Barclays 2013 Annual Report Download - page 388

Risk management
Barclays risk management strategy continued
Medium-Term Planning (MTP) process
The MTP process, performed annually, requires each business to
present its plans for business performance over the coming five years
(with a key focus on the first three years of the plan). The MTP details
the businesses strategy, the portfolio composition and the expected
risk trends. 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; value creating; achievable given risk
management capabilities (e.g. supported by appropriate risk
infrastructure) and that they present a suitable balance between risk
and reward. This culminates in the risk review meetings in which the
CRO 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 agreed by senior management and
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, on the
assessment of the business capital requirements going forward and in
sensitivity analyses of the plans (which include risk appetite and stress
testing).
Risk appetite
Risk appetite is defined as the level of risk that Barclays is prepared to
accept whilst pursuing its business strategy, recognising a range of
possible outcomes as business plans are implemented.
Risk appetite sets the ‘tone from the top’ and provides a basis for
ongoing dialogue between management and Board with respect to
Barclays’ current and evolving risk profile, allowing strategic and
financial decisions to be made on an informed basis.
At Barclays, the risk appetite framework is intended to achieve the
following objectives:
 Articulate the risks the Group is willing to take and why, to enable
specific risk taking activities; and articulate those risks to avoid and
why, to constrain specific risk taking activities;
 Consider all Principal and Key Risks both individually and, where
appropriate, in aggregate;
 Consistently communicate the acceptable level of risk for different
risk types; this may be expressed in financial or non-financial terms,
but must enable measurement and effective monitoring;
 Describe agreed parameters for Barclays’ performance under varying
levels of financial stress with respect to:
Profitability, loss and return metrics
The ability to continue to pay a dividend; and
 Be embedded in key decision-making processes including mergers
and acquisitions, new product approvals and business change
initiatives.
Unapproved breaches of risk appetite and/or limits will result in
performance management and disciplinary consequences.
Strategy
& Business
Model
Reputation
& Stakeholder
Expectations
Performance
Targets
Purpose
& Values
Legal,
Regulatory
& Fiscal
Requirements
Risk
Capacity
Risk
appetite
Setting risk appetite
In this regard, the Group CEO is responsible for:
 Leading the development of the Barclays strategy and business plans
that align to our Goal, Purpose and Values and includes a risk
appetite and risk profile proposal for Board approval;
 Leading, managing and organising executive management to achieve
execution of the Barclays strategy and business plans in line with the
Board approved Purpose, Values, Code of Conduct (‘the Barclays
Way’) and risk appetite. This includes assessing risk holistically,
ensuring the soundness of the financial position of Barclays, and that
due consideration is given to the impact of Barclays on society,
customers and clients, colleagues and the wider financial system;
 Barclays’ performance including financial and operational activities,
risk profile (current and outlook) compared to approved risk appetite,
and compliance with all laws, regulations and the Barclays Operating
Framework; and
 Providing accurate, transparent and timely reporting to the Board on
Barclays’ performance against plan, and include the risk profile
(current and outlook) compared to risk appetite under normal and
stressed scenarios.
The Group CRO is responsible for:
 Providing oversight, advice and challenge to the CEO with respect to
the strategic plan;
 Management of the risk appetite setting processes;
 Recommending risk appetite to the Board;
 Ensuring the Board receive regular management information that
compares the risk appetite set for Barclays and the businesses by risk
type and in aggregate where appropriate; and
 Developing, operating and maintaining a comprehensive risk
management framework for Barclays that ensures the business
performs in line with the approved risk appetite.
The Board review and approve risk appetite in aggregate and for all
individual Principal Risks.
The Risk function is responsible for implementation, operation and
monitoring of the bank’s approach to risk appetite.
Risk appetite is formally reviewed on an annual basis in conjunction
with the Medium-Term Planning (MTP) process.
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386 Barclays PLC Annual Report 2013