RBS 2012 Annual Report Download - page 318

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Report of the Board Risk Committee
Letter from Philip Scott,
Chairman of the Board Risk Committee
Dear Shareholder,
I report to you following another challenging twelve months for the Board
Risk Committee. The already demanding schedule of the Committee was
intensified in the period by a number of significant issues, most notably
the IT incident that occurred in June 2012. The Board Risk Committee
has undertaken, on behalf of the Board, to review the cause,
consequence and subsequent management of the IT incident which had
such unacceptable consequences for many of our customers. As a
priority, the Committee has overseen remediation and has sought to
ensure appropriate redress for customers. It will continue carefully to
oversee management of residual technology risks and will ensure
communication with our regulators and stakeholders on conclusion of the
internal and external investigations of the incident, as appropriate.
While 2012 has presented significant challenges, there has also been a
great deal of progress on the development and implementation of risk
and control throughout the organisation. The Board Risk Committee has
been pleased to exercise an oversight role in the development and
enhancement of the risk management framework and associated tools
that support the Group’s aim of being a safer and more sustainable bank.
The Committee has provided input into the Group’s risk strategy and
objectives during 2012 and has overseen the refinement and further
embedding of the Group’s framework into the business divisions. This
has enabled the Committee to gain an improved understanding of the
major risks which the Group faces, including market risk, conduct risk,
country risk, credit risk (including single name concentrations and sector
risk) regulatory risk and operational risk and to ensure robust plans are in
place to manage excess exposures. The Group’s stress testing
capabilities have been developed and are now being used within
business as usual as an effective strategic planning and capital
management tool.
The Board Risk Committee has supported the articulation of a conduct
risk appetite statement which is being embedded strategically within the
Group’s Policy Framework. Conduct Risk standards are being
communicated to staff using the four pillars of conduct risk, employee
conduct, market conduct, corporate conduct and conduct towards
customers. The Committee will monitor implementation of these
enhanced standards during 2013.
Enhancements to risk reporting have continued in the period to ensure
that reports are insightful and relevant, and provide more metric based
information. Data quality is, of course, critical to the accuracy of reporting
and the Committee has received in depth updates on the progress of
data quality programmes and reporting initiatives ongoing throughout the
organisation, most notably the Finance and Risk Transformation
Programme.
However, inevitably risk management tools and measures can only take
the organisation so far. The future success of RBS depends upon the
correct culture and approach that places the customer at the forefront of
all decision making. The Board Risk Committee is fully supportive of the
measures being developed to engender the correct behaviours at all
levels within the RBS Group. The Committee has worked closely with the
Group Performance and Remuneration Committee over the past 12
months to consider issues relating to individual accountability and
responsibility for legacy and new issues. Where appropriate,
recommendations have been made to the Group Performance and
Remuneration Committee in relation to risk performance and reward.
Culture, including the role of financial incentives and reward, will continue
to be a priority of the Committee during 2013.
The members of the Committee have dedicated significant additional time
to the consideration of risk issues during 2012 and I would like to thank
them for their dedication and commitment. The business of the
Committee is set to be no less demanding in 2013. The creation of the
Prudential Regulatory Authority and the Financial Conduct Authority as
part of the UK’s twin peaks regulatory framework will be a major influence
and the Group will have to adapt to the new regulatory approach and
work closely with regulators to implement changes to standards and
reporting where required.
More detailed information on the business of the Committee during 2012
is set out in the Board Risk Committee Report that follows.
Philip Scott
Chairman of the Board Risk Committee
27 February 2013