RBS 2012 Annual Report Download - page 127

RBS GROUP 2012
125
Risk type Definition Features How the Group managed risk and the focus in 2012
Regulatory risk The risk arising from non-
compliance with regulatory
requirements, regulatory
change or regulator
expectations.
Adverse impacts on strategy,
capital structure, business
models and operational
effectiveness.
Financial cost of adapting to
changes in laws, rules or
regulations or of penalties for
non-compliance.
Financial cost and reputational
damage in respect of penalties
for non-compliance/breach of
regulations.
Management of regulatory risk entails early identification and
effective management of changes in legislative and regulatory
requirements that may affect the Group.
Within the Group Policy Framework, specific policies define the
minimum standards for regulatory engagement, upstream risk
management and registration and licensing of individuals.
These set minimum standards within their respective areas,
applicable across the Group.
During 2012, the Group, along with the rest of the banking
industry, continued to experience unprecedented levels of
prospective changes to laws and regulations from national and
supranational regulators. Particular areas of focus were:
conduct regulation; prudential regulation (capital, liquidity,
governance and risk management); treatment of systemically
important entities (systemic capital surcharges and recovery
and resolution planning); and structural reforms, with the UK’s
Independent Commission on Banking proposals, the European
Union’s Liikanen Group recommendations and the Dodd-
Frank/Volcker Rule agenda in the US.
Refer to pages 285 to 289.
Conduct risk The risk that the conduct of the
Group and its staff towards its
customers, or within the
markets in which it operates,
leads to reputational damage
and/or financial loss.
Arises from breaches of
regulatory rules or laws by
individual employees, or as a
result of the Group’s retail or
wholesale market conduct.
It may also arise from the failure
to meet customers’ or
regulators’ expectations of the
Group.
Non-compliance may result in
regulator enforcement, adverse
publicity and financial penalties.
A defined and measurable appetite for conduct risk has been
established to ensure commercial decisions take account of
conduct risk implications.
A management framework has been developed to enable the
consistent identification, assessment and mitigation of conduct
risks. Embedding of this framework started during 2012 and is
continuing in 2013.
Grouped under four pillars (employee conduct, corporate
conduct, market conduct and conduct towards the Group’s
customers), each conduct risk policy is designed to ensure the
Group meets its obligations and expectations.
Awareness initiatives and targeted conduct risk training for
each policy, aligned to the phased policy roll-out, have been
developed and are being delivered to help embed
understanding and provide the necessary clarity. These
actions are designed to facilitate effective conduct risk
management, and address shortcomings identified through
recent instances of inappropriate conduct.
Refer to page 290.