Spotlight on Financial Services: subsidiary governance – the issues and practical steps.



      The UK regulators are focusing on global financial services companies and the role non-UK parent companies play in the oversight and governance of their UK subsidiary companies. The challenge these firms face is to demonstrate that their UK regulated legal entities

maintain independence and control over the decision making whilst avoiding conflicts in relation to their parent company’s objectives.


Since April 2013 when the Financial Services Authority transitioned to the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA), there has been a shift in regulatory focus in relation to governance towards culture and individual accountability of directors. This in turn increases the need to articulate the roles and responsibilities of directors of UK subsidiary boards.


Financial services firms are making significant improvements in their governance arrangements; here are some practical steps that can be made:


  • Evaluation of current governance structures in light of the changing expectations of the regulators
  • Formal and robust documentation of the governance arrangements into a governance framework, setting out board and committee structures, roles, responsibilities and escalation lines
  • Embedding a culture of governance through training, improved documentation, communication and involvement from senior management
  • Emphasising the independence of the UK board to make decisions on its financial and strategic objectives and risk strategies, separate from the parent company
  • Articulation of formal delegated authorities from regulated legal entities to other business structures
  • Increasing the appointment and input of independent NEDs on board and board committees
  • Investing time in training to prepare senior executives for the SIF (Significant Influence Functions) interview process so that they are   aware of the type of questions they are likely to be asked and to ensure that they address regulatory questions appropriately


Managing the expectations of the UK regulators whilst facilitating the requirements of a global financial services business is a complex undertaking, but firms implementing these measures are able to demonstrate their commitment to preserving the integrity of the UK legal entity.

12 June 2014



written by Jon Moores
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