Greece: contingency plan needed

08-08-2018

Greece: contingency plan needed

iStock/ Okada

Regulatory issues and heightened monitoring by regulators and stakeholders are impacting bank boards in Greece, says Konstantine Antonopoulos of Matrix Insurance & Reinsurance Brokers.

The regulatory framework and heightened monitoring by regulators and stakeholders are impacting bank boards in Greece, forcing directors and officers to face various challenges. Upcoming challenges include the potential end of quantitative easing, combined with the necessity for higher profitability in an acutely risky environment.

In addition, the finalisation and implementation of Basel III and continuous stress tests, draw a rather gloomy picture for the directors and officers of Greek banks, especially since in Greece there has been no modernisation of the corporate governance regime.

“In this legal context one must follow a unique principle in all cases of business judgement: ‘act with prudence’.”Let’s not forget the new challenge of the EU General Data Protection Regulation (GDPR), which is supposedly the new best thing in terms of citizen protection.

GDPR alone for the directors and officers of the banks will create a change in the “burden of proof” element, and will require them to have a need for a continuous individual self-assessment going forward. All of the above are just a few issues that will clearly increase the accountability of directors and officers of banks, not to mention the increase in bureaucracy in the near future.

Furthermore, one must keep in mind that a single supervisory mechanism will hugely impact Greek banks, which are today in need—more than ever—of contingency planning.

It also seems that currently, technology is far ahead of the regulators’ actions, so the use of “prevention” will not stop breaches, and “doing the right thing” must be combined with higher levels of insurance protection.

 

No harmonisation

Undoubtedly banking has a risk management task associated with it and at the same time is a risk-tolerant job that also has an extremely high regulatory risk that needs to be managed and defined along with the legal risk that comes with the job. The whole situation becomes even more complex since the board of directors’ management risk is not harmonised throughout Europe.

In Greece the most important change during the last three years has been the nomination and the assessment of “fit and proper” board members by the Single Supervisory Mechanism (SSM), followed by the distinction between the duties and obligations of executive and non-executive members.

Today, non-executive members act as the bridge that allows the management to communicate with the regulators. Subsequently it has become obvious that in this legal context one must follow a unique principle in all cases of business judgement: “act with prudence”.

Members of boards of directors and managers accordingly should not only explore their accountability but more importantly be self-conscious of their decisions in order to better understand the risks that go along with their daily duties, and hopefully successfully mitigate them.

Currently directors & officers (D&O) liability insurance is not harmonised throughout the EU, so most managers should be aware that covering all possible liabilities through the purchase of D&O insurance is a good way to be proactive against the risks they face, but this is not an exclusion of liability.

“Accountability” is a key word going forward and this word will help all managers to do their jobs more effectively.

In reality, the more rules and regulations that come into effect, the more chances that one will fail to follow all of them. For example, in Greece, the new law that establishes the conditions for the operation of the secondary loan market has created a high-risk environment, where there will be a direct connection to the selling price of the loan portfolio.

This will become of more interest in the near future. Some 15 companies are ready to invest in nonperforming loans (NPLs) and the majority of clients are opposed to the selling of their loans. It seems that it will be hard to manage the risks and liabilities associated with these transactions, unless you “do the right thing”.

Although the current regulatory framework has helped Greek banks, the system seems to be so over-regulated that in reality this serves as an impediment to allowing actual growth to take place.

 

Communication needed

We have reached the other end where we should now reexamine the overloaded Greek governance law for banking and go deeper into the actual operations of the banks in order to develop a more reasonable criterion.

Although today directors need insurance against external risks, it is becoming more difficult to distinguish between the reputation of the bank and the reputation of its directors, especially given the fact that reputation is almost never restorable after a claim has occurred.

Since quantifying reputation is very difficult, we should be prepared by taking the right measures in order to successfully cope with reputational issues. Therefore, effective communication between all parties involved is an absolute necessity if a reputation problem arises.

This of course brings us back to the issue of the data governance of a banking institution where compliance is a very important process in accordance with the GDPR EU directive.

Here the banks are facing a large responsibility and a huge challenge concerning data breach, since there are so many different ways information can leak.

Purchasing the proper insurance coverages is one of the risk management measures an organisation can take against such risks, but it is still prudent for an organisation to be ready when a breach or leak occurs. Having the best possible contingency plan/continuity plan in place will be crucial for an easier recovery in the future.

Finally, with the proper management of the inherent liabilities and risks ahead this will help clear the road back to growth. We believe Greek institutions, in a few years’ time, will be far more attractive and profitable than expected.


Konstantine Antonopoulos is the commercial director of Matrix Insurance & Reinsurance Brokers. He can be contacted at: konstantine.antonopoulos@matrix-brokers.com

Matrix Insurance & Reinsurance Brokers, Konstantine Antonopoulos, Greece, GDPR, Regulations, Insurance, Risk, Insight, Contingency

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