Recent money laundering cases at Danske Bank, HSBC, Standard Chartered, Swedbank and many other financial groups have brought the importance of sound group oversight to the attention of shareholders. These cases were primarily linked to the operations and business activities of the banking groups’ international branches and subsidiaries. The consequence has been fines, that in some cases amount to billions and can result in a significant negative reputational impact. Shareholders’ potential liability for the acts of subsidiaries and the potential reputational impact provide a strong reason for them to care about group governance. Regulators also have a high interest in ensuring financial group governance arrangements are appropriately structured. These concerns, in addition to ensuring effectiveness and continuity of decision making, are key drivers behind some of the advice sought by Nestor Advisors’ clients.
Subsidiary board composition is a key tool for parent oversight of their subsidiaries. This article shows how growing regulatory expectations in Europe regarding banking subsidiary independence levels (driven by increasing regulatory pressures in financial conglomerates to clearly separate their risky operations from the deposit taking part of their businesses) and their enhanced responsibilities are driving an increase in the autonomy of subsidiary boards in Europe. To demonstrate some of the points, we use subsidiary board composition trends among 14 leading European banks which are regularly collected by Nestor Advisors.
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