17.04.2023  Participation in the Governance Workshop “Diverse and effective boards in a changing and competitive landscape” ECB and the Florence School of Banking and Finance Florence Margarita Delgado Deputy Governor  Thank you for inviting me to speak here today. I am very pleased and honoured to participate in this event. The oversight role of the board of directors is one of the core elements of good corporate governance and a key area of supervisory focus. The Single Supervisory Mechanism (SSM) deals with heterogeneous structures and different management approaches, which has made it necessary to design an open supervisory framework. Sound oversight is ultimately achieved by striking the right balance between challenge, involvement and independence. First, by challenge I am referring to board members’ ability to participate in discussions. In this regard, non-executive members should be able to improve the quality of the debate and have the opportunity, the capacity and the ability to question the decisions made by the executive members. In order to do so, they need to have reliable, timely information. Without it there can be no meaningful discussion or effective decision-making processes. But challenge is not at odds with the support that the board of directors needs to provide to senior management. Diverse knowledge is a relevant issue in this context. This is not just a matter of gender, although there are still banks that do not have diversity policies or internal targets for gender diversity at board level.

Digitalisation is a broad concept that covers different aspects, and it needs to be clearly defined and specified for each institution. And second, the importance of establishing a robust operational resilience framework. The current pace of digital transformation at financial institutions is unprecedented. But increased digitalisation also entails greater ICT and cyber risks. Not only are malicious 3  attacks against financial institutions and their customers on the rise, but the enormous complexity of these institutions’ ICT systems makes operational errors more likely. In addition, institutions’ increasing reliance on specialised third parties, very often involving a multi-tiered supply chain, makes operational risk management even more challenging. Of course, we cannot talk about digital transformation and IT environments without mentioning data quality. Reliable data is the starting point for properly quantifying, identifying and monitoring any risk, to ensure that potential weaknesses can be identified in a timely manner and that any necessary measures can be coordinated. Climate and environmental risks are another area that supervisors have identified as a source of risk in the medium term, which should be closely monitored in order to properly understand and recognise these risks. Overall, both ESG and regulatory compliance are becoming more relevant due to their high reputational impact, and banks need to pay close attention to them. Internal control functions Another issue I would like to highlight is the key role of internal control functions in the smooth functioning of institutions, complementing the role of the first line of defence.