The financial crisis has exposed a number of shortcomings in relation to the governance and risk management of firms regulated by the FSA. In particular, for some firms, management decisions have revealed a degree of incompetence, and, perhaps, a cavalier approach regarding risk management. For other firms, a sufficiently strong challenge at board level was missing from governance structures.

The FSA's historical philosophy was that supervision focussed on ensuring that a firm had appropriate systems and controls in place and relied on senior management to make the right decisions. The FSA did not see its role as to question a firm's business strategy or to foresee the possibility of risk crystallising in the future.

This has now changed. In a speech published on 7 May 2009 the FSA's Chief Executive, Hector Sants, stated that the financial crisis had demonstrated that the FSA could no longer rely on senior management judgements. In the future the FSA will make judgements on the judgements of senior management and take action if the firm's actions lead to risks to its statutory objectives. The FSA calls this the intensive supervisory approach. However, the FSA retains the fundamental view that a firm's senior management carry primary responsibility for their actions and the resulting consequences. This responsibility is shared with non-executive directors (NEDs), shareholders and auditors.

Sants stated that, in light of the new supervisory process, NEDs will need to have:

According to Sants, this means that NEDs will need to raise their technical skills to exercise rigorous oversight. They will need to demonstrate competence with regard to risk management, regulation, and the business model of their firm. The FSA does, however, recognise that there needs to be an appropriate mechanism to allow NEDs time to acquire sufficient competence and this may result in something called the 'provisional' NED.

With a greater emphasis on technical skills, it is more than likely that more and more NEDs will work on a full time basis and they will have to be compensated accordingly. To strengthen their technical expertise NEDs will need further support within their firm.