Governance functions and structures form an important element in the regular activity within our core company financial strength assessments and also when carrying out product/investment proposition assessment work.
From this perspective, our sense is that the importance of governance roles and functions will continue to increase over the next few years, particularly where these functions underpin the delivery of managed investment solutions.
The market appears to be, once more, at a time of popularity for managed investment solutions. Some of this activity has been driven by an increase in adviser businesses seeking to outsource all, or elements of, their investment process/proposition to third parties.
But even where adviser businesses are retaining things in-house, managed investment solutions still seem to be in vogue.
More and more money is likely to continue to find its way into these solutions over the coming years and for reference, the generic term ‘managed investment solution’ could easily apply to a wide range of solutions in the market including with profits funds, multi-manager funds, multi-asset funds, managed funds, managed portfolios or default funds.
What do we mean by governance?
There does not appear to be a ‘one-size-fits-all’ definition of what constitutes good governance. The following overarching paragraph sets the scene, taking into considerations various sources from a number of different spheres of business and governmental activity.
In general terms, governance can be regarded as the combination of competent processes and structures within an organisation that ensures its meets its objectives in a legal, ethical and honest way.
Most importantly, governance must be transparent. An organisation is accountable for its governance and must be able to demonstrate the same.
This overarching definition then needs to be interpreted further in the context of financial services in general, the specific role that the governance function in question is seeking to play and the associated roles of key market participants, including customers, advisers, providers and asset managers.
In doing so, there are several key terms which then spring to mind when you consider what governance in financial services might stand for, including:
KEY TERMS RELATING TO THE CONCEPT OF GOVERNANCE
|Accountability||Responsibility||Duty of care|
Assessing governance functions
And so, when assessing governance functions and structures the reviewer should therefore have these key terms in mind and seek to monitor and appraise financial services governance functions against these core competencies and objectives.
Accountability and stewardship
Ultimately boards and senior management teams carry the responsibility for the governance of a company and relevant propositions/operations within the company. Typically, there will be a range of roles and committees in place, including risk management, to support boards and senior management teams in their governance work.
Each committee will have terms of reference in place and is likely to be populated with internal staff. Independent presence on a committee might occur sometimes, as might the undertaking of independent review of the committee’s working practice and effectiveness.
Questions appear on the last page of this article.