Barclays 2008 Annual Report Download - page 77

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Business review
Barclays PLC Annual Report 2008 75
Risk management
Barclays approach to risk management
This risk section outlines Barclays approach to risk management, as
exemplified by the application of the Group’s Principal Risks Policy,
determination of its Risk Appetite and governance around its Risk
Methodologies, which cover its processes, measurement techniques
and controls. In addition, we set out summary information and
disclosure on our portfolios and positions.
Barclays approach to risk management involves a number of
fundamental elements that drive our processes across the Group:
The Principal Risks Policy covers the Group’s main risk types,
assigning responsibility for the management of specific risks, and
setting out the requirements for control frameworks for all of the risk types.
The individual control frameworks are reinforced by a robust system of
review and challenge, and a governance process of aggregation and
broad review by businesses and risk across the Group (page 78).
The Group’s Risk Appetite sets out the level of risk that the Board
is willing to take in pursuit of its business objectives. This is expressed
as the Group’s appetite for earnings volatility across all businesses from
credit, market, and operational risk. It is calibrated against our broad
financial targets, including income and impairment targets, dividend
coverage and capital levels. It is prepared each year as part of the Group’s
Medium-Term Planning process, and combines a top-down view of the
Group’s risk capacity with a bottom-up view of the risk profile requested
and recommended by each business. This entails making business plan
adjustments as necessary to ensure that our Medium-Term Plan creates
a risk profile that meets our Risk Appetite (page 78).
Barclays Risk Methodologies include systems that enable the Group
to measure, aggregate and report risk for internal and regulatory
purposes. As an example, our credit grading models produce Internal
Ratings through internally derived estimates of default probabilities.
These measurements are used by management in an extensive range
of decisions, from credit grading, pricing and approval to portfolio
management, economic capital allocation and capital adequacy
processes (page 79).
Risk management is a fundamental part of Barclays business activity
and an essential component of its planning process. To keep risk
management at the centre of the executive agenda, it is embedded in the
everyday management of the business.
Barclays ensures that it has the functional capacity to manage the risk
in new and existing businesses. At a strategic level, our risk management
objectives are:
– To identify the Group’s material risks and ensure that business profile
and plans are consistent with risk appetite.
– To optimise risk/return decisions by taking them as closely as possible
to the business, while establishing strong and independent review and
challenge structures.
– To ensure that business growth plans are properly supported by
effective risk infrastructure.
– To manage risk profile to ensure that specific financial deliverables
remain possible under a range of adverse business conditions.
– To help executives improve the control and co-ordination of risk taking
across the business.
In pursuit of these objectives, Group Risk breaks down risk management
into five discrete processes: direct, assess, control, report, and
manage/challenge (see panel below).
ActivityProcess
–Establish the process for identifying and
analysing business-level risks.
– Agree and implement measurement and
reporting standards and methodologies.
Assess
– Establish key control processes and practices,
including limit structures, impairment
allowance criteria and reporting requirements.
– Monitor the operation of the controls and
adherence to risk direction and limits.
– Provide early warning of control or appetite
breaches.
– Ensure that risk management practices and
conditions are appropriate for the business
environment.
Control
– Interpret and report on risk exposures,
concentrations and risk-taking outcomes.
– Interpret and report on sensitivities and
Key Risk Indicators.
– Communicate with external parties.
Report
– Review and challenge all aspects of the
Group’s risk profile.
– Assess new risk-return opportunities.
– Advise on optimising the Group’s risk profile.
– Review and challenge risk management
practices.
Manage
and
Challenge
– Understand the principal risks to achieving
Group strategy.
– Establish Risk Appetite.
– Establish and communicate the risk
management framework including
responsibilities, authorities and key controls.
Direct