The regulatory pendulum swings back: Fed proposals for board governance and a supervisory rating system for large institutions

The FRB states that following a multi-year process, it has arrived at the following views: * Supervisory expectations for boards of directors and senior management have become increasingly difficult to distinguish. * Boards of directors often devote a significant amount of time satisfying supervisory expectations that do not directly relate to the board's core responsibilities. * Boards of directors of large financial institutions face significant information flow challenges, especially in preparing for and participating in board meetings. In our experience, some banking organization board members have expressed concern that the granular requirements imposed by the FRB have detracted from their ability to fulfill this essential role. * The attribute includes providing management sufficient detail to identify strategic objectives and otherwise implement a strategy and manage risks. * A firm's strategy and risk tolerance should be consistent, developed, considered, and approved together. Support Independence and Stature of Independent Risk Management (Including Compliance) and Internal Audit * This attribute highlights the importance of the risk and audit committees on any board. * The FRB states that active engagement by those committees entails an inquiry into material or persistent breaches of risk appetite and risk limits, timely remediation of material or persistent internal audit and supervisory findings, and the appropriateness of the annual audit plan. Maintain a Capable Board Composition and Governance Structure * This attribute provides that a board also must consider whether its composition, governance structure, and practices support governing a firm in light of its size, complexity, scope of operations, risk profile, and other changes that occur over time. * The FRB suggests that self-assessments are important, including of committee performance. [...]the FRB notes that a board may provide supervisors a self-assessment that could then be used by the FRB to review whether a board satisfies the key attributes.