Clarifying supervisory expectations for non-executive directors and boards

April 2016

There is not a strong consensus on how to set the expectations of Boards so that they can perform their role … Demands on Non-Executives have risen to the point where it is time to stand back and take stock and find ways to improve the approach. 

—Andrew Bailey, Chief Executive Officer, Prudential Regulation Authority

Governance is now a cornerstone of supervision. A senior regulator stated, “I have never seen a bank failure that did not have a governance and management problem at its root.” As a result, another said, “Boards are very important to supervisors.” Since the BGLN began in 2009, participants have addressed core questions relating to bank governance: What is the role of the board, and what are appropriate expectations for bank non-executive directors? How can governance improve in the post-crisis world? How should supervisors understand and assess governance effectiveness? Many of these questions remain open. The task, then, continues to be reaching agreement on the role of a bank board and setting realistic expectations for what it can accomplish.  

Despite supervisors’ efforts to develop new guidance at the national and international level, they acknowledge the role they have played in questions about what heightened supervisory expectations for bank directors mean in practice and whether there should be a global standard for board governance of systemically important financial institutions (SIFIs). This is not simply academic. Given the focus of politicians and regulators on board and individual accountability in banking, a lack of clarity regarding responsibilities is problematic.

Over the last several months, directors and supervisors shared perspectives on expectations for bank boards and directors, including roundtable discussions, on February 10, 2016 in New York, and on February 18, 2016 in London. These roundtables brought together directors and executives from 20 global banks and senior supervisors from nine regulatory authorities. See Appendix on page 15 for a list of discussion participants.

These discussions yielded some common themes, and some new insights, including observations regarding where consensus has emerged and where issues remain, and then offers some implications and recommendations for supervisors and bank boards and executives, summarized in the following sections:

  • Bank directors accept heightened expectations 

  • Some questions, confusion, and concerns persist regarding expectations for bank directors

  • Supervisors can take practical steps to clarify expectations

  • Boards need to retain ultimate responsibility for effectiveness