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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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