Senior management controls and effective monitoring are dear to the heart of the FSA as evidenced by many of its principles for business, so adopting good corporate governance measures will also demonstrate support for the regulator’s principles.
One way to improve corporate governance is to employ non-executive directors. The 1992 Cadbury report on the financial aspects of corporate governance was a key document in establishing the importance of using effective non-executive directors.
It pointed out they should bring independent judgement to bear on issues of strategy, performance and resources, including standards of conduct.
The Institute of Directors defines the non-executive director’s role as providing a creative contribution to the board by providing objective criticism. It also points out that although non-executive directors have no role in running businesses, they have the same legal duties, responsibilities and liabilities as their executive counterparts.
So how do non-executive directors work in practice? Having taken on non-executive director- ial responsibilities in several or-ganisations, my experience is that the role involves poking a stick anywhere and everywhere, while being supported by the executive board.
If the organisation involved is large enough to have an audit committee, a non-executive director can chair it, meaning that impartiality can be maintained. Indeed, at one firm where I’m a non-executive director, I chair its audit committee but in smaller firms, it’s not so easy to separate oneself from everyday management.
On the other hand, when I had responsibility for managing a lender’s complaints, I had to present a report each month to its audit committee. The chair would then drive the actions needed to address certain issues, providing support for the corporate governance function.
In his speech, Sants reminded us that the FSA is an evidence-based regulator. As the pressure on small firms to deliver TCF mounts, non-executive directors who call directors to account and drive effective corporate governance could help deliver what the regulator is looking for.