RBS 2010 Annual Report Download - page 19

17RBS Group 2010
A new vision for RBS Risk Management
At RBS, Risk Management plays an integral role in delivering the
Strategic Plan by embedding appropriate frameworks. With the
need for financial strength and resilience at the heart of this, RBS
Risk Management is aligned to support the Group’s stated objective
of standalone strength by 2013, as measured by reaching and then
retaining credit standing in line with the strongest international peer
group. The Group Board agreed in 2009 four risk objectives which
are aligned to the Plan. These are to:
•maintain capital adequacy;
•maintain market confidence;
•deliver stable earnings growth; and
•ensure stable and efficient access to funding and liquidity.
Strategy and policy
These strategic risk objectives are the bridge between the Group-level
business strategy and the frameworks, measures and metrics we use
to set appetite and manage risk in our business divisions. Our Risk
Appetite Framework is aligned with business objectives, with underlying
and cascading frameworks and limits.
Appropriate and effectively implemented policy standards are a pre-
requisite to achieving a standalone credit rating in line with the strongest
in our international peer group, and unless we maintain an upper quartile
control framework we will not succeed in this objective. In 2010, we
began work on a revised Group Policy Framework (GPF) and this will
continue to be rolled out as a key component of Risk Appetite during
2011. It has two very specific but correlated objectives which will apply at
the individual policy level as well as the aggregate policy standard level:
•to ensure that Risk Appetite is set in accordance with strong
standalone credit ratings on a consistent basis; and
•to ensure an upper quartile control environment is maintained against
relevant external benchmarks.
An enhanced approach to embedding policies will form an integral
part of our communication and training with both our frontline staff
and across RBS Risk Management. Our revised GPF is structured to
require policy standard owners and policy sponsors to re-assess their
policies on a regular basis and where shortfalls against industry
practice are identified these are documented and addressed within
an agreed timeframe.
Operating model
The risk and liquidity balance sheet management strategies are owned
and set by the Group’s Board of directors, and implemented by
executive management led by the Group Chief Executive. A number of
committees supports the execution of the business plan and strategy.
Interaction between them helps to promote cross-risk linkages. The
roles and responsibilities fulfilled by the key risk committees have been
reviewed and more clearly defined during the course of 2010 and
further enhancements are planned in 2011.
Equally important as improved governance is strengthening the
capabilities of our people and rebuilding trust with our external
stakeholders to convince them that the culture which allowed the old
RBS to fail has changed and changed for good. Our people agenda is
tackling this through our performance management process and the
way we incentivise our people as well as our risk skills and capabilities
programme. These are as important for our customer facing staff as
they are for our risk and control functions.
Risk appetite
Risk appetite is an expression of the maximum level of risk that we are
prepared to accept to deliver our business objectives. Risk and balance
sheet management across the Group is based on the Risk Appetite
approved by the Board, who ultimately will agree this for each division
and regularly reviews the Group’s performance in relation to risk. Risk
appetite is defined in both quantitative and qualitative terms, which
serve as a way of setting appetite and managing risk performance as
we implement an agreed strategy.
•Quantitative: encompassing capital, funding and liquidity, credit,
country, market, operational, regulatory and business risks
underpinned by stress testing.
•Qualitative: ensuring that the Group applies the correct principles,
policies and procedures, manages reputational risk with sound
controls and a strong risk culture.
Risk architecture
A key deliverable on our journey to a standalone credit rating in line with
our strongest international peer group by 2013 is the design and building
of a risk architecture that will support this, and we are doing this as a
partnership between the Risk, Finance and Treasury functions. When fully
implemented this will provide RBS with consistent reference data and
definitions across our three functions and significantly improve the quality
of management information and analytical capability we have to manage
our major risks.
Our approach to risk management
Our business and our strategy
The economic environment
Our approach to risk management
Operating
Model
Risk
Architecture
Strategy
and
Policy
Risk
Appetite and
Framework
Deliver 5 year plan
with strong risk and
balance sheet management
Strategy and Policy
•Alignment – risk and business
strategy
•Group policy framework
•Capital/risk adjusted performance
Risk Architecture
•Risk, finance and
treasury architecture
•Risk data quality
•Analytics and modelling
•Risk information and
reporting
Operating Model
•Governance
•Organisation, people and culture
•One risk community
•Regulatory and operational
risk coverage
Risk Appetite and Framework
•Credit risk approval and control
•Market risk limits and controls
•Risk concentrations
•Asset and product class
•Country risk
•Treasury risk management
•Scenario testing