RBS 2012 Annual Report Download - page 320

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Report of the Board Risk Committee continued
A report on the activity of the Board Risk Committee in fulfilling its
responsibilities was provided to the Board following each Committee
meeting. The key considerations of the Committee during 2012 are
explained more fully below.
Risk strategy and policy
The RBS Group has a clear risk strategy supported by well defined
strategic risk objectives. The members of the Board Risk Committee
provide input to the overarching strategy for the Group on an ongoing
basis. In the first half of 2012, the Committee reviewed and provided
direction to the Group’s Resolution submission to the FSA pursuant to its
Recovery and Resolution Programme. In conjunction with the Board, the
Committee considered the potential implications for the Group of the
proposals contained in the UK’s White Paper on Banking Reform and its
interaction with potential future regulation in Europe and the US. It will
continue to monitor developments throughout 2013.
During 2012, the Board Risk Committee reviewed the implementation of
the Group Policy Framework across the organisation and reviewed the
output of assurance testing to assess how those standards were
operating in practice. Governance arrangements were also reviewed
during the year. In particular, the Committee considered regional
governance arrangements in operation across the Group; local guidance;
regulatory expectations; and considered the adequacy of the current
Group structure against that backdrop. In conjunction with the Group
Audit Committee, the members reviewed how the three lines of defence
model was being implemented across the Group and the Committee
reinforced with management the importance of ensuring the model
operated effectively in practice. The Committee will continue to review
governance arrangements and compliance with the Group Policy
Framework during 2013.
The Committee regards conduct risk and the delivery of appropriate
outcomes to customers to be fundamental to the future success of the
RBS Group. As referenced above, in 2012 the Board Risk Committee
oversaw the development of the Group conduct risk appetite statement
and framework which is now in the process of being fully implemented
across all lines of defence in the organisation. Focus of the Committee
has now turned to consideration of what measures, standards, training
and objectives are required to instil and evidence the correct behaviours
in practice.
The Committee also considered conduct risk in the context of product
design and regulatory investigations, as referenced below.
Risk profile
Reporting
The Committee received a detailed report on key risks and metrics at
each meeting and the Chief Risk Officer provided an oral update on the
key risks to the organisation. This enabled the Committee to identify the
key risk areas where additional focus was required. Focus sessions were
provided by the Heads of Risk disciplines at Board Risk Committee
meetings on a rotational basis, to offer the Committee additional insights.
During the period, risk reporting was enhanced and the Committee
oversaw the development of a report on the key headline and emerging
risks. Likewise, at the request of the Committee, metric based risk
reporting in dashboard format was developed and will be extended to
cover each of the key risk disciplines during 2013.
The Committee reported to the Board following each meeting on its
consideration of the risk profile of the Group and made recommendations
as appropriate.
Regulatory Reviews and Investigations
Regulatory risk featured highly on the agenda of the Board Risk
Committee and during 2012 the Committee assumed responsibility for
considering certain key areas of risk in a deeper level of granularity. Most
significantly, as highlighted above, the Committee played a central role in
the oversight and remediation of the Group’s IT incident. In order to
ensure appropriate outcomes for customers, members reviewed the
remediation plans in detail to ensure that they were fair and robust. On
behalf of the Board, the Committee oversaw the independent internal
investigation of the incident. Interaction with regulators in relation to their
investigation of the incident continues and the Committee has committed
to ensuring that the investigation is brought to a close, accountability is
fully considered and learnings are addressed across the organisation.
A number of other internal and regulatory investigations arose or
continued throughout 2012. During the period, the Committee received
reports on the investigation of the alleged mis-selling of interest rate
hedging products to small and medium sized enterprises; it reviewed
ongoing programmes of work, remediation and investigation relating to
unauthorised trading events and Anti-Money Laundering; it received
reports on required enhancements to the mortgage sales process; and it
continued to play an important governance role in the oversight and
remediation of known regulatory issues in the RBS Americas region.
Where appropriate, the Committee oversaw liaison with regulators; made
recommendations regarding required remediation, training and process
controls and enhancements; and made recommendations to the Group
Performance and Remuneration Committee in relation to accountability.
Progress to address identified weaknesses will be closely monitored
throughout 2013.
In recognition of the conduct issues under investigation, the Committee
reviewed the product approval process. Complex products were reviewed
from the perspective of the customer. The Committee intends to look at
sales processes and the approvals required for process design in 2013.
Operational risks inherent in the Group’s processes were also considered
and the Committee has specifically considered IT continuity, security and
data control.