Why Non-Executive Directors Are Increasingly Targeted by Regulators

By Adrian Lawrence FCA, founder of NED Capital · Part of the Board Governance Hub

Non-executive directors were once regarded as relatively safe from personal regulatory consequences — part-time overseers, one step removed from the running of the business. That has changed. Regulators increasingly look past the company and the executive team to ask what the non-executives knew, what they challenged, and whether they did their job — and are more willing than before to hold them personally accountable. This article explains why that shift has happened, what mechanism drives it in the UK, and what it means for anyone serving as, or considering becoming, a NED. The specific legal detail sits in the related pieces linked throughout; this is the wider picture of why the environment has become tougher.

The Shift From Collective to Individual Accountability

The deepest driver of the change is a shift in regulatory philosophy. For a long time, when something went badly wrong at a company, accountability tended to fall on the organisation — fines on the company, reputational damage to the business — while the individuals on the board were rarely pursued personally. The financial crisis and a run of subsequent governance failures changed the mood decisively: there was a widespread sense that spreading responsibility across a whole board had allowed everyone and no one to be accountable, and that boards had presided over failures without individuals facing meaningful consequences. Regulators and legislators responded by moving towards individual accountability — the principle that specific, named people should be answerable for specific things, so that responsibility cannot dissolve into collective vagueness. Non-executive directors, as members of the body charged with oversight, were an obvious focus of that shift. If the board’s job is to provide challenge and scrutiny, the reasoning runs, then when challenge and scrutiny fail, the people who were supposed to provide them should have to answer for it. This is the current that underlies everything else, and it is not going to reverse.

SMCR and the UK Mechanism

In the UK, this philosophy is expressed most concretely through the Senior Managers and Certification Regime (SMCR), which applies to firms authorised by the Financial Conduct Authority and the Prudential Regulation Authority. The regime is built precisely around individual accountability: it requires that certain senior roles be held by individuals pre-approved by the regulator, each with clearly documented responsibilities, so that when something goes wrong the regulator knows exactly who was accountable for it. It is worth being precise about how this touches non-executives, because it is often misunderstood. An ordinary independent non-executive director is not generally an approved senior manager under the regime. But certain board positions are — the chair, the senior independent director, and the chairs of key board committees at regulated firms fall within its scope, requiring regulatory pre-approval and carrying personal, documented accountability. For those roles, the regulatory exposure is direct and explicit. The detail of which appointments require approval, and how the process works, is set out in do non-executive directors need FCA approval. Even outside financial services, the SMCR model — named individuals, documented responsibilities, personal answerability — has shaped the wider expectation that board members should be individually accountable for their oversight.

Why NEDs Specifically Are in the Frame

There is a particular logic to regulators focusing on non-executives rather than only executives. The whole purpose of the non-executive role is independent oversight — the NED exists to challenge management, test decisions, and act as a check on executive power. When a company fails through poor governance, therefore, the question naturally arises: where were the non-executives, and why did their oversight not catch it? A NED cannot easily claim they were too close to the detail to know, because distance from the detail is the nature of their role; nor can they claim it was not their responsibility, because oversight is precisely their responsibility. This makes them, in a sense, uniquely exposed when governance fails — not because they are more culpable than executives, but because their entire justification is the provision of the scrutiny that was found wanting. It is also worth being clear that non-executive directors have always carried the same core legal duties as executive directors under company law, and the same potential for personal liability; the regulatory shift has not created these duties so much as made regulators far more willing to enforce against them. What those duties are is set out in the legal duties of a non-executive director in the UK, and the personal-liability position in are non-executive directors personally liable for debts.

What It Means for NEDs in Practice

For anyone serving as or considering a non-executive role, the practical implications of this tougher environment are worth taking seriously rather than being alarmed by. The first is that the role demands genuine engagement: the days when a NED could attend a few meetings, nod through the papers and collect a fee — if they ever really existed — are firmly over, and a director who does not actively prepare, challenge and record their scrutiny is exposed in a way they would not have been a generation ago. The second is that documentation matters: because accountability is now individual, being able to show what you questioned, what assurance you sought and where you recorded your dissent is a real protection, which is part of why raising concerns clearly and having them minuted is so important. The third is that proper protection is essential — adequate directors’ and officers’ (D&O) insurance and a sound indemnity from the company are no longer optional niceties but basic conditions of taking a role, a subject covered in board liability insurance: what’s covered and what’s not. None of this should deter a capable person from board work — the role remains genuinely rewarding — but it should be entered with clear eyes about the responsibility and exposure involved, the fuller picture of which is set out in the reality of being a NED.

The heightened regulatory focus on non-executive directors, then, is not a passing phase but a settled feature of the governance landscape, rooted in a durable shift towards individual accountability. It makes the role more demanding and more exposed — but it also makes a genuinely good non-executive more valuable, because the scrutiny regulators now expect is exactly what a strong NED provides. Boards that appoint serious, engaged non-executives who understand this environment are better protected within it; those that treat non-executive appointments casually are increasingly at risk. At NED Capital we place non-executive directors who understand the modern accountability environment and are equipped to operate well within it. Every search is led personally by Adrian Lawrence FCA, a Fellow of the ICAEW and former listed-company finance director.

This article is general information about the regulatory environment for non-executive directors, not legal, regulatory or financial advice. SMCR and directors’ duties apply differently depending on the firm and the role; directors should take their own professional advice on their specific position.

NED Capital | Sister practice of FD Capital | ICAEW practising certificate held by Adrian Lawrence FCA.