RBS 2011 Annual Report Download - page 102

100 RBS Group 2011
Risk and balance sheet management Risk and balance sheet management
In this section (pages 100 to 249) of the Business review, certain
information has been audited and is part of the Group’s financial
statements as permitted by IFRS 7. Other disclosures are unaudited and
are labelled with an asterisk (*). In this section, the 2009 data relate to the
Group before RFS Holdings minority interest (RFS MI).
In this section (pages 100 to 249) of the Business review, certain
information has been audited and is part of the Group’s financial
statements as permitted by IFRS 7. Other disclosures are unaudited and
are labelled with an asterisk (*). In this section, the 2009 data relate to the
Group before RFS Holdings minority interest (RFS MI).
Introduction* Introduction*
All the disclosures in this section (pages 100 to 109) are unaudited as
indicated by an asterisk (*).
All the disclosures in this section (pages 100 to 109) are unaudited as
indicated by an asterisk (*).
Risk management plays an integral role in the delivery of the Group’s
strategic goal to be a safe and secure banking group. The
implementation of a stronger and more effective culture of risk
management and control provides the platform necessary to address
historical vulnerabilities, rebuild upon the Group’s core strengths and
position it on a sustainable and profitable path for future growth.
Risk management plays an integral role in the delivery of the Group’s
strategic goal to be a safe and secure banking group. The
implementation of a stronger and more effective culture of risk
management and control provides the platform necessary to address
historical vulnerabilities, rebuild upon the Group’s core strengths and
position it on a sustainable and profitable path for future growth.
Financial strength and resilience are at the heart of the Group’s Strategic
Plan. The Group has defined this level of robustness as that which is
capable of achieving and sustaining a standalone credit rating (i.e.
without government support) that is in line with those of its strongest
international peers.
Financial strength and resilience are at the heart of the Group’s Strategic
Plan. The Group has defined this level of robustness as that which is
capable of achieving and sustaining a standalone credit rating (i.e.
without government support) that is in line with those of its strongest
international peers.
Given this central aim, in 2009 the Group Board set out four key strategic
risk objectives, aligned to the Group’s Strategic Plan. These are to:
Given this central aim, in 2009 the Group Board set out four key strategic
risk objectives, aligned to the Group’s Strategic Plan. These are to:
xmaintain capital adequacy: to ensure that the Group has sufficient
(and easily accessible) capital resources to meet regulatory
requirements and to cover the potential for unexpected losses in its
asset portfolio;
xmaintain capital adequacy: to ensure that the Group has sufficient
(and easily accessible) capital resources to meet regulatory
requirements and to cover the potential for unexpected losses in its
asset portfolio;
xdeliver stable earnings growth: to ensure that strategic growth is
based around a longer-term risk versus reward consideration, with
significantly lower volatility in underlying profitability than was seen
over the previous five years;
xdeliver stable earnings growth: to ensure that strategic growth is
based around a longer-term risk versus reward consideration, with
significantly lower volatility in underlying profitability than was seen
over the previous five years;
xensure stable and efficient access to funding and liquidity: such that
the Group has sufficient funding to meet its obligations, taking
account of the constraint that some forms of funding may not be
available when they are most needed; and
xensure stable and efficient access to funding and liquidity: such that
the Group has sufficient funding to meet its obligations, taking
account of the constraint that some forms of funding may not be
available when they are most needed; and
xmaintain stakeholder confidence: to ensure that stakeholders have
confidence in the Group’s recovery plan, its ability to deliver its
strategic objectives and the effectiveness of its business culture and
operational controls.
xmaintain stakeholder confidence: to ensure that stakeholders have
confidence in the Group’s recovery plan, its ability to deliver its
strategic objectives and the effectiveness of its business culture and
operational controls.
Each objective is essential in its own right, but also mutually supportive of
the others.
Each objective is essential in its own right, but also mutually supportive of
the others.
These strategic risk objectives are the bridge between the Group-level
business strategy and the frameworks, limits and tolerances that are
used to set risk appetite and manage risk in the business divisions on a
day-to-day basis.
These strategic risk objectives are the bridge between the Group-level
business strategy and the frameworks, limits and tolerances that are
used to set risk appetite and manage risk in the business divisions on a
day-to-day basis.
*unaudited *unaudited
Strategic risk objectives
z
Key risk appetite measures
z
Risk frameworks and limits
z
Day-to-day risk management
In 2011, the Group made significant progress in strengthening its
approach to risk management in an external environment that remained
challenging.
In 2011, the Group made significant progress in strengthening its
approach to risk management in an external environment that remained
challenging.
The task of setting a comprehensive risk appetite and aligning it with the
Group’s business strategy demands a clear understanding of the types of
risk the Group faces and their potential size. With this goal in mind, over
the past year the Group has developed a catalogue of the risks it faces (a
risk taxonomy) and undertaken a Group-wide material risk assessment to
analyse the scale of each risk and the potential interactions between
them (for a detailed discussion of risk appetite, see page 101).
The task of setting a comprehensive risk appetite and aligning it with the
Group’s business strategy demands a clear understanding of the types of
risk the Group faces and their potential size. With this goal in mind, over
the past year the Group has developed a catalogue of the risks it faces (a
risk taxonomy) and undertaken a Group-wide material risk assessment to
analyse the scale of each risk and the potential interactions between
them (for a detailed discussion of risk appetite, see page 101).
The delivery of proactive and effective risk management relies on high
quality data inputs on which to make assessments. It also requires robust
forward-looking measurement and stress testing capabilities (see stress
testing on page 102). Both of these areas continue to be enhanced and
improvements embedded across the Group.
The delivery of proactive and effective risk management relies on high
quality data inputs on which to make assessments. It also requires robust
forward-looking measurement and stress testing capabilities (see stress
testing on page 102). Both of these areas continue to be enhanced and
improvements embedded across the Group.
Risk control frameworks are used to identify and address concentrations
of risk. These systems are reinforced by a Group Policy Framework (see
page 102), which was enhanced during 2011, with assurance activity
ongoing to ensure the policy standards it comprises remain appropriate.
Risk control frameworks are used to identify and address concentrations
of risk. These systems are reinforced by a Group Policy Framework (see
page 102), which was enhanced during 2011, with assurance activity
ongoing to ensure the policy standards it comprises remain appropriate.
Effective risk management also requires a robust governance framework.
During 2011, the roles and responsibilities of the Executive Risk Forum
and its supporting committees were reviewed and more clearly defined
(see pages 104 to 106).
Effective risk management also requires a robust governance framework.
During 2011, the roles and responsibilities of the Executive Risk Forum
and its supporting committees were reviewed and more clearly defined
(see pages 104 to 106).
The Group has launched a common set of values for the risk community
that impact directly on behaviours and help to engender a risk
management function that is widely respected and valued across the
Group. A Group-wide policy that explicitly aligns remuneration with
effective risk management has also been put in place.
The Group has launched a common set of values for the risk community
that impact directly on behaviours and help to engender a risk
management function that is widely respected and valued across the
Group. A Group-wide policy that explicitly aligns remuneration with
effective risk management has also been put in place.
The focus is now on fully embedding the Group’s strategy for risk
management into the day-to-day management of its businesses, as well
as preparing the Group to face future challenges in a rapidly evolving
external environment. More detailed discussions on how the Group
strengthened its approach to risk management in 2011 and the areas of
focus going forward is contained within the relevant sub-sections on the
following pages.
The focus is now on fully embedding the Group’s strategy for risk
management into the day-to-day management of its businesses, as well
as preparing the Group to face future challenges in a rapidly evolving
external environment. More detailed discussions on how the Group
strengthened its approach to risk management in 2011 and the areas of
focus going forward is contained within the relevant sub-sections on the
following pages.
Business review Risk and balance sheet management continued
Day-to-day risk management
Risk frameworks and limits
Key risk appetite measures
Strategic risk objectives