Posted: 10th May 2016

How is your board dealing with the increasing amount of retail conduct regulation? This is the question we recently asked Company Secretaries – typically the custodians of regulated firms’ board packs – to find out what is really going on in the boardroom of a financial services firm.

The Company Secretary’s uniquely core position in supporting senior management has been fundamental to our recent research – and forthcoming report – on how boards are organised and the pressures they face. As the central information point for reporting requirements and governance matters, their feedback has helped us get to the heart of these key issues.

Whilst the report will be out next month, we’ve provided some snapshot findings below to give you our initial high-level view on how boards deal with intensifying regulation. Alongside board reporting specialists Board Intelligence, we interviewed 20 Company Secretaries representing a cross section of leading financial services firms.

The themes we identified have been grouped under Board Intelligence’s ‘Three Pillars of an Effective Board: Individuals, Infrastructure and Information’. But, first, we summarise our findings on the overarching theme; that is, the impact of regulation.

Impact of regulation                                  

The clear consensus was that regulatory and conduct risk requirements have increased and will continue to do so. The danger, as seen by some respondents, is the impact this has on other aspects of the business, “there’s a disproportionate amount of expense and time required to deal with regulatory issues compared with the actual benefits that customers get from it”.

While this view is shared by the majority, the impact of regulation and how the FCA is perceived is driven by a company’s involvement with the regulator (for example, are they under scrutiny?), changes in regulation (for example banks, building societies and insurance providers are currently affected by SMR) and the level of risk attached to the firm’s products.

So while some respondents commented that “business has become increasingly complex – largely risks and regulatory management; the FCA is very intrusive”, others are less concerned “fundamentally SMR has changed very little. People’s responsibilities haven’t changed we just need to document how the FCA wants us to perform. If anything it’s helped to sharpen the NEDs’ focus”.

What does this mean then in terms of how firms are approaching the three pillars? Key findings from our research in relation to each of these include:


Company Secretary – a changing role

The majority of Company Secretaries have a legal background and describe their role in terms of “ensuring the board meets all its regulatory and statutory responsibilities”.

One retail banking respondent described his role in broader terms, describing himself as a “career Company Secretary”. His concern is that the industry is “not breeding Company Secretaries of the future. There needs to be more of a shift towards different types of professionals. Lawyers tend to be far more rigid in their approach; the [Company Secretary] role’s changed, not in intent – it’s always been advisory – but the need is for individuals to be far more dynamic and pragmatic”.

Calibre of Non-Executive Directors

While regulatory and conduct risk changes over the past 12 months have increased the need for boards to review their current make up, most are clear that long-term success shouldn’t be driven by purely regulatory issues: “we’ve refreshed the board over the past 12 months. I want the board to feel comfortable challenging and engaging without SMR being the catalyst.” A good sentiment; however the reality for some Company Secretaries is different: “I wouldn’t want to be a NED, certainly not in a distressed bank. We’re starting to see a turnover of non-execs; they’ve done their three years and want an easier life. This affects the calibre of directors available in the market. SMR will exacerbate this – we may just end up with the young and the hungry”.

Development outside the boardroom

Some firms identified that more could be done to help Non-Executive Directors and demonstrate to the FCA that development is taken seriously: “we’re introducing a Fitness & Propriety report plus a record of all training undertaken”. One Company Secretary was critical of how needs are identified currently and recognises that more needs to be done: “we’re overdue a board evaluation. It’s a questionnaire which asks – ‘how do you think you’ve done?’ This is severely lacking. We need to observe how the board works, identify the gaps and then fill them”.

One respondent commented on the need for sensitivity: “we feel it’s important that non-execs feel comfortable in asking for development on topics that they may feel they should know or others may know about. We try to create an environment where it’s OK to ask for development no matter how obscure or obvious”.


Board meetings – less is more

The number of board meeting firms hold each year ranges from four to 12. Duration is anything from two to seven hours. Similarly, board-pack size varies greatly from 40 pages to over 500. Firms that have reduced their annual board meetings to six feel the quality has improved as the increased time gap enables actions to be completed and reported back in full.

Everyone agreed that the biggest challenge faced by directors is the “amount and volume of papers they’re required to read” in preparation for board meetings. While there may be a desire to streamline packs, some NEDs “like the detail” and resist recommendations to reduce the size and depth.

Subsidiary boards and committees

Increasingly firms are looking to subsidiary boards to handle more of the day-to-day issues in order to reduce the frequency, duration and nature of what gets discussed at main board. Boards would like to spend more time ‘horizon scanning’ and less monitoring past performance. A recent focus for larger firms has been on reducing duplication between committees:

“The challenge is a lack of clarity as regards the responsibility / duty within the committee structure: because there’s been a proliferation in the number of committees, there is a huge duplication of duty / responsibility, and often the remit of these committees becomes very muddied.”


Board materials –what’s changed?

All firms have amended their board packs over the past 12 months. In some cases this reflects the more ‘intrusive and invasive’ approach being taken by the regulator although, quite often, firms are simply looking to introduce materials that are less complicated, streamlined and more customer-focused.

“Boards need to be seen to be managing these [regulatory and conduct-risk] issues. Our old board pack used to be full of numbers so we could turn round to the FCA and say ‘we told them!’ That doesn’t wash anymore. We now have an exec summary which has the key points and states ‘this is where we stand against the risks’.”

In some cases, boards spend up to 70% of their time discussing regulation and conduct-risk issues. The majority of companies want to change this and invest more time in “growing the business and future strategy”.

Conduct risk and culture

Many firms have changed the way in which conduct risk is reported, “originally we had a conduct risk report; now it’s called a customer report and moved to first line [away from the Risk function]. We want to avoid it being seen as simply a regulatory necessity. Instead we want it to be something we should focus on because it’s the right thing to do”.

One organisation said “We've chosen to weave conduct risk throughout each risk type rather than cutting out a separate conduct-risk piece.” Another organisation felt that conduct risk reports are improving – increasingly visual and standardised – but highlighted significant inconsistency in quality and approach between retail and wholesale business.

Supporting Company Secretaries

While most Company Secretaries belong to the Institute of Chartered Secretaries and Administrators (ICSA) many commented that there are very few opportunities to get together with their peers to share thoughts, ideas and experiences. In some ways the Company Secretary role can be quite lonely and everyone we spoke with said they would be interested in discussing the issues we raised in the interviews with industry colleagues. Huntswood and Board Intelligence are running two roundtable Peer Discussion Groups (PDGs) in July 2016 specifically for Company Secretaries. Spaces are limited (maximum eight people) to ensure good quality debate and engagement. If you would like to take part in a PDG conducted under the Chatham House rule of confidentiality, please contact Phil Festa, Director of Non-Executive Engagement, on 0790 997 5841 or at 

Lessons learnt

A copy of the full report will be available to download in the next few weeks. This provides the opportunity for firms to compare themselves with their peers and enables them to challenge the status quo – are you happy with the way your boards are set up and run, are there ideas and thoughts which are applicable for your board? What conversations should boards be having?

Register below to receive the report:


Huntswood h purple

Huntswood - Insights


Keeping up-to-date with the latest industry topics and regulatory issues can be quite time-consuming! 

Thankfully, our regulatory experts are here to help you stay on top of it all. Fill in the short form below to receive a monthly round-up of our insight, news and analysis.