RegSol Blog

Enterprise Risk Management (ERM): A Cornerstone for the CBI’s proposal for Senior Executive Accountability Regime (SEAR)

December 2019

Driving a positive and ethical consumer focused risk culture within an Enterprise Risk Management Framework is the responsibility of the Board, in the first instance, cascaded throughout the entire organisation and reflected from the bottom up. The proposed SEAR regime is based on strengthening clear responsibility and individual accountability by placing obligations on senior individuals who report directly to the Board and heads of critical business areas. These positions should correspond to those who already are PCFs under the Fitness and Probity Regime. 

In scope (initially) are:

  • credit institutions (excluding credit unions);
  • insurance undertakings (excluding reinsurance undertakings, captive (re)insurance undertakings and insurance special purpose vehicles);
  • investment (MiFID) firms that underwrite and/or deal on own account and/or are authorised to hold client monies/assets

SEAR will, over time, be extended to other firms regulated by the Central Bank to ensure proportionality.

What can your firm do to prepare and what does this mean in practical terms?

Whatever phase an organisation is at in ERM implementation, risk culture is a key component. It is the common norms, attitudes and behaviours related to risk awareness, risk taking and management and the controls that shape decision making. 

This is set out in the organisation’s risk appetite, set by the Board, and measured and reported on within the Governance structure. Lack thereof or poor culture leads to misconduct and excessive risk taking, ultimately the driver of financial crises. Key to transforming this is striking a balance between first line sales driven front office and the second line drivers of effective risk management.

CBI Proposals
  1. Approve Conduct Risk Appetite Statements by the Board to drive change
  2. New Business/Product, Sales, Front Office duly incorporated into Risk Governance Structure
  3. Communication strategy around values, compensation, training
  4. Alignment of incentives with risk objectives and enforceable disciplinary action for breaches in rules and misbehaviour.
  5. Risk Control Self Assessments & Collection of data on past events
        Mandatory responsibilities for Senior Executive Functions
        Comprehensive Statements of Responsibilities
        Responsibility Maps

The table above in our view demonstrates that the proposed SEAR regime is strongly aligned to the ERM process. Having a mature ERM framework in place better prepares organisations for regulatory change whilst helping them achieve their strategic business objectives in a positive way that’s good for their employees, stakeholders and their bottom line.
If you would like to partner with RegSol to embed an effective Risk Management Framework in your organisation, please talk to one of our consultants today.

By Judy de Castro - Regulatory Consultant