RBS 2011 Annual Report Download - page 272

270 RBS Group 2011
The Committee has also considered the risks inherent within large
strategic transactions such as the proposed transfers of a substantial part
of the business activities of RBS N.V. to the Royal Bank.
The Committee reviewed the capital and liquidity position of the Group
regularly during 2011 in light of external conditions and has reviewed the
output of stress tests, including the Group results under the EU wide
stress testing exercise of the European Banking Authority, the results of
which were published in July 2011. It has considered and made
recommendations to the Group Board in relation to the Individual Liquidity
Adequacy Assessment and the Individual Capital Adequacy Assessment
required by the FSA.
Regulatory risk has featured highly on the agenda of the Committee. The
members have received reports on the status of ongoing regulatory
investigations and have considered individual remuneration impacts (if
any), as those investigations progress. Regulatory developments have
been monitored and the regulatory risks associated with the sale of
complex products to certain customers have been considered.
Operational risks inherent in the Groups processes have also been
considered and the Committee has specifically considered continuity and
data control.
The difficulties being experienced in Europe and the US necessitated a
continued focus on market and sovereign risk over the course of 2011.
The Committee received additional reports in this regard and will continue
to closely monitor and manage these risks in 2012.
Risk appetite, framework and limits
The Committee has kept the Group Board appraised of the considerable
progress made in relation to development of a risk appetite framework
and methodology during 2011 and it has made recommendations to the
Board in this regard. The Committee will ensure this framework is fully
aligned with the conduct risk framework and is rolled out and embedded
across divisions in 2012.
As set out in the Group Audit Committee report on page 265 a framework
of Divisional Risk and Audit Committees are responsible for reviewing the
business of each division and reporting to the Group Audit Committee
and Board Risk Committee. The risk agenda of these committees
continues to evolve alongside the Board Risk Committee agenda. In
2011, a quarterly risk assessment process was introduced to raise
awareness and understanding of risk appetite at divisional level. While
this assessment has had some success, risk reporting at a divisional
level has been further refined and aligned with regulatory process. A new
Material Risk Assessment process will be implemented within the
divisions in 2012 and will be overseen by the Divisional Risk and Audit
Committees. This will streamline reporting and standardise structure
across the divisions. Progress will be closely monitored by the Board Risk
Committee in 2012.
While some progress has been made, significant work is still required to
fully develop an operational economic capital model for the Group. This
will be an area of focus for the Committee over the coming year.
Risk management operating model
Culture is key to driving the correct behaviours from a risk perspective.
In recognition of this, the Committee received regular updates during
2011 on the One Risk programme, including the risk management vision
and values. The Committee has reviewed the calibre of senior risk
personnel and succession planning arrangements. It has also reviewed
the adequacy of that resource alongside its review of the scope and
nature of work undertaken by the risk management function.
During 2011, the risk governance model has been extensively reviewed
and streamlined at executive level. The role of the Executive Risk Forum
has been clarified. The Executive Risk Forum has responsibility for
consideration of strategic risk and policy issues in advance of the Board
Risk Committee and aims to provide an effective filter of the key risks for
the consideration of the Board Risk Committee.
Risk architecture
The Committee has sought continually to drive improvements to reporting
standards and has implemented new guidance for the presentation of
papers for the consideration of the Committee. It has held separate
discussions to refine and enhance the quality of the key risk report and
metrics and following those discussions a revised risk report will be
operational in 2012. Work is ongoing to develop risk reporting at entity
level (in addition to reporting at a Group and divisional level).
The Committee has monitored the standards of data quality across the
Group and the programmes in place to improve management information
and reporting. In particular, the Committee has tracked progress of the
Finance and Risk Transformation Programme designed to develop a
golden source of data for use in reporting across the Group.
Remuneration
The Board Risk Committee has continued to strengthen its relationship
with the Group Remuneration Committee with the aim of ensuring that
risk is adequately reflected in objectives and compensation arrangements
and decisions. Significant improvements have been made in 2011
including clarification of responsibilities, improved planning and the
identification of additional trigger points outwith pay cycles where risk
should be taken into consideration. This improved interaction has led to a
number of additional meetings of the Board Risk Committee specifically
to consider the risk implications of remuneration decisions.
Report of the Board Risk Committee continued