New roundtable report from AJ & Partners outlines the challenges financial services firms face to attract boardroom talent

London, 20 February 2019. Senior banking non-executive directors are calling for change if the industry is going to attract the boardroom talent it needs for the future. The Senior Managers Regime (SMR) and its mandate to assign personal accountability and liability to both executive as well as independent non-executive directors (iNEDs) has made it increasingly challenging for banks to source and appoint qualified iNEDs, particularly from outside of financial services. A new roundtable report entitled The Evolution of the Independent Non-Executive Director Under the Senior Managers Regime from AJ & Partners Group looks at how the drive to deliver good governance is currently hindered under the regime and how changes to the industry and profession will expand opportunities for both banks and iNEDs in the future.

The Senior Managers Regime (SMR) came into effect in March 2018 to increase the personal accountability of senior people in the financial services industry and covers both domestic and international firms with UK operations. The SMR seeks to establish clear accountability for senior banking staff including a statement of responsibility, a firm responsibility map and pre-approval by the regulator. The spirit of the regime was to define and reflect good governance; however, the potential for personal liability for the iNEDs as well as restrictions to the number of boards one can be appointed to (4) has resulted in a shortage of qualified professionals to fill the posts.

“The talent shortage for iNEDs within financial services is very real and the heightened regulatory environment – whilst vital for the industry – is creating additional barriers to entry for potential board members,” said Martin Stewart, board advisor and managing director of ClaytonStewart and former Director of Supervision – Banks, Building Societies and Credit Unions at the Bank of England’s Prudential Regulation Authority (PRA). “We need a brilliant banking industry in the UK, so we need to have brilliant people on the boards. If we don’t have the best on the boards then we’re not going to thrive.”


Roundtable participants identified six key issues that have made it both harder to identify as well as retain iNEDs under the SMR:

Personal accountability and good governance: There is consensus that corporate governance is good for the industry but that there has been too great a focus on the personal risk involved instead of the wider implications and best practice across the industry. This is particularly challenging for smaller, emerging banks with accountability pushed to more junior staff members who do not want the responsibility nor are remunerated in line to the amount of risk they undertake.

Self-preservation: Indemnity and self-preservation were highly debated topics amongst roundtable participants. Particularly the question of note taking in board meetings was discussed as while it could help one justify their stance on sensitive situations, it could also be accessed by lawyers. This is problematic if any inconsistency to the formal board meeting minutes and iNEDs are justifiably cautious about how this impacts their roles.

Remuneration: With increased personal liability, financial institutions struggle in how to offset the reward-risk equation for iNEDs. While there is an inclination to offer some variable remuneration, there exists a fine balance as these individuals should operate completely independent from incentives.

International and cultural differences: The SMR requires any bank operating within the UK to be compliant and oftentimes, international banks with UK subsidiaries or in some cases only a branch do not understand the SMR nor explain the circumstances to their board members in the UK. These issues are compounded with non-UK based chairpersons and many iNEDs are left vulnerable or frustrated when trying to uphold compliance.

Emerging business challenges: Boards are increasingly challenged with emerging issues, including cyber risk, and banks are tasked with responding to such issues, often before the full extent of the situation is known. Many banking iNEDs feel they lack the IT technical background to advise on these situations, yet the industry struggles to attract technology professionals to the board.

Formal application process: A positive evolution from SMR is how people are being recruited to a board – evolving from what was historically a ‘virtual black book’ of contacts to a formal application process to ensure individuals meet requirements at a strategic level. This is not without its challenges, as the regime and personal accountability requirements has made it necessary to engage executive recruiters with what is an increasingly challenging task.

“Corporate good governance is at the heart of the financial services industry and this is only achieved through the appointment of the very best non-executive directors”, said Ian Graves, CEO at AJ & Partners. “Yet as the industry and marketplace evolves, banks are increasingly at risk of emerging threats, making it imperative that iNEDs across a host of industries and backgrounds are recruited to help chart the industry’s path.”

Roundtable participants identified the following solutions to enable the financial services industry to thrive:

Establish the regime under law: iNEDs should hold ultimate responsibility for corporate governance; however, agreement extends that the regulators have often exerted too much pressure. The regime could be more successful if it was established under law instead of under a regulator.

Conduct exit interviews: While the regulator interviews departing iNEDs from the boards of the large banks, this is often overlooked as best practice in some of the smaller, emerging banks. iNEDs looking to indemnify themselves should always request an exit interview even if one is not offered.



Remain responsible for own due diligence: iNEDs need to consider their own due diligence and self-preservation, especially if they are working with an international subsidiary or branch. Addressing the institution’s approach to SMR through the application process and/or during an engagement should be a course of action for iNEDs looking to protect themselves.



Professionalising the profession: Establishing a professional body for iNEDs would create an additional layer of professionalism by defining the core competencies and standards required. Creating an independent institute outlining and upholding standards, providing a series of exams and offering professional insurance to iNEDs would not only enhance standards, but would create a talent pool from which the industry can draw from in the future.

“It’s clear that something needs to be done and iNEDs across the financial services industry are equally trying to provide sound corporate governance whilst futureproofing the profession”, continued Graves. “Establishing a professional body to set and uphold standards whilst providing the support and indemnity that iNEDs need, will ensure that the UK financial services industry remains the global leader that it is today.”

About AJ & Partners

AJ & Partners is a leading executive search and advisory firm providing specialised expertise to clients across financial and professional services. With a combined successful 50-year track record, we believe in creating the next generation of executive search. By combining proven talent acquisition methods with the latest digital tools and trends, we are innovating traditional approaches and disrupting the industry. For more information, visit ajpartnersgroup.com

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