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The Risk Committee of the Board of Directors
The Board of Directors has risk
management responsibilities that are defined not only by best
practices and guidelines, but also by
laws and regulations.
The Risk Committee must assist the Boards in assessing the
different
types of risk to which the organization is exposed.Management is responsible for executing the organization's risk
management policy.
The Risk Committee must exercise oversight,
and must provide evidence about it. The members of the committee
must have direct access to, and receive regular reports from
management.
The Risk Committee
must be composed of at least three members
and must have a majority of non-executive
directors, at least one of whom shall also be a member of
the Audit
Committee. At least one person must be a
risk expert. The Chairman of the Committee must be a
non-executive Director
The Risk Committee
is responsible to:
1.
Learn about the actual risks and
the control deficiencies in the organization.
2. Help the board
define the risk appetite of the
organization.
3. Exercise
oversight of management’s responsibilities, and review the
risk profile of the organization to
ensure that risk is not higher than
the risk appetite determined by the
board.
4. Monitor the
effectiveness of risk management
functions throughout the organization. Ensure that
infrastructure, resources and systems are in place for risk
management and are adequate to
maintain a satisfactory level of risk management discipline.
5. Monitor the
independence of risk management
functions throughout the organization.
6. Review the
strategies, policies, frameworks, models
and procedures that lead to the
identification, measurement, reporting and mitigation of
material risks.
7. Review
issues raised by Internal Audit
that impact the risk management
framework.
8. Ensure that the
risk awareness culture is pervasive
throughout the organization.
9. Fulfill
its statutory, fiduciary and regulatory
responsibilities. This is usually the most difficult task.
Risks to serving directors have risen exponentially after the
new
Basel Capital Accord, the US Sarbanes Oxley Act, the European
Sarbanes Oxley (8th Company Law Directive, E-SOX), the Japanese
Sarbanes Oxley (Financial Instruments and Exchange Law, J-SOX),
the European Union's Financial Services Action Plan (FSAP) that
includes MiFID (Markets in Financial Services Directive,
and so many other Acts, Directives, Regulations.
The members of the board have to understand the new environment
and the new responsibilities in order to
protect their reputation and wealth and their organization.
They have to be aware of the risks and to perform their duties
according to the highest principles and implementation
practices.
But, they can do more: They can
use compliance as a competitive advantage.
CASE STUDY -
BARCLAYS PLC BOARD RISK COMMITTEE
TERMS OF REFERENCE
Revised by the Board on 10 December 2009
The Board Risk Committee (the Committee) is a committee of the
Board of directors of Barclays PLC (the Board), from which it
derives its authority and to which it regularly reports.
The principal purpose of the Committee is to review, on behalf
of the Board, management’s recommendations on risk, in
particular:
• Consider and recommend to the Board the
Group’s Risk Appetite;
• Review, on behalf of the Board, the
Group’s Risk Profile;
• Satisfy itself on the design and
completeness of the Group’s internal control and assurance
framework relative to the risk profile, including the Principal
Risk Categories; and
• Commission, receive and consider
reports on key risk issues.
In areas where the Committee reviews and evaluates reports from
management, but does not formally approve such items, the
Committee may either:
(i) receive the report, being satisfied that either no
management action is required or that existing actions being
taken by management are appropriate; or
(ii) receive the report and, after discussion with management,
satisfy itself that actions to be taken by management following
the discussion are appropriate; or
(iii) receive the report and, following discussion with
management, elevate situations to the Board where is it not
satisfied that the appropriate actions are being taken by
management.
The Committee will decide, on a case by case basis, whether to
report items under (i) and (ii) above to the Board.
1. Constitution, meetings etc.
1.1 Membership -
will comprise at least two non-executive directors of Barclays
PLC.
The Board may also appoint the Group Chairman as a member of the
Committee.
There will be some cross-membership between the Committee and
the Board Audit Committee, with, typically, the Chairman of one
of the committees serving as a member of the other.
1.2 Quorum -
shall be two, comprising the Chairman of the Committee and one
non-executive director.
In the event of difficulty in relation to achievement of a
quorum, non-executive directors who are not members of the
Committee may be co-opted as members for individual meetings.
1.3 Meetings -
will be held at least four times per year.
The remit of the Committee will be synchronised, as far as
practicable, with that of the Board Audit Committee.
The Chairman of the Committee and the Group Chairman may each
request that a meeting should be held at any time. Any other
member of the Committee and the Group Risk Director may each
request the Chairman of the Committee to convene a meeting at
any time.
1.4 Chairman -
shall be appointed by the Board and shall be a non-executive
Director.
1.5 Secretary and Support -
the Company Secretary and/or the Deputy Secretary or an
Assistant Secretary shall attend all meetings of the Committee.
The Committee will be supported by the Company Secretary.
1.6 Minutes -
will be circulated to all directors and, as appropriate, to
attendees.
Reports shall be made to the Board from the Chairman of the
Committee following each meeting of the Committee.
1.7 Disclosure -
the membership of the Committee and a description of its duties
and activities during the year shall be disclosed in the Annual
Report of the Company.
The Chairman of the Committee, or a deputy chosen from its
membership, shall be available at the Annual General Meeting of
the Company to answer questions which relate to the work of the
Committee.
1.8 Attendees
(a) Mandatory
Group Risk Director
Group Finance Director
(b) Right to attend
All members of the Board
(c)
By invitation of the Committee -
Any Director, officer or
employee of the Group
1.9 Advice –
the Committee shall have the power to engage independent counsel
and other professional advisers at the expense of the Group, and
to invite them to attend meetings.
1.10 Training –
the Committee, via the Company Secretary, shall make available
to new Members of the Committee a suitable induction process
and, for existing Members, ongoing training as discussed with
the Committee.
1.11 Committee Effectiveness
(a) The Committee shall conduct an annual self-assessment and
report any conclusions and recommendations for change to the
Board.
(b) As part of this assessment, the Committee shall consider
whether or not it receives adequate and appropriate support in
fulfilment of its role and whether or not its current workload
is manageable.
2. Scope of authority
2.1 The Committee is a Committee of the Board of the Company, to
which Board it will report on a regular basis. The Committee is
concerned with the business of the whole Barclays Group and its
authority extends to all relevant matters relating to the
Company and to Barclays Bank PLC and their business groups and
subsidiaries.
3. Responsibilities of the Committee
In carrying out their responsibilities Committee members must
act in accordance with the statement of Directors’ Duties set
out in ss. 171-177 of the Companies Act 2006.
The Committee’s main responsibilities are:
3.1 To evaluate annually the Group’s internal control and
assurance framework to satisfy itself on the design and
completeness of the framework relative to the Group’s activities
and risk profile.
3.2 To consider and recommend to the
Board for approval the Group’s Risk Appetite and in particular
(a) To recommend to the Board on an annual basis the Group’s
Total Financial Volatility Risk Appetite, including Risk Type
Limits for Wholesale Credit Risk, Retail Credit Risk and Market
Risk for the following year;
(b) To ratify any cumulative change over 10% to the approved
Risk Type Limits within the Group’s Total Financial Volatility
Risk Appetite set for each year;
(c) To receive reports of any change less than 10% to the
approved Risk Type Limits within the Group’s Total Financial
Volatility Risk Appetite set for each year;
(d) To consider any breaches of the Group’s Total Financial
Volatility Risk Appetite and each of the approved Risk Type
Limits and to recommend that the Board approve the reduction
plan and/or ratify the excess request; and
(e) To delegate to the Chairman of the Committee authority to
approve urgent material change requests in between meetings of
the Committee, with all such material changes being reported to
the members of the Committee promptly.
In recommending to the Board the Group’s overall risk appetite,
the Committee will ensure that account has been taken of the
current and prospective macro economic and financial
environment, drawing on financial stability assessments such as
those published by the Bank of England, the FSA and other
authoritative sources that may be relevant.
3.3 To receive, on an annual basis, a report on the Group’s
Mandate and Scale Limits, including an explanation of how such
limits are set, and, periodically, to receive and consider
reports
(a)
of trends in exposures or concentrations against the Group’s
Mandate and Scale Limits; and
(b) of any material change to the Group’s
Mandate and Scale Limits, where ‘material’ is defined as a
change above a threshold determined by the Risk Director for
each Mandate and Scale factor (such thresholds being in the
range of 10-20% for any Mandate and Scale factor).
3.4 To consider target capital ratios and monitor performance
against them, including the potential impact of developments in
market conditions, business development and/or the regulatory
framework, reporting any conclusions to the Board.
3.5 To review the Group’s liquidity profile and recommend the
overall liquidity risk framework (including risk appetite) to
the Board, including the results of different stress
assumptions.
3.6 To evaluate the Group’s risk profile and risk monitoring; in
particular with respect to the following:
(a) performance vs risk appetite;
(b) risk trends;
(c)
risk concentrations;
(d) provisions’ experience against
budget; and
(e) Key Performance Indicators for risk.
3.7 To evaluate the appropriateness of the Group’s risk
measurement systems including economic capital, Daily Value at
Risk and any significant Credit Risk Measurement System.
3.8 To evaluate on an annual basis, the completeness of the
Group’s Principal Risk Categories, based on the recommendation
of the Group Executive Committee.
3.9 To delegate authority to the Director of Group Risk to
approve minor revisions to the Group’s Principal Risk Categories
in between meetings of the Committee to ensure that the
Categories are kept up to date, such revisions being reported to
the next meeting of the Committee. Any significant revisions
will be reported to the members of the Committee promptly.
3.10 To receive and consider reports on Key Risk Issues
(including, where appropriate, the risks following the Group’s
entry into new businesses or geographical areas), that assess
the nature and extent of risks facing the Group, including
Executive Management’s assessments of:
(a) the likelihood of the risks concerned
materialising, and
(b) the completeness of the Group’s system
of internal controls to manage those risks.
3.11 To consider and where necessary update and approve, at
least annually, the following Policy Statements required by the
Financial Services Authority on behalf of the Board:
(a) Large Exposures Group Policy Statement
(b) Liquidity Policy Statement
(c) Retail Credit and
Wholesale Credit Impairment and Provisioning Policy Statements
(d) Trading Book Policy Statement
Exceptionally, where changes to the Policy Statements are
required to be made urgently in between meetings of the
Committee, they would go to the Group Risk Oversight Committee
for interim endorsement after agreement with the Chairman of the
Committee and would then be brought to the next meeting of the
Committee for formal approval.
3.12 The Committee will take such steps as are appropriate to
satisfy itself that the due diligence process followed for
proposed strategic acquisitions or disposals (i.e., those
requiring Board approval) is thorough and will review the key
conclusions of the due diligence process, including the impact
of the transaction on the Group’s risk profile and risk
appetite, reporting its conclusions to the Board.
3.13 The Committee will review annually performance against key
material risks and provide input to the Board HR and
Remuneration Committee to assist it in its deliberations on
appropriate risk adjustments to be made to incentive packages.
The Committee will also review the risk metrics to be used in
compensation schemes for the following year and make
recommendations to the Board HR & Remuneration Committee.
3.14 The Chairman of the Committee will receive relevant reports
that are provided to the Board Audit Committee, including the
FSA’s letter to the Board on their risk assessment of Barclays
and the associated management response.
3.15 The Risk Director will meet regularly with the Chairman of
the Committee and will have the right and responsibility to
elevate issues to the Chairman of the Committee where he/she
considers it necessary in the furtherance of his/her
responsibilities.
The Chairman of the Committee will be consulted by the Finance
Director in respect of the Risk Director’s performance
appraisal, compensation and in respect of appointments
to/departures from the role.
4. Responsibilities of management
4.1 Management will ensure that all information relevant to the
discharge by the Committee of its responsibilities, detailed in
Section 3 above, is provided to the Committee (as requested by
the Committee). Management will also ensure that matters of
material concern that are relevant to the Committee’s
responsibilities are brought to the attention of the Committee
promptly.
5. Amendments to Terms of Reference
The Committee may
recommend to the Board any amendments to these Terms of
Reference.
Barclays Corporate Secretariat
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