RBS 2010 Annual Report Download - page 21

The economic environment
improved but continued to
impact the level of
operational risk in areas
such as the scale of
structural change
occurring across the
Group, increased external
scrutiny and external
threats (e.g. e-crime).
Our Group Policy
Framework (GPF) supports
the risk appetite setting
process and underpins the
control environment.
The three lines of defence
model gives assurance to
the standards in GPF are
being adhered to.
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.
We manage 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.
The Group, other global
financial institutions and
the banking industry have
faced increased legal,
regulatory and public
scrutiny. We have continued
to engage in discussions
with relevant stakeholders
regarding our Group’s
efforts to satisfy all relevant
standards and ensure
compliance with applicable
existing and prospective
laws, rules and regulations.
We continue to review and
enhance our 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.
Government support brings
heightened public scrutiny
of the way we manage our
business including:
staff remuneration, how we
manage our customers, the
levels of lending in the UK
and our environmental
impact.
In 2010, we established
the Group Sustainability
Committee. We have also
developed a framework for
managing environmental,
social and ethical risks to
support our lending
decisions. Businesses
consider potential
reputational risks and
appropriate mitigants.
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, we
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.
19RBS Group 2010
Our business and our strategy
Our approach to risk management
Operational risk
The risk of loss
resulting from
inadequate or failed
processes, people,
systems or from
external events.
Regulatory risk
The risks arising from
regulatory changes
and enforcement.
Compliance risk
Risks arising from
non-compliance with
laws, rules,
regulations or other
standards applicable
to the Group.
Reputational risk
The risks arising from
the failure to meet
stakeholders’
perceptions and
expectations.
Pension risk
The risk that the
Group may have to
make additional
contributions to its
defined benefit
pension schemes.
Frequent small losses.
Infrequent material
losses.
Adverse impacts on
business/operating
models, including
increased complexity.
Financial costs adapting
to changes or from
penalties.
Reputational damage
from enforcement action.
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.
Failure of the business
to provide an experience
which meets customers’,
regulators’ and other
stakeholders’ expectations.
Volatile funding position
caused by the uncertainty
of future investment
returns and the projected
value of schemes’
liabilities.