What does corporate governance mean in 2021? And why most of the UK financial organisations have so far failed to implement effective internal governance systems and policies.
Michael Ruck is a partner at K&L Gate's London practice. He is a member of the Investigations, Enforcement, and White Collar team. Michael has a broad range of experience including advisory, regulatory liaison and large-scale, complex multi-jurisdictional investigations. Throughout his career, including previously working in the FCA’s Enforcement Division, he has led financial services regulatory projects, investigations and proceedings for a range of institutions, including asset and fund managers, insurance businesses and banks. His experience spans various regulatory issues and he has worked closely with a number of UK and foreign regulators, including the FCA, SFO, ICO, DOJ and IRS.
Michael has a deep understanding of a wide range of regulatory issues and procedures and he regularly speaks at various industry forums and events. So, we reached out to him to seek his views and perspectives on the current state of corporate governance in the UK and FCA's recent regulatory developments in the field.
Read Michael's complete interview below.
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What does corporate governance mean in 2021?
Positive corporate governance should focus on generating a corporate culture that is aligned with the company purpose, business strategy, promotes integrity and values diversity. This will likely include the implementation of tailored corporate governance policies and practices along with the need for high levels of transparency which will lead to improved levels of trust both within the corporate and from those externally.
Over the past few months, the FCA has published a series of warnings to UK financial services organisations about the lack of adequate governance systems and controls in the industry. Why do you think organisations have massively failed to implement effective governance systems and policies?
UK financial services organisations have spent many years and a large amount of resources on creating and implementing governance systems and controls. Whilst many of these have been designed and implemented to a high standard, there have been some clear and high-profile failings in this area.
Unfortunately, some organisations have failed to identify the key areas of risk or closed their eyes to the systems and controls required. Those firms which have not engaged, either fully or at all, with implementing appropriate governance strategies and policies continue to be at risk of regulatory intervention and causing significant detriment to their reputation.
What do FCA’s “Dear CEO” warning letters mean for organisations?
“Dear CEO” letters should be considered to be a clear indication of areas of focus for the FCA. They often mean that enforcement action is either already underway or is likely to follow very shortly, in particular, for those firms and senior individuals who do not heed the steps set out in the letter.
Any actions by firms or individuals in response to such letters must be tailored to each individual firm, each office of each individual firm and, in many circumstances, each specific workstream of each office of each individual firm.
Should a firm get this wrong and find themselves face to face with the FCA, they will not be viewed kindly and may well become the focus for regulatory intervention.
How can organisations ensure they meet the FCA’s governance expectations? What are some of the best practices in the sector?
One of the key steps to ensure the FCA’s expectations are met is to fully understand the FCA’s perspective and where the FCA is expecting firms to focus their efforts. This includes reviewing FCA publications, statements and notices, not only for the firm’s sector but across all sectors relating to these issues.
Firms must ensure their approach is specific to their own individual risks and requirements, which means there is no ‘one-size-fits-all’ solution.
What about the role of technology? How can technology and digitalisation help fight “bad” governance in the financial sector?
Digital technologies are changing how our economy functions and how decisions are taken. For example, current procedures and processes often lead to slow decision-making and information discrepancies. Technology can not only increase speed but also ensure those making decisions are made on a fully informed basis.
For example, distributed ledger technology and blockchains can ensure that data is stored in a transparent manner to establish trust between the company and shareholders. Blockchain technology can offer a common discussion platform for shareholders and board members.
Similarly, artificial intelligence (AI) is used in increasingly various ways including artificial neural networks, fuzzy systems, evolutionary computing, intelligent agents and probabilistic reasoning models. This means that the analysis of data trends, the provision of forecasts and the anticipation of users’ data needs can be identified more efficiently and quickly. AI assists the decision-making process and has the ability to support and, possibly even one day replace human decision-making, particularly where various aspects of uncertainty exist. This takes robo-advice further and puts AI potentially into the Board Room.
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