Good corporate governance in the financial services sector is essential for a fair, strong, and efficient financial system for all Australians.
In August 2018 ASIC received funding to conduct targeted reviews into corporate governance practices of large listed entities to gain an insight on actual governance practices.
In its first year, ASIC’s Corporate Governance Taskforce considered how directors and officers have overseen and managed:
non-financial risk; and
This report sets out our observations on director and officer oversight of non-financial risk. The report considers how directors and officers of large and complex financial services companies are discharging their duties in relation to oversight and monitoring of non-financial risk, and highlights ways that governance practices could be improved.
All too often, management was operating outside of board-approved risk appetites for non-financial risks, particularly compliance risk. Boards need to actively hold management accountable for operating within stated risk appetites.
Reporting of risk against appetite often did not effectively communicate the company’s risk position. Boards need to take ownership of the form and content of information they are receiving so that they can adequately oversee the management of material risks.
Material information about non-financial risk was often buried in dense, voluminous board packs. It was difficult to identify key non-financial risk issues in information presented to the board. Boards should require reporting from management that has a clear hierarchy and prioritisation of non-financial risks.
The effectiveness of board risk committees (BRCs) could be improved. BRCs should meet more regularly, devote enough time and be actively engaged to oversee material risks in a timely and effective manner.