RBS 2010 Annual Report Download - page 247

At each meeting of the Board Risk Committee, the Group Chief Risk
Officer provided the Committee with a presentation on the key risk
issues faced by the Group. An update was also given on the key
issues discussed at the Group’s Executive Risk Forum. In 2010 the
Board Risk Committee considered a range of matters including:
xthe Group’s economic capital model;
xthe structured credit portfolio;
xthe output of stress testing and scenario planning;
xthe operational plan for the Group’s risk management function
including organisation, resource and budget;
xtreating customers fairly and customer complaints; and
xremuneration strategy and policy, including recommendations to
the Remuneration Committee.
The Board Risk Committee played a key oversight role in the review,
design and implementation of risk management and measurement
strategies and risk management policy across the Group.
The Board Risk Committee considered the Group's risk profile relative
to current and future Group strategy. The Committee reported to the
Board following each meeting on its consideration of the risk profile of
the Group and any longer term macro or perceived strategic threats to
the Group and made recommendations as appropriate.
The Group Policy Framework provides a basis for ongoing self-
assessment of appropriate risk appetite. The Board Risk Committee
received regular reports on the development of the Group Policy
Framework during 2010.
The Group risk appetite framework was developed significantly during
2010 and continues to be enhanced. Risk appetite was regularly
reviewed by the Board Risk Committee, which makes
recommendations to the Board on risk appetite and tolerance as part
of this ongoing process. This includes the Risk Management Operating
Model, including the frameworks for credit, operational, regulatory,
market, insurance and business continuity risk.
The Committee also considered the Group's exposure to country,
single name and sector concentration risk and ensured rigorous stress
and scenario testing of the Group's business was undertaken. The
output of this testing was reviewed by the Board Risk Committee
throughout 2010 with a view to ensuring appropriate actions were
taken where necessary. It made recommendations to the Group Board
regarding related authorities, limits and mandates.
In February 2010, the Committee was presented with and approved
the RBS Risk Management operational plan, considering the adequacy
and effectiveness of resource and the scope and nature of the work
undertaken by the function.
The Committee considered the adequacy and effectiveness of the
technology infrastructure supporting the finance and risk management
framework.
The Committee reviewed the risk input to divisional bonus pools and
provided advice to the Remuneration Committee on risk weightings to
be applied to performance objectives which are incorporated within the
incentive structure for the Group's senior executives. The Committee
also reviewed clawback proposals made by Group Human Resources
and made recommendations to the Remuneration Committee in this
respect.
As required under the Walker Review, the Committee will meet as
required to review the due diligence of any proposed strategic
transaction (involving a merger, acquisition or disposal) prior to the
Group Board approval of the transaction.
Performance evaluation
An internal review of the effectiveness of the Board Risk Committee
during 2010 was conducted. The evaluation used detailed
questionnaires and individual meetings were held with each member.
Amongst the areas reviewed were the Role of the Committee,
Composition, Meetings and Processes, Performance and Reporting,
Policy and Procedures, Divisional Committees, Induction and
Continuing Professional Development and Communication.
The evaluation concluded that the Board Risk Committee operated
effectively throughout 2010. The Committee was seen as effective in
meeting its objectives, although it was acknowledged that this was a
relatively new Committee having only been formed in January 2010.
The evaluation concluded that the commitment of its members was
outstanding, with members willing to spend the time necessary to
discharge the Committee's responsibilities. As a new Committee, the
structure, content and length of Committee meetings was considered
to be appropriate. It was acknowledged that the Committee makes the
best use of skills, experience and competencies of its members and a
high level of technical expertise was required of members.
The Committee considered and discussed the report on the outcomes
of the evaluation and is satisfied with the way in which the evaluation
was conducted, the conclusions and the recommendations for action.
The outcomes of the evaluation have been reported to the Board and
the actions are being progressed.
Divisional Risk and Audit Committees
Since 2005, Divisional Audit Committees have been responsible for
reviewing each division's business. Following the creation of the Board
Risk Committee in January 2010, the Group’s Divisional Audit
Committees became Divisional Risk and Audit Committees and their
terms of reference were revised to ensure full alignment with the Audit
Committee and Board Risk Committee. With input from the Audit
Committee, Board Risk Committee, Group Finance and Group Risk, a
new framework was approved by the Audit Committee and Board Risk
Committee in December 2010 and implemented in January 2011.
Philip Scott
Chairman of the Board Risk Committee
23 February 2011
245RBS Group 2010
Governance