RBS 2005 Annual Report Download - page 108

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Operating and financial review
Operating and financial review continued
External risk is defined as the risk arising outside of the
organisation in three main areas:
•Business – risks arising from product performance,
competitor activity, supplier unreliability or customer activity.
•Political – risks caused by political unrest or uncertainty,
activity by public interest groups or extremists, and non-
compliance with, or changes to, current legislation.
•Environment – risks arising due to demographic, macro-
economic, technical, cultural or environmental change.
Enterprise risk also includes the potential or actual impact on
corporate reputation arising from any of the Group’s activities.
Enterprise risk management is achieved through monitoring the
Group’s exposure to direct or indirect loss using a range of
policies, procedures, data, analytical tools and reporting
techniques. In particular, Group-wide risk management processes
ensure that enterprise risk issues are quickly escalated and
resolved, that the risks inherent in new products are fully evaluated,
and that emerging external risks are actively monitored.
Operational risk exposures and loss events for each division
are captured through monthly Risk and Control returns, which
provide details on the change of risk exposures for each risk
category in the light of trends and the risk profile of each
division.
Regulatory risk
Regulatory risk is the risk arising from failing to meet the
requirements of our regulators. To mitigate this risk, the Group
is active in various regulatory developments affecting risk,
capital and liquidity management. This includes working with
domestic and international trade associations, being active
with various regulators, especially the FSA and the main
regulatory groups, including the Basel Committee (see page
256), the Committee of European Banking Supervisors, the EU
Commission and US regulators.