RBS 2013 Annual Report Download - page 193
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Business review Risk and balance sheet management
191
Risk type Definition Features How the Group manages risk and the focus in 2013
Reputational risk The risk of brand damage
and/or financial loss due to a
failure to meet stakeholders’
expectations of the Group.
Arises from: Actions taken (or, in
some cases, not taken) by the Group,
as well as its wider policies and
practices.
Character and impact: Can result in
an inability to build or sustain
customer relationships, in low staff
morale, in regulatory censure, or in
reduced access to funding.
The reputational risk framework is aligned with the
Group’s focus on serving customers well, strategic
objectives and the risk appetite goal of maintaining
stakeholder confidence.
In 2013, the environmental, social and ethical risk
management function was set up to address the
reputational risk associated with the clients the Group
chooses to do business with. It sets policy and provides
guidance to avoid reputational risk relating to business
engagements and lending to clients in sensitive industry
sectors.
Refer to the Reputational risk section on pages 361 and
362 for further information.
Business risk The risk of losses as a result
of adverse variance in the
Group’s revenues and/or costs
relative to its business plan
and strategy.
Arises from: Internal factors such as
volatility in pricing, sales volumes and
input costs, and/or by external factors
such as exposure to macroeconomic,
regulatory and industry risks.
Character and impact: Can lead to
adverse changes in revenues and/or
costs.
It has the potential to directly affect
the Group’s profitability and capital
requirements, as well as stakeholder
confidence.
The Group Board has ultimate responsibility for business
risk through the achievement of the Group’s business
plan. The primary responsibility for divisional financial
performance rests with the divisional CEO supported by
divisional Executive Committee and functions.
In 2013, the management and measurement of business
risk was enhanced with an increased focus on stress
testing.
The Group responded to business risk challenges by
focusing on the management of net interest margin in
order to sustain and grow revenues. In addition, it
introduced cost management programmes to deliver
substantial savings.
Refer to the Business risk section on pages 362 and 363
for further information.
Strategic risk The risk that the Group will
make inappropriate strategic
choices, or that there will be
changes in the external
environment to which the
Group fails to adapt its
strategies.
Arises from: the Group’s management
of its strategy.
Character and impact: Varied losses
affecting earnings, capital, liquidity
and customer and stakeholder
confidence. Can affect all divisions.
The Group is focusing on reducing strategic risk following
a wide-ranging review to analyse core activities and
formulate an appropriate plan, including rationalisation
where necessary, to address the business challenges of
the next five years.
The successful execution of this strategy is set against a
background of increasing regulatory demands and
scrutiny as well as a challenging macroeconomic
environment. Successful and timely execution of the
strategy will be key to the future success of the Group.
Refer to the Strategic risk section on pages 363 and 364
for further information.
Political risk The risk to the Group’s
business and operations of the
referendum on Scottish
independence.
During 2013 the focus on the question of potential
Scottish independence from the UK heightened, and the
Scottish government will be holding a referendum in
September 2014. A vote in favour of Scottish
independence would be likely to impact the Group’s costs
and could also impact the fiscal, legal and regulatory
landscape to which the Group is subject. Were Scotland
to become independent, it may also affect Scotland’s
status in the European Union.
*unaudited