Walker Review focuses disclosure proposals on banks, while making boardrooms ‘more challenging’
Insurers won a small victory against being lumbered with banking regulation after the Walker Review ditched plans for disclosure of top earners.
The preliminary Walker Review in July recommended that Admiral, Aviva and RSA – along with FTSE100 banks and buildings socieites – reveal the pay of their highest-earning staff.
But after months of lobbying, insurers will not have to reveal any further details of employees’ pay.
Instead, Sir David Walker has concentrated on banks and buildings societies, with revised proposals for disclosure of the number of employees earning upwards of £1m.
Admiral praised the Walker Review for acknowledging the difference between banks and insurance companies.
An Admiral spokesman said: “We're pleased to see he has recognised that there is a distinction to be drawn between banks and life companies on the one hand, and other more straightforward general insurance businesses such as Admiral on the other, and that he has tailored some of his recommendations accordingly.
“But we will need to wait for the FSA’s implementing measures to see how this is likely to work in practice.”
Walker’s final report also aims to strengthen the role of non-executive directors and will require large firms to appoint a chief risk officer to oversee risk across the business – who can only be sacked with the full agreement of the board.
Sir David Walker said: “The fundamental change needed is to make the boardroom a more challenging environment than it has often been in the past. This requires non-executives who are able to devote sufficient time to the role in order to assess risk and ask tough questions about strategy.
“Institutional investors must be less passive and prepared to engage earlier if they suspect weaknesses in governance. They enjoy the privilege of limited liability whereas taxpayers have ended up assuming unlimited liability in respect of the big banks. Early preventive medicine through shareholder engagement can save everyone substantial time and money later on.”
The FSA welcomed the review and is now considering how to take forward the recommendations applied principally to financial institutions, with implementation expected in the beginning of 2010.
“Many of the recommendations complement work the FSA is already carrying out, such as the increased focus on the quality of governance and risk management at FSA-regulated firms. The FSA has already strengthened its approach to the approval of individuals who manage and influence firms at a senior level and will publish a further consultation paper on governance and approved persons early next year."
Mathew Rutter, partner at commercial law firm Beachcroft:
"Sir David's recommendations will require a big cultural change in many boardrooms, and a change in the role of the chairman and non-executive director (NED) in particular. In many cases, this will require a greater time commitment, and more questioning by NEDs. The review says that many of the recommendations are at least partially applicable to other financial institutions, such as life insurers. All FSA-regulated firms should therefore be looking at these recommendations and thinking about how they should apply the principles to their business.”
Peter Montagnon, ABI’s director of investment affairs:
“Sir David has paid close attention to practical points made by respondents to his consultation. The result is a useful indicator of the way forward, though there are, of course, some areas where further thought is needed. We remain concerned about any automatic read across to non-banking firms such as insurers, whose business models are different from those of banks and who do not represent the same systemic risks.”
John Cridland, CBI deputy director-general:
“We are still concerned about the risk of ‘spill over’ from the Walker Review. Banks have particular systemic risks associated with them. They therefore require different rules, and the Walker proposals look broadly sensible. However, it would be wrong to burden all companies with extra, inappropriate regulations when they have played no role in the financial crisis.”