RBS 2010 Annual Report Download - page 417

Each of the Group’s businesses is subject to substantial regulation and
oversight. Significant regulatory developments could have an adverse
effect on how the Group conducts its business and on its results of
operations and financial condition.
The Group is subject to financial services laws, regulations, corporate
governance requirements, administrative actions and policies in each
jurisdiction in which it operates. All of these are subject to change,
particularly in the current regulatory and market environment, where there
have been unprecedented levels of government intervention, changes to
the regulations governing financial institutions and reviews of the industry,
including nationalisations or injections of government capital in the US,
the UK and other European countries. In recent years, there has also
been increasing focus in the UK, US and other jurisdictions in which the
Group operates on compliance with anti-bribery, anti-money laundering,
anti-terrorism and other similar sanctions regimes.
As a result of the environment in which the Group operates, increasing
regulatory focus in certain areas and ongoing and possible future
changes in the financial services regulatory landscape (including
requirements imposed by virtue of the Group’s participation in
government or regulator-led initiatives), the Group expects to face greater
regulation and scrutiny in the UK, the US and other countries in which it
operates.
Although it is difficult to predict with certainty the effect that recent
regulatory developments and heightened levels of public and regulatory
scrutiny will have on the Group, the enactment of legislation and
regulations in the UK, the other parts of Europe in which the Group
operates and the US (such as the bank levy in the UK or the Dodd-Frank
Wall Street Reform and Consumer Protection Act in the US) is likely to
result in increased capital and liquidity requirements and changes in
regulatory requirements relating to the calculation of capital and liquidity
metrics or other prudential rules relating to capital adequacy frameworks,
and may result in an increased number of regulatory investigations and
actions. Any of these developments could have an adverse impact on
how the Group conducts its business, applicable authorisations and
licences, the products and services it offers, its reputation, the value of its
assets, its funding costs and its results of operations and financial
condition or result in a loss of value in its securities.
Areas in which, and examples of where, governmental policies,
regulatory changes and increased public and regulatory scrutiny could
have an adverse impact on the Group include, but are not limited to:
xthe monetary, fiscal, interest rate and other policies of central banks
and other governmental or regulatory bodies;
xrequirements to separate retail banking from investment banking,
and restrictions on proprietary trading and similar activities within a
commercial bank and/or a group which contains a commercial bank;
xgovernment-imposed requirements with respect to lending to the UK
SME market and larger commercial and corporate markets and
residential mortgage lending;
xrequirements to operate in a way that prioritises objectives other
than shareholder value creation;
xchanges to financial reporting standards (including accounting
standards), corporate governance requirements, corporate
structures and conduct of business rules;
xthe imposition of restrictions on the Group’s ability to compensate its
senior management and other employees;
xregulations relating to, and enforcement of, anti-bribery, anti-money
laundering, anti-terrorism or other similar sanctions regimes;
xrules relating to foreign ownership, expropriation, nationalisation and
confiscation of assets;
xother requirements or policies affecting the Group’s profitability,
such as the imposition of onerous compliance obligations, further
restrictions on business growth or pricing, and the introduction of,
and changes to, levies, fees or taxes applicable to the Group’s
operations (such as the imposition of financial activities taxes and
changes in tax rates that reduce the value of deferred tax assets);
and
xother unfavourable political, military or diplomatic developments
producing social instability or legal uncertainty which, in turn, may
affect demand for the Group’s products and services.
For further information about certain investigations, supervisory matters
and litigation matters to which the Group is subject, please refer to Note
34 to the Group’s financial statements.
The Group is and may be subject to litigation and regulatory
investigations that may impact its business.
The Group’s operations are diverse and complex, and it operates in legal
and regulatory environments that expose it to potentially significant
litigation, regulatory investigation and other regulatory risk. As a result,
the Group is, and may in the future be, involved in various disputes, legal
proceedings and regulatory investigations in the UK, the EU, the US and
other jurisdictions, including class action litigation, anti-money laundering
charges and sanctions, compliance investigations and review by the
European Commission under State Aid rules. Furthermore, the Group,
like many other financial institutions, has come under greater regulatory
scrutiny in recent years and expects that environment to continue for the
foreseeable future, particularly as it relates to compliance with new and
existing corporate governance, employee compensation, conduct of
business, anti-money laundering and anti-terrorism laws and regulations,
as well as the provisions of applicable sanctions programmes. Disputes,
legal proceedings and regulatory investigations are subject to many
uncertainties, and their outcomes are often difficult to predict, particularly
in the early stages of a case or investigation. Adverse regulatory action or
adverse judgments in litigation could result in restrictions or limitations on
the Group’s operations or have a significant effect on the Group’s
reputation or results of operations or result in a loss of value in the
Securities.
415RBS Group 2010
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