In a world of instantaneous communication, interconnected markets, and more complex instruments and risks, effective cooperation between private and public sector players is vitally important for financial stability, both domestically and globally. At the same time, we must be certain that our joint efforts to ensure the safe and sound operation of our financial markets do not stifle the innovation and creative energy that are constantly improving how financial markets operate and the way firms do business. With these thoughts in mind, we must ask ourselves how, by working together, we can best meet the challenges to our financial markets posed by the loss of trust stemming from corporate governance breakdowns and misleading accounting practices at some prominent businesses. In answering this question, I am mindful of a basic reality. Namely, despite the successes of previous private/public sector cooperative efforts, additional issues that need our attention will always arise because of the open and dynamic nature of our financial system. As I noted, we have already begun to address some of the causes for investor scepticism. Still, we have much to do. I would like to comment on four broad issues: corporate governance, executive compensation, accounting, and disclosure. 1. Corporate Governance  Looking to the immediate future, I believe that one challenge for directors and executive management is to find outside directors who are sufficiently independent but still knowledgeable about and engaged in the business of the company on whose boards they will sit. Independence reflects qualities of objectivity, experience, insight, and force of character.

Third, and relating to model approvals, is the issue of the PRA’s own internal views on model calibration. We 8  have previously commented on our use of quantitative indicators , or QIs, but I think it is worth repeating that they are indicators and not pass/ fail standards. In particular, the standard for model approval is that firms must meet the tests and standards laid out under the Solvency II directive, and that is the basis for our 6  http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/treasury-committee/eu-insuranceregulation/written/47301.pdf 7 http://www.bankofengland.co.uk/publications/Pages/speeches/2016/921.aspx 8 SS17/16, http://www.bankofengland.co.uk/pra/Documents/publications/ss/2016/ss1716.pdf. CP20/16, http://www.bankofengland.co.uk/pra/Documents/publications/cp/2016/cp2016.pdf 6  All speeches are available online at www.bankofengland.co.uk/speeches  6  assessments. We do not operate QIs as a minimum standard, but rather as an indication of the sort of calibration level we would expect to see for standard portfolios. Models falling outside of our QI ranges (both above and below) attract increased scrutiny. Take as an example our QIs for corporate bonds. We feel that it is hard to argue that a model calibrated below the levels of credit spread increase we saw as recently as 2008-2009 meets the one-in-200-year standard required by the Directive. And so we set our QIs accordingly. But modelling credit risk is a complex business, subject to nuance and considerable expert judgement. Indeed, reasonable, knowledgeable experts might perfectly well disagree on some of the key assumptions.