A few weeks ago I wrote a post about the new Senior Managers Regime, being proposed by the UK’s Prudential Regulation Authority and Financial Conduct Authority to “clarify the lines of responsibility at the top of banks, enhance the regulators’ ability to hold senior individuals in banks to account and require banks to regularly vet their senior managers for fitness and propriety”. All UK supervisors and trade bodies are now preparing their responses to this proposal, and the British Bankers’ Association is one of the first to publicise theirs.
On 3 November 2014, the BBA announced that it “supported the broad thrust of the reforms but raised some particular concerns”, and you can read more about their thoughts – including the full text of their response – here. Interestingly – and perhaps swimming against the tide – the BBA is of the view that “non-executive directors perform different roles from executive director members of the board [and therefore] a different supervisory approach should be developed for NEDs”. Checking a handy factsheet, we read that: “There is no legal distinction between executive directors and non-executive directors (the definition under the Companies Act 2006 defines a director as including any person occupying the position of director, by whatever name called); the distinction lies in the role that they perform. Non-executive directors usually stand back from the day-to-day running of the business, drawing alongside the executive team as required to facilitate the strategic decision-making process.” I understand that, I really do, but I have to say that if I were a NED looking at the AML guidance in my jurisdiction (bearing in mind that I work in the UK, Guernsey, Jersey, the Isle of Man and Gibraltar,so they’re the only ones I know about), I would be very uneasy about taking such a hands-off approach to AML.
For instance, the JMLSG guidance in the UK says that “senior management must be fully engaged in the decision making processes, and must take ownership of the risk-based approach, since they will be held accountable if the approach is inadequate”, and “senior management” is defined as “the directors and senior managers (or equivalent) of a firm who are responsible, either individually or collectively, for management and supervision of the firm’s business”. Hopping across to Guernsey, their guidance for financial services businesses states that “the Board has effective responsibility for compliance with the Regulations and the Handbook [and] in particular the Board must take responsibility for the policy on reviewing compliance and must consider the appropriateness and effectiveness of compliance and the review of compliance at appropriate intervals”. No-one in the AML environment makes any distinction between the responsibilities of executive directors and those of their NED brethren.
So maybe the BBA has highlighted something that we do need to address. Are NEDS equally responsible for AML oversight, or does their distance from the day-to-day running of the business mean that they are not equipped to make these decisions? And if they can’t contribute to the decisions on AML, can they contribute to the decisions on other sorts of risk? And if they can’t take a view on risks at all, well…. What do you think?