RBS 2013 Annual Report Download - page 60
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Report of the Board Risk Committee
58
Letter from Philip Scott,
Chairman of the Board Risk Committee
Dear Shareholder,
Throughout 2013, the Board Risk Committee has sought to continue to
provide assurance that the Group is operating in a safe and controlled
manner and within the agreed risk appetite framework approved by the
Board. This has been done against a backdrop of difficult external market
conditions and increased regulatory scrutiny by the Prudential Regulatory
Authority (PRA) and Financial Conduct Authority (FCA) and the Group’s
overseas regulators.
In particular, the Committee has focussed on market risk, operational
risk, credit risk, conduct and regulatory risk and reputational risk. In its
consideration of each area of risk, culture has been the priority and the
Committee has emphasised the importance of instilling the correct
behaviours within the organisation, alongside processes and tools
designed with the customer at the fore. It is vital that the business is able
to get these things right in order to meet its target of becoming a ‘really
great bank’. The Committee is working hard to drive cultural change and
increase accountability throughout the organisation.
Oversight of risk has been enhanced in the period, through the
separation of the Risk Management and Conduct and Regulatory Affairs
functions. The restructure of the Risk function has enabled the
Committee to achieve clearer and more effective oversight of conduct
and regulatory issues, which will have long-lasting benefits. The
Committee dedicates substantial time each year to the oversight of the
risk operating model and succession planning and will continue to
monitor these changes during 2014 as the respective functions continue
to strengthen and embed.
Conduct risk standards continue to be communicated to employees using
the four pillars of conduct risk: employee conduct; market conduct;
corporate conduct; and conduct towards customers. These standards
have been applied in the Committee’s consideration of issues including
the review of the sale of interest rate hedging products to SME
customers. The Committee has also placed renewed focus on the quality
of advice provided to customers, particularly in relation to mortgages,
investment products and private client products.
In response to the allegations set out in the Tomlinson Report that the
Group’s restructuring division systemically set out to make profit at the
expense of distressed customers, an independent review by the law firm
Clifford Chance was commissioned to investigate these claims fully. The
Group’s regulators will also undertake their own review. While no
evidence has been produced that supports the claims set out in the
Tomlinson Report, the allegations have damaged our reputation and
threaten to undermine our ability to build trust with customers and to
increase lending to businesses in the UK economy. Therefore it is
essential that the Group verifies the facts as quickly as possible. The
Board Risk Committee has undertaken to review the outputs of both
investigations, in depth, on behalf of the Board and make
recommendations as to action required.
During 2013, the Board Risk Committee has continued to oversee the
remediation activity following the major IT incident in 2012 and the
ongoing effort to ensure the Group is more resilient in this respect in
future. The Committee has also considered other potential single points
of failure and how these can be identified and prevented or mitigated.
This focus will continue in 2014 and the Committee will continue to liaise
with its principal regulators during the first quarter of the year as the
investigation of the IT incident concludes.
The Committee has considered reports on data quality, information
security and corporate security with a particular focus on cyber security.
This continues to be a significant issue for the banking industry as a
whole and will remain a priority for the Committee in 2014.
Consideration of the case for RCR and substantiation of the capital plan
was a major undertaking for the Group in the latter half of 2013. Given
the fundamental strategic importance of this review, consideration,
analysis and approval was undertaken collectively by the Group Board
rather than at Committee level, which I consider to be appropriate. As a
priority in 2014, the Board Risk Committee will monitor the risks in
execution of this plan and also execution of the measures announced
following the strategic review.
While 2013 has presented significant challenges, there has also been
significant progress in the oversight of risk and control in many areas. In
particular I would highlight the following:
• the Committee has continued to enhance its relationship with other
Committees, in particular the Group Performance and Remuneration
Committee. It has advised on matters such as assessing risk
performance of both divisions and individuals, reviewing the risk
objectives of members of the Executive Committee and considering
the accountability of individuals in relation to specific matters;
• the role of Divisional Risk and Audit Committees has been reviewed
in conjunction with the Group Audit Committee to ensure that they
provide more transparency and more effective consideration of risk
at a divisional level. Proposed changes to the existing model will be
considered by the Committee in Q1 2014;