Barclays 2014 Annual Report Download - page 126

124 I Barclays PLC Annual Report 2014 barclays.com/annualreport
Risk management
Risk review
Introduction
This section outlines the Group’s strategy for managing risk and how
risk culture has been developed to ensure that there is a set of
objectives and practices which are shared across the Group. It provides
details of the Group’s governance, committee structure and how
responsibilities are assigned.
Risk management strategy
The Group has clear risk management objectives and a well-
established strategy to deliver them, through core risk management
processes.
At a strategic level, the risk management objectives are to:
Q Identify the Group’s significant risks;
Q Formulate the Group’s risk appetite and ensure that the business
profile and plans are consistent with it;
Q Optimise risk/return decisions by taking them as closely as possible
to the business, while establishing strong and independent review
and challenge structures;
Q Ensure that business growth plans are properly supported by
effective risk infrastructure;
Q Manage the risk profile to ensure that specific financial deliverables
remain possible under a range of adverse business conditions; and
Q Help executives improve the control and co-ordination of risk taking
across the business.
A key element of setting clear management objectives is the Enterprise
Risk Management Framework (ERMF), which sets out the activities,
tools, techniques and organisational arrangements so that material
risks facing the Group can be better identified and understood, and
that appropriate responses are in place to protect Barclays and prevent
detriment to its customers, employees or community. This will help the
Group meet its goals, and enhance its ability to respond to new
opportunities.
The aim of the risk management process is to provide a structured,
practical and easily understood set of three steps, Evaluate, Respond
and Monitor (the E-R-M process), that enables management to identify
and assess those risks, determine the appropriate risk response, and
then monitor the effectiveness of the risk response and changes to the
risk profile.
1. Evaluate: risk evaluation must be carried out by those individuals,
teams and departments that are best placed to identify and assess the
potential risks, and include those responsible for delivering the
objectives under review.
2. Respond: the appropriate risk response effectively and efficiently
ensures that risks are kept within appetite, which is the level of risk that
the Group is prepared to accept while pursuing its business strategy.
There are three types of response: i) accept the risk but take the
necessary mitigating actions such as using risk controls; ii) stop the
existing activity/do not start the proposed activity; or iii) continue the
activity but lay off risks to another party e.g. insurance.
3. Monitor: once risks have been identified and measured, and controls
put in place, progress towards objectives must be tracked. Monitoring
must be ongoing and can prompt re-evaluation of the risks and/or
changes in responses. Monitoring must be carried out proactively and
is wider than just ‘reporting’ and includes ensuring risks are being
maintained within risk appetite, and checking that controls are
functioning as intended and remain fit for purpose.
Barclays risk management strategy
Evaluate
Monitor Respond
The process is orientated around material risks impacting delivery of
objectives, and is used to promote an efficient and effective approach
to risk management. This three-step risk management process:
Q Can be applied to every objective at every level in the bank, both
top-down or bottom-up;
Q Is embedded into the business decision making process;
Q Guides the Group’s response to changes in the external or internal
environment in which existing activities are conducted; and
Q Involves all staff and all three lines of defence (see page 127).
Governance structure
Risk exists when the outcome of taking a particular decision or course
of action is uncertain and could potentially impact whether, or how
well, the Group delivers on its objectives.
The Group faces risks throughout its business, every day, in everything
it does. Some risks are taken after appropriate consideration – like
lending money to a customer. Other risks may arise from unintended
consequences of internal actions, for example an IT system failure or
poor sales practices. Finally, some risks are the result of events outside
the Group but which impact its business – such as major exposure
through trading or lending to a market counterparty which later fails.
All employees must play their part in the Group’s risk management,
regardless of position, function or location. All employees are required
to be familiar with risk management policies that are relevant to their
activities, know how to escalate actual or potential risk issues, and have
a role-appropriate level of awareness of the ERMF, risk management
process and governance arrangements.
There are four key Board-level committees which review and monitor
risk across the Group. These are: the Board; the Board Enterprise Wide
Risk Committee; the Board Financial Risk Committee and the Board
Conduct, Operational and Reputational Risk Committee.
The Board
One of the Board’s (Board of Directors of Barclays PLC) responsibilities
is the approval of risk appetite, which is the level of risk the Group
chooses to take in pursuit of its business objectives. The Chief Risk
Officer regularly presents a report to the Board summarising
developments in the risk environment and performance trends in the
key portfolios. The Board is also responsible for the Internal Control and
Assurance Framework (Group Control Framework). It oversees the
management of the most significant risks through the regular review of
risk exposures and related key controls. Executive management
responsibilities relating to this are set out in the ERMF.
The following pages provide an overview of the Group’s
approach to risk management. A more comprehensive
overview together with more specific information on
Group policies can be found in Barclays PLC 2014 Pillar 3
Report or at barclays.com