RBS 2006 Annual Report Download - page 101
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Please find page 101 of the 2006 RBS annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.RBS Group • Annual Report and Accounts 2006
100
Operating and financial review continued
Operating and financial review
Operational risk
Operational risks are inherent in the Group’s business.
Operational risk losses occur as the result of fraud, human
error, missing or inadequately designed processes, failed
systems, damage to physical assets, improper behaviour or
from external events.
The Group’s Operational Risk Management Framework
(“ORMF”) provides the direction for delivering effective
operational risk management. The ORMF comprises the policy,
principles and procedures that enable the consistent
identification, assessment, mitigation, monitoring and reporting
of operational risk across the Group in a cost-effective manner.
The objectives of the framework are to protect the Group from
financial loss or damage to its reputation and to ensure that it
meets all necessary regulatory and legal requirements.
The Group’s central Operational Risk function is responsible for
the ORMF. It is the responsibility of the businesses to
implement the framework. The businesses are required to
identify where and how the business is exposed to the risk of
loss; assess the extent of the risk exposure; control and
mitigate the risk and monitor and report the operational risk
exposure and highlight any action required.
The Group’s risk management processes are designed to
ensure that enterprise risk issues are identified quickly,
escalated and managed. Operational risk exposures for each
division are reported through the monthly risk and control
reports, which provide details of the risk exposures and action
plans for each significant business process.
Regulatory risk and supervision
Regulatory risk is the risk arising from failing to meet the
requirements of our regulators in the conduct of our business.
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, proactively engaging with various regulators,
especially the FSA and the main regulatory groups, including
the Basel Committee (see page 249), the Committee of European
Banking Supervisors, the EU Commission and US regulators.
In the normal course of business the Group and its subsidiaries
co-operate with regulatory authorities in various jurisdictions in
their enquiries or investigations into alleged or possible breaches
of regulations.
The Group has co-operated fully with various regulatory reviews
of the operation of retail banking and consumer credit industries
in the UK and elsewhere.
These include the reviews by the Competition Commission and
the FSA into payment protection insurance, the OFT’s reviews
of undertakings given following the Competition Commission
inquiry in 2002 into the provision of banking services to SMEs.
The OFT is also inquiring into credit and debit card interchange
fees and has decided to undertake a fact find into unauthorised
overdraft fees. In the EU, the European Commission is inquiring
into MasterCard cross border interchange fees and has
announced that its inquiry into retail banking has identified
barriers to competition in certain areas of retail banking,
payment systems and cards.
The outcome of these reviews is outside the Group’s control
and it is not possible to predict the effect, if any, on the Group’s
operations of future changes in regulatory actions and policies.