COCON 1 Annex 1 Guidance on the role and responsibilities of non-executive directors of SMCR firms

1COCON 1

Introduction

COCON 1.1

This annex applies to non-executive directors (NEDs) of an SMCR firm.3

3

3

3

3

3

3

COCON 1.2

This annex covers the role of a NED in performing the roles in (1) to (4), below:

(1)

the role of chair3 of the board of directors;

(2)

the role of chair3 of the nomination committee;

(3)

the role of chair3 of any other committee (irrespective of whether performing that role is itself a designated senior management function);

(4)

the general NED role.

COCON 1.3

The FCA's view of the role of a NED is consistent with the duties of directors included in UK company law and the description of the role of a NED in the UK Corporate Governance Code.

COCON 2

The general role of a NED

COCON 2.1

The role of a NED performing the general NED role is to:

(1)

provide effective oversight and challenge; and

(2)

help develop proposals on strategy.

COCON 2.2

To deliver this, their responsibilities include:

(1)

attending and contributing to board and committee meetings and discussions;

(2)

taking part in collective board and committee decisions, including voting and providing input and challenge; and

(3)

ensuring they are sufficiently and appropriately informed of the relevant matters prior to taking part in board or committee discussions and decisions.

COCON 2.3

Other key roles of a NED include:

(1)

scrutinising the performance of management in meeting agreed goals and objectives;

(2)

monitoring the reporting of performance;

(3)

satisfying themselves on the integrity of financial information;

(4)

satisfying themselves that financial controls and systems of risk management are robust and defensible;

(5)

scrutinising the design and implementation of the remuneration policy;

(6)

providing objective views on resources, appointments and standards of conduct; and

(7)

being involved in succession planning.

COCON 3

Role of a NED as chair of the board or a committee

COCON 3.1

Subject to any specific governance arrangements, rules or requirements applicable to the board or particular committees, a NED’s responsibility as chair3 of the board or a committee includes:

(1)

ensuring that the board or committee meets with sufficient frequency;

(2)

fostering an open, inclusive discussion which challenges executives, where appropriate;

(3)

ensuring that the board or committee devotes sufficient time and attention to the matters within its remit;

(4)

helping to ensure that the board or committee and its members have the information necessary to its and their tasks;

(5)

reporting to the main board on the committee’s activities; 3

(6)

facilitating the running of the board or committee to assist it in providing independent oversight of executive decisions; and3

(7)

in relation to the nomination committee, safeguarding the independence and overseeing the performance of the nomination committee.

COCON 3.2

The chair of the nomination committee should take reasonable steps to ensure that the nomination committee complies with:

(1)

the requirements in SYSC 4.3A about the nomination committee (if that part of SYSC applies to the firm); and

(2)

any specific and relevant requirements relating to the committee or to the matters within the committee’s responsibilities.

COCON 3.3

Paragraph3 3.2 of this annex is still relevant to a firm:3

3(1)

that is not required by the FCA Handbook to have a nomination committee; or

3(2)

for which being the chair of such a committee is not a controlled function;

3if it has such a committee.

COCON 4

General approach to the role of a NED

COCON 4.1

The FCA recognises that NEDs individually do not manage a firm's business in the same way as executive directors. Therefore, the responsibilities for which NEDs are accountable are likely to be more limited.

COCON 4.2

A NED is neither required nor expected to assume executive responsibilities.

COCON 4.3

Although NEDs who are subject to the senior management regime for SMF managers 3have individual duties under that regime, the FCA views the regime and its application as consistent with the principle of collective decision-making.

COCON 4.4

The standard of care, skill and diligence that the FCA would expect from a NED is the care, skill and diligence that would be exercised by a reasonably diligent person with:

(1)

the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the NED in relation to the firm, taking into account the standards in the Handbook (especially COCON and DEPP); and

(2)

the general knowledge, skill and experience that the NED has.