At the Institute and Faculty of Actuaries 30th Life Insurance event on 18 November 2015, the Director of Insurance Supervision delivered a speech entitled “Culture and Governance: Acting Together for a Happy Marriage”. She analysed the corporate governance failures which led to the recent financial crisis and identified the supervisory measures needed to avoid another financial crisis in the future.

Ms Cronin identifies the restoration of consumer and shareholder confidence in the financial services sector as the main challenge in the fall-out of the crisis. While there has been speculation as to the governance factors which lead to the global financial crisis including for example, board members lacking relevant experience and understanding. Ms Cronin suggests that a dysfunctional culture at board level is the root cause of the financial failures.

Ms Cronin cautions that minimum compliance with regulatory requirements or reliance on the CBI to be the “conscience” of an organistaion is insufficient to achieve a sustainable business. The roles of the Chief Risk Officer and the Head of Actuarial Function are central to the creation of an effective risk management framework. Risk management should be fully incorporated into the governance structure of an organisation.

Moving forward, the shift in the CBI’s approach from a backward looking system of supervision focused solely on financial risks to a more forward-looking approach with a complete assessment of risks both financial and non-financial (including culture and behaviours) will continue. The areas of focus for the CBI in the future will be product oversight and governance and conduct risk. The CBI will continue to hold boards more accountable for the behaviour and culture within an organisation and will intervene where board dynamics are ineffective. The CBI will increase its awareness of the culture within an organisation by more on-site inspections.

A link to the speech is here.