RBS 2010 Annual Report Download - page 126

Introduction* continued
Risk coverage continued
Risk type Definition Features Key developments in 2010 Risk mitigation
Regulatory
risk
The risks arising from
regulatory changes and
enforcement.
Adverse impacts on
business/operating models,
including increased
complexity.
Financial costs adapting to
changes or from penalties.
Reputational damage from
enforcement action.
The scale and scope of
regulatory change remains at
unprecedented levels,
particularly in the area of
prudential regulation (capital,
liquidity, governance and risk
management). Increased
attention was paid to the
treatment of systemically
important areas such as
recovery and resolution
plans, remuneration and
capital.
The Group manages regulatory
change through active engagement
with the FSA, other regulators and
governments.
The most material risks from new
regulations, or changes to existing
legislation, are assigned an executive
sponsor.
Compliance
risk
Risks arising from non-
compliance with laws,
rules, regulations or
other standards
applicable to the Group.
Breach or alleged breach
could result in public or
private censure or fine,
could have an adverse
impact on the Group’s
business model (including
applicable authorisations
and licenses), reputation,
results of operations and/or
financial condition.
The Group, other global
financial institutions and the
banking industry have faced
increased legal, regulatory
and public scrutiny.
The Group has continued to
engage in discussions with
relevant stakeholders,
regulators and other
governmental and non-
governmental bodies,
including those in the UK
and US, regarding the
Group’s efforts to satisfy all
relevant standards and
ensure compliance with
applicable existing and
prospective laws, rules and
regulations.
The Group has continued to review
and enhance its regulatory policies,
procedures and operations. During
2010, there has been specific,
targeted focus on enhancing
arrangements for handling customer
complaints and managing the risks
associated with money laundering,
and sanctions and terrorism financing.
Reputational
risk
The risks arising from the
failure to meet
stakeholders’
perceptions and
expectations.
Failure of the business to
provide an experience which
meets customers, regulators
and other stakeholders’
expectations.
Government support brings
heightened public scrutiny of
the way the Group manages
its business including: staff
remuneration; how
customers are managed;
and the levels of lending in
the UK and environmental
impact.
In 2010, the Group established the
Group Corporate Sustainability
Committee, and also developed a
framework for managing
environmental, social and ethical risks
to support its lending decisions.
Businesses consider potential
reputational risks and appropriate
mitigants.
Pension risk The risk that the Group
may have to make
additional contributions
to its defined benefit
pension schemes.
Volatile funding position
caused by the uncertainty of
future investment returns
and the projected value of
schemes’ liabilities.
The triennial funding
valuation for the Main
scheme was undertaken in
2010 with a schedule of
contributions to be agreed
with the Trustees.
During 2010, the Group implemented
an enhanced reporting and modelling
framework to improve the
identification and management of key
pension risks. In early 2010 the Main
scheme increased its bond allocation
to better match liabilities.
Each of these risk types map into our risk appetite framework and contribute to the overall achievement of our strategic objectives with underlying
frameworks and limits. The key frameworks and developments this year are described in the relevant section of the following pages.
*unaudited
RBS Group 2010124
Business review continued