Ian Kirk, partner and head of Collas Crill's Commercial Department, chaired the panel discussion of the first Guernsey Financial Services Commission-led Internal Capital Adequacy Assessment Process workshop for Non-Executive Directors earlier this year. Here, Ian summarises the key 'take home' points from the workshop for NEDs.
- The ICAAP must reflect the key risks of the Guernsey bank. Since the turmoil of the financial crisis the focus of both the Commission and the boards of local subsidiaries has shifted away from the financial strength of the group and directly onto the self-sustainability of the Guernsey subsidiary.
- A key aspect of a NED's role is to ensure that the main risks in the Guernsey bank are indentified, addressed, controlled, and where necessary allocated an appropriate level of capital.
- A balance must be achieved between identification and understanding of risk in the Guernsey bank by the Executive Directors and NEDs and reliance on the group's intellectual support. This is particularly relevant for small subsidiaries of large systemically critical international banks. While it is likely that the group has the technical wherewithal to conduct specific quantitative analysis it is the responsibility of the local board to identify and understand the risks in the Guernsey bank and the results of any analysis and allocate capital as necessary.
- The ICAAP must be integrated into the bank's risk management systems and should be a dynamic work stream. It should not be a one-off, paper, 'tick the box' exercise that does not truly reflect the risks and controls in the Guernsey bank.
- NEDs must receive adequate information to ensure they are fully informed about the bank's ongoing risk profile and be able to challenge the executive team.
- Every NED will have unique skills that they will bring to the board however, where these can be developed or enhanced to add value additional training should be sought.
Ultimately, the role of the NED is to provide an informed critique of work undertaken by the executive team. When it comes down to the capital requirements of the bank it is for the NEDs to take a high level view of the risks and ensure that the necessary capital has been allocated.
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