Barclays 2015 Annual Report Download - page 54

52 I Barclays PLC Annual Report 2015 home.barclays/annualreport
Governance: Directors’ report
What we did in 2015
Board Risk Committee reporta
Note
a The name of the Committee changed from the Board Financial Risk Committee in June
2 0 15
“In 2016 the Committee will continue to
supervise the level and deployment of risk
appetite, as well as the Group’s funding and
capital position, as we respond to regulatory
requirements and our expectations of
continued volatility in external conditions.”
Dear Fellow Shareholders
Over the past year, the Board Risk Committee reviewed management’s
responses to a range of external challenges. These included a slowdown
in China and other emerging markets, falling oil and commodity prices,
as well as some industry trends toward more aggressive lending terms in
certain core markets, including UK property and international leveraged
finance. Risk appetite, as well as country, sector and individual exposures,
were carefully monitored to ensure that business activity and limits
appropriately reflected external risks. We were pleased to see impairment
remain broadly flat on 2014 levels and within planning expectations,
despite increasingly challenging conditions in some markets.
A key activity for the Committee is recommending risk appetite to the
Board and monitoring performance against the agreed appetite on its
behalf. The context in which we set our Medium Term Plan (MTP)
and risk appetite for 2015 was based on our assessment of our key
markets, including risk factors arising from the near term geopolitical,
macroeconomic and market environment and the potential for further
conduct and litigation charges. Matters for particular focus were the
UK housing market, where new mortgage regulations, a potential rise
in interest rates, the growth in the buy-to-let market and ongoing high
levels of household debt were expected to have an impact; continuing
economic and political uncertainty in Europe; weak economic prospects
for South Africa; and the potential effects of ongoing weakness in oil
prices. 2015 risk appetite and risk triggers were set to position Barclays
conservatively given this environment. During 2015, significant stress
in emerging markets and economies became evident, underpinned
by a slowing in the Chinese economy and resultant market volatility.
Consequently, Barclays took early action to reduce its risk appetite to
emerging markets, particularly Africa, and also remained vigilant to the
potential impacts arising from a downturn in economic growth,
indebtedness generally and further weakness in capital markets.
At the end of 2014, the Committee asked for a review of the Group’s
process for setting risk appetite and during 2015 approved a revised
methodology that takes a scenario-based approach, with stress testing
as the basis of the risk appetite framework. This revised methodology
was used to set risk appetite for 2016, with the Committee also
approving the stress testing themes, the severity of the proposed stress
and the financial constraints.
Another key area of focus during 2015 was the structural reform
programme, where the Committee was asked by the Group Chairman
to oversee progress of the planning process, particularly with regard
to structural options, their capital and liquidity implications and the
potential risks for the Group, its customers and for the financial system.
Now that the programme has moved into its implementation phase,
the Board will directly oversee programme execution, although the
Committee will continue to exercise oversight of capital and liquidity
aspects, including assessing capital on a legal entity basis. From July
2015, the Committee also assumed oversight responsibility for
operational risk, agreeing to focus on the financial and capital aspects
of operational risk, while the Board Audit Committee oversees the
control aspects.
The role of Board Risk Committee Chairman is not confined to the
Committee’s regular meetings. During 2015, I continued to have
significant interaction with our regulators, meeting regularly with
representatives from our UK and US regulators. I held regular meetings
with the Chief Risk Officer and members of his senior management
team, with Barclays Treasurer and the Chief Operating Officer. I also
liaised closely with the Chairman of Board Audit Committee, particularly
on those matters where the remit of the two committees might overlap,
including with regard to the implementation of the Enterprise Risk
Management Framework and operational risk issues.
Committee performance
The Committee’s performance during 2015 was evaluated as part of the
independently facilitated annual Board effectiveness review and I am
happy to report that the outcomes were positive. The Committee was
regarded as effective and as taking a thorough and detailed approach to
its responsibilities. The main area identified for improvement was
ensuring that the papers presented to the Committee strike the right
balance between providing data for information and providing insight
and analysis to encourage greater debate and I will be working with the
Chief Risk Officer and Barclays Treasurer to address this during 2016. You
can read more about the outcomes of the Board effectiveness review on
pages 66 and 67.
Looking ahead
The Committee expects its areas of focus for 2016 to be guided by the
ongoing level of change faced by the Group as it implements its strategy
and executes the structural reform programme, with a particular focus
on capital and liquidity management across legal entities. We will also
continue to monitor and react to any emerging risks arising in our key
markets in the UK, US and South Africa as a consequence of any
macroeconomic deterioration or disruption in financial market conditions.
Tim Breedon
Chairman, Board Risk Committee
29 February 2016