RBS 2012 Annual Report Download - page 513

RBS GROUP 2012
511
Macro-prudential, regulatory and legal risks
Each of the Group’s businesses is subject to substantial regulation and
oversight. Significant regulatory developments and changes in the
approach of the Group’s key regulators could have a material adverse
effect on how the Group conducts its business and on its results of
operations and financial condition
The Group is subject to extensive financial services laws, regulations,
corporate governance requirements, administrative actions and policies
in each jurisdiction in which it operates. All of these are subject to
change, particularly in the current regulatory and market environment,
where there have been unprecedented levels of government intervention
(including nationalisations and injections of government capital), changes
to the regulations governing financial institutions and reviews of the
industry, in the UK, in many other European countries, the US and at the
EU level.
As a result of the environment in which the Group operates, increasing
regulatory focus in certain areas and ongoing and possible future
changes in the financial services regulatory landscape (including
requirements imposed by virtue of the Group’s participation in
government or regulator-led initiatives), the Group is facing greater
regulation and scrutiny in the UK, the US and other countries in which it
operates (including in relation to compliance with anti-bribery, anti-money
laundering, anti-terrorism and other similar sanctions regimes).
Although it is difficult to predict with certainty the effect that recent
regulatory developments and heightened levels of public and regulatory
scrutiny will have on the Group, the enactment of legislation and
regulations in the UK and the EU, the other parts of Europe in which the
Group operates and the US (such as the bank levy in the UK, the EU
Recovery and Resolution Directive (the “RRD”) or the Dodd-Frank Wall
Street Reform and Consumer Protection Act in the US) is likely to result
in increased capital and liquidity requirements and changes in regulatory
requirements relating to the calculation of capital and liquidity metrics or
other prudential rules relating to capital adequacy frameworks, and may
result in an increased number of regulatory investigations and
proceedings. Any of these developments could have an adverse impact
on how the Group conducts its business, applicable authorisations and
licences, the products and services it offers, its reputation, the value of its
assets, its funding costs and its results of operations and financial
condition.
Areas in which, and examples of where, governmental policies,
regulatory changes and increased public and regulatory scrutiny could
have an adverse impact (some of which could be material) on the Group
include those set out above as well as the following:
x the transfer in the UK of regulatory and supervisory powers from the
FSA to the Financial Conduct Authority for conduct of business
supervision and the Prudential Regulatory Authority for capital and
liquidity supervision in 2013;
x the monetary, fiscal, interest rate and other policies of central banks
and other governmental or regulatory bodies;
x requirements to separate retail banking from investment banking;
x restrictions on proprietary trading and similar activities within a
commercial bank and/or a group which contains a commercial bank;
x restructuring certain of the Group’s non-retail banking activities in
jurisdictions outside the UK in order to satisfy local capital, liquidity
and other prudential requirements;
x the design and potential implementation of government mandated
recovery, resolution or insolvency regimes;
x the imposition of government imposed requirements with respect to
lending to the UK SME market and larger commercial and corporate
entities and residential mortgage lending;
x requirements to operate in a way that prioritises objectives other
than shareholder value creation;
x changes to financial reporting standards (including accounting
standards), corporate governance requirements, corporate
structures and conduct of business rules;
x the imposition of restrictions on the Group’s ability to compensate its
senior management and other employees;
x regulations relating to, and enforcement of, anti-bribery, anti-money
laundering, anti-terrorism or other similar sanctions regimes;
x rules relating to foreign ownership, expropriation, nationalisation and
confiscation of assets;
x other requirements or policies affecting the Group’s profitability,
such as the imposition of onerous compliance obligations, further
restrictions on business growth, product offering, capital, liquidity or
pricing;
x the introduction of, and changes to, taxes, levies or fees applicable
to the Group’s operations (such as the imposition of financial
activities taxes and changes in tax rates that reduce the value of
deferred tax assets); and
x the regulation or endorsement of credit ratings used in the EU
(whether issued by agencies in EU member states or in other
countries, such as the US).
Changes in laws, rules or regulations, or in their interpretation or
enforcement, or the implementation of new laws, rules or regulations may
adversely affect the Group’s business, financial condition and results of
operations. In addition, uncertainty and lack of international regulatory
coordination as enhanced supervisory standards are developed and
implemented may adversely affect the Group’s ability to engage in
effective business, capital and risk management planning.