They must be able to set a strategy and risk appetite and oversee implementation, but they do not substitute for the role of the Executive. Likewise, supervisors challenge hard and can ask for changes, but they do not substitute for the Board or the Executive. The recent past has not been an easy story in this area. It is very understandable that in the wake of the financial crisis, there was hard questioning of the role of Senior Executives and of Boards. Change in the approach of supervision to approving senior managers was needed. It is perhaps natural given the scale of the shock, that some change went too far or not in the best direction. I think there was a rebound in the direction of wanting all Non-Executive Board members to have technical skills of a similar sort, and thus deeper technical knowledge of the business. But that is the job of an Executive. When I came back into supervision in 2011, a senior insurer told me that in the supervisory interview process at appointment all his prospective NEDs were being tested on whether they understood the mathematical underpinnings of a “Gaussian Copula”. I could not verify this story, but it would be a mistake to stock a Board full of people chosen for their expertise in probability theory and nor would that Board be diverse.
There are three answers that I would rule out: the answer is not to go back to the good old days, because viewed with hindsight they don’t look that good; the answer is not to wish that finance should be simpler, something that is too idealistic to have relevance to today’s challenge; and the answer is not to repeal the duty of responsibility as it will apply to the Chairs of Boards and Board committees because as quite a few have said to me, “what’s all the fuss, this is just a description of what we are here to do.” So, what might the answer be? In the work that we are doing at the PRA to overhaul our approach to supervision of governance in firms as it relates to our statutory objectives, we want to help to get this issue on the table and make real progress. My hunch, as I have explained today, is that one answer lies in the approach by which Non-Executives are informed by Executives about firms and thus for Executives to enable rigorous challenge and to be given credit for doing so even where the consequences will be sometimes uncomfortable. We will always be cautious of Executives who seem to see Non-Executives as some form of threat; the really effective Executives are those who see their Non-Executive colleagues’ experience  BIS central bankers’ speeches  3  and knowledge as a means of improving the effectiveness of the Board’s judgement through constructive support and challenge.