RBS 2013 Annual Report Download - page 362
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Business review Risk and balance sheet management
360
Other risks* continued
Operational risk continued
Monitoring and reporting
Monitoring and reporting form an integral part of all of the Group’s
operational risk management processes, which are designed to ensure
that risks and issues are identified, escalated and managed on a timely
basis. Exposures for each division are communicated through monthly
risk and control reports that are discussed at divisional risk committees.
The reports provide detail on the risk exposures and action plans. In 2013
the linkages between different components of the operational risk
framework were improved. This has allowed better aggregation, using
both qualitative and quantitative inputs from all framework elements to
underpin improvements in reporting to senior committees.
Control Environment Certification
Control Environment Certification (CEC) is used by the Group Executive
to review and assess its internal control framework. Members of the
senior management team are required to provide a semi-annual
assessment of the robustness of the Group’s internal control environment
including:
• Compliance with the requirements of the UK Corporate Governance
Code;
• Appropriateness of the risk frameworks, culture and governance
structures of each division to help ensure the Group operates within
risk appetite;
• Adequacy of reporting on the material risks for the business against
appetite; and
• Compliance with the Group Policy Framework and key divisional
and functional policy standards.
CEC outcomes are reported to the Board, the Group Audit Committee
and the Board Risk Committee, and shared with external auditors.
Risk mitigation
Where a risk has been deemed to be outside of risk appetite, the
business unit must decide whether this is acceptable or not. Where it is
deemed unacceptable, an action plan to reduce the exposure is prepared
and is monitored to conclusion through the operational risk issues
management process.
The objective of the operational risk issues management framework is
the adoption of a consistent approach to the management of issues and
actions to mitigate risks outside appetite. This element of the operational
risk framework continues to be enhanced in areas such as analysis of
common issues on an aggregated basis across the Group to identify
emerging trends and improvements to the quality of data captured.
The Group purchases insurance to provide the business with financial
protection against specific losses and to comply with statutory or
contractual requirements, providing protection against financial loss once
a risk has crystallised.
*unaudited
Regulatory risk
Definition
Regulatory risk is the risk of material loss or liability, legal or regulatory
sanctions, or reputational damage, resulting from the failure to comply
with (or adequately plan for changes to) relevant official sector policy,
laws, regulations, or major industry standards, in any location in which
the Group operates.
Sources of risk
The sources of regulatory risk arise from the Group’s regulatory, business
or operating environment and from how the Group responds to them.
Governance structure
The Group’s Regulatory Affairs team (“Regulatory Affairs”) maintains
well-established policies and supporting processes to ensure timely
identification of, and effective responses to, changes in official
requirements affecting the Group. The function also maintains a
structured and open engagement with the Group’s regulators. Regulatory
Affairs underpin a range of other policies and processes that address on-
going compliance with regulatory obligations (refer to the section on
Conduct Risk for further information).
Group Board and Executive Committee oversight of changes to
regulatory requirements is supported by a Prudential Regulatory
Developments Executive Steering Group (ESG), which was formed in
early 2010 to provide focus on a range of key regulatory developments
and the Group’s responses.
The ESG is augmented by more specialised groups which cover
prudential, wholesale market and retail conduct issues as well as by an
RBS Americas regional forum. These bodies identify and manage
regulatory developments, by cascading information and coordinating
activity. Their activity includes: prioritisation, allocation of responsibility,
short-term tactical mitigants, longer-term strategic responses, sharing
best practice, discussion of policy views, and escalation of the need for
implementation projects.
A divisional Heads of Regulatory Developments Committee supports the
maintenance and continuous development of the relevant policy, known
as the Political, Legislative and Regulatory Environment Policy Standard,
and supporting documents, together with associated processes, tools and
governance. It also oversees the Group’s regulatory developments
operating framework to ensure it meets the needs of all divisions and
functions, as well as the maintenance of the policy known as the Group
Relationships with Regulators Policy Standard.
Similarly, the Regulatory Relations Forum, chaired by Regulatory Affairs,
has global coverage with representatives from all divisions and regions. It
facilitates the sharing of key regulatory engagements and trends across
the Group’s operations.
In addition, Regulatory Affairs ensures appropriate governance and
reporting of all material regulatory reviews and other regulatory
developments worldwide to relevant Group committees. These
committees include the Group Board, the Group Audit Committee, and
the Board Risk Committee.