UK: the FSA's "intensive supervisory model" and the role of non-executive directors

Hector Sants, chief executive of the Financial Services Authority, has elaborated further on the standards he expects from key participants in the governance of FSA regulated firms. In a speech delivered today, in which he outlined the FSA's new "intensive supervisory model", Mr Sants considered the role of non-executive directors. He stated:

The greater engagement of shareholders and non-executives will be central to this improved regulatory proposition. I talked yesterday at the NAPF conference about shareholders' responsibilities; a word today, albeit briefly, on non-executives' responsibilities. 

Non-executives will need to commit more time and raise their technical skills to exercise rigorous oversight. These changes will no doubt warrant more support and indeed compensation for these individuals. They will also however, need to be more willing to challenge executives. All of this suggests that non-executive directors, as others have already observed, will need to become more like full-time 'Independent Directors'. Sir David Walker’s report will no doubt be addressing these issues in more detail and the FSA looks forward to working closely with him.

However, even with all these changes to supervision and the wider oversight process, we cannot ignore that the principal responsibility for managing firms responsibly lies with the management themselves. It also needs to be recognised that the ultimate responsibility for what has happened rests with firms’ senior management. In reviewing the recent litany of firm failures in many cases, albeit with hindsight, specific decisions and strategies can be seen to be at the root of those firms' demise".

Note: the FSA has already begun to clarify what it expects from non-executive directors: see here.