Barclays 2012 Annual Report Download - page 319

The strategic report Governance Risk review Financial review Financial statements Risk management Shareholder information
Principal Risks policy (audited)
Risk management responsibilities are laid out in the Principal Risks
policy, which covers the categories of risk in which Barclays has its
most significant actual or potential risk exposures.
The Principal Risks Framework:
 creates clear ownership and accountability;
 ensures the Group’s most significant risk exposures are understood
and managed in accordance with agreed risk appetite (for financial
risks) and risk tolerances (for non-financial risks); and
 ensures regular reporting of both risk exposures and the operating
effectiveness of controls.
Each Principal Risk comprises individual Key Risk Types. The foura
Principal Risks are: Credit, Market, Funding and Operational, each
owned by a senior executive within the Group Risk function known as
the Group Principal Risk Owner. The first three Principal Risks are risks
that Barclays actively seeks to manage and have direct income
implications. The fourth Principal Risk relates to operational risks,
exposure to which arises directly from undertaking business processes
in support of Barclays activities, and which the Group seeks to
minimise. There was no material change to this policy in 2012.
The five risk management steps required by the Principal Risks Policy
are: Identify, Assess, Control, Report, and Manage and Challenge (see
page 314 for more detail).
Each Key Risk is owned by a senior individual known as the Group Key
Risk Owner who is responsible for proposing a risk appetite statement
and managing the risk in line with the Principal Risks Policy. This
includes the documentation, communication and maintenance of a
risk control framework which makes clear, for every business across
the firm, the mandated control requirements in managing exposures to
that Key Risk. These control requirements are given further
specification, according to the business or risk type, to provide a
complete and appropriate system of internal control.
Business function heads are responsible for obtaining ongoing
assurance that the key controls they have put in place to manage the
risks to their business objectives are operating effectively. Six-monthly
reviews support the regulatory requirement for Barclays to make an
annual external statement about its system of internal controls.
Group Key Risk Owners report their assessments of the risk exposure
and control effectiveness to Group-level oversight committees and
their assessments form the basis of the reports that go to the Board
Risk Committee (see chart above):
 Financial Risk Committee has oversight of Credit and Market Risks;
 Treasury Committee has oversight of Funding Risk; and,
 Operational Risk Committee has oversight of all Operational Risk
types, with the exception of Tax Risk, which is primarily overseen by
the Tax Risk Committee.
Each Group Key Risk Owner also undertakes an annual programme of
risk-based conformance reviews.
Risk management in the setting of strategy (audited)
The planning cycle is centred on the medium-term planning (MTP)
process, performed once a year. This sets out the Group’s objectives in
detailed plans which take account of the likely business environment.
The risk functions at Group and business levels are heavily involved in
this process.
In addition to supporting transaction decisions, the measurement and
control of credit, market, operational and other risks have considerable
influence on Barclays strategy. The Board is solely responsible for
approving the MTP, the associated risk appetite statement, and the
capital plans. As such, the business plans of Barclays must incur a level
of risk that falls within the Board’s tolerance, or be modified
accordingly. The Board Risk Committee (BRC) has been in place since
1999 and is devoted to review the firm’s risk and make appropriate
recommendations to the Board. For details of the activities of the Board
and the BRC in 2012 see pages 42 and 56-58.
The risk appetite and the Group-wide stress testing processes,
described below, are closely linked to the MTP process and also
support strategic planning and capital adequacy. The risk appetite
process ensures that senior management and the Board understand
the Plan’s sensitivities to key risk types, and includes a set of mandate
and scale limits to ensure the Group stays within appetite. Stress
testing informs management on the impact to the business of detailed
scenarios. Integral to the Group-wide stress testing process is a set of
actions that management would take to mitigate the impact of a stress.
One of the main objectives of managing risk is to ensure that Barclays
achieves an adequate balance between capital requirements and
resources. The capital planning cycle is fully integrated within strategic
planning.
MTP process
The MTP process, performed annually, requires each business unit to
present its plans for business performance over the coming three years.
Achieving the planned performance in each business is dependent
upon the ability of the business to manage its risks. It is an iterative
process featuring weekly reviews at the most senior levels as the plan is
updated until final agreement. The output includes a detailed
statement of the Group’s strategy over the medium-term, as well as
detailed financial projections.
Risk managers support the MTP by providing robust review and
challenge of the business plans to ensure that the financial projections
are internally consistent; achievable given risk management capabilities
and that they present a suitable balance between risk and reward. This
culminates in the Risk Executive Dialogue process in which the Chief
Risk Officer and senior management in each of our businesses discuss
the findings from the risk reviews, and changes to the business plans
are mandated as necessary.
The business plans are prepared with reference to a consistent set of
economic assumptions which are reviewed within Group Risk to ensure
that they appropriately reflect emerging risk trends. They are used as
baseline scenarios in the stress testing and risk appetite processes.
The output from the business plan forms the basis of all strategic
processes. In particular, the plans comprise projections of capital
resources and requirements given profit generation, dividend policy
and capital issuance. Risk variables are also considered, most
importantly in the forecasting of the Group’s impairment charge, and in
sensitivity analyses of the plans (which include risk appetite and stress
testing).
Note
a Conduct Risk and Reputation Risk have been re-categorised as Principal Risks
in 2013.
barclays.com/annualreport Barclays PLC Annual Report 2012 I 317