RBS 2007 Annual Report Download - page 35

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RBS Group • Annual Report and Accounts 2007
Business review
The Group’s insurance businesses are subject to inherent risks
involving claims
Future claims in the Group’s general and life assurance business
may be higher than expected as a result of changing trends
in claims experience resulting from catastrophic weather
conditions, demographic developments, changes in mortality
and other causes outside the Group’s control. Such changes
would affect the profitability of current and future insurance
products and services. The Group re-insures some of the risks
it has assumed.
Operational risks are inherent in the Group’s business
The Group’s businesses are dependent on the ability to process a
very large number of transactions efficiently and accurately.
Operational losses can result from fraud, errors by employees,
failure to document transactions properly or to obtain proper
authorisation, failure to comply with regulatory requirements and
Conduct of Business rules, equipment failures, natural disasters
or the failure of external systems, for example, the Group’s
suppliers or counterparties. Although the Group has implemented
risk controls and loss mitigation actions, and substantial resources
are devoted to developing efficient procedures and to staff
training, it is only possible to be reasonably, but not absolutely,
certain that such procedures will be effective in controlling each of
the operational risks faced by the Group.
Each of the Group’s businesses is subject to substantial
regulation and regulatory oversight. Any significant regulatory
developments could have an effect on how the Group conducts
its business and on the results of operations
The Group is subject to financial services laws, regulations,
administrative actions and policies in each location in which
the Group operates. This supervision and regulation,
in particular in the UK and US, if changed could materially
affect the Group’s business, the products and services offered
or the value of assets.
Future growth in the Group’s earnings and shareholder value
depends on strategic decisions regarding organic growth and
potential acquisitions
The Group devotes substantial management and planning
resources to the development of strategic plans for organic
growth and identification of possible acquisitions, supported by
substantial expenditure to generate growth in customer business.
If these strategic plans do not meet with success, the Group’s
earnings could grow more slowly or decline.
The risk of litigation is inherent in the Group’s operations
In the ordinary course of the Group’s business, legal actions,
claims against and by the Group and arbitrations arise; the
outcome of such legal proceedings could affect the financial
performance of the Group.
The Group is exposed to the risk of changes in tax legislation and
its interpretation and to increases in the rate of corporate and
other taxes in the jurisdictions in which it operates
The Group’s activities are subject to tax at various rates around
the world computed in accordance with local legislation and
practice. Action by governments to increase tax rates or to impose
additional taxes would reduce the profitability of the Group.
Revisions to tax legislation or to its interpretation might also affect
the Group's results in the future.
The Consortium Banks’ proposals for the restructuring of
ABN AMRO are complex and may not realise the anticipated
benefits for the Group
The restructuring plan is complex, involving substantial
reorganisation of ABN AMRO’s operations and legal structure.
In addition, it contemplates activities taking place simultaneously
in a number of businesses and jurisdictions. Implementation of
the reorganisation and the realisation of the forecast benefits
within the planned timescales will be challenging. Execution of
the restructuring requires management resource previously
devoted to Group businesses and the retention of appropriately
skilled ABN AMRO staff. The Group may not realise the benefits
of the restructuring when expected or at all.