How to Build Better Governance with Stronger Policies

Are you maximizing your policies as governance tools?

Too often, financial institutions (FIs) treat their policies — documents outlining clear guidelines for managing risk areas and processes — as mere formalities. They sit stagnant, online or in filing cabinets, waiting to be opened at an examiner’s request.  

Documenting your policies is only the first step in ensuring your policies are well-managed. Here are some questions to help you determine if your policies are being appropriately utilized:

• When was the last time you reviewed a specific policy?
• How often is the policy reviewed/updated?
• How many employees (including front-line staff) know the policies that apply to their roles?
• Are employees aware of the institution’s risk appetite and overall compliance direction?
• Is the board actively supporting and encouraging effective policy implementation and usage?

If the answer is “no,” it may be time to reassess how policies support your institution’s governance strategy. In this post, we’ll explore the connection between policies and governance, the importance of executive leadership in setting the tone and communicating policies, and practical steps for developing policies that drive clarity, responsibility, and appropriate action.

Related: Policy Management Best Practices for Financial Institutions

How polices support governance

Policies provide structure, accountability, and alignment with a financial institution’s (FI’s) governance framework.

Think of your FI’s policies as the foundation of a building. If they’re not well-planned and clearly defined, everything built on top — like risk assessments and procedures — becomes unstable, putting the integrity of your entire enterprise risk management (ERM) framework at risk.

While every institution’s governance strategy looks different based on its size, resources, product, and other factors, these are some common ways policies support governance:

• Confirming roles and responsibilities. Everyone, including the front line, senior management, and the board members, should ensure that policies are carried out. Policies clearly define task ownership, reducing confusion and enhancing efficiency.
• Establishing risk appetite and appropriate controls. Risk management policies outline an institution’s risk appetite. A risk appetite statement can take many forms, but its core purpose is to guide strategic decisions and resource allocation.
• Ensuring regulatory compliance. While governance goes beyond compliance, policies help clarify regulatory requirements and best practices. For example, FIs should have one or more policies focused on the Bank Secrecy Act and anti-money laundering (BSA/AML).
• Promoting accountability and transparency. Policies define internal audit and external review processes and set clear expectations for behavior, reporting, escalation, and oversight through ethics, whistleblower, and conflict of interest policies.
• Meeting long-term objectives. Governance-related policies — such as those covering strategic planning, remuneration, and investment — serve as reference points to ensure decisions are consistent with corporate goals and values.
• Establishing strong reporting and standardization. Policies define performance standards and reporting requirements, enabling effective monitoring, risk oversight, and assurance through internal audit, control testing, and other functions. Using a standard format — such as one based on a sample policy — promotes consistency across business units and jurisdictions, enhancing control effectiveness and simplifying governance oversight.
• Managing crises and maintaining resilience. Well-designed policies covering business continuity, incident response, and operational resilience help FIs maintain governance structures and decision-making processes even during periods of disruption.

Download: Policies as a Power Tool: Creating Policies that Get the Job Done

Building better policies: Tips for driving a governance-first approach 

Policies play an integral role in governance, but ensuring they stay updated doesn’t have to be cumbersome or complicated. Here are some tips to remember as you revisit and realign your policies to fit your FI’s governance strategy.

Don’t underestimate leadership buy-in

Board oversight is a crucial element of governance, alongside an effective operating structure, organizational culture, core values, and skilled talent, as outlined in the COSO ERM framework. Without support from the board, your policies will not be effective or hold any significance within the organization.

One of the biggest challenges financial institutions face when communicating with the board is keeping members informed and engaged. Automated board portal software can help streamline the process by ensuring board members can easily and securely access essential information, including agendas, meeting minutes, and policies. A centralized platform with a voting module tracks participation and records positions, saving all parties time.

Related: Board Reporting: FAQ for Financial Institutions

Test your policies consistently

Policies should be reviewed and tested at least once a year to ensure they’re working as intended. This means checking whether team members are following the policy and whether the steps in place match its terms.

If the policy isn’t followed, the leadership team should decide whether it needs to change or if procedures should be updated to match it. Without clear accountability, these reviews can become a checkbox exercise. Employees may skip updates or ignore whether the policy meets current rules or best practices. Regular testing and clear ownership help keep policies effective and relevant.

Related: 6 Essentials for Flawless Policy Management

Prioritize communication

Effective policies require clear communication. One of the most common challenges FIs face is that employees aren’t aware of the policies in place or don’t know where to find them. Without easy access to up-to-date information, your employees may be operating with only a fraction of the guidance they need, creating bottlenecks that impact efficiency, compliance, and overall performance.

To address this issue, create a centralized, easily accessible policy repository — ideally housed on your company intranet alongside commonly used resources like templates and customer forms. A centralized hub helps ensure all employees have real-time access to the most current policy versions, reducing confusion and eliminating the version-control issues that often come with manual or decentralized systems.

Beyond access, keep employees informed through scheduled notifications for critical policy updates, key dates, and significant changes. This helps ensure that everyone stays aligned and aware of their responsibilities.

Related: How to Effectively Communicate Policies at Your Financial Institution

Train regularly

Training also plays a vital role in effective policy communication and overall governance.

Make sure policies are integrated into onboarding and ongoing training programs. Attach relevant policy documents to training sessions to show how they connect to daily tasks. With constant regulatory changes and staff turnover, once-a-year training isn’t enough. Regular refresher sessions help reinforce understanding and maintain accountability.

Maintaining strong governance requires updated policies, but creating them from scratch can be time-consuming. Get a solid foundation with sample policies from Ncomply, including a Wire Transfer Policy template.