Understand the Duties and Responsibilities of the Board of Directors in 2025
As the regulatory environment continues to mature, especially within the European financial sector, the role and expectations of the Board of Directors (BoD) in Investment Firms and Financial Institutions have become more structured, transparent, and significant. With increased scrutiny from regulators like the Cyprus Securities and Exchange Commission (CySEC) and the Central Bank of Cyprus (CBC), understanding how to build and maintain a competent, compliant board is critical.
In this article, the SALVUS Regulatory Compliance team outlines the foundational principles and practical expectations related to the composition, governance duties, and responsibilities of Boards of Directors. These insights are derived from the applicable regulatory framework, as well as best practices adopted across EU-regulated Investment Firms and Financial Institutions. In particular, it discusses:
We regularly share bite-sized insights on LinkedIn such as those found in this article
1. What is the Role of the Board of Directors?
The Board is not just a formal structure, it is the strategic engine of any organization. According to regulations, the Board shall define the company’s direction, monitor decision-making, and oversee senior management. The Board ensures the firm’s strategic goals align with risk tolerance, regulatory compliance, and market integrity.
2. Composition: Legal Structure, Independence, and Expertise
The composition of the Board of Directors is more than a regulatory checkbox, it is a key component of a firm’s ability to make informed, strategic decisions while maintaining integrity and independence.
Under Law 87(I)/2017, a Cyprus Investment Firm’s (CIF) Board must be composed of at least two Executive Directors and two Independent Non-Executive Directors. These members shall not only meet numerical thresholds but must also satisfy qualitative standards regarding independence, competence, and time commitment.
But what defines “independence”? A truly independent director must not:
- Have held an executive position in the firm within the last five years
- Be a controlling shareholder or represent one
- Maintain material business or advisory relationships with the firm
- Be a close relative of another board member or controlling party
In addition to individual qualifications, the Board must collectively represent a broad range of knowledge and experience across areas such as:
- Legal and compliance matters
- Financial services and banking operations
- Risk management and internal controls
- IT systems and data governance
- Strategy and business development
This diversity ensures that the Board can fulfill its supervisory function and guide the firm through an increasingly complex regulatory landscape.
3. Governance Duties: Strategic Oversight, Risk, and Ethical Conduct
A well-functioning Board doesn’t just exist to fulfill formalities, it shall actively define, approve, and oversee the firm’s strategic direction, risk framework, and ethical standards.
The governance obligations of the Board include, but are not limited to:
- Setting the firm’s business strategy, including long-term goals and sustainability
- Approving the risk appetite, management frameworks, and internal policies
- Ensuring proper implementation of the remuneration policy in line with prudential principles
- Monitoring the financial reporting systems and ensuring accurate and transparent disclosures
Moreover, the Board is expected to cultivate a strong risk and corporate culture:
- Promoting integrity, accountability, and ethical behavior across all functions
- Implementing and overseeing conflicts of interest policies
- Considering Environmental, Social, and Governance (ESG) factors in risk assessments
An essential function of governance is also the continuous supervision of senior management, ensuring they execute the firm’s strategy while remaining compliant. The Chairman of the Board shall remain distinct from the role of the Chief Executive Officer (CEO) unless CySEC has approved otherwise.
4. Time Commitment, Suitability & Committee Involvement
An effective Board member shall commit adequate time and energy to their role. According to regulatory guidance, members should not hold more than:
- One executive and two non-executive directorships, or
- Four non-executive directorships, unless specific exceptions apply
Exceptions may include roles within the same group, or in non-commercial organizations, but firms shall always evaluate each individual’s ability to dedicate sufficient time to fulfill their duties properly.
Suitability assessments are also critical. Boards shall ensure that each member:
- Is of good repute, honesty, and integrity
- Maintains the professional qualifications and experience relevant to their role
- Undergoes periodic assessments, both individually and collectively
Furthermore, modern governance demands the establishment of specialized committees, such as:
- Risk Management Committee – oversees the firm’s risk strategy, capital adequacy, and exposure to market and operational risks
- Remuneration Committee – ensures compensation policies are aligned with long-term risk strategies
- Nomination Committee – assesses the suitability and independence of board candidates
These committees shall have clear mandates, appropriate reporting lines, and be chaired by non-executive directors to preserve objectivity.
In collaboration with the Institute for Professional Excellence (IforPE), SALVUS offers a self-study CPD course titled: “Understand the Duties and Responsibilities of the Board of Directors in 2025”.
This course is specifically designed for professionals employed in Cyprus Investment Firms, Financial Institutions and other entities regulated by the Cyprus Securities and Exchange Commission or the Central Bank of Cyprus. It provides a practical and regulatory overview of the Board’s composition requirements, the duties of Executive and Non-Executive Directors, and the governance responsibilities expected under applicable regulatory framework.
Participants will gain key insights into areas such as:
- Strategic oversight and risk management
- Board independence and suitability assessments
- Internal governance frameworks and committee roles
- Time commitment and conflict-of-interest mitigation
SALVUS can also support your firm in ensuring compliance with all Board governance obligations, through our Compliance Advisory services.
Final Thoughts
Understanding the duties, composition, and governance responsibilities of the Board of Directors is a regulatory necessity. As scrutiny increases and standards tighten, firms must ensure their governance framework is up to par. Our course offers professionals the knowledge and tools to stay ahead, remain compliant, and support robust internal governance.
Do not hesitate to contact us at info@salvusfunds.com if you require support with your regulatory obligations or information about our course on IforPE.
If you’re interested in learning more about this topic, please visit the following articles below:
- Sustainable Finance: EU Regulatory Framework & ESG Investing Strategies
- The 6 Areas of EU Regulatory Compliance
- CIF Organisational & Operational Requirements and the Safeguarding of Client Funds
The information provided in this article is for general information purposes only. You should always seek professional advice suitable to your needs.