RBS 2012 Annual Report Download - page 345

RBS GROUP 2012
343
Statement of compliance
The company is committed to high standards of corporate governance, business integrity and professionalism in all its activities.
Throughout the year ended 31 December 2012, the company has complied with all of the provisions of the UK Corporate Governance Code issued
by the Financial Reporting Council dated June 2010 (the “Code”) except in relation to provision (D.2.2) that the Group Performance and
Remuneration Committee should have delegated responsibility for setting remuneration for the Chairman and executive directors. The company
considers that this is a matter which should rightly be reserved for the Board and this is an approach the company has adopted for a number of
years. Remuneration for the Chairman and executive directors is first considered by the Group Performance and Remuneration Committee which
then makes recommendations to the Board for consideration. This approach allows all non-executive directors, and not just those who are members
of the Group Performance and Remuneration Committee, to participate in decisions on the executive directors’ and the Chairman’s remuneration
and also allows the executive directors to input to the decision on the Chairman’s remuneration. The Board believes this approach is very much in
line with the spirit of the Code and no director is involved in decisions regarding his or her own remuneration. We do not anticipate any changes to
our approach on this aspect of the Code. Information on how the company has applied the main principles of the Code can be found in the
Corporate governance report on pages 294 to 342. The company has also complied early with a number of the new provisions included in the new
edition of the UK Corporate Governance Code issued by the Financial Reporting Council dated September 2012 (the “2012 Code”). A copy of both
the Code and the 2012 Code can be found at www.frc.org.uk
The company has also implemented the recommendations arising from the Walker Review. The company has also complied in all material respects
with the Financial Reporting Council Guidance on Audit Committees issued in September 2012.
Under the US Sarbanes-Oxley Act of 2002, specific standards of corporate governance and business and financial disclosures apply to companies
with securities registered in the US. The company complies with all applicable sections of the US Sarbanes-Oxley Act of 2002.
Internal control
The Board of directors is responsible for the Group’s system of internal control that is designed to facilitate effective and efficient operations and to
ensure the quality of internal and external reporting and compliance with applicable laws and regulations. In devising internal controls, the Group
has regard to the nature and extent of the risk, the likelihood of it crystallising and the cost of controls. A system of internal control is designed to
manage, but not eliminate, the risk of failure to achieve business objectives and can only provide reasonable, and not absolute, assurance against
the risk of material misstatement, fraud or losses.
The Board has established a process for the identification, evaluation and management of the significant risks faced by the Group, which operated
throughout the year ended 31 December 2012 and to 27 February 2013, the date the directors approved the Report and Accounts. This is
confirmed by a semi-annual Control Environment Certification process which requires senior members of the executive and management to assess
the adequacy and effectiveness of their internal control framework and the compliance of their business with Group policies and associated
standards (in accordance with the Group Policy Framework), and they meet the requirements of Sarbanes-Oxley Section 404 and the Code Section
C2. The policies that govern these processes, and reports on internal controls arising from them, are regularly reviewed by the Board and meet the
requirements of the guidance ‘Internal Control: Revised Guidance for Directors on the Combined Code’ issued by the Financial Reporting Council in
October 2005. Enhancements have been made to the Risk Management framework throughout 2012, including the introduction of specific Conduct
Risk standards, and further improvements will be made in 2013.
The effectiveness of the Group’s internal controls are reviewed regularly by the Board, the Group Audit Committee and the Board Risk Committee.
Executive management committees or boards of directors in each of the Group’s businesses also receive regular reports on significant risks facing
their business and how they are being controlled. In addition, the Board receives monthly risk management reports. Details of the Group’s approach
to risk management are given in the Risk and balance sheet management section, on pages 107 to 293 of the Business review. The Group Audit
Committee has received confirmation that management has taken, or is taking, the necessary action to remedy any material failings or weaknesses
identified through the operation of the Group framework of controls.
The Group’s independent auditors present to the Group Audit Committee reports that include details of any significant internal control matters which
they have identified. The system of internal controls of the authorised institutions and other regulated entities in the Group is also subject to
regulatory oversight in the UK and overseas. Additional details of the Group’s regulatory oversight are given in the Supervision section on page 500.
Compliance report