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The board of directors provides stewardship and oversight of management and operations of the provincially regulated financial institution (“PRFI”). Its key responsibilities include:
- Defining and approving the PRFI’s risk appetite;
- Setting, approving, and monitoring the PRFI’s strategy;
- Overseeing the PRFI’s planning process;
- Monitoring performance against business objectives, strategies, and plans; and
- Ensuring that the PRFI has the capability and culture to support its risk appetite and achieve its strategy, including:
- Oversight of the PRFI and executive team;
- Choosing and evaluating the CEO; and
- Recruitment and renewal of the board.
The following statements describe the rating categories for the assessment of the board of directors in fulfilling its overall responsibilities of stewardship and oversight of the PRFI’s management and operations with due consideration of its safety and stability.
An overall rating of the board of directors considers both its characteristics and the effectiveness of its performance in carrying out its role and responsibilities in the context of the nature, scope, complexity, and risk profile of the PRFI. The characteristics and examples of performance indicators that guide supervisory judgement in determining an appropriate rating are set out below.
|Strong||The composition, role, responsibilities, and practices of the board meet or exceed what is considered necessary given the nature, scope, complexity, and risk profile of the PRFI. The board consistently demonstrates highly effective performance. Board characteristics and/or performance are superior to generally accepted governance practices.|
|Acceptable||The composition, role, responsibilities, and practices of the board meet what is considered necessary given the nature, scope, complexity, and risk profile of the PRFI. Board performance has been effective. Board characteristics and/or performance meet generally accepted governance practices.|
|Needs Improvement||The composition, role, responsibilities, and practices of the board generally meet what is considered necessary given the nature, scope, complexity, and risk profile of the PRFI, but there are some significant areas that require improvement. Board performance is generally effective but significant areas of improvement remain.|
These areas are not serious enough to cause prudential concerns if addressed in a timely manner. Board characteristics and/or performance do not consistently meet generally accepted governance practices.
|Weak||The composition, role, responsibilities, and practices of the board are not what is considered necessary in a material way, given the nature, scope, complexity, and risk profile of the PRFI. Board performance demonstrates serious instances where effectiveness needs to be improved through immediate action. Board characteristics and/or performance often do not meet generally accepted governance practices.|
The following statements describe the characteristics to be used in assessing the quality of board stewardship and oversight of management and operations of the PRFI, with due consideration of its safety, stability, and conduct. The application and weighting of the individual criteria will depend on the nature, scope, complexity, and risk profile of the PRFI and will be assessed collectively, along with board performance, in rating its overall effectiveness.
|1. Composition||1.1 Understanding of, and compliance with, the provisions of enabling legislation.|
1.2 Adequacy of policies and practices to regularly determine board size, range of directors’ qualifications, knowledge, skills, experience, and level of commitment required to fulfill board responsibilities.
1.3 Appropriateness of board size, range of directors’ qualifications, knowledge, skills, experience, and level of commitment available to fulfill board responsibilities.
1.4 Adequacy of policies and practices to recommend the selection, approval, renewal, and succession of directors.
1.5 Adequacy of policies and practices to ensure that the board understands its characteristics, behaviours and needs of its consumers/members, and to manage any conflicts between stakeholders.
|2. Role and Responsibilities||2.1 Adequacy of policies and practices to develop, approve, and periodically review the role and responsibilities of the board (including those of the board/committee chairs) and to ensure that directors comply with sound governance practices.|
2.2 Extent to which the board’s responsibilities include:
a) Appointing the CEO, establishing their mandate, monitoring their performance, and approving their compensation;
b) Approving the PRFI’s organization structure;
c) Approving the appointment of qualified individuals to senior management positions, monitoring their performance, and approving their compensation;
d) Reviewing and approving human resources and compensation policies and practices at least annually, including those pertaining to succession planning;
e) Approving business objectives, strategies and plans at least annually, and regularly monitoring their execution;
f) Approving financial statements and related disclosures;
g) Reviewing and approving significant risk management policies and practices at least annually, and obtaining assurances that they are being adhered to;
h) Reviewing and approving liquidity, funding and capital management policies and plans at least annually, and obtaining assurances that approved policies and plans are being adhered to;
i) Reviewing and approving policies and plans that apply to outsourcing arrangements at least annually, and obtaining assurances that they are being adhered to;
j) Reviewing and approving core business outsourcing arrangements;
k) Approving the PRFI’s communication and disclosure policies;
l) Obtaining assurances on a regular basis that the PRFI’s risk management, control environment, and management information systems are appropriate and operating effectively;
m) Requiring implementation of a system to ensure compliance with applicable laws, regulations, and guidelines;
n) Approving policies and practices for dealing with conflicts of interest; and
o) Establishing ethical business conduct standards for the PRFI and obtaining assurances that they are being adhered to.
2.3 Appropriateness of policies and practices to periodically communicate board information to owners/members, policyholders, and beneficiaries.
2.4 Extent to which PRFI’s policies and practices support the PRFI’s philosophy, principles, and culture.
|3. Committees||3.1 Extent to which the committee structure and their mandates are reasonable given the size, scope, and complexity of the institution.|
3.2 Adequacy of policies and practices to regularly review the structure and composition of board committees to ensure that they provide sufficient oversight.
3.3 Adequacy of policies and practices to establish and regularly review board committee mandates.
3.4 Adequacy of policies and practices to ensure that there is sufficient unaffiliated representation on board committees.
3.5 Nature and extent to which board committee mandates promote independent and comprehensive oversight, and timely and regular reporting to the board.
|4. Practices||4.1 Adequacy of policies and practices to orient new directors and periodically update existing directors on their responsibilities and on the PRFI’s businesses and related risks.|
4.2 Adequacy of policies and practices to promote independent, effective, and timely decision making.
4.3 Adequacy of policies and practices to establish and monitor work plans for fulfilling board goals and responsibilities.
4.4 Adequacy of policies and practices to set board agendas and priorities, arrange and conduct meetings, and record its deliberations and decisions. Extent to which these practices promote transparency in board accountabilities.
4.5 Adequacy of policies and practices to ensure that the directors are provided with timely, relevant, accurate, and complete information (including access to independent advice) to enable them to:
a) Determine that responsibilities delegated to board committees and senior management are being discharged effectively; and
b) Make informed and sound decisions.
4.6 Extent to which the directors’ compensation program promotes prudent decision making with regard to the objectives of the PRFI.
4.7 With respect to the oversight functions on which it relies (e.g., internal audit), the extent to which the board:
a) Approves the appointment of the function heads;
b) Ensures that they have adequate authority, independence, and resources to carry out their mandates;
c) Provides appointees with unrestricted access to the board and/or its committees; and
d) Requires periodic independent reviews of the functions.
|5. Self-Assessment||5.1 Adequacy of policies and practices to regularly assess the effectiveness of the board, its committees, and individual directors (including the chair) in carrying out their responsibilities.|
5.2 Extent to which the board implements its own improvement plan and regularly holds itself accountable for the implementation of such a plan.
5.3 Appropriateness of policies and practices to communicate board achievements against its responsibilities to stakeholders.
The quality of the board’s performance is demonstrated by its effectiveness in providing stewardship and oversight of the management and operations of the PRFI to ensure the PRFI is in control, its risks are appropriately mitigated, and business objectives, strategies, policies, and practices are appropriate and executed effectively.
The assessment will consider how actively the board embraces its responsibilities, bringing its collective skills and experience to bear in providing objective and thoughtful insight and guidance to the PRFI. BCFSA will look to indicators of effective board performance to guide its judgement during its supervisory activities. These activities may include:
- Conversations with directors and management to determine the nature and extent of discussion, evaluation, and questioning of management at board meetings;
- The nature of discussions at meetings and matters raised from those discussions;
- The extent of senior management interaction with the board and/or its committees;
- Review of how particular issues are dealt with by the board;
- Assessment of board practices; and
- Review of minutes.
Examples of indicators that could be used to guide supervisory judgement include the extent to which the board:
- Performs a regular, in-depth review and evaluation of the PRFI’s business objectives and strategies, as well as events and transactions that could pose significant risks to the PRFI, with a view to balancing business objectives with appropriate controls and governance;
- Actively contributes to the selection and performance evaluation of the CEO and other senior management as appropriate;
- Objectively assesses the appropriateness of the overall risk tolerance, major business activities, and risks of the PRFI on a regular basis;
- Establishes thresholds for the type and significance of issues to be brought to its attention (including adverse results, deficiencies in or breaches of limits, controls or policies, and changes in the external environment that might require a review of the operating strategy or control environment). Responds quickly to, and proactively follows up on, issues identified by management, BCFSA, or other regulators in order to satisfy itself that appropriate action has been taken or resolution achieved;
- Defines and periodically assesses for continued relevance type, comprehensiveness, and frequency of information and reporting to monitor and act on a timely basis, and ensures needed changes are made as required;
- Actively engages in the review of materials presented by management for information purposes or for board approval, appropriately weighing salient issues and alternatives, engaging in discussions, challenging management’s underlying assumptions, and requesting additional information and/or explanation;
- Ensures its meetings provide an appropriately balanced focus on key issues and ongoing governance requirements;
- Ensures significant outsourcing arrangements focus on their impact to risk management and strategic objectives;
- Ensures there is sufficient opportunity for directors to meet “in camera” and seriously considers the output of such meetings;
- Proactively engages in reviewing the mandates, resources, and scope of work of the key oversight functions upon which it relies for risk management, control and compliance assurances, and ensures that senior management appropriately supports these functions; and
- Performs a comprehensive self-assessment against its responsibilities and promptly addresses matters identified.
* Examples of documentation that BCFSA may review in formulating its assessment of the characteristics of the board include: the curriculum vitae of directors, board mandates, directors’ manual, board work plans, meeting agenda and related presentation materials, minutes, and follow-up documentation related to committee decisions, and self-assessment reviews completed by directors.