RBS 2012 Annual Report Download - page 321

RBS GROUP 2012
319
Capital and Liquidity
The Committee reviewed the capital and liquidity position of the Group
regularly in light of external conditions. The difficulties being experienced
in Europe and the US necessitated a continued focus on market and
sovereign risk over the course of 2012 and a number of additional reports
in this regard were considered over the course of the year. The
Committee made recommendations to the Board in relation to the
Individual Liquidity Adequacy Assessment, the Individual Capital
Adequacy Assessment and the Contingency Funding Plan, required by
the FSA.
The Committee considered pension risk in the context of managing
liability and investment strategy. It will continue to monitor these risks in
2013.
Risk appetite, framework and limits
The risk appetite framework for the Group was approved in 2011. During
2012, focus was placed on ensuring that the framework was rolled out
and embedded across the business divisions and legal entities within the
Group. The Committee has committed to review the risk appetite
framework on an annual basis to ensure it remains fit for purpose and will
review capital adequacy risk, earnings volatility, and liquidity risk appetite
targets in early 2013.
Significant improvements were made to the Group’s integrated stress
testing capabilities over the course of 2012 and the Committee reviewed
the output of stress tests and considered how these informed risk
appetite and key strategic decisions. Reports on reverse stress testing,
including key sensitivities and vulnerabilities were reviewed. The
Committee monitored progress in the development of an economic
capital model and will review how these measures and tools work
together in an integrated manner.
The Committee received reports on the new Country Risk Appetite
Framework that was developed in 2012. The members reviewed the
approach to assessment of the potential for losses due to country risk
shocks and how the framework informed the setting of country risk limits
within the Group’s Risk Appetite Framework.
As more fully set out in the Group Audit Committee report on page 313, a
framework of Divisional Risk and Audit Committees is responsible for
reviewing the business of each division and reporting to the Group Audit
Committee and Board Risk Committee. During 2012, the risk agenda of
these committees continued to evolve alongside the Board Risk
Committee agenda. The Material Integrated Risk Assessment process
that was introduced in 2011 continued to be refined in 2012 and the
Committee received reports on progress.
Risk management operating model
The Committee reviewed planned improvements to the risk management
operating model and noted the proposed enhancements and the
additional assurance that the revised model seeks to introduce. Members
of the Committee reviewed the calibre of senior risk personnel and
succession planning arrangements. Adequacy of resource was
considered in the context of the scope and nature of work undertaken by
the Risk Management function.
The risk governance model continues to evolve and the Board Risk
Committee has and will continue to monitor developments as appropriate.
Risk architecture
The Committee reviewed the standards of data quality across the Group
and the programmes in place to improve data quality. It monitored the
progress of the Finance and Risk Transformation Programme, designed
to develop a golden source of data for use in reporting across the Group.
Improvements to data quality, management information and reporting
have been identified as key areas of focus for the Committee in 2013.
Remuneration
The Committee recognises that embedding the correct conduct and
culture in the organisation requires an emphasis on performance
management and conduct and standards. The Board Risk Committee
continued to strengthen its coordination with the Group Performance and
Remuneration Committee during the period, with the aim of ensuring that
risk was adequately reflected in objectives and compensation
arrangements and decisions. The members of the Committee met
regularly during 2012, including on an ad hoc basis, to consider specific
regulatory and operational issues and to consider accountability and the
potential impact upon remuneration.
Performance evaluation
An external review of the effectiveness of the Board and senior
committees, including the Board Risk Committee, during 2012 was
conducted. The Committee has considered and discussed the report on
the outcomes of the evaluation and is satisfied with the way in which the
evaluation has been conducted, the conclusions and the
recommendations for action. Overall, the review concluded that the Board
Risk Committee continued to operate effectively. The outcomes of the
evaluation have been reported to the Board, and during 2013, the
Committee will place focus on driving further improvements to risk
reporting and prioritisation of Committee time.
Philip Scott
Chairman of the Board Risk Committee
27 February 2013