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FSA updates its guidance consultation for NEDs

Posted: 6 January 2012

The FSA’s Guidance Consultation for NEDs, published in December, says that it expects NEDs to satisfy themselves of the following:

• The proposed strategy fits with the existing firm business model and is within the firm’s retail conduct risk appetite. 

• The risks to customers to which the proposed strategy might give rise, have been identified and actions to mitigate and monitor these are in place. 

• The firm has the appropriate resources and systems to deliver the strategy, including the right quality and number of staff, policies and procedures to ensure the fair treatment of customers, e.g. how will the firm recruit, train and monitor the advisers. How will the firm ensure its support functions are also adequately competent, such as complaint handlers and compliance staff? 

• The Board has sufficient knowledge and/or background in the proposed area to provide adequate challenge and oversight, e.g. who on the Board has experience of advised sales and the risks this model might give rise to? If no one has such knowledge or experience, how will the Board acquire it? 

The FSA goes on to say that “it became clear during the financial crisis that boards did not sufficiently understand their business models, strategies or products, and the risks they were running. While we do not expect NEDs to know the answers to all of these questions in detail, it is important that they are comfortable that the business has considered these areas and the answers are adequate to satisfy them as a Board member to make a decision”. 

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