A corporate governance plan is an essential part of getting authorised, says Geraldine Wright
Corporate governance is a vital part of the regulatory regime. The FSA will be particularly diligent in seeking evidence of any failure to comply with its systems and controls guidelines.
The regulations require brokers to use risk assessments to analyse the business risks they are running and the controls they have in place to manage these risks. One way of doing this is through structure charts.
To be effective, the charts must clearly identify responsibilities within the firm, together with documented job descriptions of key managers and their reporting lines. The terms of reference of all the firms' key committees and forums should be included. The firm must also satisfy itself of its employees' and agents' suitability.
Risk assessments must be conducted on a regular basis. Depending on the nature, scale and complexity of the broker's business it may be appropriate for a firm to have a separate risk assessment function. Alternatively a risk register could be used that would demonstrate how the business identifies, assesses and documents risks and controls.
Compliance manuals and procedures are all essential requirements. A firm must maintain documentary evidence to support its demonstration of compliance. There should also be reviews of the performance of directors and senior management on an ongoing basis
Brokers should ask themselves what key reports they have at their disposal to monitor activity within their firms. For example, do they have key performance indicators against which they can assess performance? And is the management information produced both relevant and in sufficient quantity to be meaningful?
The basis of all the regulations surrounding corporate governance is to demonstrate that business risks are controlled at all times. What might be considered failures in controls? This could occur where the span of executive management control is too wide, or the non-executive director roles are unclear, giving rise to the risk of inadequate governance, or where they are not sufficiently involved in board decisions to provide appropriate challenge to executive management.
A failure might also occur where senior staff are insufficiently experienced for their responsibilities, or where there is insufficient review of the competence of anyone taking on a new role. These problems can arise particularly when new projects are started.