Risk committee

Membership

• 1. The members, including the chairman, of the committee shall be appointed by the board, on the recommendation of the nomination committee and in consultation with the chairman of the risk committee. All members of the committee shall be independent non-executive directors of the Company. The committee shall consist of not less than three members. A quorum shall be two members. In the absence of the committee chairman, the remaining members present shall elect one of themselves to the chair of the meeting.

Attendance at meetings

• 2. The group chief executive, the chief risk officer, the chief financial officer, the chief audit officer and a senior representative of the external auditor will normally attend all meetings at the invitation of the committee.
• 3. Other board members may attend any meeting of the committee and members of management and any advisers appointed by the committee shall attend, if invited by the committee.
• 4. At least once a year, and at any other time as the committee shall see fit, it shall meet separately with the chief risk officer, the chief audit officer and the external auditor in the absence of other members of management.
• 5. The group company secretary, or his nominee, shall be the secretary of the committee.

Frequency of meetings

• 6. Meetings shall be held not less than four times each year.
• 7. The chief risk officer, the chief audit officer, the external auditor, the chairman of the committee or two members of the committee may request a meeting if they consider that one is necessary.

Authority

• 8. The committee is authorised by the board to:
  1. Investigate, or cause to be investigated, any activity within its terms of reference;
  2. Seek any information that it requires from any employee of the Company and require all employees to co-operate with any request made by the committee;
  3. Obtain at the Company’s expense outside legal or independent professional advice and such advisors may at the invitation of the committee attend meetings as necessary;
  4. Meet for despatch of its business, adjourn and otherwise regulate its business as it shall see fit, including approving items of business by the written resolution procedure set out in the Company’s articles of association;
  5. Delegate any of its duties as is appropriate to such persons or person as it thinks fit.

Purpose

• 9. The Group’s strategy is to invest its available capital to optimise the balance between return and risk whilst maintaining an appropriate level of economic capital. In view of the central role of risk management within this framework, the risk committee was established to assist the board in its oversight of risk and risk management across the Group. The committee’s oversight covers all aspects of risk, including strategic, financial market, credit, insurance, operational and reputational, and regulatory.

Duties

• 10. The responsibilities of the committee shall be:

  Risk

  1. To review the Group’s risk appetite and future risk strategy, particularly for economic (ie risk-based) capital, liquidity and reputation, but also for operational risk, and to make recommendations on risk appetite to the board; to review the principal risk policies for consistency with the Group’s risk appetite and to approve any material changes to these policies;
  2. To review the Group’s risk profile against its risk appetite and strategy; to review the drivers of the changes, if any, in the risk profile and their implications for economic capital and liquidity; to review management’s view of emerging and potential risks; and to review the management actions, if any, required in response to changes in the risk profile and emerging or potential risks;
  3. To review the design, completeness and effectiveness of the risk management framework relative to the Group’s activities; to review the adequacy and quality of the risk management function; and to review the effectiveness of risk reporting (including timeliness and risk events);
  4. To review the methodology and assumptions used in the Group’s models for determining its economic and regulatory capital requirements; to receive independent internal and/or external reports on the methodologies and assumptions, and satisfy itself that the models are fit for purpose; to review the overall outcomes and implications of these models; and, with input from the audit committee as appropriate, to review the adequacy of the Group’s processes and the effectiveness of controls over the determination of its economic and regulatory capital;
  5. To review the scenarios (covering both economic and other future risk outlooks) and stress tests which the Group uses to assess the adequacy of its economic and regulatory capital and liquidity; and to review the outcome of these tests and the proposed actions which might need to be taken in the light of the outcomes;
  6. To satisfy itself that risk-based information (including economic capital requirements, returns on economic capital and stress testing) is used effectively by management and the board, for instance for capital allocation and product pricing.

     If a strategic or significant transaction is due to be proposed to the board, to ensure that a due diligence appraisal of the proposition is undertaken, focussing in particular on risk aspects and implications for the risk appetite and tolerance of the Group, and drawing on independent external advice where appropriate and available, before the board takes a decision whether to proceed;

  7. To work with the remuneration committee to ensure that risk is properly considered in setting the overall remuneration policy for the Group and the remuneration of the executive directors and other senior executives;
  8. To recommend the appointment or dismissal of the chief risk officer to the board and to participate jointly with the group chief executive in the determination of the objectives of the chief risk officer and the evaluation of his levels of achievement, and to help determine and approve his remuneration;
  9. To review any statements on risk management and the Group’s economic and/or regulatory capital position, in all announcements by the Group. This will include approving the board report on risk and (jointly with the audit committee) the Group Corporate Governance Report to be contained in the Annual Report and Accounts, and as appropriate recommending their acceptance to the board;

  Regulation

  10. To review relationships with the regulatory authorities in the UK and where appropriate other geographies where the Group has a significant presence; and to review developments and prospective changes in the regulatory environment, and the Group’s plans to help influence future regulatory policies;
  11. To review whether the Group has satisfactory controls in place to ensure that its customers are treated in accordance with both the Group’s policies and regulatory requirements; and to review any Risk Mitigation Plans arising from "Arrow" reviews, and the Group’s response;
  12. To review significant breaches, or potential breaches, of regulation and the steps taken to ensure that the underlying root causes of any regulatory control failures are being addressed;
  13. To review material or prospective legal actions involving the Group, and whether any lessons learned from them about risks and controls are being applied where appropriate within the Group;
  14. To review and assess the appropriateness of the Company’s procedures for handling, in confidence, concerns raised by staff, or others, regarding possible improprieties in financial reporting, or any other matters (whistleblowing);
  15. To review the Group’s procedures relating to prevention of financial malpractice, including money laundering, and to note any material issues which arise and monitor their resolution;
  16. To review the adequacy and quality of the Group’s Compliance and Risk functions;

  General

  17. To assist the audit committee in its review of the adequacy and effectiveness of the Group’s system of internal controls including financial reporting;
  18. To consider other topics, as referred to it from time to time by the board.

Reporting procedures

• 11. The chairman of the committee shall report to the board at regular intervals on the matters it has reviewed and making recommendations when requested or when he considers appropriate. The group company secretary shall circulate the minutes of the meetings of the committee to all members of the board.
• 12. In addition to their management reporting line to the group chief executive, the chief risk officer and the chief audit officer have a direct reporting line to the chairman of the committee on matters within the committee’s scope.
• 13. The committee members shall undertake a review of the committee’s performance and these terms of reference annually and, if necessary, make recommendations to the board for approval.
• 14. The committee’s duties and activities during the year shall be disclosed in the Annual Report and Accounts.
• 15. The chairman of the committee shall attend the annual general meeting and shall answer questions, through the chairman of the board, on the committee’s activities and responsibilities.