How are NED's Authorised?
How are NED's Authorised?
All Directors, including NEDs, have to be personally authorised by regulators before they can serve on Boards of firms undertaking regulated activity as defined in FSMA.
A series of interviews is to be expected with existing members of the Board of the company that the NED is joining and with the relevant regulators.
As part of the authorisation process, forms supplied by the appropriate regulatory body have to be completed, submitted and approved. The application to approve an individual is made by the firm itself (termed “the applicant” by the PRA / FCA), but is countersigned by the individual (termed “the candidate” by the PRA / FCA).
Firms must usually complete the Approved Person’s forms via the FCA’s Online Notification and Applications system. This system is owned and maintained by the FCA but the application will be administered by the appropriate regulator as regards the relevant controlled functions.
DISCLOSURE OF INFORMATION
The applicant should ensure that sufficient information is provided in the application to satisfy the regulator that the candidate is fit and proper. This should include details of the due diligence undertaken, the recruitment, interview and appointment process and details of the rationale the firm has used to conclude that the candidate is fit and proper to perform the role for which approval is sought.
- Regulators’ Application Forms
Most UK candidates seeking approval to become NEDs have to submit, via their firm, either a PRA / FCA Long Form A – UK and Overseas Firms (not incoming EEA) or a PRA / FCA Short Form A – UK and Overseas Firms (not incoming EEA), depending upon whether they have been previously registered or authorised with that regulator or the FSA.
Actual PRA Application Forms can be accessed from their website (with further links to that of the FCA).
In essence, both application forms are seeking the following information:
- Personal identification details
- Firm’s identification details
- Arrangement and controlled functions details
- Employment history in the past five years
- Fitness and propriety details
- Supplementary details considered relevant
- Declarations and signatures by the candidate and the firm
The questions are comprehensive and very detailed. As is to be expected, the regulators state that knowingly, or recklessly, providing information which is false, or misleading, in a material particular may be a criminal offence. They also seek authorisation for them to make further enquiries that they deem appropriate.
PRA AND FCA INTERVIEWS
The Corporation of Lloyd’s may also attend such sessions when Directors of Lloyd’s managing agencies are being interviewed.
In the case of a new firm applying to be authorised by the PRA and/or the FCA, the entire Board of Directors can expect to be interviewed individually.
All Directors should prepare fully for such an interview, particularly because it is an ideal opportunity for those Directors to show how cooperative they can be in dealing with their regulator (PRIN 2.1 Principle 11).
Obviously, it is not possible to be prescriptive about the content of such interviews, but, collectively, Directors should be well informed about strategy, compliance and risk management issues and how, individually, they will be able to contribute to the success of the enterprise.
Hypothetically, NEDs may, typically, be asked questions about the following:
Non-Executive Chair, also on the Appointments Committee
- Business strategy
- Corporate governance
- Fitness and propriety
- Succession planning
- Balance of the Board
Independent NED, also on the Audit, Remuneration and Investment Committees
- Capital
- Stress testing
- Solvency II
- Risk appetite
- Reserving
Current areas of PRA focus:
The PRA frequently publishes or updates letters from its Director of General Insurance, to remind PRA regulated General Insurance firms and Board members of their responsibilities.
Such letters outline the PRA’s supervisory approach under current market conditions by making specific reference to underwriting, reserving, reinsurances and the assessment of capital requirements.
Independent NED, also on the Audit, Remuneration and Investment Committees
- Regulatory framework
- Compliance
- Conduct Risk, especially Treating Customers Fairly
- Remuneration philosophy
- Investment procedures
Group NED, also on the Risk & Capital and Reinsurance Security Committees
- Group strategy
- Roles and responsibilities
- Conflicts of interest
- Reinsurance purchasing
- Risk Register
The foregoing list of committees is most representative of an insurer.
For a broker, the Committees on which NEDs tend to sit are Appointments, Audit, Remuneration, Risk / Compliance and Treasury.
Executive search firm, Per Ardua, have provided helpful hints regarding a SIF interview with the PRA / FCA.
PRA Application Forms: Electronic link to BoE / PRA – Approved Persons – Applying for approval
iNED Sponsors
