Board Committee terms of reference


Introduction

In certain circumstances the Board finds it useful to establish Committees to exercise power on its behalf. Five committees (Audit, Risk, Remuneration, Nomination and Investment) are presently constituted, and details of their terms of reference, membership and remit, as agreed by the Board, are provided below.

Audit Committee

Constitution and purpose

The Board has resolved to establish a Committee of the Board to be known as the Audit Committee. Its purpose is to assist the Board in reviewing the external financial reports of the business and its systems of internal controls.

Membership

a. The Committee shall be comprised of at least three, and not more than four, independent non-executive directors, appointed by the Board. A quorum shall be two members.

b. The Chairman of the Committee shall be appointed by the Board, and shall have specific responsibility for chairing and overseeing the performance of the Committee.

c. At least one member of the Committee should at any time have recent relevant financial experience in relation to the Duties of the Committee, having competence in accounting and/or auditing (FCA DTR7:7.1.1).

Attendance at Meetings

a. The Chairman, Chief Executive, Chief Risk Officer and Head of Finance shall normally attend meetings. A representative of the external auditors and internal auditors should normally attend meetings if required by any such party. Any member of staff may be required by the Committee to attend meetings. However, at least once a year the Committee shall meet with each of the external auditors and internal auditors without other Executives, management or staff present.

b. The Company Secretary (Head of Corporate Services) shall be the Secretary of the Committee.

Frequency of Meetings

Meetings shall be held when necessary, and not less than three times a year. The internal or external auditors may request a meeting if they consider that one is necessary.

Authority

The Committee is authorised by the Board to investigate any activity within its terms of reference. It is authorised to seek any information it requires from any employee and all employees are directed to co-operate with any request made by the Committee. The Internal Auditor has the right to direct access to any member of the Audit Committee if for any reason he does not wish to consult the Chief Executive.

Duties

The duties of the Committee shall be:

Internal controls

a. to review the internal control systems, including internal financial controls, and ensure that these continue to be effective;

b. to advise the Risk Committee as appropriate of any concerns regarding the effectiveness of the current control framework.

Financial reporting

c. to review the annual financial statements and semi-annual regulatory returns, and any formal announcements relating to Scottish Friendly’s financial performance, before submission to the Board, focusing particularly on:

  i. any changes in accounting policies and practice

  ii. major judgmental areas

  iii. significant adjustments resulting from the audit

  iv. the going concern assumption and compliance with accounting standards and legal requirements, including the regulations and guidance of the PRA/FCA

  v. where appropriate, allocations between Scottish Friendly’s funds;

External audit

d. to make recommendations to the Board, for it to put to the Delegates for approval in general meeting, in relation to the appointment, re-appointment and removal of the external auditor and to approve the remuneration and terms of engagement of the external audit;

e. to discuss with the external auditor before the audit commences the nature and scope of the audit;

f. to discuss problems and reservations arising from the interim and final audits, and any matters the auditor may wish to discuss (in the absence of management where necessary);

g. to review the external auditor’s management letter and management’s response;

h. to review and monitor the external auditor’s independence and objectivity and the effectiveness of the audit process, taking into consideration relevant UK professional and regulatory requirements;

i. to develop and implement policy on the engagement of the external auditor to supply non-audit services, taking into account relevant ethical guidance regarding the provision of non-audit services by the external audit firm; and to report to the Board, identifying any matters in respect of which it considers that action or improvement is needed and making recommendations as to the steps to be taken;

Internal audit

j. to monitor the internal audit programme in the context of the overall control systems, including approving the programme and reviewing the reports produced,

k. to ensure co-ordination between the internal and external auditors, and that the internal audit function is adequately resourced and has appropriate standing within Scottish Friendly;

l. to consider the major findings of any internal investigations and management’s response;

m. to review the effectiveness of the internal audit function and approve any significant changes in the provision of this service;

Other

n. to review arrangements by which staff may, in confidence, raise concerns about matters of financial reporting or other matters and to ensure that arrangements are in place for the proportionate and independent investigation of such matters; and

o. to consider other topics, as defined by the Board.

Reporting Procedures

The Secretary shall circulate the agenda, the notice calling the meeting, and the minutes of each meeting of the Committee to all members of the Board and any such other attendees as the Chairman of the Audit Committee shall direct. The Chairman shall report on the Committee’s activities to the next meeting of the Board.


Risk Committee

Constitution and purpose

The Board has resolved to establish a Committee of the Board to be known as the Risk Committee. Its purpose is to provide focused support and advice on risk governance, assisting the Board in reviewing the systems for managing all aspects of business Risk, including operational, prudential, business conduct and strategic.

Membership

a. The Committee shall be comprised of a majority of at least three, and not more than four, independent non-executive directors (including the Chairman of the Audit Committee as an ex officio member), appointed by the Board and the Chief Executive (as an ex officio member). A quorum shall be two members.

b. The Chairman of the Committee shall be an independent non-executive director appointed by the Board, and shall have specific responsibility for chairing and overseeing the performance of the Committee.

c. Members of the Committee must have appropriate knowledge, skills and expertise to fully understand and monitor the risk strategy and the risk appetite of the firm.

Attendance at Meetings

a. The Chief Risk Officer and Head of Corporate Services shall normally attend meetings. Any member of staff may be required by the Committee to attend meetings.

b. The Compliance Officer and a representative of the external auditors and the internal auditors should normally attend meetings if required by any such party.

c. The Company Secretary (Head of Corporate Services) shall be the Secretary of the Committee.

Frequency of Meetings

Meetings shall be held when necessary, and not less than three times a year.

Authority

a. The Committee is authorised by the Board to investigate any activity within its terms of reference.

b. It is authorised to seek any information it requires from any employee and all employees are directed to co-operate with any request made by the Committee, and to appoint appropriate advisers on appropriate terms in order to assist the Committee in carrying out its Duties. The Chief Risk Officer has the right to direct access to any member of the Risk Committee if for any reason he does not wish to consult the Chief Executive.

c. The Committee should have regard to any relevant advice from the Audit Committee concerning the effectiveness of the current control framework.

Duties

The duties of the Committee shall be:

a. to provide advice to the Board on risk strategy, including the oversight of current risk exposures of the business, with particular, but not exclusive, emphasis on prudential risks;

b. to review proposals for consideration by the Board in respect of overall risk appetite and tolerance;

c. to challenge the design and execution of stress and scenario testing;

d. to ensure that a satisfactory framework is in place with appropriate metrics for identifying and managing all aspects of Risk within the business, including operational, prudential, business conduct and strategic;

e. in respect of these risks, to be aware of the business’s current risk profile and ensure consistency with the Board’s appetite for risk;

f. to review the relevant risk management systems and ensure that these continue to be effective;

g. to review quarterly reports from the Executive Committees: Information Security & Business Continuity, Own Risk and Solvency Assessment, Product & Distribution Governance Committee and Executive Risk Committee;

h. to keep under regular review the steps taken by management to monitor, manage and mitigate Risk via appropriate risk registers;

i. to have oversight of and challenge due diligence on risk issues relating to material transactions and strategic proposals that are subject to approval by the Board;

j. to ensure that the Compliance function is adequately resourced and has appropriate standing in the organisation;

k. to review the annual work programmes of this function;

l. to receive routine reports from the Compliance function in line with the standard format approved by the Risk Committee and to ensure that any matters raised are being appropriately addressed by management;

m. to provide advice to the Remuneration Committee on risk weightings to be applied to performance objectives incorporated in the incentive structure for executive directors;

n. to provide advice, oversight and challenge necessary to embed and maintain a supportive risk culture through the business;

o. to review arrangements by which staff may, in confidence, raise concerns about matters of Risk management and to ensure that arrangements are in place for the proportionate and independent investigation of such matters; and

p. to consider other topics, as defined by the Board.

Reporting Procedures

The Secretary shall circulate the agenda, the notice calling the meeting, and the minutes of each meeting of the Committee to all members of the Board and any such other attendees as the Chairman of the Risk Committee shall direct. The Chairman shall report on the Committee’s activities to the next meeting of the Board.


Remuneration Committee

Constitution

The Board hereby resolves to establish a Committee of the Board to be known as the Remuneration Committee.

Membership

a. The Committee shall be comprised of three independent non-executive directors, appointed by the Board, (one of whom should be the Chairman of the Audit Committee), plus the Chairman of Scottish Friendly. A quorum shall be three members.

b. The Chairman of the Committee shall be appointed by the Board.  In addition to all duties of Chairmanship of the Committee the Chairman shall have specific responsibility for ensuring the development and oversight of Scottish Friendly’s policies and procedures, and ensuring that the Committee supports such development and oversight.

Attendance at Meetings

a. The Chief Executive shall normally attend meetings. Any member of Scottish Friendly staff may be required by the Committee to attend meetings.

b. The Chief Executive shall be Secretary of the Committee.

Frequency of Meetings

Meetings shall be held when necessary, and not less than once a year.

Authority

a. The Committee is authorised by the Board to investigate any activity within the scope of its duties / responsibilities. It is authorised to seek any information it requires from any employee and all employees are directed to co-operate with any request made by the Committee.

b. The Committee shall be able to seek external professional advice and hire consultants as appropriate to fulfil its duties.

Duties

The duties of the Committee shall be:

a. To have delegated responsibility from the Board for the monitoring, review and setting the remuneration of the Executive Directors and other members of the Executive of Scottish Friendly including policy in respect of pension rights and any compensation payments.

b. To have delegated responsibility from the Board for the monitoring, review and setting the remuneration of the Chairman of Scottish Friendly;

c. The remuneration of the non-executive directors of Scottish Friendly will be reviewed and set by the Board in the absence of the non-executive directors, that is by the Chairman and the Executive directors.

Reporting Procedures

The Secretary shall circulate the notice calling the meeting, and the minutes of each meeting of the Committee to all members of the Board.


Nomination Committee

Constitution

The Board hereby resolves to establish a Committee of the Board to be known as the Nomination Committee.

Membership

a. The Committee shall be comprised of the Chairman of Scottish Friendly and at least one independent non-executive director, appointed by the Board, plus the Chief Executive.

b. The Chairman of Scottish Friendly shall be the Chairman of the Committee.  In addition to all duties of Chairmanship of the Committee the Chairman shall have specific responsibility for leading the Committee in the processes of Board appointment, orderly succession planning, and for ensuring the effective evaluation of each Board member. The Chairman shall not chair any part of a Committee meeting which considers his replacement.

Attendance at Meetings

a. The Company Secretary shall be Secretary of the Committee.

b. Any member of Scottish Friendly staff may be required by the Committee to attend meetings.

Frequency of Meetings

Meetings shall be held when necessary, and not less than once a year.

Authority

The Committee is authorised by the Board to investigate any activity within its terms of reference. It is authorised to seek any information it requires from any employee and all employees are directed to co-operate with any request made by the Committee.

Duties

The duties of the Committee shall be:

a. to lead the process for Board appointments and make recommendations to the Board, taking into consideration the time commitments required of non-executive directors and their independence;

b. to ensure that plans are in place for orderly succession for appointments to the Board and to the Executive, and make recommendations to the Board, taking due account of business skills, experience and diversity.

c. for the appointment of a Chairman, to prepare a job specification, including an assessment of the time commitment expected, recognising the need for availability in the event of crises;

d. on an annual basis, through the auspices of the Chairman, to evaluate the performance of each director, in order to show that each continues to contribute effectively and demonstrate commitment, including time commitment to the role. The evaluation of the Chairman should be led by the senior independent director, taking into account the views of the executive directors;

e. to seek external professional advice as appropriate in fulfilling its duties; and

f. to consider other topics, as defined by the Board.

Reporting Procedures

The Secretary shall circulate the agenda, the notice calling the meeting, and the minutes of each meeting of the Committee to all members of the Board.


Investment Committee

Constitution

The Board hereby resolves to establish a Committee of the Board to be known as the Investment Committee.

Membership

a. The Committee shall be comprised of up to five members to include the Chairman and the Chief Executive Officer ex officio.

b. Two of the other members shall be a non-executive director, (Mr S E C Miller), who shall be Chairman of the Committee, and the Deputy Chief Executive, (Mr J Galbraith).

c. The Chairman shall be an independent non-executive director appointed by the Board, and shall have specific responsibility for chairing and overseeing the performance of the Committee.

d. The Committee may, at its discretion, appoint an additional member to assist the Committee in the execution of its duties who is considered to have sufficient experience and skills to contribute to the workings of the Committee.

e. The quorum of the Committee shall be two, one of whom must be Mr Miller or Mr Galbraith.

Attendance at Meetings

a. Other Board Members shall have the right of attendance. Any member of Scottish Friendly staff may be required by the Committee to attend meetings.

b. The Company Secretary shall be the Secretary of the Committee.

Frequency of Meetings

Meetings shall be held when necessary, and not less than twice a year.

Authority

The Committee is authorised by the Board to investigate any activity within its terms of reference. It is authorised to seek any information it requires from any employee and all employees are directed to co-operate with any request made by the Committee, and to appoint appropriate advisers on appropriate terms in order to assist the Committee in carrying out its Duties.

Duties

The duties of the Committee shall be:

a. to make decisions on asset allocation and investment strategy of the main fund, sub-funds, and unit-linked and OEIC funds in line with the liabilities, relevant risk appetite and parameters established by the Board or by the relevant fund objective;

b. to monitor and if necessary review the operation of the risk appetite (as determined by the Board), investment parameters and fund objectives, and, where appropriate, make recommendations to the Board;

c. to monitor the performance of investments made and fund managers;

d. to approve any new funds or sub-funds prior to launch;

e. to review, if necessary, the authorisation regime for custody and settlement for Scottish Friendly;

f. to appoint, monitor and review investment managers and their performance;

g. to provide oversight of the investment activities and stewardship role of Scottish Friendly as an investor; and

h. to consider other topics, as defined by the Board.

Reporting Procedures

The Secretary shall circulate the agenda, the notice calling the meeting, and the minutes of each meeting of the Committee to all members of the Board.