The Challenge

The ‘client’ (target) of this s166 Skilled Person’s review was a well-known insurance subsidiary of an overseas parent. For some time, the PRA (Prudential Regulation Authority) had been encouraging the client to enhance their risk management arrangements but with little apparent progress.

This situation eventually led the PRA to commission a s166 review with the explicit objective of identifying the root cause of the organisation’s reluctance to address the PRA’s concerns, and to assess the effectiveness of the firm’s risk governance arrangements – including the effectiveness of the board, the board risk committee and the individual board members. The PRA also wanted an assessment of the organisation’s risk culture and whether there had been any identifiable improvements over the period.

Halex Consulting was engaged by a large Skilled Persons panel firm to lead this engagement.

Our Solution

Leveraging our tried and test approach, we first reviewed all board and committee papers from the in-scope period and identified key events and decisions over the course of the timeline. With this information, we were able to conduct a series of key event focused interviews with parent and subsidiary board members, as well as members of senior management, risk management, internal and external audit to assess the quality of the organisation’s risk governance. Additionally, we conducted a robust analysis of the organisation’s risk arrangements, including the effectiveness of the second line risk function, through leveraging our model of risk effectiveness.

Finally, we also ran a risk culture survey covering board members, senior management and a representative cross-section of the UK business. A sample of survey responses were followed up with interviews.

The Result

It became apparent quite quickly that the client had invested heavily and made significant progress in developing the quality and effectiveness of its risk arrangements over the previous 18 months. We also noted that outstanding (but planned) risk transformation activities largely aligned with the areas of first and second line risk management immaturity we had identified.

The overseas parent maintained a strong presence at board and senior management levels which, whilst not directive, was strongly influential in board and senior management decision-making. The intentions of the parent were, however, benign and a mismatch in cultural expectations and ways of working had resulted in a reluctance by the UK entity to act sufficiently independently in driving the business forward.

We discussed our key findings with both the client and PRA before writing a formal report. As part of this process, we were able to convince the client (and the parent) to take steps to reinforce local board decision-making autonomy whilst, at the same time, protecting organisational arrangements that provided the client with the financial and operational benefits of being part of a larger group.

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