RBS 2007 Annual Report Download - page 73

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RBS Group • Annual Report and Accounts 2007
Business review
The main risks facing the Group are shown below. These
should be considered in conjunction with the Risk factors set
out on pages 32 and 33 which could affect the Group’s
performance.
•Credit risk: is the risk arising from the possibility that the
Group will incur losses from the failure of customers to meet
their obligations.
•Funding and liquidity risk: is the risk the Group is unable to
meet its obligations as they fall due.
•Market risk: the Group is exposed to market risk because of
positions held in its trading portfolios and its non-trading
businesses.
•Pension obligation risk: is the risk that the liabilities of the
Group’s various defined benefit pension schemes will
exceed their assets as a result of which the Group is
required or chooses to make additional contributions to
schemes.
•Equity risk: reflects the variability in the value of equity
investments resulting in gains or losses.
•Insurance risk: the Group is exposed to insurance risk, either
directly through its businesses or through using insurance as
a tool to mitigate other risk exposures.
•Operational risk: is the risk arising from the Group’s people,
processes, systems, physical assets and external events.
•Regulatory risk: is the risk arising from failing to meet the
requirements and expectations of the Group’s many
regulators, or from a failure to address or implement any
change in these requirements or expectations.
These risk and capital management processes performed well
throughout 2007, and continued working through the market
disruption seen since August 2007.
Management responsibilities
All staff have a role to play in the day to day management of
risk in their division, in line with Group policy, which is set and
managed by specialist staff in;
•Risk Management: credit, market, regulatory, enterprise and
insurance risk, together with risk analytics.
•Group Treasury: balance sheet, capital management, intra-
group credit exposure, funding and liquidity and hedging
policies.
Independence underpins the approach to risk management,
which is reinforced throughout the Group by appropriate
reporting lines.
Developments in 2007
Following its acquisition by RFS Holdings, ABN AMRO is subject
to the Group’s high level controls and oversight by RBS’ control
functions. Although its risk systems are not yet integrated with
those of the Group, the data relating to ABN AMRO are
presented on a consistent basis. In order to facilitate
comparisons with prior years the data relating to the Group
excluding ABN AMRO are separately identified. ABN AMRO
data are analysed between businesses acquired by RBS and
those acquired by Fortis and Santander.