RBS 2013 Annual Report Download - page 191
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Business review Risk and balance sheet management
189
Risk type Definition Features How the Group manages risk and the focus in 2013
Country risk The risk of losses occurring
as a result of either a
country event or
unfavourable country
operating conditions.
Arises from: Sovereign events, economic
events, political events, natural disasters or
conflicts.
Character and impact: Primarily present in
credit portfolios of Markets, International
Banking, Ulster Bank (Ireland), Group
Centre (mainly Treasury), US Retail &
Commercial and Non-Core.
It has the potential to affect parts of the
Group’s credit portfolio that are directly or
indirectly linked to the country in question.
The Group Country Risk Committee manages country risk
matters including: risk appetite; risk management strategy
and framework; risk exposure and policy; sovereign
ratings; sovereign loss given default rates; and country
Watchlist colours, with escalation where needed to the
Executive Risk Forum.
Regular, detailed reviews are carried out on all portfolios
to ensure their composition remains in line with the
Group’s country risk appetite and reflects economic and
political developments.
A country risk Watchlist process identifies emerging
issues and assists in the development of mitigation
strategies. In 2013, the scope of this process was
widened to include all countries with Group exposure.
Balance sheet exposure to eurozone periphery countries
continued to fall, and was down by 11% to £52.9 billion at
the end of 2013, of which 70% related to Ireland, primarily
reflecting exposures in Ulster Bank.
Refer to the Country risk section on pages 341 to 353 for
further information.
Conduct risk
The risk that the conduct of
the Group and its staff
towards its customers, or
within the markets in which it
operates, leads to
reputational damage and/or
financial loss.
Arises from: Breaches of regulatory rules or
laws, resulting from the Group’s retail or
wholesale conduct; or from failing to meet
customers’ or regulators’ expectations of
the Group.
Character and impact: Failures in product
design, training and competence, complaint
handling and transaction reporting can lead
to an increase in complaints, compensation
claims and regulatory censure.
It has the potential to affect earnings
(through loss of customer confidence and
sales), as well as capital and liquidity
(including regulator imposed fines for
inappropriate conduct). It also affects the
confidence of other key Group
stakeholders, such as private and
institutional shareholders, regulators and
governments.
Conduct risk is managed through the Group’s Conduct
Risk Committee, under delegated authority from the
Executive Risk Forum. The Committee is responsible for
governance, leadership and risk appetite.
The focus in 2013 was on placing conduct risk at the
centre of the Group’s philosophy and on completing the
development of the risk framework. Promoting
understanding of conduct issues and ensuring compliance
with regulations and rules are priorities for the Group.
Refer to the Conduct risk section on pages 355 and 356
for further information.
*unaudited