This webinar took a look at the changes taking place for the three professions, but also how they need to work together more effectively. Successfully managing challenges requires definitely a new way of thinking about risks.

If you could not follow the webinar you can watch it below. A summary report is also available.

Panelists

• Leena Linnainmaa, ecoDa’s incoming chair, Secretary-General of Directors’ Institute Finland
• Dirk Wegener, FERMA President
• Nora Gürtler, Head of Group Audit of Assicurazioni Generali S.p.A. and member of ECIIA Insurance Committee

• Barton Edgerton, Associate Director, Research at NACD (National Association of Corporate Directors in the US), moderator

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The main conclusion is that directors are interested in continuing to improve the effectiveness of their corporate governance and oversight practices.

Read the report here.

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Given this context, the report assesses the risks and implications of the ultra-low/negative yields on the investment behaviour of insurers, considers how challenged are the profitability and solvency positions of the European insurance market and describes the impact on the insurance business models and consumers. 

Read more here.

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Today’s ‘best practices’ cover several issues, including:

• Payment moratoria for consumer and business loans, and for insurance contributions: these measures can help those facing financial difficulties by deferring payments;
• Enabling safer cashless payments while ensuring cash payments remain available for those who need them;
• Ensuring loans aimed at mitigating the impact of coronavirus are provided swiftly, and that the fees and interest rates incurred are fair;
• Legitimate insurance claims are processed and paid out as quickly as possible.

Read more here.

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1.    Ethics remain a “driving force” 

Companies with strong ethics have created a relationship of trust with their stakeholders on which they have been able to rely to demonstrate agility and adaptation in times of crisis.

Leaders must demonstrate integrity by showing emotional intelligence. They must be able to demonstrate that they continue to pursue a societal mission while making the decisions that are necessary for the company. They must be able to justify their decisions with a clear narrative in line with their values and their corporate purpose.

The role of the board of directors is crucial in defining the main relevant stakeholders, in understanding their expectations and defining the characteristics of the corporate culture

Boards’ composition is also crucial. More than ever, board members are needed who can challenge decisions and avoid cognitive bias when making decisions

To conclude, in times of crisis, displaying transparent decision-making and an authentic narrative is crucial to benefit from a good reputation and trust from the public.

2.    Crisis management and risk control: How board performance will be judged?

Board members need to operate as the sounding board whenever necessary, to discuss pro-actively potential response plans, and to get much more hands-on governance.

The Covid crisis operates as a catalyst of existing trends. All new trends point to more attention for stakeholder governance, going far beyond the traditional shareholder governance model. Greater expectations are expressed towards the societal role of the business world, with clearer accountability rules and critical monitoring of a responsible business world. Board members are there to be “the radar of the future”

However, submitting to the exercise of defining the purpose of the business is not an end in itself. It is also necessary to understand the consequences the exercise has on the manner of evaluating performance and on the perilous exercise which is incumbent on the directors to arbitrate divergent interests

Board members must be able to think differently and to get prepared for the next crisis, for the unexpected it will only be possible if board members’ diversity is enhanced.

3.    Has the COVID-19 crisis already set the direction for future supply chains – to be more local and less depending? Is this the beginning of deglobalization as a strategy?

We need to analyze long term trends like the ESG issues or sustainability which will necessarily impact the way in which their business is driven. The new societal paradigm requires companies to find new business models with more resilient supply chains. What is the most critical today is to invest in the long term rather than maximising the short term profit. Whatever happens, businesses are unlikely to return to unique value chains. They must put value chains back at the heart of their strategy and their quest for authenticity.

4.    Dialogue between directors and stakeholders in times of crisis

The ability of the Board Chair and the CEO to coordinate and act in good intelligence is a real asset. Digitalisation will impact the board discussions and facilitate discussions.

Given that the crisis can exacerbate conflicts of interests among the different types of shareholders (retail investors vs institutional investors, active vs passive investors, 8 controlling shareholders vs minorities, etc), it is important for boards not to distinguish among them and to keep the same level of involvement

It is time to move towards a model of « company primacy » and to integrate a multi-stakeholder perspective. Stewardship codes are already involving in that direction by requesting a stronger duty of care from investors. Stewardship codes could go further by promoting collective responsibility.

*: Notes from the various webinars organised in May, June 2020

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The EBA has already taken a substantial number of measures, which aimed at providing operational relief to institution within the current prudential framework. These include the publication, on 2 April 2020, of Guidelines on legislative and non-legislative moratoria on loan repayments, which encouraged institutions to grant payment holidays to customers.

Read the report here.

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• Given the extended working from home arrangements, it is difficult to determine whether the Bank continues to operate its Business Continuity Plan (BCP)or is just operating under a ‘new normal’. This has an implication for any relaxation of internal control requirements during the activation period of the BCP.
• Difficult to achieve a full return to the office before the summer taking into consideration constraints (health issues, personnel issues, social distancing issues but also infrastructure constraints in the banks)
• Opportunity to learn/extend new audit digital methodologies:-more data analytics review-new communication/exchange with auditees (test and learn experience)-more agility-easier to perform audits centrally (perhaps travel is not needed)
• Some Banks undertaking “Quick audits” during this period: quick check with data analytics for example to provide immediate suggestions, with quick results and simplified report but very useful in “emergency situations”.
• Need for a new performance system
• Need for a new management of staff

Need to invest in “digital” as Banks further focus on digitalization of services following the pandemic

2.New emerging risks areas in the audit plan

Audit plan adjusted to:

• Quick responses on key risks
• IT security, VPN, infrastructure, Payments Holidays, Non-Performing loans (higher volume expected), liquidity

3.Interactions with ECB/Supervisors

• Impact of Covid-19 on internal audit plan , risk assessment, control environment
• Secondments to 1st and 2d line and consideration of the impact on independence of internal auditors
• Pressure on risk management functions
• Follow up of ECB findings – considering the ECB’s own ‘operational-easing’ and six month extensions in this period
• Increased regular interactions with the Board/Audit-Risk Committee during the crisis
• Some Internal Audit Functions recognizing that full completion of the 2020 plan may be a challenge, given some operational inefficiencies during the lockdown. 

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The publication is based on materials and discussions at a Smart Interactive Talk among members of the IACOP and relevant global experts on April 20, 2020. The aim is to address the impact of the COVID-19 pandemic on internal audit work.

Representatives of four countries, the Netherlands, Ukraine, the Republic of South Africa, and the United Kingdom, gave presentations followed by a question & answer session.

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Impact of COVID-19 on the way audits are performed (HOW)

Productivity of the internal audit department:

• care for people: empowerment
• give flexibility to people, do not put too much pressure and be „results-oriented“
• use different indicators to measure productivity (efficiency & quality & impact of the COVID-19 on productivity)

Audits performed remotely:

• use COVID-19 a catalyst for change in this sense in the future
• Take into account the challenges from Remote working and technology in countries in some countries (Africa of Asia for example) due to lower quality WiFi and other issues (logistic issues, housing issues,…)
• take care of employees and organise virtual meetings with each country regularly and with everyone in your team
• change hierarchy: all auditors may come with solutions and are involved (not just leaders)
• take the best resource wherever she/he seats…use the advantage of no geographical boundary anymore and go for a  fully integrated audit team

Audit report:

• mention if the mission has been performed before or during COVID-19

Audit plan:

• add a special COVID-19 impact on the different risks categories
• prioritise audits in the plan and rearrange and potentially postpone (changes up to 15% on average so far)
• strike for the balance between putting pressure on stakeholders to stick to the plan and not going too far. there will be some impact but so far, nothing dramatic. – audits will be delayed for a few weeks
• focus on group risks
• use a contingency plan to prioritise the work included in the audit plan. (mandatory & relevant audits that need to be performed – but some cannot be carried out due to those countries not having WiFi for example).
• transfer internal auditors to other departments as long as  independence is preserved: few transfers to Risk Management and First line (payments, regulation processes,…)

Findings:

• grant relief for medium-risk findings. (relief of up to 3 months)
• ask Management to defend their position in postponement by assessing 
• key risks.
• remediate on low/medium risks findings with a good business case to postpone the deadline
• accept delays for some complex issues with difficult actions plan to implement à no pressure on the overdue in this case: more flexibility and case by case resolution

New emerging risks with COVID-19  (WHAT)

• reassess the external risks: market, credit, insurance in the new context of COVID-19
• reassess the operational risks:  the remote work creates a new design of internal controls
• pay attention to the increase of some risks and new risks:
  *Data loss prevention
  *Credit ratings
  *Business continuity.
  *Data privacy issues & Data security & Data losses issues
  *Security of people & information
  *Cyber-attacks
  * Compliance risks and regulatory changes
  *Financial risks: asset (impairment), financial investment risks (technical provisions).
  *Fraud (claims management)
  *Life insurance underwriting

Communication to stakeholders on the impact of audit activities and plans (WHO)

• Provide transparency to the stakeholder and avoid surprises
• Communicate each new measure to the audit committees and Management.
• Organise regular meetings with Management Board to assess audit plan vs business capacity
• Assist the audit committees with new issues: Evaluation of COVID-19 impact on fragile areas (big risks): vulnerability exercise, Risk of COVID-19 on employees back to the office

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