Barclays 2007 Annual Report Download - page 87

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Business review
Barclays PLC Annual Report 2007 85
Material risks and control framework
As well as overall responsibility for the Group's risk exposure versus
appetite, the Board is also responsible for the Group Internal Control and
Assurance Framework (‘GICAF’). As part of the GICAF, it approves the
Principal Risks Policy, which sets out responsibilities for the management
of the Group’s most significant risk exposures. The Board oversees the
operating effectiveness of the Principal Risks Policy through the regular
review of reports on the Group’s material risk exposures and controls.
The Group’s risk categorisation comprises 17 risk categories (‘Level 1’),
thirteen of which are known as Principal Risks. Each Principal Risk is owned
by a senior individual at the Group level, who liaises with Principal Risk
owners within Business and Central Support Units. The 17 risk categories
are shown in the panel below.
Each Group Principal Risk Owner (‘GPRO’) is responsible for setting
minimum control requirements for their risk and for overseeing the risk
and control performance across the Group. Group control requirements
(e.g. Group Policies/Processes/Committee oversight) for each of these
risks are defined, in consultation with Business Units, and communicated
and maintained by the GPRO.
Implementation of the control requirements for each Principal Risk
provides each Business or Central Support Unit with the foundation of its
system of internal control for that particular risk. This will usually be built
upon in more detail, according to the circumstances of each Business Unit,
to provide a complete and appropriate system of internal control.
The specific controls for individual Principal Risks are supplemented
by generic risk management requirements. These requirements are
articulated as the Group’s Operational Risk Management Framework
(see page 109) and include policies on:
– Internal Risk Event Identification and Reporting
– Detailed Risk and Control Assessment
– Key Indicators
– Key Risk Scenarios
Business Unit and Central Support Unit Heads are responsible for
maintaining ongoing assurance that the controls they have put in place
to manage the risks to their business objectives are operating effectively.
They are required to undertake a formal six-monthly review of assurance
information. These reviews support the regulatory requirement for the
Group to make a statement about its system of internal control (the
‘Turnbull’ statement), in the annual report and accounts.
Capital adequacy
In order to maximise shareholder value through optimising both the
level and mix of capital resources, Barclays operates a centralised capital
management model, considering both regulatory and economic capital.
Decisions on the allocation of capital resources, conducted as part of the
strategic planning review, are based on a number of factors including
returns on economic and regulatory capital.
The Group’s capital management objectives are to:
– Support the Group’s AA credit rating.
– Maintain sufficient capital resources to support the Group’s risk
appetite and economic capital requirements.
– Maintain sufficient capital resources to meet the FSA’s minimum
regulatory capital requirements and the US Federal Reserve Bank’s
requirements that a financial holding company be well capitalised.
– Ensure locally regulated subsidiaries can meet their minimum
capital requirements.
Treasury Committee manages compliance with the Group’s capital
management objectives. The Committee reviews actual and forecast
capital demand and resources on a monthly basis.
The processes in place for delivering the Group’s capital management
objectives include:
– Establishment of internal targets for capital demand and ratios
– Ensuring local entity regulatory capital adequacy
– Annual Risk Appetite setting
– Review of the Group’ strategic medium-term plan
– Economic capital management
– Stress testing
– Managing capital ratio sensitivity to foreign exchange rate movements
Internal targets
To support its capital management objectives, the Group sets internal
targets for its key capital ratios. The internal targets exceed minimum
capital requirements to take into account:
– Possible volatility in the anticipated demand for capital caused by
accessing new business opportunities, including mergers and
acquisitions, by unanticipated drawdown of committed facilities
or by deterioration in the credit quality of the Group’s assets
– Possible volatility of reported profits and other capital resources
compared with forecast
– Capital ratio sensitivity to foreign exchange rate movements
– A need for flexibility in debt capital issuance and securitisation plans
Retail Credit
Wholesale Credit
Market
Capital
Liquidity
Financial Crime
Operations
Technology
People
Regulatory
Financial Reporting
Legal
Taxation
Strategic
Change
Corporate Responsibility
Brand Management
Principal Risks Other Level 1 Risks