The Royal Bank of Scotland Group plc Annual Report and Accounts 2019
We are a financial services company, providing a wide range of products and services to personal, commercial, large corporate and institutional customers.
Our audited financial statements and related notes, including our Independent auditor’s report.
Approach to non-financial performance reporting We note the requirements under the provisions of the Companies Act 2006, relating to the preparation of the Strategic Report which have been amended by the Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016, which implements EU Directive 2014/95/EU (on non-financial and diversity information). As a result of these changes, we have integrated non-financial information across the Strategic Report, thereby promoting cohesive reporting of non-financial matters. These include specific sections on where readers can read more on our business model and policies (How we do Business; Building a more sustainable bank), due diligence and outcome of such policies (Governance and compliance), principal risk and mitigatory actions (Risk Management), and performance measures (2019 highlights and our future strategy). We have also begun reporting in accordance with guidance from the International Integrated Reporting Council and the recommendations of the Taskforce on Climate-related Finance Disclosures (TCFD) (Climate-related financial disclosures).
Grow net lending in our retail and commercial business by 2-3% (5)
(2) England & Wales: £2 million plus turnover of the five largest banks.
(5) Comprises customer loans in our UK Personal Banking, Ulster Bank RoI, Commercial Banking and Private Banking operating segments.
Of which: will be returned to the UK taxpayer £1.7bn £1.0bn
On behalf of the Board, I would like to thank Ross McEwan for his immense commitment to RBS throughout his tenure here. The Bank has undergone a substantial transformation, and his leadership was fundamental. I am confident that the work he did during his time here has set us up well for the future.
Renaming the RBS Group Today, we have announced that we plan to rename our parent company. The Royal Bank of Scotland Group plc is intended to be renamed NatWest Group plc later this year. As we evolve our strategic plan, the Board has decided that it is the right time to align the parent name with the brand under which the great majority of our business is delivered. Customers will see no change to products or services as a result of this change and will continue to be served through the brands they recognise today, including the Royal Bank of Scotland. Similarly, our employees will also see no change to the way they work and we will not be moving people out of Scotland as a result of this change.
Economic outlook and 2019 financial performance Uncertainty continues to dominate the political and economic environment. We await further details of the future terms of trade between the EU and UK and what they mean for both the Bank and its customers. The UK economy slowed in 2019 with GDP growth of 1.2% in the year. That was accompanied by lower business investment and slowing house price growth. More encouragingly, unemployment is low and impairments remain very low.
The low interest rate environment continues to challenge income growth for UK and European banks. Despite that pressure, the Bank delivered a solid performance, generating a pre-tax operating profit of £4.2 billion and an attributable profit of £3.1 billion or £1.6 billion excluding the FX recycling gain following the merger of Alawwal Bank with Saudi British Bank (SABB). Our stake in Alawwal Bank was a position we have been working to unwind for a number of years as we have refocused on the UK & Republic of Ireland. Another 2019 highlights and our future strategy 2019 was another year of positive progress for the Bank, set against ongoing political and economic uncertainty.
significant item was an additional charge of £900 million relating to PPI, as, along with other banks, we experienced a significantly higher number of claims than expected as we approached the FCA's 29 August 2019 deadline.
Since the introduction of our targets, we have seen an increase in the proportion of women in senior roles. Currently the top three leadership levels in 10 of our 12 business areas have more than 30% women. On aggregate across the entire Bank, that translates to women filling 35% of roles in the top three leadership levels – a 6% increase since targets were introduced.
We also continue to focus on building an ethnically diverse organisation. Our plan involves positive action and includes reciprocal mentoring, targeted development workshops and leadership programmes and ensuring we have a Black, Asian and Minority Ethnic (BAME) focus on recruitment, talent identification and promotion. We introduced formal UK targets at the start of 2018 to improve the representation of BAME/non-white colleagues in our top four leadership layers to at least 14% by 2025. At the end of 2019 we had 9% BAME/nonwhite colleagues in those layers and employed 15% BAME/non-white staff across the UK.
Conclusion Today marks an exciting and important moment for the Bank, our customers and our shareholders, as we look forward and set out how our strategy will evolve over the coming years. By building on solid foundations, putting a focus on Purpose at the centre of our decision making and refreshing our approach to deliver a better service for customers, we will create a more sustainable Bank, and in turn more sustainable returns, for you, our shareholders.
We are pleased to announce that, subject to shareholder approval at the Annual General Meeting, we will pay a final ordinary dividend of 3 pence per share and a special dividend of 5 pence per share.
Alison Rose Group Chief Executive 2019 highlights and our future strategy
Dear shareholders, It is a privilege to be writing to you as CEO of the company that I joined as a graduate more than 25 years ago. I am truly excited by the opportunity to lead the Bank as we set out a new commitment to become a Purpose-led organisation, which will champion the potential of people, families and businesses across the communities we serve.
A period of unprecedented disruption We, like our customers, are living in a period of unprecedented disruption – whether it is the struggle to get on the housing ladder or starting a business, the rapid growth of disruptive technology, an ageing population, the emergence of the gig economy or the existential impact of climate change. The way people live is changing, and their expectations of companies are changing too. I firmly believe in response, we have to adopt a new approach that moves away from a view that is defined by products and transactions, and uses the strength of the relationships we have with all of our stakeholders as the real test of our progress.
This disruption is happening against the backdrop of a highly uncertain economic environment. UK economic growth remains subdued, compared to its historic trend, and interest rates are likely to be lower for longer. This has an impact on our ability to generate net interest income. Business confidence continues to be affected by the UK’s departure from the EU as our customers await certainty over the future terms of trade. Consumer confidence on the other hand continues to be supported by a relatively strong UK employment market and we are seeing good volumes in our mortgage business as a result. We still see opportunities to grow in our key target markets despite some of these challenging trends.
We won’t get everything right every time, but this simple expression will be the standard to which we will hold ourselves.
Sustainable returns, however, can only come from a sustainable business model and building a Purpose-led bank must underpin the services we provide.
We have informed our approach using their framework that identifies the need to be: Honest and Fair with Customers and Suppliers; A Good Citizen; A Guardian for Future Generations; and A Responsible and Responsive Employer as key drivers to becoming a more sustainable business. In addition, we have analysed what is driving the changes in our own customer behaviours and the subsequent trends borne from their experiences. This forms the building blocks for the plans we are setting out today.
It is essential that our Purpose underpins our strategy and the decisions we make on the future direction of the business. At a practical level, we have been reviewing how to embed Purpose within Board forums and processes to ensure it is a central part of how we work. We are very clear that our Purpose must apply across the whole organisation and to everything we do. We are also clear that getting this right will take time.
Three initial areas of focus where we can make a substantial impact We have identified three areas of focus where we can make a substantial impact in addressing challenges that threaten to hold people, families and businesses back: • Enterprise, and the barriers that too many face to starting a business; • Learning, and what we can do to improve financial capability and confidence for our customers, as well as establishing a dynamic learning culture for our employees; and
• Climate, and the role we can play in accelerating the transition to a low carbon economy.
This will be a significant challenge as we, like others, do not yet fully understand what this will require and how it will be achieved, not least as there is currently no standard industry methodology or approach. Solving this will require UK and international industry, regulators and experts to come together and find solutions. We are determined to not just play our part, but to lead on the collaboration and co-operation that is so critical to influencing the transition to a low carbon economy.
As a systemic UK bank, we must play an active role and these market leading ambitions underline our position. This is not only the right thing to do, it will give us the opportunity to do more business with our customers, as they transition to a low carbon economy.
The Bank continues to support the Financial Stability Board's Task Force on Climate-related Financial Disclosures (TCFD) - a voluntary set of guidelines encouraging consistent climate-related disclosures in annual reporting. In 2019, we were one of the first companies worldwide to commit to all the Climate Group initiatives on electric vehicles (EV100), energy productivity (EP100), and renewable power (RE100).
Improving financial confidence and becoming a learning organisation We also know that we have a responsibility to help our customers improve their financial confidence. Our UK-wide financial education programme, MoneySense has now been running for 25 years. We can help children in schools and at home understand the value and importance of finance from an early age. We will target reaching 2.5 million people through financial capability interactions each year. The more confidence our customers have, the more opportunity we will have to provide services to them.
I also want to build the confidence and capability of our employees. We already have one of the most qualified workforces in the UK. Today I am setting a target to have all front-line staff professionally accredited within the first twelve months of being in role.
Removing barriers to enterprise As the largest supporter of UK business, we already offer a wide range of support to those who want to start a new business. But we also know that for many, it remains harder than it should be. We are committed to helping create an additional 50,000 new businesses across the UK by 2023, through inspiring and supporting over 500,000 people to consider enterprise as a career option.
and the South East. By helping to tackle the barriers to starting a business, there will be more opportunities to help companies grow.
Safe Safety and soundness must underpin everything we do. Intelligent risk-taking is why banks exist - to find valuable and sustainable uses for the resources in the economy, and to help customers achieve their ambitions. We have strong capital and liquidity positions and are well placed to help our customers succeed. In today’s digital world, our operational resilience and keeping our customers’ data safe are top priorities. We can never lose sight of this, even as we look to grow. We have announced today that we will reduce our Common Equity Tier 1 ratio (CET 1) over the medium to long-term to around 13-14%. This will ensure that the Bank remains safe, and also allow room for further capital distributions.
This applies to parts of our NatWest Markets business, where we have shrunk over time but we could do more to increase its focus on our corporate and institutional customers and their needs.
Today we are announcing that we will reduce the size of this business by around half, as measured by Risk Weighted Assets, managing down and optimising low-returning capital and inefficient activities. We will build a much smaller and simpler part of the business which will bring customers closer to the services they need, reduce costs and release capital for shareholders.
This action will refocus our NatWest Markets products and services on our corporate and institutional customers. We estimate that for 2019, our corporate and institutional customers represented around £75 billion of Risk Weighted Asset equivalents but only generated returns of around 2% on an underlying basis and excluding strategic costs and litigation and conduct costs. We believe that as we refocus NatWest Markets, corporate and institutional customers in the medium to long term will represent around £60 billion of Risk Weighted Asset equivalents and returns will improve to around 8%.
Smart Taking a disciplined approach to cost means we can make smart investment choices, investing to improve our services across our retail and commercial customer bases. We will continue to explore the potential for partnerships across industries, and within banking, that can help us innovate faster and ensure our investment is wisely spent.
In recent years we have dramatically increased the focus on innovation across the Bank. This has positioned us well with partners, opened up new income lines and helped improve our time-to-market in a number of critical areas. There is an amazing opportunity for NatWest to use its brand and market presence to connect new technology solutions with the problems that hold back potential in the personal, professional and business lives of our customers.
This must, however, also be matched by the financial discipline to call time on ventures that don’t deliver and that can’t deliver a big enough impact for our customers and investors.
By simplifying our innovation focus, and being disciplined on the internal allocation of capital, we will strengthen the core of the Bank. By making smarter investments in services for our customers we will deepen our leading positions in personal, business, commercial and corporate banking.
Delivering sustainable returns Championing the potential of people, families and businesses is not an add-on to our strategy, it is our strategy. I firmly believe this new Purpose-led approach is what will deliver reliable returns for our shareholders, year in, year out.
I know from experience, that we only succeed when our customers and wider communities succeed. I am confident that the strategy I have outlined will deliver sustainable long-term shareholder returns and will also build a Bank that the UK and Republic of Ireland can be proud of. We will create lasting value when we champion the potential of those we serve. That is our Purpose and our Strategy.
We are privileged to play a central role in the UK economy. That brings with it a deep responsibility to the communities we serve and to wider society.
As we build a purpose-led bank that champions the potential of people, families and businesses up and down the country, we are focusing on the areas where we can have the biggest positive impact across society. By tackling the most important issues facing our entrepreneurs, we can make a real difference to those who need it most.
Our recent announcement of a £1 billion fund to support female entrepreneurs in the UK to scale and grow is just one way that we can help make a positive impact. Open to both new and existing customers, the funding represents new lending into the UK economy and is intended to go some way to closing the gap with male entrepreneurs.
As part of our shift to being purpose-led there are currently three key areas where we believe our business and role in society means we can make a meaningful contribution.
Of those inspired and supported will be based outside London & South East
Leading bank in the UK & RoI helping to address the climate challenge
A purpose-led bank responding to the changing needs of all stakeholders.
Being purposeful is about recognising our business is made up of a network of relationships with multiple stakeholders with different interests. To be purpose-led and create long term sustainable value we need to balance appropriately the interests of all stakeholders and move from being transactional to relationship focused.
Front-line colleagues professionally qualified/ accredited within first 12 months in role
Our purpose-led approach is supported by our Strategic Priorities, taken together with our Bank-wide Financial Targets, these set out how we will create value and deliver sustainable financial returns for the benefit of all our stakeholders.
Re-engineering led simplification to drive better customer experience and colleague engagement.
2020 Outlook In the current environment, and recognising ongoing market uncertainty, we continue to expect challenges on income. In addition, we anticipate that regulatory changes will adversely impact income in our personal business by around £200 million.
We expect to remain below our through-the-cycle impairment loss rate assumption of 30-40 basis points, although the potential impact on the real economy of ongoing political uncertainties and geopolitical tensions could affect our credit loss outcome. The threat from single name and sector driven events remains.
We are targeting lending growth of greater than 3% across our retail and commercial franchises.
We expect to end 2020 with risk weighted assets (RWAs) of around £185-190 billion including an estimated £10.5 billion increase associated with the implementation of Bank of England mortgage floors, with NatWest Markets RWAs reducing by around £6-8 billion in the year.
RBS Group capital distributions We expect to maintain ordinary dividends of around 40% of attributable profit. We retain our guidance of CET1 ratio to be approximately 14% at the end of 2021, and we will target a reduction to 13-14% in the medium to long term. We have shareholder and regulatory approval to carry out directed buybacks of the UK government stake in RBS but recognise that any exercise of this authority would be dependent upon HMT’s intentions and is limited to 4.99%
of issued share capital in any 12 month period. As a reminder, we have also committed to make further pre-tax contributions to the pension scheme of up to £1.5 billion in aggregate from 1 January 2020 linked to future distributions to RBS shareholders.
NatWest Markets Plc, as a standalone bank, plans to issue £3-5 billion of term senior unsecured instruments in 2020.
RBS, like all companies, continues to deal with a range of significant risks and uncertainties in the external economic, political and regulatory environment. Our central economic forecast, which supports our corporate plan, is in line with consensus as at the end of December 2019 and shows average UK GDP growth of around 1.6% from 2019 to 2023 and continued low interest rates; we expect a base rate cut in the short term and then flat thereafter. Given the current uncertainties we will continue to actively monitor and react to market conditions.
This was the first exclusively social bond issued under the International Capital Market Association’s (ICMA) Social Bond Principles in the UK by any financial institution, and the first issuance under our Green, Social and Sustainable Bond Framework.
Total income increased by £851 million, or 6.3%. Excluding notable items, income decreased by £813 million, or 6.3%.
Customer experience >70 % of UK Personal Banking and Ulster Bank RoI customers were digitally active in 2019.
>50 % of sales in UK Personal Banking were via digital channels in 2019.
>90 % of Commercial Banking customer interactions were via digital channels in 2019.
Our most recent colleague opinion survey showed further improvement in our key measure of engagement, we are above the global financial services norm in all comparable survey categories.
We have provided £9.9 billion of funding and financing to customers during 2018 and 2019 towards our commitment of £10 billion to the sustainable energy sector by the end of 2020.
One of the first companies globally to commit to all three of The Climate Group’s initiatives around renewable energy (RE100), electric vehicles (EV100) and energy productivity (EP100) in our operations.
One of the Founding Signatories of the UN Principles for Responsible Banking, committing to further aligning our strategy to the 2015 Paris Agreement and the UN Sustainable Development Goals (SDGs).
(2) Comprises net customer loans in our UK Personal Banking, Ulster Bank RoI, Commercial Banking and Private Banking operating segments.
Our operating environment continues to evolve at pace across economic, social, environmental, political, regulatory and technological boundaries. We consider external societal megatrends and the UN Sustainable Development Goals to inform our thinking and approach.
Customers’ needs and behaviours are changing as a result of new technologies, demographic shifts and changing labour patterns. Key trends include the gig-economy which is resulting in changing working patterns and increasing use of new technologies resulting in faster and tailored customer service. RBS understands the importance of supporting customers' needs and focusing on customer life journeys to tailor services and products that meet their evolving needs and expectations.
RBS recognises climate change as a top risk and strategic priority. Ensuring banks manage the financial risks associated with climate change has also risen up the regulatory agenda. Throughout 2019 work continued to integrate climate-related financial risks into the risk framework and to proactively support our customers transition to a low carbon economy.
We are proud to be building an inclusive bank which is a great place for all colleagues to work. Culturally, becoming a learning organisation is a strategic priority. We need to prepare colleagues for the future and we continue to focus broader development on the Bank's Critical People Capabilities.
Disruptive cyber-attacks and fraud remained a growing threat to the industry in 2019. Significant investment continues to prevent, monitor and detect cyber-attacks and fraud. This includes participation in industry-wide initiatives to monitor and anticipate developments aimed at protecting our customers data and assets.
Operational Resilience 2019 has seen continued regulatory focus and media coverage on the operational competency of UK banks, including data breaches and technology failures. Ensuring operational resilience remained a commercial imperative for RBS. To provide continuity of service for customers with minimal disruption, RBS must continue to monitor and assess a diverse and evolving array of threats, both external and internal, as well as developing, strengthening or adapting existing control capability to be able to absorb and adapt to such disruptions.
Financial We make use of shareholder capital and other forms of financial capital, including £369.2 billion in customer deposits.
Natural We make use of energy and resources such as paper and water to conduct our business activities. We are one of the first companies worldwide to commit to all the Climate Group initiatives on electric vehicles (EV100), energy productivity (EP100), and renewable power (RE100).
Infrastructure We rely on online and mobile banking, our high street and Post Office branches, mobile vans, telephony, video banking, webchat and self service options like ATMs and cash deposit machines. In support of these channels during 2019 our critical technology systems have been available 99.98% of the time.
Human and Relationships We rely on an engaged, healthy and inclusive workforce to deliver our strategy to 19 million customers in the UK and Republic of Ireland.
Prevented 569,660 cases of attempted fraud amounting to £256.8 million in the UK(*) and last year reduced the third party fraud against our customers by 8%.
We are investing £100 million over three years to combat fraud and ensure we remain up-to-date with the latest fraud trends.
Over one million Financial Health Checks with our personal, private and business customers (*).
MoneySense has been running for over 25 years, during which it has helped over 7.7 million young people learn about money.
Supporting enterprise £29.7 billion total lending to SMEs and mid-corporates in Commercial Banking.
The Rose Review into Female Entrepreneurship was launched by RBS Group CEO Alison Rose. The Review made a series of recommendations to help remove barriers facing women who want to start a business.
Progress continued on our inclusion agenda to value diversity in all its forms to be gender balanced, ethnically diverse, disability smart and LGBT+ innovative.
Housing More than 40,000 first time buyer mortgage customers (*). We have helped over 180,000 new customers complete their mortgage application this year, totalling over £31.8 billion worth of lending.
RBS became one of the Founding Signatories of the UN Principles for Responsible Banking in 2019, committing to further align our strategy with the 2015 Paris Agreement and the UN Sustainable Development Goals. This means we will create value in alignment with specific UN Sustainable Development Goals. In 2019 we engaged a range of stakeholders to align our future Purpose and forward commitments in the areas of; supporting learning, supporting enterprise and the climate change challenge, with UN Sustainable Development Goals. Refer to Our purpose-led strategy on pages 10 and 11.
In 2019, our colleagues supported over 3,000 MoneySense workshops. And our dedication to educating young people was recognised once again with a Gold for Best Long-Term Commitment at the Corporate Engagement Awards.
Following worrying research that the number of children being used as money mules via social media has risen by 73% in the last two years, we launched a new Fraud Scene Investigators workshop in secondary schools. This workshop teaches young people how to stay safe online, particularly when they are using social media.
UK Personal Banking provides a comprehensive range of banking products and related financial services to the personal and premier segments in the UK. Offering 24/7 banking facilities, customers are served through the NatWest and Royal Bank of Scotland network and distribution channels.
Ulster Bank RoI provides a comprehensive range of financial services through Personal and Commercial Banking divisions. Personal Banking provides loan and deposit products through a network of branches and direct channels, including the internet, mobile and telephony. Commercial Banking provides services to business and corporate customers, including small and medium enterprises.
UK Personal Banking is committed to making banking effortless every day and brilliant when it matters. Customers want to manage their money conveniently and safely and our digital channels make it easier to bank on the go.
We’ve partnered with Google to pilot a service that allows customers to do their banking using just their voice. Customers can use their smart speaker or smartphone to talk to Cora and check their bank balance and recent transactions. There is no need for screens or keyboards.
When customers want personal support, branch colleagues are there to help, or our community and video bankers can take banking to them. Investment in the latest contact centre technology is also providing a more personal experience over the phone.
At the end of 2019, more than two thirds of frontline colleagues held Professional Banker qualifications and we also helped one million customers improve their finances with a free financial health check. In 2019 we also began piloting pop-up learning sessions to help customers develop good financial habits.
We continued to drive a reduction in unnecessary paper, improving our digital application journeys, launching the UK’s first paperless mortgage and increasing usage of digital statements and correspondence. We have also reduced energy consumption in our branches by 22% in 2019 and all of the electricity we purchased was from renewable sources.
Ulster Bank RoI made significant improvements to the home buying and ownership journey in 2019, launching a new Home Buying Platform that enables customers to obtain an agreement in principle offer and track the progress of their mortgage application online. We also upgraded our branch network to better serve customers and improve efficiency, testing new design concepts and technology such as Qudini; a branch concierge tool to help customers speak to the right person quicker.
As part of our digital first strategy, we continue to invest in our online and mobile banking channels, releasing new mobile app features to help customers create savings goals, lock and unlock their debit card and take control of their spending, including being able to block transactions linked to gambling on their credit card. Ulster Bank RoI also launched ClearSpend, an expenses management app that gives business customers control of their commercial card spending in real-time, along with our new Rate Manager platform, which delivers a simplified and faster fixed rate borrowing option for our SME and Corporate customers.
Ulster Bank RoI continues to support renewable energy projects in Ireland and is always looking for ways to reduce its own environmental footprint, becoming the first bank in Ireland to be accredited with the Carbon Trust Standard for zero waste to landfill.
Commercial Banking has professional relationship management at its core and a strong regional network, providing deep sector and business insight to help UK businesses and the UK economy succeed.
NatWest maintained its #1 NPS position for Commercial customers (1), delivered the first SONIA loan ahead of the industry-wide transition away from LIBOR, and continued to support customers impacted by Brexit both through the dedicated Growth Fund, and as a founding signatory of the UK Government’s SME Finance Charter.
We remain at the leading edge of digital developments. Our new merchant acquiring solution, Tyl, was launched to our SME customers, Esme loans, our alternative finance provider, continues to grow, and our next generation digital bank, Mettle, was released on Apple App and Google Play stores. NatWest was the first major UK commercial bank with an API clearing offering for Faster Payments, and the first UK bank to release a secure biometric authentication service for payment approvals in Bankline Mobile, making it easier for our customers to approve payments on the go.
In March 2019, we launched ‘Back Her Business’, a female-only crowdfunding programme, which alongside the Rose Review forms part of the Bank’s wider ambition to reduce the entrepreneurial gender gap. Our UK-wide network of Entrepreneur Accelerator hubs continues to evolve, providing support to c.13,000 entrepreneurs in 2019.
In November 2019, we issued our inaugural social bond, the first of its kind by a UK Financial Institution, under ICMA's Social Bond Principles. Our social bond is linked to existing SME lending in areas with the highest levels of unemployment and lowest job creation. We also launched a Digital and Innovation Apprenticeship programme to support individuals from underrepresented backgrounds and help the Bank build a diverse workforce.
Commercial Banking secured a range of awards in 2019: Lombard was named Best Business Motor Finance Provider at the Business MoneyFacts awards; ClearSpend won Best Initiative in Mobile Payments at the Card & Payments Awards; FreeAgent collected three awards including the best SME accounting software of the year; NatWest was named Best Trade Finance Bank in the UK by Global Finance; and Commercial Banking’s social responsibility has been recognised via awards for Social & Community Finance at the Alternative Investment Awards.
Savanta, Q4 2019 data (excl. DK). Comparison made among brands with base > 50 in the England & Wales, turning over more than £2 million. Data weighted by region and turnover to be representative of businesses in England & Wales.
When fully operational, NNG will power around 375,000 homes and displace c.400k tonnes of CO2 annually, as well as contributing to Scotland’s GDP over the project’s lifetime.
The site complements our programme of events and face-to-face meetings. Giving our clients a secure online environment where they can engage with their peers and talk to people they may have met at our events.
Understanding our clients and building lasting connections remains at the heart of our business model. New clients to Private Banking increased to 2,400 in 2019, supported by a 36% increase in referrals from the wider RBS Group. The Coutts Client Council allows us to hear directly from clients, from shaping the proposition to how we build lasting relationships with them, contributing towards the highest client satisfaction score since records began in H2 2017.
We also value what our employees say about us; the People Council is the voice of our colleagues and acts as custodians of our culture plan. We achieved our highest ever engagement score of +87, four ahead of the Global Financial Services norm.
As a Responsible Investor, Coutts integrates ESG factors in investment decision-making processes and ownership practices. Coutts is a signatory of the Principles for Responsible Investing and has Tier 1 ranking from the Financial Reporting Council for its Statement of Compliance with the UK Stewardship Code. In 2019, Coutts became a signatory to the Climate Action 100+, a consortium of asset managers who have come together to change corporate behaviours in some of the largest corporate greenhouse gas emitters globally. Private Banking recognises the importance of our environmental footprint and client engagement on this topic, hosting a high profile client event in 2019 focused on the climate crisis for over 300 attendees, including Sir David Attenborough and Mark Carney.
We’ve built up a great relationship with The Bosdet Foundation which has resulted in them borrowing £8.5 million from us to develop their grounds into a self-catering resort and indoor trampoline park. Now, we’re looking to support the Foundation on the next stage of their evolution, providing funding to construct a further 60 self-catering apartments and a redesign of their premises.
By lending to The Bosdet Foundation, we’re helping the foundation make more money and – in turn – put more money back into the local community.
RBSI has established itself as a specialist provider in Funds banking onshore and offshore. It also provides retail and commercial banking services in the Channel Islands, Gibraltar and the Isle of Man, drawing on NatWest Holdings customer propositions. It is a systemic bank in these locations and has focused on becoming number one for customer service, trust and advocacy.
Through increased investment in the multi-currency banking platform, eQ, we have improved the digital experience for institutional clients. These include a feedback tool, a live statement view and the ability to rebatch payments. All users have moved to the new version of eQ, making sure everyone has the same great functionality and experience.
We have helped to raise over £2.4 billion of funding to the social housing sector in 2019. Helping to build more than 40,000 new homes over the next five years and ease the chronic shortage of social housing in the UK.
One of our largest customers, Sovereign Housing Association is committed to delivering 1,900 new homes per year by 2022. So we helped arrange a market-leading £250m unsecured Revolving Credit Facility as part of a syndicate and became a Joint Lead Manager on their £375m, 29-year bond, giving Sovereign the finance they needed to build more social housing.
In Q1 2019, NatWest Markets N.V. commenced fully-integrated support for RBS Group’s customers through its Western European branch network, and on 29 November it became a subsidiary of NatWest Markets Plc.
In Q2 2019, Standard & Poor’s upgraded NatWest Markets entities long-term issuer credit rating to A-, strengthening our credit story. NatWest Markets continued to play a leading role in market structural reform. We were first-to-market with our Realised Rate calculator and we acted as the sole solicitation agent for the first ever LIBOR to SONIA bond amendment issued in the market.
NatWest Markets continued to develop its track record in Environmental Social Governance (ESG), launching its ESG Product Framework, the first of its kind, to provide clients with ESG-linked investments and help develop the sterling green market to meet a growing regulatory focus on responsible investing. It was also part of a group that raised £10 billion funds in line with the UN Sustainable Development Goals and executed over £2 billion worth of Social Housing issuance helping create 40,000 new homes over the next five years to ease the UK social housing shortage.
NatWest Markets’ commitment to clients has been recognised by a number of awards and surveys: • UK Corporate FX Service Quality Leader – 2018 Greenwich Associates FX Study awarded in 2019
• Tied No. 1 for Interest Rate Derivatives Service Quality –Greenwich Associates European Fixed Income Interest Rate Derivatives 2019
• No.1 European Government Bonds by Market Share – Gilts–Greenwich Associates European Fixed Income Rates 2019
• Risk Solutions House of the Year- Risk Awards 2020 awarded in November 2019
Colleagues Our people who create and deliver products and services and are the face of our brands.
Investors UK government, retail shareholders and investors who take interest in financial and non-financial performance.
Journalists and social media influencers who bring issues to the public domain.
Listening, engaging and partnering with stakeholders helps us to address our business impacts and improve outcomes for communities, customers and the environment
“Our colleagues will live and breathe our new Purpose, which is why the conversation had to start with them.” Alison Rose, CEO, RBS
Over 200 hours of qualitative interviews, team events, focus groups and intranet surveys, combined to provide a powerful body of colleague views. The Board’s Colleague Advisory Panel, and Sustainable Banking Committee enabled Board level engagement. This dovetailed with input from external stakeholders.
“To be able to offer our support on the high street in NatWest branches will make our help more available to the people that need it most, reducing traditional barriers to access.” Anna Hemmings, CEO of GamCare
“Managing our own footprint is important in tackling climate change. The Bank’s commitments are to switch 300 vehicles to electric, improve energy productivity by 40% and source 100% renewable electricity by 2025. Fulfilling these relies on close relationships with our suppliers. We’re also committed to supporting customers and colleagues on the transition towards a low carbon economy.” Laura Barlow, Sponsor of Sustainable Energy Forum, RBS
We track customer advocacy for our key brands using the net-promoter score (NPS) (*), a commonly used metric in banking and other industries across the world. This is measured through independent customer surveys in which customers are asked how likely they would be to recommend their bank to a friend or colleague, on a scale of 0-10, with a score of 10 being ‘extremely likely’ and 0 being ‘extremely unlikely’.
Source: Populus. Latest quarter’s data. Measured as a net % of those that trust Royal Bank of Scotland/NatWest to do the right thing, less those that do not. Latest base sizes: 531 for NatWest (England & Wales), 214 for Royal Bank of Scotland (Scotland).
Source: Savanta MarketVue Business Banking, YE Q4 2019. Based on interviews with businesses with an annual turnover up to £2 million. Latest base sizes: 1104 for NatWest (England & Wales), 416 for Royal Bank of Scotland (Scotland). Question: “How likely would you be to recommend (bank)”. Base: Claimed main bank. Data weighted by region and turnover to be representative of businesses in Great Britain.
Engaging our colleagues is critical to delivering on our strategy and ambition. Being better for our colleagues means we are better for our customers, and this makes us a better bank.
In 2019, for the first time, we offered our colleagues the opportunity to present themselves in their masculine or feminine gender expression on their identity passes. By introducing a double-sided pass colleagues can now carry a photo which bears a true likeness to them irrespective of their gender identity.
Building a Healthy Culture One of our core priorities is building a healthy culture. We have clear goals to reinforce Our Values and set ourselves cultural priorities each year, which form part of our leadership team's objectives. We gather feedback from our colleagues through our listening strategy, which includes a bi-annual colleague opinion survey, a Colleague Advisory Panel that connects colleagues directly with our Board and ‘Workplace’, our social media platform. We also track metrics and key performance indicators, and feedback from regulators and industry bodies, including the Banking Standards Board's (BSB) annual assessment of culture in the UK banking sector where we have continued to make good progress, with improvements in all nine BSB categories(*). Having ongoing discussion and engagement with a number of employee representatives such as trade unions and work councils is vital and we regularly discuss developments and updates on the progress of strategic plans.
Almost 58,000, 83%, of our colleagues completed our most recent opinion survey, the highest participation we have had. The results showed a further improvement in colleague sentiment and demonstrate that we are continuing to improve our culture. Key measures of engagement, leadership and culture have increased, and we are above the global financial services norm in all comparable survey categories. The results are encouraging and show that our hard work is paying off.
Where colleagues wish to report any concerns relating to wrong doing or misconduct, one of the ways they can do this is by raising their concerns via Speak Up, the Bank’s whistleblowing service. Our colleague opinion survey has shown the highest ever score when asking colleagues if they feel safe to speak up, as well as understanding the process of how they do that. In 2019, 458 cases were raised compared to 480 in 2018.
References to “colleagues” in this Report, mean all members of our workforce (for example, contractors, agency workers).
The Times Top 50 Employer for Women Business in the community
Modern Slavery Act We are committed to our responsibilities to respect and uphold human rights across our business and sphere of influence. The Modern Slavery Act 2015 (MSA) forms part of our approach to human rights. Our statement is available on rbs.com alongside our Human Rights Position Statement. Our approach covers our customers, our people and our suppliers.
Our Customers Our relationship with our customers is governed by a wide range of risk considerations, including our Anti-Money Laundering (AML) and
Environmental, Social, and Ethical (ESE) risk assessments on current and new customers, to consider whether any of their activities carry human rights infringements.
Our People All of our people are legally recruited subject to local jurisdiction and in the UK must meet 1998 Immigration Act requirements. The Bank also has policies and processes such as ‘Our Code’, the ‘Yes Check’ and ‘Speak Up’ and was an early adopter of the Living Wage to support the Bank’s position on Modern Slavery.
Our Suppliers Our Supplier Code of Conduct (SCoC), available on rbs.com, continues to be a contractual requirement and we expect our suppliers to uphold the same values and commitments we have made on social and environmental impacts.
Professional standards are important to us and we offer a wide range of learning to support professional development. We work closely with a wide range of professional bodies, government agencies and our peers to maintain and grow professional standards across the industry. We have recently become the first bank to be awarded Corporate Chartered status by the Chartered Banker Institute in recognition of our continuing investment in professional development and our commitment to professional values and advocacy.
Our female, multicultural and disability development initiatives focus on supporting our colleagues to reach their full potential and manage their careers effectively. These initiatives support our commitment in building a more inclusive bank.
Health and Wellbeing As a strong component of making RBS a great place to work, wellbeing initiatives have successfully delivered against four pillars; Physical, Mental, Social and Financial Wellbeing. Our internal wellbeing index has increased by a further 2% taking us 3% above other high performing norm companies and 10% above high performing Financial Services companies.
We continue to embrace the rapid acceleration of digital wellbeing by offering our colleagues online and on-site wellbeing tools and resources. This year we’ve seen over 27,000 onsite health checks completed across a number of our key hubs and our Workplace Wellbeing Group has grown to c.28,000 members.
We continue to support the Time to Change pledge as well as signing up to the Mental Health at Work Commitment, and this year launched our new wellbeing campaign Live Well, Being You. Our month long wellbeing campaign in May 2019 focused on each of our four pillars with a specific focus on Mental Health Awareness Week and we held our third Mental Health Conference with both internal and external delegates.
In 2019 we again supported our colleagues through change and have fully utilised the services of our Employee Assistance Programme. In the UK the utilisation of our assistance programme was 16%.
Our inclusion guidelines apply to all our colleagues globally to make sure everyone feels included and valued, regardless of their background. As at 31 December 2019 our permanent headcount was 64,397. 50% were male and 50% female. Our Inclusion plans apply globally and are formed around five key priorities: Gender Balanced: • We continue to work towards our goal of having at least 30% senior women in our top three leadership layers in each of our businesses by 2020 and to be fully gender balanced across the bank by 2030.
• The mean gender pay gap for NatWest Bank Plc is 30.4% (median: 34.1%) and the mean bonus pay gap is 49.9% (median: 53.8%).
• Our positive action approach for gender, which is benchmarked externally, is helping to ensure that our people policies and processes are inclusive and accessible – from how we attract and recruit, to how we reward and engage colleagues. We are confident this approach is the right one and through time, it will help us achieve a better balance of diversity throughout the organisation.
• The 2019 Pride season has seen our biggest and boldest attendance ever – supporting and celebrating Pride with customers and colleagues across the UK, Republic of Ireland, Poland and India, showing our support to our LGBT+ colleagues and customers in countries where LGBT+ inclusion is not as progressed as in the UK.
• For more information on our Inclusion work, including our positive action approaches, refer to rbs.com.
The Ventures team supported, developed and launched a number of products in 2019. And we welcomed our first group of Digital and Innovation apprentices to their four-year degree programme – the first of its kind in a UK bank.
Later in the year we launched our free, app-based business account for entrepreneurs, Mettle. This is helping our customers create and send invoices and simplify their bookkeeping.
Governance Focus on further increasing internal climate related knowledge, skills and abilities at senior levels.
Climate change governance roles and responsibilities refreshed, including Senior Managers Regime (SMR) responsibility.
Continue to enhance Board-level and executive knowledge and visibility of climate change related issues ahead of broader strategic and risk appetite integration discussions.
Further develop and implement Group strategy to address climate change that is wholly aligned to RBS Group’s overall vision, purpose, strategy and plan.
Continued review of the Environmental, Social, Ethical (ESE) Risk Management sector policy positions.
Embed climate change consideration in the Bank’s risk appetite framework in a qualitative manner until climate risk indicators allow incorporation on a quantitative basis. In particular, perform targeted sector and product reviews to improve measurement and assessment of climate related risk factors to inform future management actions.
Sustainable energy funding and financing target of £10 billion for 2018-2020 substantially met in 2019 (£9.9 billion in 2018 and 2019).
Jointly the first company globally to commit to RE100, EV100 & EP100.
During 2019, we committed to and joined a number of major initiatives to support this, including: • Becoming a founding signatory of the UN Environment Programme Finance Initiative’s (UNEP FI) Principles for Responsible Banking which commits us to work towards aligning our strategy with the overall objectives of the 2015 Paris Agreement.
• Joining the Climate Financial Risk Forum, established by the FCA and the PRA to develop practical tools to address climate-related financial risks.
Climate risk was classified as a top risk in 2019 and we are working to integrate climate related financial risks into our core risk framework. RBS Group has also continued to engage with investors, NGOs and other key stakeholders on the actions we are taking to play our part in addressing this important issue.
We remain committed to developing our disclosures in line with the Task Force on Climate related Financial Disclosures (TCFD) recommendations. The table below summarises the work done in 2019 and future planned activity related to each of the TCFD themes:
Board and Executive-level activity in 2019 focused on increasing the knowledge and understanding of the financial risks associated with climate change and strategic opportunities. Areas of future development include risk appetite integration, strategic delivery and embedding the agreed climate risk operating model to support Board-level reporting, including Top Risk Reporting as well as quarterly reporting to the Executive Risk Committee and Board Risk Committee.
The RBSG plc Board approved the allocation of the responsibility for identifying and managing financial risks from climate change to the Group Chief Risk Officer (CRO) who has been tasked with ensuring that the financial risks from climate change are adequately reflected in risk management frameworks, and that the Bank can identify, measure, monitor, manage, and report on its exposure to these risks.
In the second half of 2019, the existing Climate Change Working Group (CCWG) was formalised into an RBS Group wide Climate Change Programme (GCCP). Now co-chaired by the Group CRO and Head of Large Corporates and Institutions, the GCCP Executive Steering Group (ESG) is responsible for coordinating the RBS Group response across climate related regulations, risks and opportunities.
The ESG includes cross-franchise and functional representatives from across NatWest Holdings Limited, NatWest Markets Plc and RBS International; and ensures alignment of underlying franchise initiatives and working groups. This includes the efforts of the existing Sustainable Energy Forum (an internal forum with a focus on helping our customers transition towards a low carbon economy) and existing or proposed working groups at franchise and functional level. It also oversees activities around communication and education as RBS Group builds further awareness of Climate Change considerations in support of our ambitions.
In October, following approval through the GCCP ESG and the Board, RBS Group provided a response to PRA Supervisory Statement 3/19 ‘Enhancing banks’ and insurers’ approaches to managing the financial risks from climate change’ (SS 3/19). SS 3/19 required RBS Group to provide an RBSG plc Board approved plan outlining how the financial risks of Climate Change will be managed. Our response outlined a multi-phase, multi-year plan to build out capabilities across governance, scenario analysis and stress testing, risk management and disclosures (including TCFD). It recognises that the GCCP plan will be subject to continual monitoring and refinement to ensure it remains responsive to both internal and external stimuli, including market expectations, UK Government policy and other regulatory or international drivers.
(ii) we plan to collaborate crossindustry, and create products and services to enable customers to track their carbon impact.
(iii) Coutts Asset Management has set a target to reduce the level of carbon intensity for the equity component of their portfolios by 25% by end of 2021.
(iv) support the drive to decarbonise UK transport through our Mobility Opportunity Group. This is a multi-disciplined centre of excellence working across the Bank and the emerging mobility eco-system to enable us to invest in the development of our product and service offering, in addition to enhancing our market and risk insight to maximise the support for the decarbonisation of UK surface transport.
c. Championing climate solutions: we will provide additional £20 billion funding and financing for Climate and Sustainable finance between 2020-2022. Additionally, we will aim to reserve at least 25% of the spaces
in our Entrepreneur accelerator hubs for businesses where their core offering supports sustainable environmental activities (including climate solutions).
d. Embedding climate into our culture and decision making: We are revising executive remuneration to reflect achievement of climate targets. We are also setting ourselves the challenge to at least halve the climate impact of our financing activity by 2030, and intend to do what is necessary to achieve alignment with the 2015 Paris Agreement. To do this, we plan to quantify our climate impact and set sector-specific targets by 2022. Further to this, we will integrate the financial and non-financial risks arising from climate change into our EWRMF.
Refer to the Our purpose-led strategy on pages 10 and 11 for further details. In 2019, we have continued to help our customers, both small and large, transition towards a low carbon economy by providing funding and financing to the sustainable energy sector. This includes funding for various low carbon generation and energy efficiency technologies, low carbon vehicles and increasingly helping clients raise funds through green bonds, green loans and green private placements.
The main outcomes of the various scenario analysis projects we are conducting at the moment are: • identify at the overall portfolio level, the climate related risks and opportunities; • inform our strategic response to the climate challenge; • embed climate within our wider risk framework, including risk management policies and risk appetite.
The below table summarises the range of finance solutions and energy intelligence we provide to customers to accelerate the transition to a low carbon economy.
Products offered: • Asset finance (provided by Lombard, one of our brands) • Structured asset finance • Project finance • Support for infrastructure and renewable energy funds
• Green and sustainable bonds • Green and sustainable private placements • Sustainability linked loans
In addition to the above, we can support customers through: • RBS Social & Community Capital - our independent charity that runs a fund to help social enterprises who have been declined a loan from a mainstream bank. The project should be financially sustainable and deliver social impact to the local and wider community.
• Energy audits – a service to help customers understand how they could reduce their energy costs or generate their own renewable energy. This service is available to all customers with an energy spend over £10,000 a year or with more complex energy requirements. There is a cost associated with this service.
Risk management Within RBS Group, climate risk management builds upon the established Environmental, Social, Ethical (ESE) Risk Management sector policies. Credit approvals consider market and economic factors that are relevant to our customers, which include issues relevant to customers’ exposure to climate risks. All credit approvals are subject to these ESE policies which restrict exposures to high carbon emitting subsectors including mining and energy for example. Specifically, flooding and risks associated with building energy efficiency are already considered as part of our residential mortgage lending process (energy efficiency in buy to let mortgages) and transaction acceptance standards in commercial real estate.
Work to further embed climate change risk considerations within risk frameworks will be underpinned by RBS Group-wide training and education programmes for staff.
Images included provide examples of the data available for flood risk assessment for properties in an area. We have linked this information to our portfolio to assess our exposure to these physical risks and determine how we integrate this and other climate considerations into our lending and risk frameworks. This will also drive the complete data requirements for physical risk analysis and will enable the selection of a vendor solution for a strategic data partnership. We are committed to the on-going use of the best performing and most reliable data and innovative climate risk tools as skills and knowledge in the climate space evolve.
This image shows the varying degrees of river water flood risk with the darker blue colours showing greater depth of flooding for an event with a 1.3% annual probability of occurring (1 in 75 years). The combined flood risk is scored from 0 to 53 (where 53 is the highest risk possible). © Ordnance Survey & © JBA Risk Management Limited 2020 2040 postcode flood risk indicator
This image shows the 2040 climate change flood risk indicator which indicates for each postcode area whether the flood risk is likely to improve (shown in green) or worsen (shown in orange) or see no change (no colour).
Location-based CO2e emissions (Scope 1, 2 & business travel) (tonnes) (*)
Location-based CO2e emissions per FTE(Scope 1, 2 & business travel) (tonnes)
Metrics and targets Sector exposures We are working to reduce our lending to carbon intensive parts of the global economy. Noted below are exposures for certain sectors that could be considered relevant for climate risk purposes. Exposure represents gross lending and the related off balance sheet exposures in the banking book. The amounts include all lending to customers including sustainable lending, as well as to environmentally responsible customers.
Operational footprint Between 2014 and 2019 we reduced our operational greenhouse gas emissions (Scopes 1, 2 and 3 – Business Travel) by 61%, exceeding our Science Based Target of 45% by 2020. This has been achieved by a 39% reduction in energy consumption in our buildings and a reduction of 60% in staff business travel.
During 2019, our UK and Ireland operations achieved Zero Waste to Landfill accreditation from the Carbon Trust.
Risk overview Prudent risk management is central to the successful delivery of the RBS strategy
Risk is an inherent part of business activity and can arise as a result of the wider economic environment, market evolution, competitor activity, regulatory policy or process error. RBS operates an integrated risk management framework centred around the embedding of a strong risk culture. It ensures tools are in place to identify and manage both internal and external threats.
Areas of focus in 2019 Against a backdrop of slowing global growth, evolving customer behaviour and the uncertain political environment in RBS’s core market, there was a significant focus on key financial risks. Risk management activities throughout 2019 were carried out with a strong awareness of the potential impacts of events in the wider environment for both RBS and its customers. Despite economic headwinds, the credit risk profile was broadly stable. A rise in impairments reflected the transition from relatively favourable conditions to a more normal external credit environment. Despite periods of market volatility resulting from geopolitical developments, traded VaR remained well within appetite.
The completion of the merger of Alawwal bank and Saudi British Bank in June 2019 led to a reduction in riskweighted assets (RWAs) of £4.7 billion and further improvement in RBS’s CET1 position.
However, the impact of the UK’s withdrawal from the European Union has been difficult to predict. To minimise the risk of service disruption to customers, NatWest Markets Plc set up its Frankfurt branch and a number of client migrations to NatWest Markets N.V. were concluded. Oversight of planning for regulatory and legislative impacts – as well as economic impacts – remained a critical part of forwardlooking risk management throughout 2019. This included stress testing and scenario modelling as well as capital planning. While the longer-term effects on the operating environment remain unpredictable, the potential second and third order effects on RBS and its customers continue to be an area of focus. This includes planning for the results of periodic financial volatility and slower economic growth.
The continued low interest rate environment presents an industry-wide challenge. Coupled with a softening economic outlook, sustained net interest margin compression increases risk to the achievement of financial and strategic objectives. While some rebalancing of business activity can mitigate short-term impacts, the effect of prolonged low interest rates over the medium term intensifies threats to the business model. Though RBS’s strong capital position is helpful here, dynamic risk management, including consideration of funding structure and off-balance sheet activities, has a key role in ensuring such threats do not disrupt the achievement of business objectives.
Along with oversight of work to further implement GDPR, there was significant focus on data management in the context of RBS’s digitisation strategy. This was supported by a continuing emphasis on robust data standards designed to safeguard customer information.
Operational resilience – especially in terms of the continuity of key services – was a particular focus.
There was also a strong focus on oversight of work to further embed compliance with ring-fencing and operational continuity in resolution (OCiR) rules.
RBS continues to closely monitor the evolving regulatory environment. There is an ongoing focus on investment in systems and capability to ensure that RBS is well positioned to address new regulation and potential new themes.
Financial crime RBS has continued to enhance the policies, processes and systems used to combat financial crime, in line with the evolving threat. As changes in technology, the economy and wider society take place, risks relating to money-laundering, terrorist financing,
Climate-related financial risk Climate-related financial risk is classified as a top risk and is being integrated into core risk management. For more details, refer to pages 37 to 41.
LIBOR transition RBS is continuing its preparations for the full transition from LIBOR to other interest-rate benchmarks by the end of 2021. This is a major undertaking since a significant number of transactions across the industry reference LIBOR. RBS continues to work closely with regulators and industry bodies to manage the impact. Oversight of the RBS-wide programme to prepare for the transition has been a major focus along with activities across all three lines of defence to minimise risk and disruption to customers (including the launch of a tool to allow customers using SONIA to calculate compounded rates in all major tenors). Activity to assess the conduct risk implications for
Anti-bribery and corruption (ABC) RBS is committed to ensuring it acts responsibly and ethically, both when pursuing its own business opportunities and when awarding business. Consequently, it has embedded appropriate policies, mandatory procedures and controls to ensure its employees, and any other parties it does business with, understand these obligations and abide by them whenever they act for RBS. ABC training is mandatory for all staff on an annual basis, with targeted training appropriate for certain roles. RBS considers ABC risk in its business processes including, but not limited to, corporate donations, charitable sponsorships, political activities and commercial sponsorships. Where appropriate, there is a requirement for ABC contract clauses in written agreements.
Leverage ratios The CRR leverage ratio decreased to 5.1% (2018 – 5.4%). The UK leverage ratio decreased to 5.8% (2018 – 6.2%) due to lower Tier 1 capital.
Top and Emerging Risks RBS employs a continuous process for identifying and managing its top and emerging risks. Top and emerging risks are those that could have a significant negative impact on its ability to operate or meet its strategic objectives.
Cyber Threats Cyber-attacks continue to increase in frequency, sophistication and severity. There is a risk that a catastrophic cyber-attack damages the ability to do business and/or compromises data security. RBS operates a multilayered approach to its defences and continues to invest in a multi-year programme to build resilience and cybersecurity capabilities. Cyber-attacks may also threaten the supply chain, reinforcing the importance of due diligence and close working with the third parties on which RBS relies.
Target markets are highly competitive, with changes in technology, regulation, customer behaviour and business models continuing to accelerate competitive pressure. RBS monitors the competitive environment and adapts strategy as appropriate, remaining focused on innovating to evolve the business model to deliver compelling propositions for customers. This includes the launch of new digital retail and business offerings, B ó and Mettle.
RBS continues to face stringent regulatory and supervisory requirements, particularly regarding conduct, financial crime, the use of models, and capital and liquidity management. A strong and comprehensive risk and compliance culture continues to be embedded. RBS engages with regulators to implement new regulatory requirements and incorporates the implications of proposed or potential regulatory activities in its strategic and financial plans.
Data Management Ineffective management of data, including a breach in data privacy, could have material negative impacts. RBS operates a control and policy framework governing data usage and continues to evolve a long-term data strategy.
Change Risk Losses may arise from a failure to successfully execute major changes to the business model. RBS continues to implement change in line with its strategic plans while assessing the implementation risks and taking appropriate mitigating action as required. In addition, RBS continues to strengthen its control environment.
Group Audit Committee Assists the Board in discharging its responsibilities for monitoring the quality of the financial statements of RBSG plc. It reviews the accounting policies, financial reporting and regulatory compliance practices of RBS and RBS’s systems and standards of internal controls, and monitors the work of internal audit and the external auditor.
Group Sustainable Banking Committee Provides support to the Board in overseeing actions being taken by management to run a sustainable long term business, with specific focus on customers and brands; people and culture; the competitive environment; and society and environment.
Group Nominations and Governance Committee Assists the Board in the selection and appointment of directors. It reviews the structure, size and composition of the Board, and the membership and chairmanship of Board committees. It considers succession planning taking into account the skills and expertise which will be needed on the Board in the future. Its remit also includes oversight of RBS Group's governance arrangements.
UK Corporate Governance Code Throughout the year ended 31 December 2019, RBSG plc has complied with all of the provisions of the UK Corporate Governance Code issued by the Financial Reporting Council dated July 2018 except in relation to provision 17 that the Group Nominations and Governance Committee should ensure plans are in place for orderly succession to both the Board and senior management and oversee the development of a diverse pipeline for succession, and provision 33 that the Group Performance and Remuneration Committee should have delegated responsibility for setting remuneration for the Chairman and executive directors. The Board considers that these are matters which should rightly be reserved for the Board.
The Board has twelve directors comprising the Chairman, two executive directors and nine independent non-executive directors, one of whom is the Senior Independent Director. Biographies of the directors can be found on pages 62 and 63.
Section 172(1) statement The Board objectives, approved in February 2019, identified the Board’s key stakeholders (as set out in this statement). During 2019, the Board undertook a variety of activities to engage with stakeholders and bring their voice into the boardroom.
Customers Customers are at the heart of everything we do. During the year the Board received updates on key customer issues through customer service performance updates and regular business reviews. There was also a dedicated Board session on the Retail Banking environment. Our directors met a range of business and personal customers during a programme of visits in September 2019, which provided an opportunity to gain insights into customer issues and challenges.
The Chairman and CEO have regular meetings with customers to enhance relationships and understand their views.
Colleagues The Board promotes colleague voice in the boardroom through a variety of channels.
During 2019, the Board engaged with colleagues during a number of Board and committee visits to businesses and functions, and we also held our annual Meet the Board event.
Refer to page 29 for further details on our stakeholder engagement activities.
Refer to pages 32 to 35 for further details on RBS's approach to colleague engagement.
The Board also listened to colleague views during the process of establishing the Bank's Purpose, as set out more fully on page 48.
Purpose, Board diversity, climate change risk and colleague voice. Throughout the year, the Chairman provided regular updates to the Board on shareholder engagement, in order to ensure the Board as a whole has a clear understanding of the views of shareholders. The Board also received regular updates on investor feedback from the CFO.
Suppliers The Board recognises the key role our suppliers play in ensuring we deliver a reliable service to our customers. In October 2019 the Board held a suppliers’ spotlight session, which included an overview of RBS’s suppliers and provided insights on the Bank’s approach towards managing key supplier relationships, including payment practices. The directors noted that the Bank had performed well against key performance indicators in relation to payment periods. They also discussed the future approach to suppliers and the changing regulatory landscape in relation to outsourcing. Meetings with key suppliers in September 2019 provided a first hand opportunity for directors to hear directly from strategic partners and to discuss current challenges.
“Engaging stakeholders is crucial to the success of a company. During 2019 we have taken a number of steps to enhance stakeholder voice in the boardroom. ” Howard Davies Chairman
How stakeholder interests have influenced decision making RBSG plc recognises the importance of engaging with stakeholders to help inform its strategy and Board decision-making. Relevant stakeholder interests, including those of colleagues, customers, suppliers and others are taken into account by the Board when it takes decisions. We define principal decisions as those that are material, or of strategic importance to RBSG plc, and also those that are significant to any of our key stakeholder groups. In making its decisions, the Board considers the outcomes of relevant stakeholder engagement, as well as the need to maintain a reputation for high standards of business conduct, the need to act fairly between the members of RBSG plc and the longterm consequences of its decisions.
The following case studies provide some examples of how stakeholder interests have been taken into account in Board discussions and principal decisions.
1 – Purpose The interests of stakeholders have been central to the Board’s consideration of Purpose during 2019. The Board believes RBS needs to be a purpose-led bank which responds to the changing needs of all of its stakeholders, because when they succeed, RBS will too. Purpose will be embedded in decision-making across the organisation, in order for the Bank to generate long-term value for shareholders and to contribute to wider society and the communities in which it operates.
There was an extensive period of stakeholder engagement on our Purpose during 2018 and 2019. A wide range of colleagues were involved, including the NextGen talent group and employee led networks. Board members heard some of this feedback directly by attending the Colleague Advisory Panel, and listening to colleagues helped inform (and at times, alter) the Board’s views on the Bank’s core Purpose.
As the Purpose continued to develop it was also tested with customers, investors, regulators and other stakeholders, through external market research. A summary of the output of this stakeholder engagement was shared with the Board confirming the proposed Purpose was well received.
The Group Nominations and Governance Committee, on behalf of the Board, agreed a role specification which required candidates to demonstrate broad and authoritative banking and strategic experience that would serve to deliver long term sustainable growth to the business for the benefit of its shareholders and wider stakeholders. A rigorous search process was undertaken, involving the consideration of both internal and external candidates. Alison Rose was identified as the strongest candidate on the basis of the role specification criteria.
The Board will continue to ensure that its nominations process is based on the principles of fairness, respect and inclusion and that all nominations and appointments are made on the basis of individual competence, skills and expertise measured against identified objective criteria and taking into account a broad range of stakeholder interests.
3 – Capital Distributions During 2019, the directors agreed to seek approval from shareholders to undertake a directed buyback of shares, equivalent to 4.99% of RBSG plc’s issued share capital, from UKGI. They also approved a final 2018 year-end dividend of 3.5p and special dividend of 7.5p in February 2019; and a 2019 interim ordinary dividend of 2.0p and a special dividend of 12.0p in August 2019.
As part of this assessment the Board has considered: RBSG plc’s long-term business and strategic plans.
RBSG plc’s risk profile and risk management practices, including the processes by which risks are identified and mitigated.
RBSG plc’s liquidity and funding profile (including projections over the period of the plans).
The wider political, economic and regulatory environments, including the uncertain geopolitical outlook and the implications of the UK’s exit from the European Union.
Threats to the achievement of those plans – including financial, operational, conduct and financial crime risks – are identified and assessed through the risk management framework and managed within appetite approved by the Board. The risk profile – including an assessment of top and emerging risks – is reported regularly to the Group Board Risk Committee and the Board.
A series of varying stress scenarios is used as part of internal stress testing. These are designed to be extreme but plausible and take account of potential risk management actions and mitigation supported by the risk management framework. Reverse stress testing is also used to assess scenarios and circumstances that could make the Group’s business model unviable. The results are reported regularly to the Group Audit Committee, the Group Board Risk Committee and the Board. Regulatory stress tests are also carried out on an annual basis (for the Bank of England) and a biennial basis (for the European Banking Authority).
While a five year time frame is used internally, levels of uncertainty increase as the plan horizon extends. Accordingly the Board considers a period of three years to be an appropriate period for the assessment to be made since it is within the period covered by RBSG plc’s strategic plan as well as its regulatory and internal stress testing.
Relevant information can be found in the following sections of the Annual Report and Accounts: The Group’s principal activities, business and operating models and strategic direction are described in the Strategic Report on pages 2 to 48; The Group’s top and emerging risks are also disclosed in the Strategic Report on page 44; The Group’s principal risks, including its methodology and processes for managing capital, liquidity and funding, and credit risk are described in the Capital and Risk Management section on pages 112 to 189.
Based on this assessment, the Board has a reasonable expectation that RBSG plc will be able to continue in operation and meet its liabilities as they fall due over the next three years to 31 December 2022.
Presentation of information In the Report and Accounts, unless specified otherwise, the terms ‘the company’ and ‘RBSG plc’ mean The Royal Bank of Scotland Group plc; ‘RBS’ and ‘RBS Group’ mean the company and its subsidiary and associated undertakings; ‘NWH Ltd’ means NatWest Holdings Limited; ‘NWB Plc’ means National Westminster Bank Plc; ‘RBS plc’ means The Royal Bank of Scotland plc; ‘NWM Plc’ means NatWest Markets Plc and ‘UBI DAC’ means Ulster Bank Ireland DAC.
Segmental reporting Re-segmentation Effective from 1 January 2019, Business Banking was transferred from UK Personal & Business Banking (UK PBB) to Commercial Banking as the nature of the business, including distribution channels, products and customers, are more closely aligned to the Commercial Banking business. Concurrent with the transfer, UK PBB was renamed UK Personal Banking and the previous franchise combining UK PBB and Ulster Bank RoI was renamed Personal & Ulster. Reportable segmental comparatives have been restated.
Franchises RBS continues to deliver on its plan to build a strong, simple and fair bank for both customers and shareholders. To help develop and deliver this strategy, in the fourth quarter of 2019, Commercial & Private Banking (CPB), combining the reportable segments of Commercial Banking and Private Banking ceased to operate as one business area and the franchise Personal & Ulster, combining the reportable segments of UK Personal Banking and Ulster Bank RoI was also disbanded. The reportable operating segments remain unchanged and no comparatives have been restated.
Deposits 389,740 384,211 391,712 357,173 338,326 Trading liabilities 73,949 72,350 81,982 84,536 92,299 Settlement balances, derivatives, and other financial liabilities 206,147 182,230 200,398 267,257 288,023 Other liabilities 9,647 8,954 14,871 40,286 42,613 Owners' equity 43,547 45,736 48,330 48,609 53,431 Non-controlling interests 9 754 763 795 716 Total liabilities and equity 723,039 694,235 738,056 798,656 815,408
UK Personal Ulster Bank Commercial Private RBS NatWest Central items Total Banking RoI Banking Banking International Markets & other RBS
Net interest income 4,130 400 2,842 521 478 (188) (136) 8,047 Non-interest income 736 167 1,476 256 132 1,530 1,909 6,206 Total income 4,866 567 4,318 777 610 1,342 1,773 14,253
Net interest income 4,283 444 2,855 518 466 112 (22) 8,656 Non-interest income 771 166 1,747 257 128 1,330 347 4,746 Total income 5,054 610 4,602 775 594 1,442 325 13,402
Impairment (losses)/releases (339) (15) (147) 6 2 92 3 (398) Operating profit/(loss) 1,848 12 1,968 303 336 (70) (1,038) 3,359 Return on equity (1) 24.7% 0.5% 12.1% 15.4% 24.4% (2.0%) nm 4.8% Cost:income ratio (2) 56.7% 95.6% 52.8% 61.7% 43.8% 111.2% nm 71.7% Average interest earning assets 160,641 24,834 145,318 20,547 27,266 27,851 nm 436,957
Third party customer asset rate (3) 3.36% 2.41% 3.02% 2.89% 2.88% nm nm nm Third party customer funding rate (3) (0.31%) (0.20%) (0.32%) (0.25%) (0.09%) nm nm nm
Notes: (1) RBS’s CET 1 target is approximately 14% but for the purposes of computing segmental return on equity (ROE), to better reflect the differential drivers of capital usage, segmental operating profit after tax and adjusted for preference share dividends, is divided by average notional equity allocated at different rates of 15% (Ulster Bank RoI - 14% prior to Q1 2019), 12% (Commercial Banking), 13% (Private Banking - 13.5% prior to Q1 2019), 16% (RBS International) and 15% for all other segments, of the monthly average of segmental risk-weighted assets incorporating the effect of capital deductions (RWAes). Return on equity is calculated using profit for the period attributable to ordinary shareholders’ and risk-weighted assets equivalents (RWAes) incorporating the effect of capital deductions. RBS return on equity is calculated using profit for the period attributable to ordinary shareholders. Refer to the Non-IFRS financial measures section for details of the basis of preparation.
(3) UBI DAC and RBS International manage their funding and liquidity requirements locally. Their liquid asset portfolios and non-customer related funding sources are included within their net interest margin, but excluded from their third party asset and liability rates.
 Bank NIM of 1.99% was 10 basis points lower than 2018, principally reflecting competitive pressures within the personal business and a flattening yield curve.
 Structural hedges of £159 billion generated £0.6 billion of incremental net interest income for the year, compared with £0.9 billion of incremental net interest income on a balance of £159 billion in 2018.
Notable items within operating expenses Push payment fraud costs 38 — Litigation and conduct costs 895 1,282 of which: US RMBS (169) 823 PPI 900 200
 Litigation and conduct cost included a £900 million PPI charge and a £169 million reimbursement under indemnification agreements relating to US residential mortgage-backed securities (RMBS).
Impairment losses ECL charge (3) 696 398 298 75% ECL loss rate - annualised (basis points) 20.47 12.43 8 65% Amounts written off 792 1,494 (702) (47%)
Notes: (1) The table above summarises loans and related credit impairment measured on an IFRS 9 basis. (2) Includes £4 million (2018 – £5 million) related to assets classified as FVOCI. (3) Includes a £2 million charge (2018 – £3 million charge) relating to other financial assets, of which a £1 million release (2018 – £1 million charge) related to assets classified as FVOCI; and a nil (2018 – £31 million release) related to contingent liabilities.
 The net impairment loss of £696 million, 21 basis points of gross customer loans, increased by £298 million compared with 2018, transitioning from a very benign period towards a more normalised external credit environment, as well as the impact of a small number of large individual commercial charges. The cost of risk remained below the view of our normalised blended long term loss rate of 30 to 40 basis points.
 The tax charge for the year ended 31 December 2018 is higher than the UK statutory rate reflecting the impact of the banking surcharge, non deductible bank levy and conduct charges for which no tax relief has been recognised. These factors have been offset partially by adjustments in respect of prior periods.
Financial summary continued Summary consolidated balance sheet as at 31 December 2019
Assets Cash and balances at central banks 77,858 88,897 (11,039) (12%) Trading assets 76,745 75,119 1,626 2% Derivatives 150,029 133,349 16,680 13% Loans to banks - amortised cost 10,689 12,947 (2,258) (17%) Loans to customers - amortised cost 326,947 305,089 21,858 7% Settlement balances 4,387 2,928 1,459 50% Other financial assets 61,452 59,485 1,967 3% Other assets 14,932 16,421 (1,489) (9%) Total assets 723,039 694,235 28,804 4%
 Total assets of £723.0 billion as at 31 December 2019 increased by £28.8 billion, 4%, compared with 31 December 2018. This was primarily driven by increases in loans to customers and derivatives, partially offset by reductions in cash and balances at central banks
 Cash and balances at central banks decreased by £11.0 billion, 12%, to £77.9 billion mainly as a result of Treasury liquidity management, a £4 billion repayment to the Bank of England Term Funding Scheme (TFS) and subordinated liability redemptions, offset by various bond and MREL issuances.
 Trading assets increased by £1.6 billion, 2%, to £76.7 billion and trading liabilities increased by £1.6 billion, 2%, to £73.9 billion both reflecting a moderate increase in NWM.
 Loans to customers - amortised cost, increased by £21.9 billion, 7%, to £326.9 billion including £10 billion of net new loans to customers in UK Personal Banking and £11 billion in Treasury as part of liquidity management.
 Bank deposits decreased by £2.8 billion, 12%, to £20.5billion, with decreases including a £4 billion repayment of the Bank of England TFS, partially offset by an increase in repo transactions in Treasury.
 Subordinated liabilities decreased by £0.6 billion, 5% to £10.0 billion as a result of redemptions in the period of £1.1 billion, offset by an issuance of £0.6 billion by RBSG plc.
Net interest income 4,130 4,283 (153) (4%) Non-interest income 736 771 (35) (5%) Total income 4,866 5,054 (188) (4%) Other costs (2,403) (2,428) 25 (1%) Strategic costs (290) (226) (64) 28% Litigation and conduct costs (925) (213) (712) nm Operating expenses (3,618) (2,867) (751) 26% Impairment losses (393) (339) (54) 16% Operating profit 855 1,848 (993) (54%)
 Almost three quarters of our current account customers are now digitally active, with growing engagement and continued improvements to their digital experience making it easier for our customers everyday. Total digital sales volumes increased by 30% compared with 2018, representing 53% of all sales. 63% of personal unsecured loan sales, 66% of credit card accounts and 56% of current accounts opened were via the digital channel.
 Excluding strategic, litigation and conduct costs, operating expenses decreased by £25 million, or 1.0%, reflecting a 6.5% reduction in headcount from digital process simplification and back office rationalisation and lower property costs, partially offset by increased fraud costs due to a revised customer refund approach for authorised push payment scams, annual pay award, and increased investment and technology costs.
Net interest income 456 502 (46) (9%) 400 444 (44) (10%) Non-interest income 191 187 4 2% 167 166 1 1% Total income 647 689 (42) (6%) 567 610 (43) (7%) Other costs (537) (553) 16 (3%) (470) (490) 20 (4%) Strategic costs (68) (25) (43) 172% (60) (22) (38) 173% Litigation and conduct costs (25) (79) 54 (68%) (22) (71) 49 (69%) Operating expenses (630) (657) 27 (4%) (552) (583) 31 (5%) Impairment releases/(losses) 38 (17) 55 nm 34 (15) 49 nm Operating profit 55 15 40 nm 49 12 37 nm
Performance ratios Return on equity (1) 2.3% 0.5% 1.8% 2.3% 0.5% 1.8% Net interest margin 1.59% 1.79% (0.20%) 1.59% 1.79% (0.20%) Cost:income ratio 97.4% 95.6% 1.8% 97.4% 95.6% 1.8%
Note: (1) Return on equity is based on segmental operating profit after tax adjusted for preference share dividends divided by average notional equity (based on 15% of the monthly average of segmental risk-weighted assets incorporating the effect of capital deductions (RWAes)), assuming a nil tax rate.
Total assets 29.8 28.1 1.7 6% 25.4 25.2 0.2 1% Funded assets 29.8 28.1 1.7 6% 25.4 25.2 0.2 1% Customer deposits 21.7 20.1 1.6 8% 18.5 18.0 0.5 3% Risk-weighted assets 15.3 16.4 (1.1) (7%) 13.0 14.7 (1.7) (12%)
 Ulster Bank RoI continued to strengthen its digital proposition in 2019 through enhancements to digital and mobile customer offerings. 70% of active current account customers are now on digital channels, with 48% using the mobile app which now includes new app services to enable customers to lock and unlock their debit cards, create savings goals and explore how they are spending their money.
 Total income was €42 million, or 6.1% lower than 2018 primarily reflecting reduced income from non-performing loans (NPLs) following the sale of a portfolio of assets, largely completed in 2018, and an income reduction from an IFRS 9 accounting change in 2019 for interest in suspense recoveries of €23 million, with an offsetting impact in impairments. These movements contributed to a 20 basis points decrease in net interest margin compared with 2018.
 Excluding strategic, conduct and litigation costs, operating expenses decreased by €16 million, or 2.9%, due to reduced project and pension costs and other efficiencies which resulted in a headcount reduction of 6.5%, partially offset by higher levies and increased risk and compliance costs.
 A net impairment release of €38 million reflects improvements in the performance of the loan portfolio and the accounting change for interest in suspense recoveries, partially offset by a charge for economic uncertainty.
 Net loans to customers increased by €0.4 billion, or 1.9%, reflecting strong lending in both the personal and commercial sectors, partially offset by concluding the sale of a portfolio of NPLs, €0.1 billion, and a continued reduction in the tracker mortgage book. Tracker mortgage balances reduced by €0.7 billion, or 8.4% compared with 2018, with Tracker balances accounting for 38.2% of total net loans at the end of 2019. The business maintained a prudent approach to risk and pricing in a competitive market, with gross new lending of €3.0 billion in 2019, 13.0% higher than 2018.
 RWAs reduced by €1.1 billion, or 6.7%, principally reflecting an improvement in credit metrics and the impact of the NPL sale.
Net interest income 2,842 2,855 (13) (0%) Non-interest income 1,476 1,747 (271) (16%) Total income 4,318 4,602 (284) (6%) Other costs (2,237) (2,288) 51 (2%) Strategic costs (301) (155) (146) 94% Litigation and conduct costs (62) (44) (18) 41% Operating expenses (2,600) (2,487) (113) 5% Impairment losses (391) (147) (244) 166% Operating profit 1,327 1,968 (641) (33%)
Note: (1) Return on equity is based on segmental operating profit after tax adjusted for preference dividends divided by average notional equity based on 12% of the monthly average of segmental RWAes, assuming 28% tax rate.
Notes: (1) New drawn lending and any re-financing resulting in a new facility or the opening of a new account, excluding Overdrafts and Supplier Finance. (2) RWA intensity is defined as total risk weighted assets divided by total loans to customers (amortised cost).
 Impairment losses of £391 million include a small number of single name charges, IFRS 9 modelling adjustments and charges in respect of increased economic uncertainty.
 Commercial Banking gross new lending(1) was £19.5 billion in 2019. Net loans to customers decreased by £0.2 billion as planned reductions in EU divestment and Large Corporates & Institutions Western European transfers to NatWest Markets of £0.6 billion were partially offset by growth across the business. Lending across Business Banking, SME & Mid-Corporate and Specialised business increased by £1.1 billion, or 2.1%.
Performance ratios Return on equity (1) 15.4% 15.4% — Net interest margin 2.40% 2.52% (0.12%) Cost:income ratio 62.5% 61.7% 0.8%
Total assets 23.3 22.0 1.3 6% Assets under management (AUMs) (2) 23.2 19.8 3.4 17% Assets under administration (AUAs) (3) 7.2 6.6 0.6 9% Assets under management and administration (AUMA) 30.4 26.4 4.0 15% Customer deposits 28.4 28.4 — — Loan:deposit ratio 55% 50% 0.1 10% Risk-weighted assets 10.1 9.4 0.7 7%
Notes: (1) Return on equity is based on segmental operating profit after tax adjusted for preference dividends divided by average notional equity based on 13% (13.5%
 Total assets under management in Private Banking increased by £3.4 billion, or 17.2%, reflecting positive investment performance of £2.7 billion and net new business inflows of £0.7 billion.
 Total assets under management and administration overseen by Private Banking increased by £4.0 billion, or 15.2%, reflecting positive investment performance of £3.2 billion and net new business inflows of £0.8 billion.
Performance ratios Return on equity (1) 25.7% 24.4% 1.3% Net interest margin 1.60% 1.71% (0.11%) Cost:income ratio 43.3% 43.8% (0.5%)
Note: (1) Return on equity is based on segmental operating profit after tax adjusted for preference dividends divided by average notional equity based on 16% of the monthly average of segmental RWAes.
Total assets 31.7 28.4 3.3 12% Customer deposits 30.1 27.5 2.6 9% Risk-weighted assets 6.5 6.9 (0.4) (6%)
 RBS International’s existing personal customers can now open individual savings accounts in an average time of 8 minutes rather than 14 days, with over 3,000 new accounts opened this year using the automated process. Digital adoption in personal banking has increased by more than 17%. Over 90% of non-personal customers who provided feedback find our electronic banking platform, eQ easy or extremely easy to use, with 18 new features introduced into eQ through 2019 as part of our ongoing investment in the platform.
 Total income increased by £16 million, or 2.7%, due to increased customer lending and deposits in Institutional and Local Banking. Institutional Banking contributed 63% to income in 2019, with Local Banking 31% and Depositary Services 6%. Net interest margin decreased by 11 basis points compared with 2018 as deposit margins reduced due to falling interest rates in the second half of the year along with mortgage margin pressure.
 Net loans to customers increased by £0.8 billion, or 6.0%, reflecting a Funds business transfer of £0.5 billion from NatWest Markets and higher volumes in Institutional and Local Banking.
 Customer deposits increased by £2.6 billion primarily reflecting activity in the Funds sector and £1.1 billion growth in term and notice deposits.
Net interest income (188) 112 (300) nm Non-interest income 1,530 1,330 200 15% Total income 1,342 1,442 (100) (7%) Other costs (1,178) (1,213) 35 (3%) Strategic costs (222) (238) 16 (7%) Litigation and conduct costs (18) (153) 135 (88%) Operating expenses (1,418) (1,604) 186 (12%) Impairment releases 51 92 (41) (45%) Operating loss (25) (70) 45 (64%)
Analysis of income by product Rates 455 662 (207) (31%) Currencies 432 432 — — Financing 403 382 21 5% Revenue share paid to other segments (208) (217) 9 (4%) Core income excluding OCA 1,082 1,259 (177) (14%) Legacy 340 91 249 nm Own credit adjustments (80) 92 (172) (187%) Total income 1,342 1,442 (100) (7%)
Performance ratios Return on equity (2) (3.2)% (2.0)% (1.2)% Cost:income ratio 105.7% 111.2% (5.5)%
Notes: (1) The NatWest Markets operating segment is not the same as the NatWest Markets Plc legal entity or group. For 2019, NatWest Markets Plc entity includes
(2) Return on equity is based on segmental operating profit after tax adjusted for preference dividends divided by average notional equity (based on 15% of the monthly average of segmental risk-weighted assets incorporating the effect of capital deductions (RWAes)), assuming 28% tax rate.
 Total income decreased by £100 million, or 6.9%, reflecting lower core income and own credit adjustments (OCA), partially offset by increased legacy income following the £444 million gain on the merger of Alawwal bank with SABB.
 Excluding strategic, litigation and conduct costs, operating expenses decreased by £35 million, or 2.9%.
External appointments: Independent director of Prudential plc and Chair of the Risk Committee; Member of the Regulatory and Compliance Advisory Board of Millennium Management LLC; Chair of the International Advisory Council of the China Securities Regulatory Commission; and Member of the International Advisory Council of the China Banking and Insurance Regulatory Commission.
2 Alison Rose Appointed: 1 November 2019 Experience: Alison has worked at RBS for 27 years. Prior to her current role, Alison was Deputy CEO of NatWest Holdings and CEO of the Commercial and Private Banking business. Previous roles include Head of Europe, Middle East and Africa, Markets & International Banking and Global Head of International Banking Capital and Balance Sheet. Alison was invited by the UK Government to lead a review of the barriers to women starting a business and launched The Rose Review in March 2019. Alison also champions NatWest’s Entrepreneur Accelerator programme, an innovative initiative supporting start-up businesses across the UK, and sponsors the Bank’s employee-led networks.
External appointments: Non-executive director of Great Portland Estates plc; Chair of the McLaren/Deloitte Advisory Council; and sits on the board of Coutts Charitable Foundation.
Katie is a Chartered Accountant having trained in Scotland and is a member of The Institute of Chartered Accountants of Scotland.
Independent non-executive directors 4 Frank Dangeard Appointed: 16 May 2016 Experience: Frank assumed the role of Chairman, NatWest Markets Plc on 30 April 2018. Previously, Frank served as a nonexecutive director of Crédit Agricole CIB, EDF, Home Credit, Orange, Sonaecom SGPS, and as Deputy Chairman and acting Chairman of Telenor ASA. During his executive career he held various roles at Thomson S.A., including Chairman and Chief Executive Officer, and was Deputy Chief Executive Officer of France Telecom. Prior to that he was Chairman of SG Warburg France and Managing Director of SG Warburg.
Frank is a graduate of HEC and IEP in Paris and of the Harvard Law School in the US.
External appointments: Chairman of the Board of NortonLifeLock Inc. and nonexecutive director of Arqiva Group Limited.
5 Alison Davis Appointed: 1 August 2011 Experience: Previously, Alison served as a director of City National Bank, First Data Corporation, Xoom Corporation, Presidio Bank and Diamond Foods, Inc, and as a nonexecutive director and chair of the board of LECG Corporation. She has also worked at McKinsey & Company; AT Kearney; as Chief Financial Officer at Barclays Global Investors (now BlackRock); and as managing partner of Belvedere Capital, a private equity firm focused on buy-outs in the financial services sector.
6 Patrick Flynn Appointed: 1 June 2018 Experience: Patrick was the Chief Financial Officer and a member of the Executive Board of ING Group N.V. from April 2009 to May 2017. Prior to that, he was Chief Financial Officer of HSBC Insurance from 2007 to 2009 and prior to that, from 2002 to 2007, was Chief Financial Officer of HSBC South America based in Brazil where he was responsible for HSBC's banking and insurance operations.
RBS – Annual Report and Accounts 2019 63 7 Morten Friis Appointed: 10 April 2014 Experience: Prior to being appointed to the Board, Morten had a 34 year financial services career. He held various roles at Royal Bank of Canada and its subsidiaries including Associate Director at Orion Royal Bank; Vice President, Business Banking; and Vice President, Financial Institutions. In 1997, he was appointed as Senior Vice President, Group Risk Management and served as the Chief Credit Officer, then Chief Risk Officer, from 2004 to 2014. He was also previously a Director of RBC Bank (USA); Westbury Life Insurance Company; RBC Life Insurance Company; and RBC Dexia Investor Services Trust Company.
External appointments: Member of the Board of Directors of The Canadian Institute for Advanced Research; member of the Board of Directors of the Harvard Business School Club of Toronto; and non-executive director of Jackson National Life Insurance Company.
9 Baroness Noakes, DBE Appointed: 1 August 2011 Experience: Baroness Noakes is an experienced director on UK listed company boards with extensive and varied political and public sector experience. A qualified chartered accountant, she previously headed KPMG’s European and International Government practices and has been President of the Institute of Chartered Accountants in England and Wales. She was appointed to the House of Lords in 2000 and has served on the Conservative front bench in various roles including as shadow Treasury minister between 2003 and May 2010. Baroness Noakes previously held non-executive roles on the Court of the Bank of England, Hanson, ICI, Severn Trent plc, Carpetright plc, John Laing Group plc and SThree plc. She also previously served as Deputy Chair of Ofcom.
External appointments: None 10 Mike Rogers Appointed: 26 January 2016 Experience: Mike was previously Chief Executive of Liverpool Victoria Group for 10 years. Mike has extensive experience in retail banking and financial services. He joined Barclays in 1986 where he undertook a variety of roles in the UK and overseas across business banking, wealth management and retail banking, and was Managing Director of Small Business, Premier Banking and UK Retail Banking.
11 Mark Seligman Appointed: 1 April 2017; Senior Independent Director since 1 January 2018 Experience: Mark is a former senior investment banker with broad financial services knowledge and has substantial FTSE 100 Board experience gained in various industry sectors, including as a Committee Chair and Senior Independent Director. During his executive career, he held various senior roles at Credit Suisse/BZW (including Deputy Chairman, CSFB Europe and Chairman, UK Investment Banking, CSFB); and previously SG Warburg (ultimately as Managing Director, Head of Advisory). He has also previously served as a non-executive Director of BG Group plc and as Deputy Chairman of G4S plc.
12 Lena Wilson, CBE Appointed: 1 January 2018 Experience: Lena is an experienced CEO with an international career, who spent a significant proportion of her executive career with Scottish Enterprise, latterly as Chief Executive from 2009 until 2017. Prior to that, Lena held the role of Senior Investment Advisor to The World Bank in Washington DC. She is a visiting Professor at the University of Strathclyde and has previously served as a member of Scotland's Financial Services Advisory Board and as Chair of Scotland's Energy Jobs Taskforce. In June 2015 she received a CBE for services to economic development in Scotland. Lena is Chair of the Colleague Advisory Panel established by RBS during 2018.
External appointments: Non-executive director of Intertek Group plc and member of the audit and nomination committees; Senior Independent Director of Argentex Group plc; and non-executive director of Scottish Power Renewables Limited. Visiting Professor, University of Strathclyde Business School. Member of National Advisory Board MCR Pathways, and Chairman of Advisory Board of Turtle Pack Ltd.
Board leadership and company purpose In February 2019, the Board adopted a short set of annual objectives to improve agenda focus and ensure effective use of Board time. During the first full year of operation of ringfenced governance arrangements, these objectives also served as an important reminder of the respective roles and responsibilities of the RBSG plc Board and the boards of the NWH Sub Group (NWH Ltd, NWB Plc, RBS plc and Ulster Bank Limited). The five themes selected provide a framework to share some key highlights for the year from a Board and governance perspective.
On 1 November 2019, Alison Rose was appointed CEO, following the resignation of Ross McEwan. Further details on the appointment process and the Board’s role in that process, can be found in the Report of the Group Nominations and Governance Committee on page 68. Alison’s statement on page 6 sets out the new purpose and strategy. Alison has the Board’s full support: it is a strategy which the Board carefully considered, helped establish and will proudly oversee. The Board is comfortable that it aligns with RBS Group’s culture and values and will deliver long-term sustainable success.
The Board spent time discussing the executive talent pipeline, including the capabilities required to deliver the strategy. In addition, it considered the diversity of the succession pool; resourcing strategy; and the range of development programmes and support available to RBS’s future senior leaders.
Customer focus During 2019 the Board received information on key customer issues through customer service performance updates, fraud updates and regular business reviews. One area of focus has been overseeing delivery of improved customer experience and sustainable growth; themes on which the Board will continue to challenge management in 2020 and beyond, given the desire to improve RBS Group’s service ranking scores from the Competition and Markets Authority. Further information on the Board’s engagement with customers can be found on page 46 of the Strategic Report.
Board effectiveness In 2019, the Board and committee evaluation was conducted by the Chief Governance Officer and Company Secretary. The review concluded that the Board and its committees continue to operate effectively and within their terms of reference. A review of the Board’s effectiveness was also carried out by the Prudential Regulation Authority during 2019.
In addition, as disclosed in last year’s annual report, Brendan Nelson stepped down as Chairman of the Group Audit Committee on 31 March 2019, and as a non-executive director on 25 April 2019. Patrick Flynn succeeded Brendan as Chairman of the Group Audit Committee.
On 5 August 2019, Aileen Taylor stood down as Chief Governance & Regulatory Officer and Board Counsel, and Company Secretary, following 19 years with RBS. I am delighted that Jan Cargill, previously Deputy Secretary and Director, Corporate Governance, has assumed the role of Chief Governance Officer and Company Secretary.
 Provision 17 that the Group Nominations and Governance Committee should ensure plans are in place for orderly succession to both the board and senior management positions and oversee the development of a diverse pipeline for succession; and
In both instances, the Board considers that these are matters which should rightly be reserved for the Board, as set out in more detail in our statement of compliance.
 The Group Sustainable Banking Committee considers key workforce policies and practices (not related to pay) to ensure they are consistent with RBS’s values and support long term sustainable success.
In conclusion I would like to thank my fellow Board members for their contribution and commitment throughout the year.
Executive Management The Group Board and the CEO are supported by the Executive Committee (Group ExCo), which considers strategic, financial, capital, risk and operational issues affecting RBS. Group ExCo’s membership comprises the executive directors and the Group Chief Risk Officer; who are also members of the wider executive management team. Biographies of the executive management team can be found on rbs.com.
Senior Independent Director Throughout 2019 Mark Seligman, as Senior Independent Director, acted as a sounding board for the Chairman, and as an intermediary for other directors when necessary. He was also available to shareholders to discuss any concerns they may have had, as appropriate.
Board and Committee meetings The table below shows Board and Committee meeting attendance during 2019. There were six scheduled Board meetings during 2019, compared with nine in 2018. This reflects the revised operating model under RBS Group’s ring-fenced governance arrangements. In addition to scheduled meetings, additional meetings of the Board and its Committees were held on an ad hoc basis to deal with time-critical matters. There were six ad hoc Board meetings, four ad hoc N&G meetings, eight ad hoc RemCo meetings, six ad hoc BRC meetings and three ad hoc GAC meetings. In accordance with the Code, the Chairman and the non-executive directors met at least once during the year without executive directors present.
Group Group Nominations Group Sustainable Technology Performance and and Governance Group Audit Group Board Banking and Innovation Remuneration Committee Committee Risk Committee Committee Committee Committee
Board committees also comprise directors with a variety of skills and experience so that no undue reliance is placed on any one individual.
Induction and professional development Each new director receives a formal induction on joining the Board, which is co-ordinated by the Chief Governance Office and Company Secretary and tailored to suit the requirements of the individual concerned. This includes visits to RBS’s major businesses and functions and meetings with directors and senior management. Meetings with external auditors, counsel and stakeholders are also arranged as appropriate. During 2019 a suite of online learning modules was developed to further support new director induction, focusing on both technical topics and business spotlights.
The directors have access to a wide range of briefing and training sessions and other professional development opportunities. Internal training relevant to the business of RBS is also provided. Directors undertake the training they consider necessary to assist them in carrying out their duties and responsibilities. The non-executive directors discuss their training and professional development with the Chairman at least annually.
Time commitment It is anticipated that non-executive directors will allocate sufficient time to RBS to discharge their responsibilities effectively and will devote such time as is necessary to fulfil their role. Directors have been briefed on the limits on the number of other directorships that they can hold under the requirements of the fourth Capital Requirements Directive.
Nominations and Governance Committee. Key outcomes included:  Agreeing a set of annual objectives for the Board. These have helped to improve agenda focus and ensure effective use of Board time.
 Improving the quality of Board papers and presentations through the introduction of a new reporting style.
 A comprehensive review of Board composition and succession planning in February 2019, which included updates to the Board skills matrix and consideration of contingency, medium and long-term succession plans for key Board roles.
Key findings and recommendations included the following:  Agenda focus had improved following introduction of the Board objectives, particularly in relation to stakeholder voice. Further information on Board engagement with stakeholders can be found on page 46 of the Strategic Report.
 Directors had responded positively to the new reporting style for Board and committee papers, which had driven better quality presentations and shorter packs.
 The balance of skills, knowledge and experience on the Board was considered appropriate, however there was scope for additional technology experience, to support future strategy. Directors also noted room for improvement on gender and ethnic diversity.
 The remits of the Group Sustainable Banking Committee and the Technology and Innovation Committee would benefit from a review and refresh during 2020, to agree areas of future focus in line with future strategy.
 Although there was some evidence of improvements to Boardroom culture, more focus is needed to promote good working relationships between the Board and executive management.
 Enhancing the quality of management information would enable the Board to focus less on the details and spend more time on key strategic issues.
Actions Following Board discussion of the evaluation report, a number of actions were agreed for 2020, including the following:  Agree a focused set of Board objectives for 2020.
Spencer Stuart, Hay Korn Ferry and Sapphire Partners have been engaged during the year to support the Board’s executive search activity. The firms are members of the retained executive search panel of suppliers (managed by RBS Executive Search). Spencer Stuart and Hay Korn Ferry also provide leadership advisory and senior executive search and assessment services to the Human Resources function within RBS.
Membership and meetings Shortly before standing down from the Board, Brendan Nelson stepped down from the Committee with effect from 1 April 2019. Patrick Flynn joined the Committee on 1 April 2019 meaning that throughout 2019 the Committee comprised the Chairman of the Board and four independent non-executive directors. Graham Beale also observes meetings of the Committee in his capacity as Senior Independent Director of NWH Ltd and member of the NWH Ltd Nominations Committee.
Tenure of non-executive directors As highlighted in the Board’s 2018 effectiveness review, the Committee acknowledges the tenure of a number of current Board directors and therefore made succession planning a priority in 2019. Under the Board Appointment Policy, non-executive directors are appointed for an initial 3 year term, subject to annual re-election at the AGM. Following assessment by the
Performance evaluation The review of the effectiveness of the Board and its senior Committees was conducted internally in 2019. The Committee has considered and discussed the outcomes of the evaluation and accepts the findings. Overall the review concluded that the Committee operated effectively with no material recommendations being identified for action. The Committee will continue to ensure that the full Board is appropriately sighted on the work of the Committee.
RBS – Annual Report and Accounts 2019 69 appointments are made on the basis of individual competence, skills and expertise measured against identified objective criteria and that searches for Board candidates are conducted with due regard to the benefits of diversity and inclusion.
Monitoring and reporting The boards of RBSG plc and the NWH Sub Group meet consecutively and share a largely common membership. When considered together, the director population across both boards currently meets the Parker target and exceeds the Hampton-Alexander target with a female representation of 44%.
Dear Shareholder, I am pleased to present my first report to you as Chairman of the Group Audit Committee (the GAC). This report outlines the key responsibilities of the GAC and sets out some of the issues it considered during 2019.
The primary purpose of the GAC is to make sure we follow a robust process to ensure the quarterly financial statements are suitable for publication. The GAC also assists the RBSG plc Board in carrying out its responsibilities relating to accounting policies, internal control and financial reporting functions. The GAC’s responsibilities are set out in full in its terms of reference which are reviewed annually by the Committee and are available on rbs.com.
During 2019 the GAC dedicated substantial time to the review of the RBS Group’s financial statements, including the quarterly, interim and full years results announcement, annual report and Form 20-F for 2019. In each case the financial statements were supported by detailed reports on the judgements applied in the preparation of the financial statements, provision for expected credit losses and legal developments on litigation and investigations. The GAC also received reports from both the internal auditors on the internal control environment and external auditors on internal control and key accounting and judgemental matters.
Members of the GAC are selected with a view to the expertise and experience of the GAC as a whole and with proper regard to the key issues and challenges facing RBS.
The Board is satisfied that all GAC members have recent and relevant financial experience and are independent as defined in the SEC rules under the US Securities Exchange Act of 1934 (the “Exchange Act”) and related guidance. The Board has further determined that Patrick Flynn, GAC Chairman, Baroness Noakes and Mark Seligman are all ‘financial experts’ for the purposes of compliance with the Exchange Act Rules and the requirements of the New York Stock Exchange, and that they have competence in accounting and auditing as required under the Disclosure Guidance and Transparency Rules.
There have been a number of important developments throughout 2019 which the GAC has taken into account in performing its duties. There was considerable economic uncertainty throughout 2019, with Brexit being one of the principal causes. During 2018, the RBS Group recognised a provision of £100 million in connection with economic uncertainty; this was kept under close review by the GAC and was increased in 2019.
Following the introduction of the IFRS 9 accounting standard in 2018, during 2019 the GAC received a number of updates on various developments and refinements to IFRS 9 processes.
Meetings and visits The GAC held six scheduled meetings in 2019, four of which were held shortly prior to submission of the quarterly financial statements to the Board. During 2019 all members attended the scheduled meetings. Two ad hoc meetings were also convened in 2019, one to discuss a regulatory submission and another to discuss PPI provisioning.
In conjunction with the BRC, the GAC took part in an annual programme of visits to control functions in order to maintain a thorough understanding of their priorities and operational structure. This programme comprised two visits to Risk; two visits to Internal Audit and one visit to Finance.
The GAC held a discussion session on its performance structured around a number of themes: operating rhythm; effectiveness; focus and priorities; and culture and dynamics.
Further information on all the key topics considered by the Committee during the year is provided on the following pages.
Patrick Flynn Chairman of the Group Audit Committee 13 February 2020
Evaluations of the External Auditor and Internal Audit function are also conducted on behalf of the GAC each year. During 2019 the GAC received progress updates on the actions arising from the previous year’s evaluation and was satisfied that appropriate actions had been taken.
The 2019 Internal and External Audit evaluations were conducted internally on behalf of the GAC. Feedback was sought from key stakeholders across RBS, and in the case of the Internal Audit evaluation, from the External Auditors. The overall findings of both evaluations were positive and the Internal and External Auditors were both found to be operating effectively. Some recommendations for continuous improvement were identified both for the Internal and External Auditors; these are being progressed and overseen by the GAC. Consequently the GAC has recommended to the Board that the External Auditors be proposed for re-appointment at the next annual general meeting.
“the primary purpose of the GAC is to make sure we follow a robust process to ensure the quarterly financial statements are suitable for publication”
The GAC has responsibility for overseeing the Internal Audit function. In addition to considering quarterly opinions from Internal Audit, the GAC is required to monitor the function’s effectiveness and confirm its independence. The GAC was fully satisfied in this regard.
Ernst & Young LLP (EY) has been RBS’s external auditor since 2016 following a tender process carried out in 2014. The GAC has responsibility for monitoring EY’s independence and objectivity, the effectiveness of the audit process and for reviewing the bank’s financial relationship with the External Auditor and fixing remuneration.
Throughout the year BRC monitored the uncertain economic external outlook and RBS’s operational readiness for a ‘no-deal’ Brexit. The Committee has considered the impacts of revenue and cost pressures and potential impacts upon affected customers.
RBS continues to focus on Innovation and technology and BRC looks at the associated risks. The Committee receives regular reports on information and cyber security, and in 2019, undertook an in-depth review of the external threat landscape. Other matters covered were: operational resilience more broadly, with a focus on the continuity of critical services; the risks associated with the increased use of Artificial Intelligence; and the risk profile of transitioning services to the Cloud.
Ensuring data is appropriately managed and of the required quality is a key enabler of RBS’s digitisation and automation strategy. BRC received updates on data management, GDPR implementation and compliance with regulatory expectations and data standards. In H2, the Committee supported the adoption of a set of principles to manage the emergent risk of information ethics, which will support consistent and robust standards of data use.
Meetings and visits All members attended the nine scheduled meetings held in 2019. In addition, six ad hoc meetings were arranged generally to consider regulatory submissions.
The Committee also held in-depth meetings on risk reporting and a horizon scanning session with Group and NatWest Holdings Chief Risk Officers which supplemented management’s own routine emerging risks process.
Further information on all the key topics considered by the Committee during the year is provided on the following pages. Part of the BRC’s role is to review reports and regulatory submissions on behalf of the Board and recommend them for approval. Where this is the case, the report on the following pages is annotated with an asterix (*).
2019 was another busy year for the Committee. While some legacy issues, such as financial crime, continue to absorb Committee time, there is an increasing shift towards more strategic issues. I anticipate the Committee will build on this in 2020 in particular as work on climate change risk accelerates.
Baroness Noakes Chairman of the Group Board Risk Committee 13 February 2020
Time was spent at every BRC meeting reviewing risk reports, assessing the most material risk exposures relative to strategy and risk appetite and scrutinising management’s actions to monitor and control such exposures.
BRC monitors and challenges the development of plans which would allow RBS to be dealt with effectively in the event of financial failure.
As in 2018, BRC devoted significant time to stress testing, challenging and scrutinising the outputs. This included the Bank of England stress test and internal stress tests.
Risk Frameworks BRC has played a key role in the review of the Risk Management and Risk Appetite Frameworks, with a fundamental review of both constructs taking place in 2019.
Risk Management Framework – BRC has reviewed and contributed to the development of the Enterprise Wide Risk Management Framework, which aims to provide consistent, efficient and effective risk management across RBS, including clarity of the three lines of defence model and Risk function mandate. It will monitor the framework as it is implemented and embedded over the following 12-18 months. Risk Appetite Framework: The methodology for setting, governing and embedding risk appetite across RBS was reviewed during 2019, with the objective of simplifying processes and further embedding risk appetite within strategic planning. The Committee reviewed the risk appetite framework and associated governance together with revised risk appetite statements and measures for key risks*. BRC reviewed escalated breaches of risk appetite and the action taken by management in response*.
Accountability – The Committee regularly considered developments in significant material events and investigations. This included resultant accountability recommendations, with the Committee advising RemCo on the risk aspects of these recommendations. Remuneration – The risk and control objectives of members and attendees of Group ExCo and NWH Exco were reviewed, with additional focus on underlying objectives for the Group Chief Risk Officer. In addition, the Committee reviewed the Long-Term Incentive performance conditions, pregrant and pre-vest assessments for ExCo, ensuring fair reflection of risk and conduct management performance in vesting outcomes. More generally, the Committee made recommendations to RemCo on the RBS bonus calculation, ensuring appropriate consideration of risk and conduct management performance. Proposals for the 2019 Executive Director Remuneration Policy referred to in the Directors’ Remuneration Report were also considered by the Committee.
We will continue to keep SBC’s focus and responsibilities under review, particularly in light of our renewed purpose.
There is still much to do as RBS Group transitions to becoming purpose-led. However as a Committee we have been reassured by the energy shown by colleagues in driving the sustainable banking agenda.
 Key topics debated included sustainability of profit pools, customer service and fairness, reputation and brand, digital strategy and financial capability. Outcomes included challenging management on pursuing marketing leading segments and gaining better insight on the impact of cost constraints on service innovation.
 Our December 2019 meeting was a spotlight on vulnerable customers, focusing on our wider role in society from a financial inclusion perspective and the evolving compliance environment. We heard directly from SafeLives, a charity with whom the bank has partnered to support the victims of financial abuse. The session challenged us to seek clarity on RBS Group’s financial inclusion ambition and on better understanding the underlying policy frameworks which support front-line staff.
 Areas of debate and challenge included our sustainable customer ambition and communication strategy. We agreed that communications need to better reflect the positive progress made.
 In September 2019 we dedicated the Committee meeting to understanding how the businesses identify and respond to current and emerging competitive threats.
 In October 2019 we debated how we build an engaged workforce and healthy culture for the future. We had the benefit of an external engagement speaker from Cognizant who challenged us on innovative culture.
Mike Rogers Chairman of the Group Sustainable Banking Committee 13 February 2020
I am delighted to present the second report of the Technology and Innovation Committee (the Committee or TIC).
Role and responsibilities TIC supports the RBSG plc Board in overseeing and monitoring RBS’s strategic direction in relation to technology and innovation. Technology and innovation continues to transform banking and the Committee was established to allow the Board to dedicate sufficient time to this area of critical importance to our strategy and our customers.
Membership and meetings The committee comprises four Non-Executive Directors including me as chair and NED membership has remained unchanged this year.
Management support for the Committee also continued with the CEO, CFO, Group Chief Risk Officer and Chief Administrative Officer, CEO Bó, Director of Innovation and Director of Strategy and Corporate Development all standing attendees.
The Committee held five meetings during 2019, held listening sessions with external speakers and undertook a number of deep dives. Details of meeting attendance can be found at page 66 of the Governance Report.
Principal activity during 2019 The TIC has remained focused on three key themes: Digitising the core – A large part of the Committee’s focus has been on overseeing and challenging the bank’s progress in digitising its existing core banking businesses and leveraging new technologies such as cloud computing, machine learning and process automation, and mobile delivery to improve the experience for our customers and to modernise the way we deliver banking.
We also looked at innovative financial services business getting traction and reaching scale in other parts of the world that might be valuable to UK customers.
Innovation strategy, culture and capability To ensure a successful and sustainable position in financial services in the future, the bank will need to continue to evolve its innovation strategy, culture, and capabilities.
Alison Davis Chairman of the Technology & Innovation Committee 13 February 2020
Page Summary of policy and changes 79 Directors’ Remuneration Policy 82 Annual Report on Remuneration 90 Other Remuneration Disclosures 102
Executive director pay policy The Committee believes the current policy is working well and is helping RBS achieve its overall aim of building a simple, safe and more customer focused bank. It continues in large part to receive positive feedback from shareholders, executive directors and our wider workforce. In particular, it is incentivising executive management, in a manner that is easily understood, to act in accordance with our aims. It also demonstrates to the wider workforce that across RBS Group we are following a restrained but fair pay position within a culture of prudent risk-taking.
The policy aims to balance lower maximum long-term incentive (LTI) awards with more predictable outcomes. Performance is assessed on factors which, though demanding, executive directors would reasonably be expected to achieve, encouraging safe and secure growth within risk appetite.
Variable pay is delivered entirely in shares with no annual bonus and the CEO’s executive management team receive a similar pay construct. The main performance test takes place before granting the LTI award with a further assessment prior to vesting to ensure that the performance has been sustainable. There are extensive deferral requirements and additional retention periods which create strong long-term alignment with the interests of shareholders.
I recognise that the unusual nature of the policy means it was not supported by all of the proxy agencies in 2017. However it received a very high level of support from shareholders at the 2017 AGM, with over 96% of votes in favour, and has continued to receive strong support in subsequent years with over 99% of votes in favour of the implementation report. The Committee is therefore proposing minimal changes to the policy.
In compliance with the latest UK Corporate Governance Code (the Code) and investor guidance, pension rates for executive directors have been aligned with the wider workforce at 10% of base salary and a postemployment shareholding requirement will apply for two years after leaving.
With RBS resuming dividends in 2018, the Committee has considered the potential impact on LTI awards. In line with the practice of other major UK banks, the Committee is proposing to have flexibility in future to grant LTI awards using a share price which reflects that no dividends or dividend equivalents are paid on awards during the vesting period. Subject to shareholders agreeing the policy, the earliest date this methodology would be applied would be for LTI awards granted in 2021. No other changes are proposed to variable or fixed pay levels.
 Ability to adjust LTI awards for the absence of the right to receive dividends.
Executive director changes during 2019 Ross McEwan Mr McEwan stepped down as CEO on 31 October 2019 and left RBS on 30 November 2019. No payment was made in lieu of notice. The Board agreed that Mr McEwan qualified for good leaver retirement, in line with the policy agreed by shareholders. Mr McEwan’s new role with National Australia Bank (NAB) was not considered to compete directly and materially with RBS given NAB’s very limited presence in the UK. Mr McEwan’s good leaver status will be re-evaluated prior to each vesting date.
Alison Rose Ms Rose has worked at RBS for over 27 years and was appointed CEO on 1 November 2019. Ms Rose brings extensive experience and a track record of success, having previously been Deputy CEO of NatWest Holdings and CEO of the Commercial & Private Banking business.
Performance and pay decisions for 2019 As noted in the Strategic Report, performance has been good during the year with strong levels of capital being maintained while making significant distributions to shareholders through dividends. Growing income is proving difficult in the current economic climate, however, there has been good progress on cost reduction plans.
Pre-grant assessment for 2020 LTI award Executive directors are due to receive LTI awards in 2020 following an assessment of performance over 2019. In line with the policy, performance was assessed against pre-set objectives following which the Committee applied its judgement in reaching the level of grant for the 2020 LTI awards.
Mr McEwan was assessed as making good progress overall against 2019 targets. Capital remained strong, the control environment had improved and culture and engagement scores remained very positive. Mr McEwan also remained engaged until his departure, helping to ensure a smooth handover. However, customer targets were not met and RoTE was behind target.
Ms Rose had a strong year, developing into the role of Deputy CEO NatWest Holdings, launching the Rose Review and improving risk and culture scores in the Commercial and Private Banking business. It was noted that more work was needed on financial crime. Ms Rose was considered to have made a promising start as CEO, but the period of time was too short for a meaningful assessment of performance.
Mr McEwan’s maximum award was pro-rated, to reflect he was employed for 11 months of the performance year, and Ms Rose’s percentage was based on her maximum potential award as CEO. A further performance assessment of 2020 LTI awards will take place prior to vesting. Full details on the pre-grant and pre-vest assessments can be found on pages 92 to 94 in this report.
Fairness – The number of employees at RBS who believe they are paid fairly increased again during 2019 and is significantly above the Global Financial Services norm. In the UK, our rates of pay continue to exceed the Living Wage foundation benchmarks. We are confident we pay our employees fairly and our policies and processes are kept under review to ensure we continue to do so.
Gender and ethnicity pay gap information can be found in the Strategic Report section. The Committee considers these metrics to be highly important and acknowledges there is more work to be done to address the position.
Colleague engagement – A Colleague Advisory Panel provides direct engagement between colleagues and Board members. During the year the Panel was provided with an update on the principles of executive director remuneration and how it aligns with the wider company pay policy. This was followed by a helpful question and answer session with Panel members.
Transparency – This report has been produced in line with the latest reporting requirements and the Code. It includes CEO to employee pay ratios along with broader disclosures on employee remuneration.
Looking ahead The Committee is also looking to ensure that remuneration supports the goal of becoming a purpose-led bank, helping to build financial confidence, supporting enterprise and taking actions to help the transition to a low carbon economy. This will include the introduction of measures based on the execution of RBS’s wider ESG strategy, as detailed in the Strategic Report, with the measures being part of the performance assessment for future LTI awards.
Robert Gillespie Chairman of the Group Performance and Remuneration Committee 13 February 2020
Summary of the principles of the executive directors’ remuneration policy Alignment with the aim of building a bank that is simple, safe and customer focused
Performance is assessed using a robust framework against pre-set objectives which, though demanding, executive directors would reasonably be expected to achieve, encouraging safe and secure growth.
The proposed amendments to the 2020 policy will align with the Code and best practice guidance on pension rates and postemployment shareholding requirements.
Summary of changes to the executive directors’ remuneration policy * 10% of base salary is in line with the rate applicable to the vast majority of the workforce. Over 99.7% of employees in the UK receive this rate. ** the combination of the vesting period and the retention period means shares are released during the four to eight years after grant.
£1,100,000 £750,000 The percentage of salary (100%) and release period (three years) is unchanged. Awards will be made quarterly, rather than biannually, in future to align with market practice.
Leaver terms Awards lapse unless individual qualifies as good leaver. No pro-rating of awards after grant in good leaver circumstances.
Pre-grant and pre-vest assessments, together with risk & control and stakeholder perception underpins.
Remuneration policy for executive directors Having conducted a detailed review during 2019, the Committee concluded that the principles underpinning the current policy continue to remain relevant for RBS. The intention of the policy is to support the strategy of building a safe, simple and customer focused bank. The table below sets out the proposed remuneration policy for executive directors. Subject to approval from shareholders, the policy will be effective from the date of the 2020 AGM and will apply for a maximum period of three years, until the AGM in 2023.
The rates for 2020 are unchanged following the appointment of Alison Rose as CEO on 1 November 2019: Any future salary increases will take into account performance in role and will be considered against peer companies. Any increase will not normally be greater than the average salary increase for RBS employees over the period of the policy.
Other than in exceptional circumstances, the salary of an executive director will not increase by more than 15% over the course of this policy.
A fixed allowance paid entirely in shares. Individuals receive shares that vest immediately subject to any deductions required for tax purposes and a retention period will apply. Shares will be released annually on a pro-rata basis over three years from the date of award.
Further benefits including, but not limited to, relocation assistance may be offered in line with market practice. RBS may also put in place certain security arrangements for executive directors where that is deemed appropriate. RBS may meet the cost of any tax due on these benefits.
Set level of funding for standard benefits (currently £26,250) which is subject to periodic review.
In compliance with the Code, the pension allowance rates for executive directors under the 2020 policy have been aligned with those of the wider RBS workforce, currently 10% of base salary (2). The rate may be increased or reduced in order to remain aligned with the wider RBS workforce.
Notes: (1) RBS believes that delivery in shares is the most appropriate construct for a fixed allowance to executive directors, qualifying as fixed remuneration for regulatory requirements. If regulatory requirements emerge that prohibit allowances being delivered in shares, or deem that such allowances will not qualify as fixed remuneration, then RBS reserves the right to provide the value of the allowance in cash instead in order to ensure compliance with such requirements.
Variable pay (LTI award) To support a culture where individuals are rewarded for the delivery of sustained performance, taking into account RBS’s strategic objectives and purpose.
Performance will be assessed across four key performance areas, and include a range of financial and nonfinancial factors to encourage long-term value creation for shareholders.
Any variable pay awarded will be delivered as a long-term incentive (LTI) award, paid in shares and subject to performance assessment and employment conditions.
Awards will be subject to any other terms as required by regulators from time to time.
LTI awards will be delivered under the RBS 2014 Employee Share Plan, as approved by shareholders at the 2014 AGM.
The maximum award for current executive directors is 175% of salary for the CEO and 200% of salary for the CFO, or such higher amount which represents such value rounded up to the nearest whole share.
Awards are also subject to the regulatory requirement that limits the value of variable pay to the value of fixed pay. Award levels are set at the time of grant and may be subject to a discount for long-term deferral in determining the total variable remuneration, in line with European Banking Authority (EBA) guidelines.
Risk & Control and Stakeholder Perception underpins will also apply which may lead to a downwards adjustment.
 Changes that have been made under the executive directors’ remuneration policy include: lowering the pension rate to 10% of salary; the introduction of a post-employment shareholding requirement; and the ability to apply a discounted share price when calculating LTI awards to reflect award-holders not being eligible to receive dividends or dividend equivalents during the vesting period.
 Further details on the remuneration policy for all employees can be found on page 102.
To ensure executive directors build and continue to hold a significant shareholding to align their interests with the interests of shareholders
Procedures will be put in place in order to assist with the enforcement of the shareholding requirements, both during and after employment. This includes the executive directors agreeing to be bound by the terms of the requirements and the use of prescribed nominee accounts to hold shares subject to restrictions.
Opportunity to contribute from salary and acquire shares under any of the company’s all-employee share plans in operation from time to time, such as the RBS Sharesave Plan and Buy As You Earn (part of an employee Share Incentive Plan). These plans are not subject to performance conditions.
(2) The first maximum assumes LTI awards vest at 100% after the performance assessment and that the share price remains unchanged for the LTI value. The second maximum assumes both full vesting of the LTI awards and a 50% increase in the RBSG plc share price over the period from grant to vest.
(3) The benefits figure includes standard benefit funding as outlined in the policy but excludes any potential other benefits under the policy such as travel assistance in connection with company business. The value of any taxable business expenses will be disclosed in the total remuneration table each year.
Remuneration for the Chairman and non-executive directors A review was undertaken on the remuneration policy for the Chairman and the non-executive directors. The only amendment proposed under the new remuneration policy is that the Chairman will be entitled to life insurance cover, provided the costs are considered by the Board to be reasonable. Offering life insurance for the role of Chairman is in line with the practice by most of the other major UK banks.
Fees are reviewed regularly and the Board may choose to apply an increase on an annual or less frequent basis, within the limits set out in this policy. Additional fees may be paid for new Board Committees provided these are not greater than fees payable for the existing Board Committees as detailed in the annual report on remuneration.
No variable pay is provided so that the Chairman and nonexecutive directors can maintain appropriate independence, focus on long-term decision making and constructively challenge performance of the executive directors.
The rates for the year ahead are set out in the annual report on remuneration.
The Chairman and non-executive directors are entitled to travel assistance in connection with company business, including the use of a car and driver where deemed appropriate. Where this is a taxable benefit for the recipient, RBS will meet the cost of any tax due on the benefit. On rare occasions where they are accompanied by their spouse / partner to business events, RBS may also meet the costs and any associated tax liability. Other benefits may be offered in line with market practice.
The value of the private medical and life insurance cover provided to the Chairman and any other benefits will be in line with market rates and disclosed in the annual report on remuneration.
 The pension allowance for new executive directors will be in line with that of the wider RBS workforce, currently 10% of base salary, compliant with the Code.
 In the event of an internal promotion, existing commitments can continue to be honoured.
 Buy-out arrangements exist which allow for the replacement of awards forfeited or payments foregone when an individual joins RBS. Any awards made will comply with regulatory requirements.
 The maximum level of variable pay which may be granted to new executive directors will be guided by, but not limited to, arrangements for existing executive directors. In any event this will not exceed the limit of one times the level of fixed pay, comprising salary, fixed share allowance, pension and benefits, and valued according to EBA guidelines. The maximum level excludes any buy-out arrangements.
Executive directors As set out in executive directors’ service contracts, RBSG plc or the executive director is required to give 12 months’ notice to the other party to terminate the employment. The Committee will ensure that any proposals relating to termination payments are fair and reasonable and recognise that failure is not rewarded. There are no pre-determined provisions for compensation on termination. There is discretion for RBS to make a payment in lieu of notice (on base salary only) which is released in monthly instalments. The executive director must take all reasonable steps to find alternative work and any remaining instalments will be reduced as appropriate to offset income from any such work.
Effective dates of appointment for non-executive directors: Frank Dangeard – 16 May 2016 Alison Davis – 1 August 2011 Patrick Flynn – 1 June 2018 Morten Friis – 10 April 2014 Robert Gillespie – 2 December 2013 Baroness Noakes – 1 August 2011 Mike Rogers – 26 January 2016 Mark Seligman – 1 April 2017 Lena Wilson – 1 January 2018
 RBS operates an LTI only construct, whilst peers also offer annual bonus awards (which typically are also not subject to pro-rating after grant).
 Therefore, without the removal of pro-rating, executives at RBS could potentially receive no variable pay for the year of joining, in line with regulatory requirements, or in the final year of employment.
Individuals will only qualify for good leaver treatment if they leave due to ill-health, injury, disability, death, retirement (as agreed with RBS), redundancy, the employing company ceasing to be a member of RBS Group, transfer of the employing business, or any other reason if, and to the extent, the Committee decides in any particular case. If good leaver treatment does not apply then LTI awards will be forfeited on leaving.
Contracts include standard clauses covering remuneration arrangements and discretionary incentive plans (as set out in this report), referencing reimbursement of reasonable out-of-pocket expenses incurred in performance of duties, annual leave, redundancy terms and sickness absence, the performance review process, directors’ and officers’ insurance, the disciplinary procedure and terms for dismissal in the event of personal underperformance or breaches of RBS policies. The Committee retains the discretion to make payments (including but not limited to professional and outplacement fees) to facilitate smooth handovers, mitigate against legal claims and/or procure reasonable assistance with investigations or claims, subject to any payments being made pursuant to a settlement or release agreement.
Discretion The Committee has certain discretionary powers under the company’s employee share plan rules. For example, the Committee has discretion to determine whether an individual would qualify as a good leaver on departure and also to decide that awards held by good leavers should vest earlier than the normal vesting date. Such discretions would only be used to ensure a fair outcome for the director and for shareholders, taking into account the circumstances of departure, the performance of the director and the need for an orderly transition. If discretion is applied in these circumstances then it will be disclosed in the annual report on remuneration.
Further discretions include the ability to: treat LTI awards in a range of ways in the event of a change of control, including the ability for LTI awards to be exchanged for new awards; change any performance measures, targets, and to adjust awards if major events occur (for example corporate transactions and capital raisings); and make administrative changes to the plan rules. In addition, the Committee retains discretion to apply malus and clawback to LTI awards. When assessing performance, the Committee is able to exercise its judgement to determine the appropriate vesting of LTI awards, supported by the application of underpins, which helps to avoid any potentially unintended outcomes that might arise from the application of performance criteria.
Circumstances in which RBS may apply malus or clawback include:  conduct which results in significant financial losses for RBS;  the individual failing to meet appropriate standards of fitness and propriety;  an individual’s misbehaviour or material error;  RBS or the individual’s business unit suffering a material failure of risk management; and
 for malus and in-year bonus reduction only, circumstances where there has been a material downturn in financial performance.
 A formal post-employment shareholding requirement will be introduced for executive directors under the new policy, in order to fully comply with the Code and Investment Association Principles of Remuneration.
 The requirement will apply for two years at a level equal to the lower of the shareholding requirement immediately prior to departure or the actual shareholding on departure.
 The Committee works closely with the Group Sustainable Banking Committee (SBC), which has a specific focus on people and culture. The decision to remove front-line incentives for large numbers of employees in recent years to support the desired culture was something that both committees supported.
 RBS operates within a 1:1 regulatory cap of variable to fixed pay which is considered to be a restrained and proportionate approach to executive remuneration.
 A Colleague Advisory Panel has been established in compliance with the Code. The Committee Chairman has met with the Panel to discuss executive remuneration and how it aligns with the wider pay policy.
 The remuneration policy and share plan rules contain malus and clawback provisions to adjust or recover awards where appropriate. Further details of the process and the circumstances in which RBS can apply malus and clawback are set out on page 103.
Engagement with shareholders Every year an extensive consultation is undertaken with major shareholders and other stakeholders prior to the Committee making any final decisions on remuneration and variable pay awards. In late 2019 and early 2020, around 20 meetings took place with a number of institutional shareholders, UK Government Investments (UKGI) and other stakeholders. A range of topics were discussed including arrangements for the new CEO and the proposed changes to the remuneration policy as outlined in this report.
There was broad support from shareholders for the executive director remuneration arrangements. The alignment of pension rates with the wider workforce and the introduction of a post-employment shareholding requirement for executive directors were seen as positive developments. A number of shareholders acknowledged the need for RBS to remain competitive on pay while some also highlighted that any further increases to quantum would need to be carefully justified. The Committee took these views into account.
Shareholders also highlighted the importance of pay outcomes reflecting performance and the need for good disclosure, given RBS’s bespoke performance assessment framework. The Committee Chairman explained how LTI performance was still assessed using pre-set objectives and a robust framework but without formulaic weightings which could lead to unintended consequences. The Committee Chairman confirmed that plans were already in place to enhance the LTI disclosures in this report which was widely welcomed.
Shareholders were also generally supportive of good leaver status being applied to Mr McEwan and went on to discuss broader topics such as culture and the company’s approach to climate change. A number of climate-related measures have been added to the 2020 performance goals for executive directors, as explained later in this report.
Consideration of employees' views The Committee retains oversight of the remuneration policy for all employees to ensure there is a fair and consistent approach throughout the organisation, and considering employees’ views is part of that process.
Engagement with colleagues* Engagement on remuneration generally takes place with representatives from UNITE in Great Britain and Offshore and the Financial Services Union in Ulster Bank. There is a well-developed process in place to listen to the views of the workforce. This provides opportunities to improve by assessing colleague sentiment, and checking progress in making RBS a great place to work. Regular engagement takes place with colleagues throughout the year. Board members visit business areas to hear directly from colleagues and there are frequent townhall meetings and question and answer sessions with senior executives.
The CAP met twice in 2019 and provided views to the Board on areas such as purpose, digital strategy, culture, executive pay and performance management. In May, the CAP heard directly from the Committee Chairman on how executive remuneration aligns with the broader reward policy. The November 2019 meeting included an update from the CEO on future strategy and discussions were also held on inclusion and sustainable banking.
Following each meeting, a summary is provided to the Board and a subsequent follow-up call is held so that members of the CAP can hear how their views were shared and what happened as a result. Feedback has been very positive to date with members highlighting the variety of topics and good discussions with Board members and viewing the CAP as a safe environment to voice opinions and hear Board insights.
Flexible working is offered where this is possible and appropriate. This allows colleagues to explore working patterns with their line manager and select a more flexible approach to work that meets their needs.
RBS has a clear, simple and transparent reward structures for all employees. A review of employees’ pay takes place each year and focuses on moving them to the right rate of pay for their job. Investment in pay levels in recent years has focused mostly on junior employees.
RBS has removed front-line incentives and variable pay for large numbers of employees, with an increase to fixed pay instead. This provides greater certainty for these employees and allows them to focus fully on providing the best service for customers. HR policies and processes are kept under review to ensure employees are paid fairly.
A Good Leader RBS is continuing to develop great leaders and supporting the development of talent across RBS Group. This is driven by a flagship leadership programme – Determined to lead (Dtl). It teaches the skills to lead, manage and coach people so they make positive behaviour changes and improve their performance. Around 11,000 leaders have completed their Dtl training to date.
* References to “colleagues” in the Directors’ Remuneration Report include all members of the workforce, for example contractors and agency workers as well as employees.
Where indicated in the section headers, information is within the scope of the Independent auditor’s report. Where a main section header, presented in bold, is marked as audited, all subsequent sub sections are also audited, the end of the audited section is marked by ∆.
Single total figure of remuneration for executive directors for 2019 (audited)
Ross McEwan (5) Alison Rose (6) Katie Murray (6) 2019 2018 2019 2018 2019 2018 £000 £000 £000 £000 £000 £000
Base salary 833 1,000 183 — 750 — Fixed share allowance (1) 833 1,000 183 — 750 — Benefits (2) 69 117 10 — 26 — Pension (3) 292 350 18 — 75 — Total fixed remuneration 2,027 2,467 394 — 1,601 — Annual bonus n/a n/a n/a — n/a — Long-term incentive award (4) 2,039 1,111 1,007 — 140 — Total variable remuneration 2,039 1,111 1,007 — 140 — Total remuneration 4,066 3,578 1,401 — 1,741 —
consisting of assistance with tax return preparation, and home security arrangements (£1,786) and Alison Rose received travel assistance (£5,584) and home security arrangements (£446). The figures reflect the period served as an executive director.
2017 LTI award – final assessment of performance measures (audited) An assessment of performance of each relevant element was provided by internal control functions and PwC assessed relative Total Shareholder Return (TSR) performance against a peer group of comparator banks. Performance Measures Performance for Vesting at Performance for maximum
Economic Profit (25%) (£875 million) 25% £125 million Below threshold for vesting 0% 0.00%
Relative TSR (25%) TSR at median 20% TSR at upper quartile Above upper quartile 100% 25.00%
Safe & Secure Bank (25%) Vesting between 0% - 100%* CET1 ratio: >13% 100%
NPS target: significant progress to number 1 in our chosen segments
Split across advocacy, trust and employee engagement Trust target: significant progress to number 1 in our chosen segments
EI target: increase employee engagement EI: increased from 75 to 87 100%Net Trust Score (NTS) (5%)
There were six chosen customer segments for advocacy and five customer segments for Trust. Customer advocacy was measured by Net Promoter Score and Trust was measured by the percentage of customers that trust RBS to ‘do the right thing’. Chosen segments reflect RBS’s key products, service channels and customer groups. Economic Profit was defined as profit after tax and preference share charges less tangible net asset value multiplied by the cost of equity. There is a weighted peer group for relative TSR performance. The companies and weightings for this award were: Barclays and Lloyds (200%), HSBC (100%), and Standard Chartered, BBVA, BNP Paribas, Crédit Agricole, Santander, Société Générale, Unicredit, ING, Intesa San Paolo and Nordea Bank (all weighted 50%).
Final outcome and discretionary underpin If the Committee considers that the vesting outcome calibrated in line with the performance conditions above does not reflect underlying financial results, or if the Committee is not satisfied that conduct and risk management during the performance period has been effective, then the terms of the award allow for an underpin to be used to reduce the vesting. In making its final judgement, the Committee considered the overall context of performance, noting significant improvements in Relative TSR, employee engagement and the strong capital position. Set against this, customer performance was poor and the Committee determined that economic profit should not be adjusted for strategic costs. As a result, both these categories did not vest. Input was also received from the Group Board Risk Committee (BRC) on risk performance. In line with the table above, the Committee had exercised its discretion in determining that the cost:income element should vest at the mid point of the scale and believed this was a fair reflection of performance. Taking all circumstances into account, the Committee determined that no further adjustment was necessary under the discretionary underpin.
Ross McEwan The maximum number of shares for the performance assessment for Mr McEwan is calculated in line with the underlying award structure, where each of the four performance categories can vest up to 100% of salary at the time of grant. However, the actual number of shares received can never exceed the number of shares capped under the approved policy and the regulatory maximum at the time of grant. There are checks in place to ensure that these limits are not breached. Pro-rating has been applied to Mr McEwan’s 2017 LTI award reflecting that 35 of the 36 months in the performance period had been completed by his final date of employment, 30 November 2019. As set out below, the number of shares following the performance assessment falls within the maximum number of shares capped at the time of grant.
Alison Rose and Katie Murray Awards are based on similar performance areas as those applicable for Ross McEwan. While the weightings differ across the performance categories, the outcome of the performance assessment reflects that set out on the previous page for the executive director award other than a return on tangible equity (RoTE) measure which replaced economic profit for the LTI population below Board in 2017. The RoTE target was not deemed to have been met at the end of 2019. No discretion was exercised by the Committee in determining the outcomes below.
Performance Requirements Face value of Number of minimum and award (£000s) shares awarded maximum
The awards were subject to a pre-grant assessment of performance over 2018 and a further assessment will take place following the end of the 2020 financial year. Further details of the LTI performance assessment framework can be found in the 2018 Report and Accounts and overleaf. Alison Rose 7 March 2019 1,500 568,829
Katie Murray 7 March 2019 719 272,613 n/a Award was subject to a performance assessment over the 2018 financial year.
Core area and goals Performance targets for 2019 (1) Pre-grant assessment Summary
 10.2% for NWH Group (being NWH Ltd and its subsidiaries).
CET1 ratio for 2019 was as follows:  16.2% for RBS Group
 15.7% for NWH Group, with £1.5bn of capital repatriated to the RBS Group.
Improve or maintain control environment. Material progress towards desired risk culture.
Compliance with the minimum controls for the effective management of compliance with ring-fencing rules, as set out in the ring-fencing policy.
Positive progress towards a (‘1’) generative risk culture rating with strong tone from the top and effective action plans in place. As a minimum, RBS Group and NWH Group to achieve (‘2’) systematic risk culture rating.
Good progress made towards risk culture target, with a risk culture rating of systematic having been achieved across all but two business units.
Achievement of targets for brands and chosen segments against Competition and Markets Authority (CMA) rankings and Net Promoter Scores (NPS). See note (3) below for full details.
Customer performance was mixed during 2019, with a number of the customer targets not met. See note (3) below for details of the Customer targets and performance.
Achievement of progress based on working together surveys with targets:  internal NPS of -5 for RBS Group and NWH Group
Targets not met with the internal NPS and core service behaviour score both having declined since 2018.
Employee engagement index (EI) and leadership index (LI) scores:  EI target of 87
 EI and LI scores both increased by 2 points from 2018, to 87 (EI) and 81 (LI), resulting in both targets being met.
Overall RBS has seen improvements in all RBS Our View assessed measures as a result of an increase in EI , LI and culture scores across most business units. A limited number of such areas experienced a slight degradation on high EI, LI and culture scores year on year.
The RBS target is to have 30% or more women in senior roles across each business unit by 2020 globally. While this specific target has not yet been met, the overall RBS Q3 actual was 35%.
(2) Tangible equity based upon a simple full year average. (3) Brand CMA and NPS targets together with the scores achieved are set out below: Business area NatWest
Score 23 and 1st 50% and 9th -31 43 61% and 7th 46% and 16th -15 and 3rd
Maximum award level under the policy £1,750,000 £1,925,000 £1,500,000 Agreed award level following the pre-grant performance assessment £1,100,000 £1,500,000 £1,100,000
There were positive indicators of performance during the year However performance was not fully at the desired level
 RBS continued to maintain a strong capital position. Further progress was also made on simplifying the bank with lower costs in 2019.
 On people measures, employee engagement was at its highest since measurement began in 2002. The RBS ‘Our View’ employee engagement survey scores also saw an improvement of an average of two points per assessed category, which scored RBS higher than the Global Financial Services benchmark. Good progress was also made with regards to longer term diversity and inclusion targets.
 With a couple of notable exceptions in NatWest Commercial and Coutts, customer performance was not considered by the Committee to be at the level expected.
 The Committee noted that risk management performance had improved, although four business units were still to attain the desired ‘2’ control environment rating. Similarly, on risk culture, all but two business units had by year end achieved a ‘systematic’ risk culture rating.
 On financial measures, RoTE was behind target due to increased PPI charges and margin pressure and full year core income for NatWest Markets was adverse to plan.
Four core questions will be considered as part of the pre-vest assessment. In determining the final vesting level of the award, the Committee will consider both individual and collective performance which means that there may be different vesting levels by participant. The process that will be followed to determine whether sustainable performance has been delivered is as follows: Performance Goals for 2020 (for the pre-grant assessment of LTI awards to be made in 2021) The table below forms the basis of the pre-grant assessment for LTI awards to be made in early 2021, with performance assessed across four core areas using a balanced scorecard and with measures that align with RBS’s purpose. It should be noted that the pre-grant assessment for LTI awards operates over a one-year period based on strategic targets for that year, and in this respect it has some similarities to the operation of annual bonus awards rather than traditional long-term incentive awards. Targets are disclosed in advance where these are not deemed commercially sensitive. There are no weightings set for the performance categories as the Committee follows a robust process to review performance against pre-set goals but applies its judgement without reference to formulaic weightings. Full details on the 2020 targets and the assessment of performance against these will be set out in the 2020 Directors’ Remuneration Report.
If the answer to each of these questions is “Yes”, the Committee may decide that a reduction on pre-vest is appropriate, and it has the discretion to decide the amount.
Risk & Control and Stakeholder Perception underpins In addition, the Committee will consider the potential application of Risk & Control and Stakeholder Perception underpins following advice from the BRC and the SBC. This provides scope to consider significant risk, stakeholder or reputational matters not already captured in the performance assessment. The underpins also allow the Committee to consider events arising during the period between grant and the end of year three.
RBS Group and NWH Group to achieve a control environment rating of 2, with RBS Group and NWH Group change programmes managed and executed within policy and risk appetite.
Achievement of targets across the top 5 customer journeys to be prioritised for transformation in 2020.
Net Promoter Score improvement of: 8 points for account opening; 4 points for paying a person or bill; 2 points for keeping purchases and payments safe; 8 points for commercial lending; and 3 points for business servicing.
Achievement of improved net trust scores for NatWest and Royal Bank of Scotland.
Increase new funding and financing for climate and sustainable finance to £6.5bn in 2020.
Based on achieving the capability targets for RBS Group and NWH Group as measured through the RBS ‘Our View’ colleague survey.
RBS Group and NWH Group to be 12 points above the Global Financial Services Norm.*
RBS Group and NWH Group to be equal to the Banking Standards Board norm.*
Based on achieving the shared purpose target for RBS Group and NWH Group, as measured through the RBS ‘Our View’ colleague survey.
RBS Group and NWH Group to be 1 point above the Banking Standards Board norm.
To increase the percentage of BAME/nonwhite UK employees in the top four layers from 9% to 10% on aggregate.
RBS Group and NWH Group to be 10 points above the Global Financial Services Norm.
*Willis Towers Watson’s Global Financial Services Norm. The Banking Standards Board norm is based on the average score across all participating banks. For the CFO, performance will be assessed in line with the framework above and the performance of the Finance function will also be taken into account.
The Board agreed that Mr McEwan qualified for good leaver treatment, as per the requirements in the policy section of this report, in respect of his unvested LTI awards. Mr McEwan was in his sixth year as CEO and was planning to retire to New Zealand. After announcing his intention, Mr McEwan was subsequently approached by, and then accepted an appointment with, National Australia Bank (NAB). The Board considered all the circumstances and NAB was not viewed as competing directly and materially with RBS given its very limited presence in the UK and, therefore, all the retirement criteria were deemed to have been met. Should Mr McEwan decide to take on a different role in future, then the good leaver criteria would be re-tested.
Notes: (1) The benefits column for Howard Davies includes private medical cover. (2) Non-executive directors are reimbursed expenses incurred in connection with travel and attendance at Board meetings. HMRC deems these expenses as taxable where the meetings take place at the company’s main offices and RBS settles the tax on behalf of the non-executive directors. (3) Under the ‘Other’ column, Frank Dangeard received a composite fee as Chairman of the NatWest Markets Plc (NWM Plc) Board. Brendan Nelson also received fees as a member of the NWM Plc Board and these are shown above for the period to 25 April 2019, the date he stood down from the RBSG plc Board.
Key to table: N&G Group Nominations and Governance Committee RemCo Group Performance and Remuneration Committee GAC Group Audit Committee SID Senior Independent Director BRC Group Board Risk Committee GRG BOC Board Oversight Committee for the GRG business areas SBC Group Sustainable Banking Committee CAP Colleague Advisory Panel TIC Technology and Innovation Committee
Salary Standard benefits (1) Pension (% of salary) Fixed share allowance LTI award following pre-grant 100% of salary (2) assessment over 2019
The value of benefits received will be disclosed each year. (2) Fixed share allowance payable broadly in arrears, currently in two instalments per year but moving to four instalments per year following the AGM, with shares released in equal amounts over a three year period.
Fees for RBSG plc Board (1) Rates from 1 January 2020
Group Board Risk Committee £34,000 £68,000 Group Audit Committee £34,000 £68,000 Group Performance and Remuneration Committee £30,000 £60,000 Group Sustainable Banking Committee £30,000 £60,000 Technology and Innovation Committee £30,000 £60,000 Group Nominations and Governance Committee £15,000 —
Other fees for RBSG plc Board directors Chairman of NatWest Markets Plc (composite fee to cover all boards and committees) £260,000 Chairman of the Colleague Advisory Panel £15,000
Westminster Bank Plc, The Royal Bank of Scotland plc and Ulster Bank Limited. Where appropriate, directors receive additional fees in respect of membership of other subsidiary company boards and committees including NatWest Markets Plc. The value of fees received will be disclosed in this report each year.
The shareholding requirement is to hold shares to the value of 400% of salary for the CEO and 250% of salary for the CFO. Following the prevest performance assessment of LTI awards at the end of year three, shares will be deemed to count on a net of tax basis towards meeting the shareholding requirement. Once the respective retention periods have passed, executive directors are permitted to dispose of up to 25% of the net of tax shares received until the shareholding requirement is met. Under the policy being proposed at the 2020 AGM, a post-employment shareholding requirement will also be introduced. Executive directors will be required to hold shares of a value equal to the lower of their shareholding requirement immediately prior to departure or the actual shareholding on departure, for a period of two years. A fixed number of shares for the post-employment shareholding requirement will be determined at the date of departure.
Notes: (1) Mr McEwan holds 115,322 shares from his 2015 and 2016 fixed share allowances that are included in the shares held below but these have been excluded from the shareholding requirements calculation as he will transfer these shares to charity at the end of the retention period. Mr McEwan exceeded his shareholding requirement at the date he stepped down from the Board while Ms Rose and Ms Murray are making progress towards their requirements, having only been appointed to the Board during 2019.
(2) The calculation is based on a share price of £2.13 as at 31 October 2019 for Mr McEwan, the date he stepped down from the Board, and £2.40 as at 31 December 2019 for Ms Rose and Ms Murray. During the year the share price ranged from £1.78 to £2.70.
McEwan Rose Murray Davies Dangeard Davis Flynn Friis (5) Gillespie Nelson Noakes Rogers Seligman
Shares held (1) 2,483,768 1,205,945 250,222 100,000 5,000 20,000 — 20,000 25,000 12,001 41,000 20,000 30,000 20,000 LTI / deferred awards subject to service (2) 672,834 300,023 420,538 — — — — — — — — — — — LTI awards subject to performance (3) 2,406,840 1,803,324 103,969 — — — — — — — — — — —
Directors’ interests under the company’s share plans (audited) Year of award
Total Shareholder Return (TSR) performance The graph below shows the performance of RBSG plc over the past ten years in terms of TSR compared with that of the companies comprising the FTSE 100 Index. This index has been selected because it represents a cross-section of leading UK companies. The TSR for FTSE UK banks for the same period has been added as a further comparison. Source: Datastream
2009 YE 2010 YE 2011 YE 2012 YE 2013 YE 2014 YE 2015 YE 2016 YE 2017 YE 2018 YE 2019 YE
Remuneration paid to all employees (1) 3,516 3,628 -3.09% Distributions to holders of ordinary shares (2) 3,018 241 1152% Distributions to holders of preference shares and paid-in equity 406 470 -13.62% Taxation and other charges recognised in the income statement: - Social security, Bank levy and Corporation tax 890 1,062 -16.20% - Irrecoverable VAT and other indirect taxes incurred by RBS (3) 637 616 3.41%
Change in CEO’s pay compared with employees The table below shows the annual percentage change in remuneration for the CEO compared with the percentage change in the average remuneration of RBS employees based in the UK. In each case, remuneration is based on salary, benefits and annual bonus. Under the remuneration policy the CEO also receives a fixed share allowance and is eligible for LTI awards rather than annual bonus.
Salary Benefits Annual Bonus 2018 to 2019 change 2018 to 2019 change (2) 2018 to 2019 change
Chief Executive Officer (1) 1.66% 0% n/a UK employees (3) 3.05% 1.25% -6.30%
Notes: (1) Alison Rose was appointed CEO on a salary that was 10% higher than her predecessor, as outlined earlier in this report. As the change was effective from 1
CEO to employee pay ratios The ratios compare the total remuneration of the CEO, as set out in this report, against the remuneration of the median UK employee as well as employees at the lower and upper quartiles. The disclosure will build up over time to cover a rolling 10-year period. A significant proportion of the CEO’s pay is delivered in LTI awards, where awards are linked to the company’s performance and share price movements over the longerterm. Therefore, the ratios will depend significantly on LTI outcomes and may fluctuate from one year to the next. None of the three employees identified at the 25th, 50th and 75th percentiles this year received LTI awards. The table also includes ratios covering salary only so that a further comparison is possible as well as the remuneration values for the identified employees.
The median ratio is reflective of a diverse range of roles and pay levels across RBS as a large financial services company. For each individual, RBS is committed to paying a fair rate for the role performed, using consistent reward policies and with opportunities for progression. The steps that RBS takes to ensure employees are paid fairly are set out earlier in this report. The higher total remuneration ratios in 2019 compared to 2018 are primarily a result of the increase in the LTI vesting amount included in the CEO single figure of remuneration. The vesting related to the 2017 LTI award which was the last under the previous remuneration construct. Under this construct, there was a high degree of volatility in vesting outcomes with largely formulaic outcomes. The current remuneration policy aims to create more predictable LTI outcomes. The position year on year based on a comparison of salary only is unchanged.
Pay ratios Remuneration values Financial P25 P50 P75 Y25 Y50 Y75 Year Methodology (Lower Quartile) (Median) (Upper Quartile) Calculation Chief Executive (Lower Quartile) (Median) (Upper Quartile)
Supplementary information on pay ratio table: (1) The data for 2019 is based on remuneration earned by Ross McEwan and Alison Rose, as set out in the single figure of remuneration table in this report, but with the LTIP vesting value for Alison Rose pro-rated to exclude the period prior to becoming CEO. (2) The employees at the 25th, 50th and 75th percentiles (lower, median and upper quartile) were determined as at 31 December of the relevant year, based on fulltime equivalent remuneration for all UK employees other than for variable pay where the actual amount to be paid has been used. (3) ‘Option A’ methodology was selected as this is considered the most statistically accurate method under the reporting regulations. UK employees receive a pension funding allowance set as a percentage of salary. Some employees, but neither of the CEOs that served during the year, continue to participate in the defined benefit pension scheme under which it would be possible to recognise a higher value. For simplicity and consistency with regulatory disclosures, the pension funding allowance value has been included in the calculation for all employees.
Summary of remuneration levels for employees in 2019 46,152 employees earned total remuneration up to £50,000 12,117 employees earned total remuneration between £50,000 and £100,000 5,218 employees earned total remuneration between £100,000 and £250,000 910 employees earned total remuneration over £250,000
 setting the remuneration framework and principles for employees identified as Material Risk Takers (MRTs) falling within the scope of UK regulatory requirements.
 Fixed and variable pay spend across all RBS employees, including analysis by employee level, geography and diversity.
 Half-year and year-end performance reviews for the ‘in scope’ population.
 Remuneration arrangements for the departure of Ross McEwan and the appointment of Alison Rose.
The Committee also held a ‘masterclass’ session with the SBC, which allowed both committees to gain an in-depth understanding of the Employee Value Proposition at RBS.
PwC is a signatory to the voluntary code of conduct in relation to remuneration consulting in the UK. As well as receiving advice from PwC, the Committee took account at meetings of the views of the Chairman; the CEO; the CFO; the Group Chief HR Officer; the Director of Reward & Employment; and the Group Chief Risk Officer. The Committee also received input from the BRC, the GAC and the SBC. Input is also received from Performance and Remuneration Committees for key legal entities across RBS Group.
Annual Report on Remuneration – 2019 Vote No of shares Percentage
This section contains a number of disclosures which are required in accordance with Article 450 of the Capital Requirements Regulation, the Basel Committee on Banking Supervision Pillar 3 disclosure requirements and the EBA guidelines on sound remuneration policies. This section should be read in conjunction with the Directors’ Remuneration Report starting on page 79.
Remuneration policy for all employees The remuneration policy supports the business strategy and is designed to promote the long-term success of RBS. It aims to reward employees for delivering good performance provided this is achieved in a manner consistent with RBS values and within acceptable risk parameters. The remuneration policy applies the same principles to all employees, including MRTs, with some minor adjustments to the policy where necessary to comply with local regulatory requirements. The key elements of the policy are set out below.
Base salary The purpose is to provide a competitive level of fixed cash remuneration.
Role-based allowance The purpose is to provide fixed pay that reflects the skills and experience required for the role.
They are delivered in cash and/or shares depending on the level of the allowance and the seniority of the recipient. Shares are subject to an appropriate retention period, not less than six months.
Pension funding forms part of fixed remuneration and RBS does not as a rule award discretionary pension benefits.
Operation The annual bonus pool is based on a balanced scorecard of measures including Customer, People, Financial & Business Delivery, and Risk & Control measures. Allocation from the pool depends on performance of the business area and the individual.
Risk and conduct performance is also taken into account. Control functions are assessed independently of the business units that they oversee, with the objectives and remuneration being set according to the priorities of the control area, not the targets of the businesses they support. The Group Chief Risk Officer and the Chief Audit Executive have the authority to escalate matters to Board level if management do not respond appropriately.
The deferral period varies from three years for standard MRTs, rising to five years for individuals identified as Risk Manager MRTs and seven years for Senior Managers under the UK’s Senior Managers Regime. All awards are subject to malus and clawback provisions. For MRTs, a minimum of 50% of any annual bonus is delivered in shares and a twelve month retention period will apply post vesting in line with regulatory requirements.
Criteria for identifying MRTs The EBA has issued criteria for identifying MRT roles, which captures those staff whose activities have a material influence over RBS’s performance or risk profile. The criteria are both qualitative (based on the nature of the role) and quantitative (for example those who exceed the stipulated total remuneration threshold).
Risk in the remuneration process RBS’s approach to remuneration and related policies promotes effective risk management through a clear distinction between fixed remuneration, which reflects the role undertaken by an individual, and variable remuneration, which is directly linked and reflective of performance and can be riskadjusted. Fixed pay is set at an appropriate level to avoid incentives that are not aligned with sound risk management, and at a level which would allow RBS to pay zero variable pay.
Focus on risk is achieved through clear risk input into objectives, performance reviews, the determination of variable pay pools, and incentive plan design as well as the application of malus and clawback. The Committee is supported by the BRC and the RBS Risk function.
The assessment process for LTI awards to executive directors and other recipients is founded on a balanced scorecard approach. The scorecard is aligned with the multi-step bonus pool process, reflecting a consistent risk management performance assessment.
The governance of culture is clearly laid out with specific Senior Management Function roles having clearly defined accountabilities, which is taken into account in their pay decisions. The Board and SBC also play key roles in building cultural priorities. Clear measurement frameworks are in place to measure progress.
2. Aggregate remuneration expenditure Aggregate remuneration expenditure in respect of 2019 performance was as follows: Aggregate remuneration Senior mgmt
Variable remuneration awarded for 2019 performance Variable remuneration consisted of a combination of annual bonus and long-term incentive awards, deferred over a three to seven year period in accordance with regulatory requirements. Under the RBS bonus deferral structure, immediate cash awards are limited to £2,000 per employee. Long-term incentive awards vest subject to the extent to which performance conditions are met and can result in zero payment.
Other RBS Group EDs Cash remuneration 0.02 — 0.02 Deferred bonds 0.46 — 0.46 Deferred shares 2.09 — 2.09 2.57 — 2.57
RBSG plc NEDs — — — Other RBS Group NEDs — — —
Unvested at year end 41.49 139.28 180.77 5. Guaranteed Awards (including ‘Sign-on’ awards) and Severance Payments RBS does not offer ‘Sign-on awards’. Guaranteed awards may only be granted to new hires in exceptional circumstances in compensation for awards foregone in their previous company and are limited to the first year of service. One new hire guarantee was made to an MRT for £100,000 in respect of the 2019 performance year.
(2) Where applicable, the table is based on an average exchange rate of €1.14 to £1 for 2019.
Employees who earned total remuneration of over €1 million in 2019 represent just 0.1% of RBS Group employees. This number reduces to 68 employees if pension and benefit funding is excluded. These employees include those who manage major businesses and functions with responsibility for significant assets, earnings or areas of strategic activity and can be grouped as follows:  The CEOs responsible for each area and their direct reports.
 Provision 33 that the Group Performance and Remuneration Committee (“Group RemCo”) should have delegated responsibility for setting remuneration for the Chairman and executive directors.
Further information on how RBSG plc has applied the Principles, and complied with the Provisions, of the Code can be found in the Governance section of this Report, which includes cross-references to relevant sections of the Strategic Report and other related disclosures.
In addition, the Board receives a risk management report at each scheduled Board meeting. Executive management committees in each of the RBS businesses also receive regular reports on significant risks facing their business and how they are being controlled. Details of RBS’s approach to risk management are given in the Capital & Risk Management section.
The remediation of known control issues remained an important focus of the Group Audit Committee and the Board Risk Committee during 2019. For further information on their oversight of remediation of the most significant issues, please refer to the Report of the Group Audit Committee and the Report of the Board Risk Committee. The Group Audit Committee has received confirmation that management has taken, or is taking, action to remedy significant failings or weaknesses identified through RBS’s control framework. The Group Audit Committee and the Board Risk Committee will continue to focus on such remediation activity, particularly in view of the transformation agenda.
While not being part of RBS’s system of internal control, RBSG plc’s independent auditors present to the Group Audit Committee reports that include details of any significant internal control deficiencies they have identified. Further, the system of internal controls is also subject to regulatory oversight in the UK and overseas. Additional details of regulatory oversight are given in the Capital & Risk Management section.
RBSG plc has assessed the effectiveness of its internal control over financial reporting as of 31 December 2019 based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in the 2013 publication of ‘Internal Control - Integrated Framework'.
Based on its assessment, management has concluded that, as of 31 December 2019, RBS’s internal control over financial reporting is effective.
Management's report on RBSG plc’s internal control over financial reporting will be filed with the Securities and Exchange Commission as part of the 2019 Annual Report on Form 20-F.
Changes in internal control There was no change in RBS’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, RBS’s internal control over financial reporting.
The GAC fully complies with the mandatory provisions of the NYSE Standards (including by reference to the rules of the Exchange Act) that relate to the composition, responsibilities and operation of audit committees. In January 2019 RBSG plc submitted an interim written affirmation and in March 2019 it submitted its required annual affirmation to the NYSE, both confirming RBSG plc’s full compliance with those and other applicable provisions. More detailed information about the GAC and its work during 2019 is set out in the GAC report on pages 70 to 73.
RBSG plc’s Board has reviewed its corporate governance arrangements and is satisfied that these are consistent with the NYSE Standards, subject to the following departures: (i) NYSE Standards require the majority of the Board to be independent. The NYSE Standards contain different tests from the Code for determining whether a director is independent. RBSG plc follows the Code’s requirements in determining the independence of its directors and currently has 9 independent non-executive directors, one of whom is the senior independent director. (ii) The NYSE Standards require nonmanagement directors to hold regular sessions without management present, and that independent directors meet at least once a year. The Code requires the Chairman to hold meetings with non-executive directors without the executives present and nonexecutive directors are to meet without the Chairman present at least once a year to appraise the Chairman’s performance and RBSG plc complies with the requirements of the Code. (iii) The NYSE Standards require that the nominating/corporate governance committee of a listed company be composed entirely of independent directors. The Chairman of the Board is also the Chairman of the Group Nominations and Governance Committee, which is permitted under the Code (since the Chairman was considered independent on appointment). The terms of reference of the Group Nominations and Governance Committee differ in certain limited respects from the requirements set out in the NYSE Standards, including because the Group Nominations and Governance Committee does not have responsibility for overseeing the evaluation of management.
(iv) The NYSE standards require that the compensation committee of a listed company be composed entirely of independent directors. Although the members of the RemCo are deemed independent in compliance with the provisions of the Code, the Board has not assessed the independence of the members of the RemCo and RemCo has not assessed the independence of any compensation consultant, legal counsel or other adviser, in each case, in accordance with the independence tests prescribed by the NYSE Standards. The NYSE Standards require that the compensation committee must have direct responsibility to review and approve the CEO’s remuneration. As stated at the start of this Compliance Report, in the case of RBSG plc, the Board rather than the RemCo reserves the authority to make the final determination of the remuneration of the CEO. (v) The NYSE Standards require listed companies to adopt and disclose corporate governance guidelines. Throughout the year ended 31 December 2018, RBSG plc has complied with all of the provisions of the Code (subject to the exception described above) and the Code does not require RBSG plc to disclose the full range of corporate governance guidelines with which it complies. (vi) The NYSE Standards require listed companies to adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. RBSG plc has adopted a code of conduct which is supplemented by a number of key policies and guidance dealing with matters including, among others, antibribery and corruption, anti-money laundering, sanctions, confidentiality, inside information, health, safety and environment, conflicts of interest, market conduct and management records. This code of conduct applies to all officers and employees and is fully aligned to the PRA and FCA Conduct Rules which apply to all directors. The Code of Conduct is available to view on RBS’s website at rbs.com.
Governance at a glance 45 Board engagement with stakeholders and section 172 statement 46
Subject to above mentioned condition, the payment of interim dividends on ordinary shares is at the discretion of the Board.
Going concern RBS’s business activities and financial position, the factors likely to affect its future development and performance and its objectives and policies in managing the financial risks to which it is exposed and its capital are discussed in the Business review. The risk factors which could materially affect RBS’s future results are set out on pages 281 to 295. RBS’s regulatory capital resources and significant developments in 2019 and anticipated future developments are detailed in the Capital, liquidity and funding section on pages 120 to 131. This section also describes RBS’s funding and liquidity profile, including changes in key metrics and the build up of liquidity reserves.
UK Finance disclosure code RBSG plc’s 2019 financial statements have been prepared in compliance with the principles set out in the Code for Financial Reporting Disclosure published by the British Bankers' Association in 2010 and adopted by UK Finance. The Code sets out five disclosure principles together with supporting guidance. The principles are that RBS and other major UK banks will provide high quality, meaningful and decision-useful disclosures; review and enhance their financial instrument disclosures for key areas of interest to market participants; assess the applicability and relevance of good practice recommendations to their disclosures, acknowledging the importance of such guidance; seek to enhance the comparability of financial statement disclosures across the UK banking sector; and clearly differentiate in their annual reports between information that is audited and information that is unaudited.
Enhanced Disclosure Task Force (EDTF) and Disclosures on Expected Credit Losses (DECL) Taskforce recommendations The EDTF, established by the Financial Stability Board, published its report ‘Enhancing the Risk Disclosures of Banks’ in October 2012, with an update in November 2015 covering IFRS 9 expected credit losses (ECL). The DECL Taskforce, jointly established by the Financial Conduct Authority, Financial Reporting Council and the Prudential Regulatory Authority, published its phase 2 report recommendations in December 2019. RBSG plc’s 2019 Annual Report and Accounts and Pillar 3 Report reflect EDTF and have regard to DECL Taskforce recommendations.
Authority to repurchase shares At the Annual General Meeting in 2019 shareholders authorised the company to make market purchases of up to 1,208,998,976 ordinary shares. The directors have not exercised this authority to date. Shareholders will be asked to renew this authorisation at the Annual General Meeting in 2020.
On 6 February 2019 RBSG plc held a General Meeting and shareholders approved a special resolution to give authority for RBSG plc to make off-market purchases of up to 4.99 per cent of the company’s ordinary share capital in issuance from HM Treasury (or its nominee) at such times as the Directors may determine is appropriate. Full details of the proposal are set out in the Circular and Notice of General Meeting available on www.rbs.com. This authority was renewed at the 2019 Annual General Meeting and Shareholders will be asked to renew this
The rights and obligations attached to the company’s ordinary shares and preference shares are set out in our Articles of Association, copies of which can be obtained from Companies House in the UK or can be found at rbs.com/about/board-andgovernance. Non-cumulative preference share details are set out in Note 21 of the consolidated accounts.
The rules governing the powers of directors, including in relation to issuing or buying back shares and their appointment, are set out in our Articles of Association. It will be proposed at the 2020 Annual General Meeting that the directors’ authorities to allot shares under the Companies Act 2006 (the “Companies Act”) be renewed. The Articles of Association may only be amended by a special resolution at a general meeting of shareholders. A special resolution seeking authority to amend the company’s articles is being put to shareholders at the 2020 AGM.