RBS 2009 Annual Report Download - page 173

Business review
Risk, capital and liquidity management
171RBS Group Annual Report and Accounts 2009
•New product approval process: this process ensures that all new
products or significant variations to existing products are subject to a
comprehensive risk assessment. Products are evaluated and
approved by specialist areas and are subject to executive approval
prior to launch; and
•Self Certification Process: this requires management to monitor and
report regularly on the internal control framework for which they are
responsible, confirming its adequacy and effectiveness. This
includes certifying compliance with the requirements of Group
policies.
Each business unit must manage its operational risk exposure within an
acceptable level, testing the adequacy and effectiveness of controls
and other risk mitigants (for example, insurance) regularly and
documenting the results. Where unacceptable control weaknesses are
identified, action plans must be produced and tracked to completion.
The Group purchases insurance to provide the business with financial
protection against specific losses and to comply with statutory or
contractual requirements. Insurance is primarily used as an additional
risk mitigation tool in controlling the Group’s exposures. However,
insurance only provides protection against financial loss once a risk has
crystallised.
Operational risk metrics
Reporting forms an integral part of operational risk management. The
Group’s risk management processes are designed to ensure that issues
are identified, escalated and managed on a timely basis. Exposures for
each division are reported through monthly risk and control reports,
which provide detail on the risk exposures and action plans.
Events that have a material, actual or potential impact on the Group’s
finances, reputation or customers, are escalated and reported to
divisional and Group executive.
Operational risk events by risk category – % of total risk events by count
The chart below shows that as at 31 December 2009 execution, delivery and process management, together with external fraud, accounted for circa
90% of losses by value during 2009.