Key Financial Risks and Challenges for Non-Executive Directors: A Comprehensive Guide

Insights from Baker Tilly’s INED Workshop in London

A recent workshop hosted by Baker Tilly Ireland’s sister firm in the UK brought together twenty Independent Non-Executive Directors (INEDs) from banks and other financial institutions to discuss the key challenges they face in 2024 and beyond. The event, chaired by a leading Bank INED, Sundeep Bhandari, provided valuable insights into the evolving role of non-executive directors which has also relevance for the Irish financial services sector.

Key Takeaways:

1. Sustainability and technology

• The workshop highlighted the need for INEDs to guide their organisations in adopting new technologies while mitigating associated risks.
• Discussions focused on the importance of robust risk frameworks, particularly in areas like cybersecurity and outsourcing, considering the regulator's guidance on operational resilience.
• Participants emphasised the need for INEDs to understand the implications of technological advancements for the financial services industry, including the potential impact on competition, customer expectations, and regulatory compliance.
• Although participants with EU operations didn’t discuss the Corporate Sustainability Reporting Directive (CSRD), an EU policy that requires companies to report on their environmental and social impact, we feel it is relevant to include it here.
• The CSRD strengthens and modernises the rules for reporting on social and environmental information. It requires more companies to report and requires more data and stakeholder scrutiny. 
• Companies where the CSRD applies must report on how they monitor environmental, social, and governance (ESG) issues, and the impact those issues have on the planet. They must also disclose specific initiatives to reduce their environmental footprint, such as resource conservation and pollution prevention strategies.

2. Navigating the regulatory landscape:

• INEDs expressed concerns about the increasing complexity and volume of regulatory requirements.
• The workshop addressed key regulatory trends such as consumer protection, central banks corporate governance codes, and issues such fitness and probity of key executive staff.
• Participants discussed the importance of staying informed about evolving regulatory expectations and ensuring their organisations have adequate resources and expertise to maintain compliance.

3. Effective governance and risk management for financial institutions:

• The workshop emphasised the critical role of robust governance and risk management practices for financial institutions.
• INEDs discussed the importance of strong first-line defences, comprehensive risk assessments, and effective board oversight.
• Participants highlighted the need for INEDs to have a deep understanding of the risks facing their organisations, including credit risk, market risk, operational risk, and cybersecurity risk.

4. Data, reporting, and the human element:

• INEDs stressed the importance of data quality and transparency for informed decision-making in financial institutions.
• The workshop discussed the need for concise and relevant reporting to boards, avoiding information overload.
• Participants highlighted the importance of investing in risk management talent and ensuring adequate resources for risk functions within organisations.

5. Looking Ahead: The future of INEDs:

• The workshop concluded with a discussion on the evolving role of INEDs in the financial services sector.
• Participants highlighted the need for continuous learning and development to stay abreast of emerging trends and challenges.
• INEDs emphasized the importance of collaboration and open communication with management, regulators, and stakeholders.

Conclusion:

The workshop underscored the increasingly complex and demanding role of INEDs in the financial services sector. By staying informed, embracing change, and prioritising effective governance and risk management, INEDs can play a crucial role in ensuring the sustainable success of their organizations. Both Baker Tilly Ireland and its UK counterpart remain committed to supporting INEDs in navigating the challenges and opportunities ahead.