Decisions on data – why good MI is critical to Senior Manager oversight and decision making
Imagine a world in which Senior Managers are armed with perfect data on the performance of their business unit/function. Each day a Senior Manager is able to open a dashboard with real time data on financial performance, the extent to which the business is acting within risk appetite, performance of staff, overdue management actions, treatment of clients or customers etc. Underlying data inputs are robust, and the output contains trend analysis and insightful commentary enabling the Senior Manager to make reasoned, empirically grounded decisions to maximise opportunities and minimise potential risks before they crystallise.
For most (if not all) institutions, management information (MI) of this calibre is aspiration not reality. It remains difficult enough to collect and present UK business line financial performance, let alone obtain detailed insight into conduct risk and other risk metrics. That being the reality, what are the regulatory expectations with regards to MI? What are the general principles of good MI and what questions should firms and Senior Managers be asking themselves when assessing the quality of their MI?
The regulators’ expectations
All authorised firms are required to establish, implement and maintain effective internal reporting and communication of information at all relevant levels of the firm which reflect the nature, scale and complexity of the business. Robust MI is one mechanism used by firms to discharge these obligations.
Senior Managers are under a personal obligation to take “reasonable steps” to ensure the business for which they are responsible is controlled effectively, complies with regulatory requirements and that they delegate effectively. These obligations in one way or another require ongoing monitoring by Senior Managers. MI should form one of the key planks of evidence that Senior Managers rely upon to demonstrate compliance with their reasonable steps obligations.
Aside from the general principles described above, little guidance exists as to what MI firms and Senior Managers should have in place. But when firms are subject to a Skilled Person’s review, supervisory review or other pre-enforcement action, lack of suitable MI is, in our experience, a recurring topic of adverse findings by UK regulators and Skilled Persons alike. Our work assisting firms in these contexts provides us with a unique insight into where regulators and Skilled Persons set the bar.
What good looks like
No doubt one of the reasons for there being little regulatory guidance on what good MI looks like is that requirements will vary considerably depending on the business. Even within institutions, the MI required by one business line will be different from the MI that should be in place for another. However, in our experience, there are some general questions that firms can ask about the quality of their MI to set themselves up for success.
How we can help
We advise firms on a range of issues relating to the internal reporting and Senior Management oversight from board/executive effectiveness reviews, ‘Reasonable Steps’ assurance reviews to governance benchmarking reviews. Given the lack of regulatory guidance in this area, our experience advising firms in the context of pre-enforcement and enforcement actions gives us a unique insight into common pitfalls and the regulators’ approach, and provides us with the tools necessary to recommend improvements to the mix of MI used by firms prior to regulatory intervention. If you’d like to find out more about how Linklaters can help you, please contact us.