RBS 2013 Annual Report Download - page 533
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Additional information
531
Areas in which, and examples of where, governmental policies,
regulatory and accounting 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:
• the monetary, fiscal, interest rate and other policies of central banks
and other governmental or regulatory bodies;
• requirements to separate retail banking from investment banking;
• restrictions on proprietary trading and similar activities within a
commercial bank and/or a group which contains a commercial bank;
• 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;
• the design and potential implementation of government mandated
recovery, resolution or insolvency regimes;
• the imposition of government imposed requirements and/or related
fines and sanctions with respect to lending to the UK SME market
and larger commercial and corporate entities and residential
mortgage lending;
• requirements to operate in a way that prioritises objectives other
than shareholder value creation;
• changes to financial reporting standards (including accounting
standards), corporate governance requirements, corporate
structures and conduct of business rules;
• the imposition of restrictions on the Group’s ability to compensate its
senior management and other employees;
• regulations relating to, and enforcement of, anti-bribery, anti-money
laundering, anti-terrorism or other similar sanctions regimes;
• rules relating to foreign ownership, expropriation, nationalisation and
confiscation of assets;
• 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;
• the introduction of, and changes to, taxes, levies or fees applicable
to the Group’s operations (such as the imposition of a financial
transaction tax and changes in tax rates that reduce the value of
deferred tax assets); and
• 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,
including contradictory laws, rules or regulations by key regulators in
different jurisdictions, may have a material adverse effect on 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.
The Group is subject to a number of regulatory initiatives which may
adversely affect its business. The Independent Commission on Banking’s
final report on competition and structural reforms in the UK banking
industry has been substantially adopted by the UK Government through
the passage of the Banking Reform Act 2013. In addition other proposals
to ring fence certain business activities and the US Federal Reserve’s
proposal for applying US capital, liquidity and enhanced prudential
standards to certain of the Group’s US operations together with the UK
reforms could require structural changes to the Group’s business. Any of
these changes could have a material adverse effect on the Group.
The UK Government published a White Paper on Banking Reform in
September 2012, outlining proposed structural reforms in the UK banking
industry. The measures proposed were drawn in large part from the
recommendations of the ICB, which was appointed by the UK
Government in June 2010. The ICB published its final report to the
Cabinet Committee on Banking Reform on 12 September 2011, which set
out the ICB’s views on possible reforms to improve stability and
competition in UK banking. The final report made a number of
recommendations, including in relation to (i) promotion of competition, (ii)
increased loss absorbency (including bail-in) and (iii) the implementation
of a ring-fence of retail banking operations.
The measures in relation to the promotion of competition are already
largely in process, including the development of an industry mechanism
to make it easier for customers to switch their personal current accounts
to a different provider, which was introduced in September 2013.
Bail-in mechanisms, will, if used, affect the rights of creditors, including
holders of senior and subordinated bonds, and shareholders in the event
of the implementation of a resolution scheme or an insolvency and could
thereby materially affect the price of such securities. Such mechanics are
being implemented through the Banking Reform Act 2013 and will also be
part of the RRD. The implementation of a ring-fence of retail banking
operations is also included in the Banking Reform Act 2013. The Banking
Reform Act 2013 provides primary enabling legislation in the short term
with a view to completing the legislative framework for the ring-fence of
retail banking operations by May 2015, requiring compliance as soon as
practicable thereafter and setting a final deadline for full implementation
by 2019.