ING Direct 2008 Annual Report Download - page 25

ING Group Annual Report 2008
23
metrics since it was used as a tool to inform the Executive Board of
the impact of potential risk-mitigating actions on the Group-wide
risk profile. A full disclosure of the Earnings and Capital at Risk
Dashboard, as well as other stress testing, and ING’s Economic
Capital is included in the Risk section of the Annual Accounts.
ING’s risk governance framework ensures that the risk appetite
is communicated and enforced throughout the Group. The
framework contains three lines of defence: the business lines
themselves, which have the primary responsibility for day-to-day
management; Risk Management and Finance, which provide
high-level policies, limits and risk oversight, as well as day-to-day
transaction approval; and Corporate Audit Services, the internal
audit department within ING Group, which provides an
independent assessment of the design and effectiveness of
internal controls over the risks to ING’s business performance.
Non-Financial Risk Dashboard
In 2008, Risk Management introduced a Non-Financial Risk
Dashboard for all business units providing integrated information
on compliance, operational, information and security risk.
Especially in these times of turmoil it is particularly pressing to
ensure business continues as normal and is able to react quickly
to potential risk breaches that could have a negative impact.
RISK MANAGEMENT SUPPORTS THE BUSINESS
Risk Management benefits ING and its shareholders directly by
providing more efficient capitalisation and lower costs of risk
and funding.
The cost of capital is reduced by working closely with rating
agencies and regulators to align capital requirements to risks.
Funding costs are kept low and risk costs are mitigated by
minimising potential losses.
Individual business units benefit from being part of a globally
diversified group. Risk Management helps them lower funding
costs, make use of the latest risk management tools and skills,
and lower strategic risk, allowing business units to focus on their
core expertise with the goal of making ING’s businesses more
competitive in their markets.
Risk measurement allows ING to identify portfolios generating
economic value. Risk management can help identify the most
economically promising areas as well those businesses that are
underperforming and in some cases need to be sold.
SOUND COMPLIANCE
ING believes that our compliance practices are in the best interest
of its customers, shareholders and staff, and is important for
the way ING does business. Complying with relevant laws,
regulations and ethical/internal standards, in both letter and spirit,
is essential for maintaining a good reputation. It also leads to
lower operational risk costs and more stable business processes.
Low interest rates: •
Over the course of 2008 interest rates declined in both the US
and the Eurozone putting pressure on Insurance earnings. It is
part of ING’s risk reduction programme to mitigate the impact
of declining interest rates.
The market turmoil has demonstrated the importance of having a
robust risk management organisation in place. Although ING’s risk
management organisation and favourable liquidity profile have
helped to limit the impact and manage the company throughout
the turmoil, ING will continue to further strengthen its risk
management organisation. The lessons learned in this crisis will
contribute to this continuous process. Redefining risk appetite,
de-leveraging and de-risking will remain key tasks. A more detailed
disclosure of outstanding risk factors facing ING and the financial
industry turn to the Risk factors section in the Additional
Information part of the Annual Report.
ING’S RISK MANAGEMENT ORGANISATION
ING Risk Management’s mission is to build a sustainable
competitive advantage by fully integrating risk management into
daily business activities and strategic planning. The following
principles support this objective:
products and portfolios are structured, underwritten, priced, •
approved and managed appropriately, and compliance with
internal and external rules and guidelines is monitored;
ING’s risk profile is transparent, with ‘no surprises’, and •
consistent with delegated authorities;
transparent communications are maintained with internal •
and external stakeholders on risk management and value
creation; and,
the market turmoil underscores the importance of living by •
this risk mission statement.
In recent years, ING has systematically improved its risk
management capabilities with investments in people, governance,
processes, measurement tools and systems. This has become
necessary as investor demands have increased, regulation has
become more sophisticated and as secondary markets have
continued to decline. In 2008, ING invested in a number of areas
including the further development of the risk trainee programme
and liquidity risk management (with a further centralisation of
treasury activities). Compliance was further embedded within ING
Bank and ING Insurance.
Determining the risk appetite
Financial Risk Dashboard
The risk appetite, or the willingness of the Group to take risks, is
defined by the Executive Board and measured through three key
metrics: Earnings at Risk and Capital at Risk which are measured in
the Financial Risk Dashboard, and Economic Capital. Business line
managers aim to maximise value relative to these measures, while
Risk Management monitors and controls the actual risk profile
against the Group’s risk appetite. The metrics enable the Executive
Board to identify risk concentrations and potential risk-mitigating
actions. They provide an overview of risks inherent in all the
banking and insurance businesses and facilitate monitoring the
adherence of risk-taking with respect to the Groups’ risk appetite.
It thereby allows ING to take strategic decisions using comparable
risk measures and to maximise efficient capital allocation. The
current crisis demonstrates the importance and value of these