Tesco 2014 Annual Report Download - page 27

Principal risks Key controls and mitigating factors
Tesco Bank
Financial risks taken by Tesco Bank (the ‘Bank’) could
adversely impact the Group. The key financial risks
relating to the Bank include interest rate, liquidity,
credit and insurance risks which are detailed in Note 22
on page 107 of the Annual Report and Financial
Statements 2014
Changes to financial regulations, including in relation
to credit card interchange fees, could impact
banking profitability
A vote in favour of Scottish independence from the UK
in September 2014 could impact the fiscal, monetary
and regulatory environment within which the Bank,
which is headquartered in Edinburgh, operates
•The Bank has a defined ‘Risk Appetite’, approved and regularly reviewed
by both the Bank’s Board and the Tesco PLC Board, which sets out the
key risks, their optimum ranges, alert limits and the controls required to
manage them within their approved tolerance limits
• The Bank has formed good working relationships with the Prudential
Regulation Authority and Financial Conduct Authority
• There is a comprehensive structure of governance and oversight in place,
including through the Bank’s Governance and Conduct Committees,
to help ensure the Bank’s compliance with applicable laws and regulations
• The Group remains politically neutral and carefully monitors developments
to enable it to respond to whatever decision is reached on Scottish
independence
Pensions
The IAS 19 deficit could increase if there is a fall in
corporate bond yields which is not offset by an increase
in the pension scheme’s assets
Other risks affecting the deficit are detailed in Note 26
on page 112 of the Annual Report and Financial
Statements 2014 and include investment, inflation
and life expectancy risks
There are also increasing risks of legal and regulatory
changes introducing more burdensome requirements
• We have a diversified investment strategy with internal controls and visibility
through our in-house investment team at Tesco Pension Investments
• We regularly review our pension risks and changes were introduced in 2012
to reduce the scheme’s life expectancy and inflation risks
• The dedicated Pensions Audit and Risk Committee continues to monitor
and scrutinise the internal controls around pension and investment risks
• Pensions and Treasury Directors review pension risks on a monthly basis
• External expert advisors and Pension Fund Trustees are fully engaged to
consider the funding position and fund performance as well as the impact
of legislative and regulatory changes
Fraud, compliance and control
As the business develops new platforms and grows in
size, geographical scope and complexity, the potential
for fraud and dishonest activity by our suppliers,
customers and employees increases
• Procedures and controls are set out across the business to reduce fraud
and compliance risks, including our Group Accounting Policy, key financial
controls, IT access controls and segregation of duties
• Compliance Committees monitor the implementation of, and compliance
with, relevant laws, policies and procedures
• Training is provided to help colleagues comply with policies and procedures
• Clear behavioural guidance is given to employees through training on Tesco
Values, the Group Code of Business Conduct, the UK Bribery Act and our
Whistleblowing service – Protector Line
•Internal Audit undertakes a risk-based programme with detailed
investigations into all business areas and reports its findings to
management and the Audit Committee
• Group Loss Prevention & Security monitors fraud, bribery and business
continuity risks across the Group and reports its findings to the
Audit Committee
• Store and distribution compliance and technical law and trading reviews
are conducted regularly to reinforce compliance across the Group
• A comprehensive compliance programme is in place to promote, monitor
and review compliance with the UK Groceries Supply Code of Practice
•The Information Security Committee regularly reviews IT incidents
•External Audit rotates its coverage of areas and assessment of controls
Business continuity and crisis management
A major incident, from a natural disaster to a system
failure, could impact colleague safety or the Group’s
ability to trade
• Appropriate business continuity plans and crisis management plans are
in place for each business area and we continue to create and test them
for eventualities
•Disaster recovery plans are in place for key IT systems and data centres
• We have security systems and processes that reflect best practice to review
the risks of incidents or activism across the Group, including liaison with
the UK National Co-ordinator for Counterterrorism
24 Tesco PLC Annual Report and Financial Statements 2014
Principal risks and uncertainties continued