RBS 2011 Annual Report Download - page 270

268 RBS Group 2011
Letter from Philip Scott,
Chairman of the Board Risk Committee
Dear Shareholder,
Iam pleased to bring you this report on the activity of the Board Risk
Committee during 2011.
As one would expect, managing the risks presented by the challenging
external market conditions that have continued throughout 2011 has
been a key priority of the Committee. Market, credit and liquidity risk have
featured prominently in the discussions of the members in the period. The
regulatory agenda has continued to exert pressures on the organisation
and the Committee has sought to understand the global implications of
proposed regulation while managing and overseeing remediation of
known issues. The Committee has continued to build upon existing
relationships with the Group’s regulators globally, wherever possible.
Tony Di Iorio joined the Committee with effect from 1 September 2011. It
is my pleasure to welcome Tony to the Committee. I am certain that his
broad background in financial services and global investment banking will
prove to be immensely useful to the Committee, particularly in managing
the complex risks presented by the Group’s new Markets and
International Banking Division. Colin Buchan retired from the Group
Board in August 2011 and I would like to thank Colin for his contribution
to the Committee during the first half of the year.
The Board Risk Committee was created in January 2010 following the
recommendations set out in the Walker Review and it is therefore a
relatively new committee to the Group. Notwithstanding the challenges
presented by external market forces, it was important that the Committee,
during its second year of operation, continued to fully refine and enhance
its approach to risk oversight and its interaction with other senior Board
Committees. I am pleased to report that during 2011 the Committee has
made progress in the following areas:
xfurther development of a risk appetite framework and methodology;
xdevelopment of a new conduct risk appetite framework;
xenhancement of the Group Policy Framework. This has been a
major project for the Group in 2011 and the Board Risk Committee
has provided oversight of the project which has now completed its
critical initial phase;
xinteraction with the Group Remuneration Committee. Penny Hughes,
Chair of the Group Remuneration Committee, and I sponsored a
project in 2011 to review and improve interaction between both
committees. This has led to clarification of responsibilities, improved
planning and the identification of additional trigger points outwith pay
cycles where risk should be taken into consideration;
ximprovement of reporting standards;
xpromotion of a risk awareness culture; and
xoversight of the enhancement of the risk governance framework that
supports the Committee at an executive level.
The activity of the Committee is set out more fully in the Report of the
Board Risk Committee below. However, while progress has been made,
the work of the Committee is in no way complete and these risk areas will
remain a key area of focus and refinement in 2012. The risk appetite
framework must be fully embedded across divisions and the Committee
recognises that development of an economic capital model must be
prioritised in 2012. Furthermore, the difficulties being experienced in
Europe and the US will necessitate a continued focus on market and
sovereign risk in the year ahead.
It is not yet possible to determine the impact of the recommendations
contained within the Report of the Independent Commission on Banking.
The recommendations are complex and it will take time to fully consider
what they mean for the Group and any corresponding strategic and
organisational change. The Board Risk Committee will monitor
developments and will fully consider the risk implications of any decision
in this regard.
Philip Scott
Chairman of the Board Risk Committee
22 February 2012
Report of the Board Risk Committee