Essential Corporate News: Week ending December 3, 2021
On November 26, 2021 the Financial Conduct Authority (FCA) published Policy Statement PS21/16, summarising feedback to a Consultation Paper (CP21/25) it published in July 2021
ASIC’s Corporate Governance Task Force today, 2 October 2019, issued its report on Director Oversight of Non-Financial Risk (NFR).
The report’s findings underline the critical observations made by Commissioner Hayne in February this year on the widespread challenges faced by Boards and Senior Management in managing NFR.
ASIC reviewed the practices of seven of the country’s largest financial service companies in overseeing NFR. Given its mandate, ASIC particularly focused on Compliance Risk, but clearly sees Operational Risk and Conduct Risk as important subsets of NFR – which all feed into, and impact, Reputational Risk for banks and corporates alike.
ASIC has urged the Boards of all large ASX-listed companies to read the report and ask themselves the questions posed throughout.
If not well managed, Non-Financial Risks carry very real financial implications for companies, investors and customers – particularly, if not identified and prioritised early enough James Shipton, ASIC Chair
ASIC concluded all the entities involved in the report were challenged by NFR management and that oversight of these risks was less mature than required.
ASIC still found deficiencies in process and governance, but sees concrete and achievable steps that can be taken to mitigate NFR.
Particular themes picked up by the report and which channel Hayne include:
This echoes Hayne: “Boards did not get the right information about emerging NFR and did not do enough to seek better information where what they had was clearly deficient”.
Shipton also pointed to the dense and voluminous board packs that buried NFR analysis. Very interestingly he muses on whether the object of presenting overwhelming amounts of data is “to avoid the authors having to make a call on what material to exclude or provide a hierarchy of those risks”.
This points to continued lapses in accountability bringing to mind Hayne’s concerns that “it was unclear who within a financial services entity was accountable for what” so hampering an effective accountability framework that “lies at the heart of governance”.
Positive aspects to emerge revolve around:
So, there are some clear messages for banks and corporates in all sectors of the economy:
Finally, the message is clear that ASIC sees the issue of managing NFR and the challenges of good governance as being a matter for all sectors, not just financial services.
It is wrong to suggest that only the boards of financial services companies should make NFR a priority. The observations and insights in this report can be applied across all sectors.
Recent decisions by the Court of Justice of the European Union (CJEU), the EU’s top court, have abolished the rights that EU investors previously had to bring claims against EU member states in international arbitration.
© Norton Rose Fulbright LLP 2021