Are NED's the FS industry's new big bet?


From ‘old dog’ to ‘rising star’, are NED’s becoming the FS industry’s new big bet and businesses’ best friend?

Mention NEDs ten years ago, and the more cynical amongst us may have imagined a senior executive semi retired putting the finishing touches to his retirement plan with a few board meetings.  Now, 5 years post-financial crisis, the role, demand and regarded importance of the NED role for financial services has been transformed.

CI NEDs have become an attractive commodity for the islands internationally; enhancing the jurisdiction’s offering to a number of funds industries who need to increase the strength of their corporate governance to meet demands of new global regulation.

Demands on and for adequate governance and oversight of compliance procedures are only going to grow greater. The wave of legislation from AIFMD, to Dodd Frank, FATCA and Solvency II (to name just a few) will soon impact and wash over businesses on island. In a climate where there appears to be constant dark threatening clouds of  regulatory investigation , could NEDs be about to play pivotal roles in helping boards plan and implement the necessary changes to their governance and compliance structures?

In a landscape of every growing regulation, management of structures, funds and businesses are being called into question ever more regularly. A key part of sound strategy for managing the risks this brings is being able to demonstrate adequate governance and oversight at board level. An essential aspect of delivering this is the role of the NED. As quickly as the ESG agenda has grown, the importance and influence of the NED has grown. It is important for boards to be able to demonstrate ‘involvement’ and ‘challenge’ in key risk areas such as valuation and disclosure, risk management and regulatory compliance.  It is no longer a case of having a standing agenda with some reports or even a checklist to complete as many of the regulations are more about culture and actions than process.

Increasing numbers of NEDs are enhancing their skill sets and knowledge base to meet demand, they look set to potentially play a key role in the safe transformation of FS business‘s operating models: If you’re an investment manager would you need to be working with your board and advisors to work out how effective your procedures are in practice and the most effective route to a robust ‘investigation-ready’ model. The alternative, hoping everything works okay, your staff follow procedures, and / or that you’ll stay under the regulators radar, could cost you your reputation, a hefty fine and potentially your business.  Key stakeholders are demanding greater transparency and more assurance that the funds, their boards and their managers have strong governance and compliance controls. Fund directors need confidence that their funds and service providers have effective compliance programs and have no undiscovered compliance problems or vulnerabilities.  With the raft of new legislation impacting locally, a central review that enables NEDs to assess the readiness of their business for the significant impact of legislation is crucial.

Ultimately Boards have responsibility for all aspects of businesses’ operations.  They will be expected to understand every aspect of the business and be able to identify areas that require further development, gap analysis or health checks.  So the question we should be asking right now is how can NEDs and boards develop the way they work together to meet these demands most comfortably, and further enhance their partnerships? The experience and knowledge held in the CI NED network means we have an experienced pool of NEDs who with the right investment and support would be able to service the full spectrum of global funds and business structures.

Our experience in assisting companies with regulatory updates, run-throughs of regulatory inspections and compliance health checks is that having the means to devote sufficient time to this area can be daunting, but with the right support from professional organisations it is possible to address key risk areas.

Change will have to happen in response to regulatory reform. Those organisations as yet without a clear understanding of how close they are to meeting the requirements that apply to them, are already exposing themselves to substantial risk.  Developing and harnessing our pool and expertise of NEDs on island is therefore a sound investment both in terms of raising the competitiveness of the organisations they serve, and of our island as a jurisdiction.