If deemed unfair, this could have a consequential impact on the reasonableness of the methodology applied to reviewed and settled IRHP files generally. As there remains some uncertainty, it is not practicable reliably to estimate the impact of this matter, if any, on RBS which may be material.
agreed with the FCA that it would carry out a wider review/remediation exercise relating to certain investment, insurance and pension sales from 1 January 2011 to present.
RBS started writing to the relevant customers during 2016 and redress payments have also commenced. The project is due to finish in Q4 2017. In addition, RBS agreed with the FCA that it would carry out a remediation exercise, for a specific customer segment who were sold a particular structured product, in response to concerns raised by the FCA with regard to (a) the target market for the product and (b) how the product may have been described to customers by certain advisers. Redress has been paid to certain customers who took out the structured product.
RBS provisions in relation to investment advice total £201 million to date for these matters, of which £62 million had been utilised at 31 December 2016.
Report”). The Tomlinson Report was critical of RBS’s treatment of SMEs.
Tomlinson Report. On 17 January 2014, a Skilled Person was appointed. The Skilled Person’s review was focused on RBS’s
Clifford Chance to conduct an independent review of the principal allegation made in the Tomlinson Report: RBS was alleged to be culpable of systematic and institutional behaviour in artificially distressing otherwise viable businesses and, through that, putting businesses into insolvency. Clifford Chance published its report on 17 April 2014 and, while it made certain recommendations to enhance customer experience and transparency of pricing, it concluded that there was no evidence to support the principal allegation.
On 8 November 2016, the FCA published an update on its review. In response, RBS announced steps that will impact SME
GRG between 2008 and 2013. These steps are (i) an automatic refund of certain complex fees; and (ii) a new complaints process, overseen by an Independent Third Party. These steps have been developed with the involvement of the FCA which agreed that they are appropriate for RBS to take.
RBS estimates the costs associated with the new complaints review process and the automatic refund of complex fees to be approximately £400 million, which has been recognised as a provision in 2016. This includes operational costs together with the cost of refunded complex fees and the additional estimated redress costs arising from the new complaints process.
MasterCard’s multilateral interchange fee (MIF) arrangements for cross border payment card transactions with MasterCard and
Maestro branded consumer credit and debit cards in the EEA are in breach of competition law.
31 Memorandum items continued Whilst there are no recent developments on the above to report, there remains uncertainty around the outcomes of the ongoing
EC investigation, and the impact of the regulation, and they may have a material adverse effect on the structure and operation of four party card payment schemes in general and, therefore, on
‘unfair relationship’ under s.140A of the Consumer Credit Act 1974 (the ‘Consumer Credit Act’) because the premium contained a particularly high level of undisclosed commission.
Act and the Plevin judgment are ’potentially relevant considerations’ in some of the PPI complaints referred to FOS.
complaints. The Consultation Paper also contained proposals for the introduction in 2018 on a date to be confirmed of a deadline for submission of PPI complaints. RBS submitted its response to the Consultation Paper on 26 February 2016.
16/20) on certain aspects of the proposed rules and guidance. As a result of this second Consultation Paper, it was expected that the complaint deadline would be end of June 2019 rather than 2018 as proposed in the initial Consultation Paper. The BBA and
(CP16/20), on 9 December 2016, the FCA issued a statement explaining that it is carefully considering the issues raised and will make a further announcement before 31 March 2017. In light of this statement, RBS expects that the implementation of the complaint deadline will be pushed back from end of June 2019 to 1 October or 31 December 2019. The introduction of new Plevin rules and guidance will also be delayed.
RBS has made provisions totalling £4.9 billion to date for PPI
At this stage there remains uncertainty around the financial impact of the remedies once implemented and it is not practicable to estimate the potential impact on RBS, which may be material.
Illinois Department of Financial and Professional Regulation to enter into a consent Cease and Desist Order (Governance Order)
● a plan to strengthen board and senior management oversight of the corporate governance, management, risk management, and operations of RBS’s US operations on an enterprise-wide and business line basis; ● an enterprise-wide risk management programme for RBS’s US
● a plan designed to enhance the US Branches’ compliance with
The Governance Order identified specific items to be addressed, considered, and included in each proposed plan or programme.
RBS also agreed in the Governance Order to adopt and implement the plans and programmes after approval by the regulators, to comply fully with the plans and programmes thereafter, and to submit to the regulators periodic written progress reports regarding compliance with the Governance
31 Memorandum items continued RBS has created, submitted, and adopted plans and/or programmes to address each of the areas identified above. In connection with RBS’s efforts to implement these plans and programmes, it has, among other things, made investments in technology, hired and trained additional personnel, and revised compliance, risk management, and other policies and procedures for RBS’s US operations. RBS continues to test the effectiveness of the remediation efforts it has undertaken to ensure they are sustainable and meet regulators' expectations. Furthermore, RBS
RBS may be subject to formal and informal supervisory actions and may be required by its US banking supervisors to take further actions and implement additional remedial measures with respect to these and additional matters. RBS’s activities in the
Federal Reserve. The US Dollar Processing Order (which is publicly available) indicated, among other things, that RBS and
RBS plc lacked adequate risk management and legal review policies and procedures to ensure that activities conducted outside the US comply with applicable OFAC regulations.
US Dollar Processing Order, RBS has made investments in technology, hired and trained personnel, and revised compliance, risk management, and other policies and procedures.
RBS appointed the independent consultant and their reports were submitted to the authorities on 14 June 2015. The independent consultant review examined a significant number of sanctions alerts and no reportable issues were identified.
RBS continues to participate in a constructive dialogue with the authorities.
As required by the Programme, Coutts & Co Ltd. subsequently conducted a review of its US related accounts and presented the results of the review to the DOJ. On 23 December 2015, Coutts &
NPA, which has a term of four years, Coutts & Co Ltd. is required, among other things, to provide certain information, cooperate with DOJ’s investigations, and commit no U.S. federal offences. If Coutts & Co Ltd. abides by the NPA, the DOJ will not prosecute it for certain tax-related and monetary transaction offenses in connection with US related accounts.
The Swiss Financial Market Supervisory Authority (FINMA) has been taking enforcement proceedings against Coutts & Co Ltd, a member of RBS incorporated in Switzerland, with regard to certain client accounts held with Coutts & Co Ltd relating to allegations in connection with the Malaysian sovereign wealth fund 1MDB. On 2 February 2017, FINMA announced that Coutts
& Co Ltd had breached money laundering regulations by failing to carry out adequate background checks into business relationships and transactions associated with 1MDB.
31 Memorandum items continued FINMA accordingly required Coutts & Co Ltd to disgorge profits of CHF 6.5 million.
In common with other banks, RBS received a letter from the FCA
CBI stated that the intended purpose of the review was to identify any cases where customers’ contractual rights under the terms of their mortgage agreements were not fully honoured, or where lenders did not fully comply with various regulatory requirements and standards regarding disclosure and transparency for customers. The CBI has required Ulster Bank Ireland DAC (UBI
DAC), a member of RBS, incorporated in the Republic of Ireland, to participate in this review and UBI DAC is co-operating with the
CBI in this regard. RBS has made a lifetime provision totalling
June 2008 in relation to certain customers who switched from tracker mortgages to fixed rate mortgages.
32 Net cash flow from operating activities 2016 2015 2014 £m £m £m
Profit on sale of property, plant and equipment (18) (91) (137)
33 Analysis of the net investment in business interests and intangible assets 2016 2015 2014
Net outflow of cash in respect of acquisitions (87) (59) (54)
Net (outflow)/inflow of cash in respect of disposals (328) 1,053 (806)
Note: (1) Includes cash collateral posted with bank counterparties in respect of derivative liabilities of £6,661 million (2015 - £11,031 million; 2014 - £11,508 million).
RBS continues to deliver on its plan to build a strong, simple and fair bank for both customers and shareholders. On 5 December 2016 the Corporate & Institutional Banking (CIB) business was re-branded as NatWest Markets (NWM) in readiness for our future ring-fenced structure; this included the renaming of the reportable operating segment as NatWest Markets. NatWest
Private Banking serves UK connected high net worth individuals and RBSI serves retail, commercial, corporate and financial institution customers in Jersey, Guernsey, Isle of Man and
(CIB), serves UK and Western European corporate customers, and global financial institutions, supported by trading and distribution platforms in the UK, US and Singapore.
Williams & Glyn refers to the business formerly intended to be divested as a separate legal entity and comprises the RBS
Citizens Financial Group RBS sold the final tranche of its interest in Citizens Financial
From 3 August 2015 until the final tranche was sold in October 2015, Citizens was an associated undertaking.
Cost to acquire fixed acquire fixed acquire fixed assets and assets and assets and intangible intangible intangible
Segmental analysis of assets and liabilities included in disposal groups: Assets Liabilities Assets Liabilities Assets Liabilities £m £m £m £m £m £m
The geographical analysis in the tables below has been compiled on the basis of location of office where the transactions are recorded.
Net assets attributable to equity owners and non-controlling interests 40,596 (66) 5,831 3,043 49,404
Cost to acquire property, plant and equipment and intangible assets 1,323 3 54 12 1,392
Cost to acquire property, plant and equipment and intangible assets 1,331 70 36 33 1,470
Of which total assets held for sale 48 80,985 — 978 82,011
Cost to acquire property, plant and equipment and intangible assets 1,025 244 133 23 1,425
Amounts receivable under long-term incentive plans and share option plans 993 324
The aggregate remuneration of directors and other members of key management during the year was as follows: Short-term benefits 20,350 19,395
(a) At 31 December 2016, amounts outstanding in relation to transactions, arrangements and agreements entered into by authorised institutions, as defined in UK legislation, in the Group, were £207,284 in respect of loans to four persons who were directors of the company at any time during the financial period.
The Group enters into transactions with many of these bodies on an arm’s length basis. Transactions include the payment of: taxes principally UK corporation tax (see Note 6) and value added tax; national insurance contributions; local authority rates; and regulatory fees and levies (including the bank levy (see Note 3)
and FSCS levies (see Note 31) together with banking transactions such as loans and deposits undertaken in the normal course of banker-customer relationships.
(a) In their roles as providers of finance, RBS companies provide development and other types of capital support to businesses. These investments are made in the normal course of business and on arm's length terms. In some instances, the investment may extend to ownership or control over 20% or more of the voting rights of the investee company. However, these investments are not considered to give rise to transactions of a materiality requiring disclosure under IAS 24.
December 2016 and the date of approval of these accounts which would require a change to or additional disclosure in the accounts.
Owners’ equity includes a total comprehensive loss for the year, dealt with in the accounts of the parent company, of £5,255 million
(Loss)/profit attributable to ordinary shareholders and other equity owners (5,409) (1,982) 1,128
Transfer on impairment of investment in RBS plc — 2,341 —
Effects of exchange rate changes on cash and cash equivalents 122 9 (3)
Cash and cash equivalents at 31 December 13 1,195 3,006 1,105
The accompanying notes on pages 392 to 415 form an integral part of these financial statements.
The accounts are prepared on a going concern basis (refer to the Report of the directors, page 88) and in accordance with International
Financial Reporting Standards issued by the International Accounting Standards Board (IASB) and interpretations issued by the IFRS
The accounting policies that are applicable to the company are included in RBS accounting polices which are set out on pages 297 to 313 of the consolidated financial statements, except that it has no policy regarding ‘Basis of consolidation’ and that the company’s investments in its subsidiaries are stated at cost less any impairment.
Board to be the most important to the portrayal of its financial condition are those involved in assessing the impairment, if any, in its investments in subsidiaries. At each reporting date, the company assesses whether there is any indication that its investment in a subsidiary is impaired. If any such indication exists, the company undertakes an impairment test by comparing the carrying value of the investment in the subsidiary with its estimated recoverable amount. The recoverable amount of an investment in a subsidiary is the higher of its fair value less cost to sell and its value in use. Impairment testing inherently involves a number of judgments: the choice of appropriate discount and growth rates; and the estimation of fair value.
Write-down of investments in subsidiaries (see Note 7) (6,106) (2,827) (16)
The company did not pay an ordinary dividend in 2016, 2015 or 2014.
Loans and advances to banks (1) - loans and receivables 28,867 22,148
Loans and advances to customers (1) - loans and receivables 97 268
Debt securities in issue - designated as at fair value through profit or loss 87 89
Notes: (1) Fair value hierarchy: level 2 - £26.9 billion (2015 - £11.9 billion) and level 3 - £2.8 billion (2015 - £11.2 billion). (2) Fair value hierarchy level 2. (3) Fair value hierarchy level 3 (2015 – level 3).
The key assumptions applied in assessing the carrying value of the company’s investment in The Royal Bank of Scotland plc are terminal growth rate of underlying business, the pre-tax discount rate and profit of future periods. The underlying sensitivities in connection to the Group’s reportable segments are disclosed in Note 15 on the consolidated accounts. In respect of the investment in
US$2250 million 6.13% dated notes 2022 (1) Tier 2 1,826 1,517
US$1000 million 6.10% dated notes 2023 Tier 2 811 683 €1,000 million 3.63% dated notes 2024 (callable March 2019) Tier 2 875 750
US$762 million 7.65% notes (callable September 2031) (1) Ineligible 625 519
US$150 million 8.00% notes (callable October 2093) Tier 2 124 103
Details of the company’s share capital are set out in Note 25 on the consolidated accounts.
(Increase)/decrease in loans and advances to banks and customers (1) (8,359) 4,274 (302)
Increase/(decrease) in deposits by banks and customers (2) 37 (295) (1,028)
11 Interest received and paid £m £m £m 12 Analysis of changes in financing during the year
Subordinated liabilities share premium, paid-in equity and merger reserve £m £m £m £m £m £m
Transfer on impairment of investment in RBS plc — (2,341) —
*Comprises loans and advances to banks 14 Directors’ and key management remuneration
15 Related undertakings RBS legal entities and activities at 31 December 2016 In accordance with the Companies Act 2006, the company’s related undertakings and the accounting treatment for each are listed below. All undertakings are wholly-owned by the company or subsidiaries of the company and are consolidated by reason of contractual control (Section 1162(2) CA 2006), unless otherwise indicated. Group interest refers to ordinary shares of equal values and voting rights unless further analysis is provided in the notes. Activities are classified in accordance with Annex I to the Capital Requirements Directive
Adam & Company PLC CI 25 St. Andrew Square, Edinburgh, EH2 1AF, Scotland
Care Homes 2 Ltd BF 135 Bishopsgate, London, EC2M 3UR, England
Care Homes 3 Ltd BF 135 Bishopsgate, London, EC2M 3UR, England
Dixon Motors Developments Ltd BF 1 Princes Street, London, EC2R 8PB, England
G L Trains Ltd BF 1 Princes Street, London, EC2R 8PB, England
Gatehouse Way Developments Ltd BF 1 Princes Street, London, EC2R 8PB, England
Land Options (West) Ltd INV 24/25 St Andrew Square, Edinburgh, EH2 1AF, Scotland
Leckhampton Finance Ltd BF The Quadrangle, The Promenade, Cheltenham, GL50 1PX, England
Lombard Corporate Finance (6) Ltd BF The Quadrangle, The Promenade, Cheltenham, GL50 1PX, England
Lombard Corporate Finance (7) Ltd BF The Quadrangle, The Promenade, Cheltenham, GL50 1PX, England
Lombard Corporate Finance (11) Ltd BF The Quadrangle, The Promenade, Cheltenham, GL50 1PX, England
Lombard Corporate Finance (14) Ltd BF The Quadrangle, The Promenade, Cheltenham, GL50 1PX, England
Lombard Corporate Finance (December 1) Ltd BF The Quadrangle, The Promenade, Cheltenham, GL50 1PX, England
Lombard Corporate Finance (June 2) Ltd BF The Quadrangle, The Promenade, Cheltenham, GL50 1PX, England
Lombard Leasing Contracts Ltd BF 1 Princes Street, London, EC2R 8PB, England
Lombard Property Facilities Ltd BF 1 Princes Street, London, EC2R 8PB, England
Lombard Vehicle Management (3) Ltd BF 280 Bishopsgate, London, EC2M 4RB, England
Lombard Vehicle Management Ltd BF 280 Bishopsgate, London, EC2M 4RB, England
National Westminster Home Loans Ltd BF 135 Bishopsgate, London, EC2M 3UR, England
NatWest Capital Finance Ltd BF 1 Princes Street, London, EC2R 8PB, England
NatWest Specialised Property Investments Ltd BF 1 Princes Street, London, EC2R 8PB, England
NatWest Ventures Investments Ltd BF 135 Bishopsgate, London, EC2M 3UR, England
Nevis Derivatives No. 2 LLP BF 35 Great St Helen's, London, EC3A 6AP, England
Nevis Derivatives No. 3 LLP BF 35 Great St Helen's, London, EC3A 6AP, England
Patalex II Productions Ltd BF The Quadrangle, The Promenade, Cheltenham, GL50 1PX, England
Patalex IV Productions Ltd BF The Quadrangle, The Promenade, Cheltenham, GL50 1PX, England
Patalex V Productions Ltd BF The Quadrangle, The Promenade, Cheltenham, GL50 1PX, England
Property Venture Partners Ltd INV 24/25 St Andrew Square, Edinburgh, EH2 1AF, Scotland
Property Ventures (B&M) Ltd INV 1 Princes Street, London, EC2R 8PB, England R.B. Capital Leasing Ltd BF The Quadrangle, The Promenade, Cheltenham, GL50 1PX, England R.B. Equipment Leasing Ltd BF The Quadrangle, The Promenade, Cheltenham, GL50 1PX, England R.B. Leasing (April) Ltd BF The Quadrangle, The Promenade, Cheltenham, GL50 1PX, England R.B. Leasing (December) Ltd BF The Quadrangle, The Promenade, Cheltenham, GL50 1PX, England R.B. Leasing (March) Ltd BF The Quadrangle, The Promenade, Cheltenham, GL50 1PX, England R.B. Leasing (September) Ltd BF The Quadrangle, The Promenade, Cheltenham, GL50 1PX, England R.B. Leasing Company Ltd BF 24/25 St Andrew Square, Edinburgh, EH2 1AF, Scotland
RBDC Administrator Ltd SC 24/25 St Andrew Square, Edinburgh, EH2 1AF, Scotland
RBDC Investments Ltd INV 24/25 St Andrew Square, Edinburgh, EH2 1AF, Scotland
RBS AA Holdings (UK) Ltd BF 250 Bishopsgate, London, EC2M 4AA, England
RBS Asset Management (ACD) Ltd BF 135 Bishopsgate, London, EC2M 3UR, England
RBS Collective Investment Funds Ltd BF 24/25 St Andrew Square, Edinburgh, EH2 1AF, Scotland
RBS Equities (UK) Ltd BF 250 Bishopsgate, London, EC2M 4AA, England
RBS Group Investments (UK) Ltd BF 250 Bishopsgate, London, EC2M 4AA, England
RBS HG (UK) Ltd BF 250 Bishopsgate, London, EC2M 4AA, England
RBS Investment Ltd BF 24/25 St Andrew Square, Edinburgh, EH2 1AF, Scotland
RBS Investments Holdings (UK) Ltd BF 250 Bishopsgate, London, EC2M 4AA, England
RBS Management Services (UK) Ltd SC 250 Bishopsgate, London, EC2M 4AA, England
RBS Property Ventures Investments Ltd BF 24/25 St. Andrew Square, Edinburgh, EH2 1AF, Scotland
RBS Residential Venture No.1 Ltd INV 135 Bishopsgate, London, EC2M 3UR, England
RBS SME Investments Ltd BF 1 Princes Street, London, EC2R 8PB, England
RBSG International Holdings Ltd BF 24/25 St. Andrew Square, Edinburgh, EH2 1AF, Scotland
RBSSAF (7) Ltd BF The Quadrangle, The Promenade, Cheltenham, GL50 1PX, England
RBSSAF (26) Ltd BF The Quadrangle, The Promenade, Cheltenham, GL50 1PX, England
RoboScot Equity Ltd BF 24/25 St Andrew Square, Edinburgh, EH2 1AF, Scotland
Royal Bank Investments Ltd BF 24/25 St Andrew Square, Edinburgh, EH2 1AF, Scotland
Royal Bank Leasing Ltd BF 24/25 St Andrew Square, Edinburgh, EH2 1AF, Scotland
Royal Bank Project Investments Ltd INV 135 Bishopsgate, London, EC2M 3UR, England
Royal Scot Leasing Ltd BF 24/25 St Andrew Square, Edinburgh, EH2 1AF, Scotland
SIG 1 Holdings Ltd BF 24/25 St Andrew Square, Edinburgh, EH2 1AF, Scotland
Springwell Street Developments (No 1) Ltd INV 280 Bishopsgate, London, EC2M 4RB, England
Style Financial Services Ltd BF 24/25 St Andrew Square, Edinburgh, EH2 1AF, Scotland
BF Smith House, PO Box 50, Elmwood Avenue, Feltham, TW13 7QD, England
The Royal Bank of Scotland plc CI 36 St Andrew Square, Edinburgh, EH2 2YB, Scotland
Total Capital Finance Ltd BF 1 Princes Street, London, EC2R 8PB, England
Ulster Bank Ltd CI 11-16 Donegall Square East, Belfast, BT1 5UB, Northern Ireland
Ulster Bank Pension Trustees Ltd TR 11-16 Donegall Square East, Belfast, BT1 5UB, Northern Ireland
West Register (Hotels Number 1) Ltd INV 24/25 St Andrew Square, Edinburgh, EH2 1AF, Scotland
West Register (Hotels Number 2) Ltd INV 24/25 St Andrew Square, Edinburgh, EH2 1AF, Scotland
West Register (Hotels Number 3) Ltd INV 24/25 St Andrew Square, Edinburgh, EH2 1AF, Scotland
West Register (Land) Ltd INV 24/25 St Andrew Square, Edinburgh, EH2 1AF, Scotland
West Register (Project Developments) Ltd INV 24/25 St Andrew Square, Edinburgh, EH2 1AF, Scotland
West Register (Property Investments) Ltd INV 24/25 St Andrew Square, Edinburgh, EH2 1AF, Scotland
West Register Hotels (Holdings) Ltd INV 24/25 St Andrew Square, Edinburgh, EH2 1AF, Scotland
Australia RBS Group (Australia) Pty Ltd BF Level 22, 88 Phillip Street, Sydney, NSW, 2000
Australia RBS Holdings (Australia) Pty Ltd BF Level 22, 88 Phillip Street, Sydney, NSW, 2000 (3) Australia RBS Holdings III (Australia) Pty Ltd BF Level 22, 88 Phillip Street, Sydney, NSW, 2000 Australia RBS Nominees (Australia) Pty Ltd BF Level 22, 88 Phillip Street, Sydney, NSW, 2000 Bahamas CTB Ltd BF Trident Corporate Services (Bahamas) Ltd, Suite 200B, 2nd Floor,
Bermuda R.B. Leasing BDA One Ltd BF 22 Victoria Street, 14 Bermidiana Road, Hamilton, HM12, Bermuda
Cayman Islands Coutts & Co (Cayman) Ltd CI 23/25 Broad Street, St Helier, JE4 8ND
Cayman Islands Equator Investments (Cayman) Ltd BF Maples Corporate Services Limited, PO Box 39, George Town, Ugland House, Grand Cayman KY1-1104
Denmark Airside Properties ASP Denmark AS BF c/o Visma Services, Lyskaer 3 CD, Herlev, 104 40 Denmark Denmark Airside Properties Denmark AS BF c/o Visma Services, Lyskaer 3 CD, Herlev, 104 40 Denmark Denmark Kastrup Commuter K/S BF c/o Visma Services, Lyskaer 3 CD, Herlev, 104 40 Denmark Denmark Kastrup Hangar 5 K/S BF c/o Visma Services, Lyskaer 3 CD, Herlev, 104 40 Denmark
Finland Kiinteistö Oy Pennalan Johtotie 2 BF C/O Nordisk Renting OY, Eteläesplanadi 12, Box 14044, FI-00130 Finland, Helsingfors
Finland Koy Helsingin Osmontie 34 BF C/O Nordisk Renting OY, Eteläesplanadi 12, Box 14044, FI-00130 Finland, Helsingfors
Finland Koy Iisalmen Kihlavirta BF C/O Nordisk Renting OY, Eteläesplanadi 12, Box 14044, FI-00130 Finland, Helsingfors
Finland Koy Kouvolan Oikeus ja Poliisitalo BF C/O Nordisk Renting OY, Eteläesplanadi 12, Box 14044, FI-00130 Finland, Helsingfors
Finland Koy Lohjan Huonekalutalo BF C/O Nordisk Renting OY, Eteläesplanadi 12, Box 14044, FI-00130 Finland, Helsingfors
Finland Koy Raision Kihlakulma BF C/O Nordisk Renting OY, Eteläesplanadi 12, Box 14044, FI-00130 Finland, Helsingfors
Finland Koy Ravattulan Kauppakeskus BF C/O Nordisk Renting OY, Eteläesplanadi 12, Box 14044, FI-00130 Finland, Helsingfors
Finland Koy Tapiolan Louhi BF C/O Nordisk Renting OY, Eteläesplanadi 12, Box 14044, FI-00130 Finland, Helsingfors
Finland Nordisk Renting Oy BF C/O Nordisk Renting OY, Eteläesplanadi 12, Box 14044, FI-00130 Finland, Helsingfors
Guernsey Alsecure Life Insurance PCC Ltd BF 3rd Floor, Dixcart House, Sir William Place, St. Peter Port, GY1 1 GX (3) Guernsey Alsecure US Life Insurance PCC Ltd BF 3rd Floor, Dixcart House, Sir William Place, St. Peter Port, GY1 1 GX (3) Guernsey Lothbury Insurance Company Ltd BF PO Box 384, The Albany, South Esplanade, St Peter Port, GY1 4NF Guernsey Morar ICC Insurance Ltd BF PO Box 384, The Albany, South Esplanade, St Peter Port, GY1 4NF
Guernsey RBS Employment (Guernsey) Ltd SC 1 Le Marchant Street, St. Peter Port, GY1 1LF Hong Kong RBS Asia Financial Services Ltd BF 7/F, Lincoln House, Taikoo Place, 979 King's Road, Quarry Bay Hong Kong RBS Asia Futures Ltd BF 7/F, Lincoln House, Taikoo Place, 979 King's Road, Quarry Bay Hong Kong RBS Nominees (Hong Kong) Ltd BF 7/F, Lincoln House, Taikoo Place, 979 King's Road, Quarry Bay
Hong Kong RBS Securities Japan Ltd BF Level 54, Hopewell Centre, 183 Queen's Road East India RBS Financial Services (India) Private Ltd BF Level 5, 4 North Avenue,, Maker Maxcity, Bandra-Kurla Complex,
First Active Treasury Ltd BF Ulster Bank Group Centre, George's Quay, Dublin 2
Lombard Ireland Ltd BF Ulster Bank Group Centre, George's Quay, Dublin 2
RBS Nominees (Ireland) Ltd BF Ulster Bank Group Centre, George's Quay, Dublin 2 (3)
Ulster Bank Pension Trustees (RI) Ltd TR Ulster Bank Group Centre, George's Quay, Dublin 2
Ulster Bank Wealth Unlimited Company BF Ulster Bank Group Centre, George's Quay, Dublin 2
Walter Property Ltd BF Ulster Bank Group Centre, George's Quay, Dublin 2
Isle Of Man Coutts & Co (Manx) Ltd BF 23/25 Broad Street, St Helier, JE4 8ND
Isle Of Man Isle of Man Bank Ltd BF 2 Athol Street, Douglas, IM99 1AN Isle Of Man Lombard Manx Leasing Ltd BF Royal Bank House, 2 Victoria Street, Douglas, IM1 2LN Isle Of Man Lombard Manx Ltd BF Royal Bank House, 2 Victoria Street, Douglas, IM1 2LN Isle Of Man The Royal Bank of Scotland Employment
Italy Fondo Sallustio BF Via Vittorio Alfoeri 1 - 31015 Conegliano (TV) Jersey C.J. Fiduciaries Ltd BF 23-25 Broad Street, Jersey, St Helier Jersey Keep SPV Ltd BF La Motte Chambers, St. Helier, JE1 1BJ (3) Jersey Lombard Finance (CI) Ltd BF Royal Bank House, 71 Bath Street, St Helier, JE4 8PJ
BF Coutts & Co Trustees (Jersey) Limited, 23/25 Broad Street, St Helier, JE4 8ND
Jersey RoyScot Jersey Ltd BF Royal Bank House, 71 Bath Street, St Helier, JE4 8PJ Jersey The Royal Bank of Scotland International
(Holdings) Ltd BF Royal Bank House, 71 Bath Street, St Helier, JE4 8PJ
CI Royal Bank House, 71 Bath Street, St Helier, JE4 8PJ
Luxembourg RBS European Finance S.A. BF 46A Avenue J.F. Kennedy, Luxembourg-Kirchberg, L-1855 Luxembourg RBS European Investments SARL BF 46 Avenue J.F. Kennedy, Luxembourg-Kirchberg, L-1855 Luxembourg RBS Pan European Finance S.A. BF 46A Avenue J.F. Kennedy, Luxembourg-Kirchberg, L-1855 Luxembourg Moncour SARL BF 46A, Avenue J.F. Kennedy, Luxembourg-Kirchberg, L-1855 (3) Luxembourg RBS Asset Backed Investment SARL BF 46A, Avenue J.F. Kennedy, Luxembourg-Kirchberg, L-1855 (3) Malaysia The Royal Bank of Scotland BERHAD CI Level 1, Menara Maxis, Kuala Lumpur City Centre, Kuala Lumpur,
Holdings B.V. BF 24/25 St Andrew Square, Edinburgh, EH2 1AF Scotland
Netherlands NatWest Securities B.V. BF Gustav Mahlerlaan 350, Amsterdam, 1082 ME Netherlands RBS Asia Holdings B.V. BF Gustav Mahlerlaan 350, Amsterdam, 1082 ME (3) Netherlands RBS AA Holdings (Netherlands) B.V. BF Gustav Mahlerlaan 350, Amsterdam, 1082 ME Netherlands RBS Holdings N.V. BF Gustav Mahlerlaan 350, Amsterdam, 1082 ME (3) Netherlands RBS Hollandsche N.V. CI Gustav Mahlerlaan 350, Amsterdam, 1082 ME (3) Netherlands RBS Investments Netherlands B.V. BF Gustav Mahlerlaan 350, Amsterdam, 1082 ME Netherlands RBS Netherlands Holdings B.V. BF Gustav Mahlerlaan 350, Amsterdam, 1082 ME Netherlands RBS Nominees (Netherlands) B.V. BF Gustav Mahlerlaan 350, Amsterdam, 1082 ME Netherlands RBS Participaties B.V. BF Gustav Mahlerlaan 350, Amsterdam, 1082 ME (3) Netherlands RBS Participations (Netherlands) B.V. BF Gustav Mahlerlaan 350, Amsterdam, 1082 ME (3) Netherlands RBS Special Corporate Services B.V. BF Gustav Mahlerlaan 350, Amsterdam, 1082 ME (3) Netherlands The Royal Bank of Scotland N.V. CI Gustav Mahlerlaan 350, Amsterdam, 1082 ME (3) Norway BD Lagerhus AS BF C/O Nordisk Renting AS, 9 Estaje, Klingenberggata 7, NO-0161
Norway Eiendomsselskapet Apteno Larvik AS BF C/O Nordisk Renting AS, 9 Estaje, Klingenberggata 7, NO-0161 Norway, Oslo
Norway Hatros 1 AS BF C/O Nordisk Renting AS, 9 Estaje, Klingenberggata 7, NO-0161 Norway, Oslo
Norway Ringdalveien 20 AS BF C/O Nordisk Renting AS, 9 Estaje, Klingenberggata 7, NO-0161 Norway, Oslo
Poland RBS Bank (Polska) S.A. CI Wisniowy Business Park, ul 1-go Sierpnia 8a, Warsaw 02-134 Poland RBS Polish Financial Advisory Services sp.
Sweden Airside Properties AB BF C/O Nordisk Renting AB, Box 14044, SE-104 40 Sweden, Stockholm
Sweden Arkivborgen KB BF C/O Nordisk Renting AB, Box 14044, SE-104 40 Sweden, Stockholm
Sweden Bil Fastigheter i Sverige AB BF C/O Nordisk Renting AB, Box 14044, SE-104 40 Sweden, Stockholm
Sweden Bilfastighet i Täby AB BF C/O Nordisk Renting AB, Box 14044, SE-104 40 Sweden, Stockholm
Sweden Brödmagasinet KB BF C/O Nordisk Renting AB, Box 14044, SE-104 40 Sweden, Stockholm
Sweden Fastighets AB Flöjten i Norrköping BF C/O Nordisk Renting AB, Box 14044, SE-104 40 Sweden, Stockholm
Sweden Fastighets AB Hammarbyvagnen BF C/O Nordisk Renting AB, Box 14044, SE-104 40 Sweden, Stockholm
Sweden Fastighets Aktiebolaget Sambiblioteket BF C/O Nordisk Renting AB, Box 14044, SE-104 40 Sweden, Stockholm
Sweden Forskningshöjden KB BF C/O Nordisk Renting AB, Box 14044, SE-104 40 Sweden, Stockholm
Sweden Förvaltningsbolaget Dalkyrkan KB BF C/O Nordisk Renting AB, Box 14044, SE-104 40 Sweden, Stockholm
Sweden Förvaltningsbolaget Predio 3 KB BF C/O Nordisk Renting AB, Box 14044, SE-104 40 Sweden, Stockholm
Sweden Grinnhagen KB BF C/O Nordisk Renting AB, Box 14044, SE-104 40 Sweden, Stockholm
Sweden Horrsta 4:38 KB BF C/O Nordisk Renting AB, Box 14044, SE-104 40 Sweden, Stockholm
Sweden Kallebäck Institutfastigheter AB BF C/O Nordisk Renting AB, Box 14044, SE-104 40 Sweden, Stockholm
Sweden KB Eurohill BF C/O Nordisk Renting AB, Box 14044, SE-104 40 Sweden, Stockholm
Sweden KB IR Gamlestaden BF C/O Nordisk Renting AB, Box 14044, SE-104 40 Sweden, Stockholm
Sweden KB Lagermannen BF C/O Nordisk Renting AB, Box 14044, SE-104 40 Sweden, Stockholm
Sweden Läkten 1 KB BF C/O Nordisk Renting AB, Box 14044, SE-104 40 Sweden, Stockholm
Sweden Mons AB BF C/O Nordisk Renting AB, Box 14044, SE-104 40 Sweden, Stockholm
Sweden Mons Investment AB BF C/O Nordisk Renting AB, Box 14044, SE-104 40 Sweden, Stockholm
Sweden Nordisk Renting AB BF C/O Nordisk Renting AB, Box 14044, SE-104 40 Sweden, Stockholm
Sweden Pyrrhula 6,7 AB BF C/O Nordisk Renting AB, Box 14044, SE-104 40 Sweden, Stockholm
Sweden Skinnarängen KB BF C/O Nordisk Renting AB, Box 14044, SE-104 40 Sweden, Stockholm
Sweden Solbänken KB BF C/O Nordisk Renting AB, Box 14044, SE-104 40 Sweden, Stockholm
Sweden Svenskt Fastighetskapital AB BF C/O Nordisk Renting AB, Box 14044, SE-104 40 Sweden, Stockholm
Sweden Svenskt Fastighetskapital Holding AB BF C/O Nordisk Renting AB, Box 14044, SE-104 40 Sweden, Stockholm
Sweden Tingsbrogården KB BF C/O Nordisk Renting AB, Box 14044, SE-104 40 Sweden, Stockholm
Sweden Tygverkstaden 1 KB BF C/O Nordisk Renting AB, Box 14044, SE-104 40 Sweden, Stockholm
Sweden Vansbro Fjärrvärme KB BF C/O Nordisk Renting AB, Box 14044, SE-104 40 Sweden, Stockholm
RBS Operations FZ LLC SC Dubai Outsource Zone, Building 5, Level 3, P.O. Box 2567, Dubai
United States RBS Equity Corp BF 340 Madison Avenue, New York, New York, 10173 United States United States RBS Financial Products Inc. BF 2711 Centerville Road Suite 400, Wilmington, Delaware, 19808 United States RBS Holdings USA Inc. BF 2711 Centerville Road Suite 400, Wilmington, Delaware, 19808 United States RBS Investments USA Corp. BF 2711 Centerville Road Suite 400, Wilmington, Delaware, 19808
United States RBS Securities Inc. BF 2711 Centerville Road Suite 400, Wilmington, Delaware, 19808 United States RBS Smart Products Inc BF 2711 Centerville Road Suite 400, Wilmington, Delaware, 19808 United States RBS WCS Holding Company BF Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware,
Arran Cards Funding plc BF FC 0 35 Great St Helens, London, EC3A 6AP England Arran Residential Mortgages Funding 2010-1 plc
BF FC 0 35 Great St Helen's, London, EC3A 6AP England
Aspire Oil Services Ltd BF EAA 28 Union Plaza 6th Floor, 1 Union Wynd, Aberdeen, AB10 1DQ Scotland
Coneworx Ltd BF IA 40 4 Biggar Road Industrial Estate, Cleland, Motherwell, ML1 5PB Scotland
Higher Broughton (GP) Ltd BF EAA 41 Floor 3, 1 St. Ann Street, Manchester, M2 7LR, England Higher Broughton Partnership LP BF EAA 41 Cornwall Buildings, 45-51 Newhall Street, Birmingham, West
Pollokshields Developments Ltd INV IA 49 Abercorn House, 79 Renfrew Road, Paisley, Renfrewshire, PA3 4DA Scotland
Prestige Walker Ltd OTH IA 30 Terminal House, Station Approach, Shepperton, Middlesex, TW17 8AS England
Race 500 Ltd BF IA 21 Unit 7, Newbridge Trading Estate, Newbridge Close, Whitby Road, Bristol, BS4 4AX Wales
RBS Covered Bonds (LM) Ltd BF IA 20 35 Great St Helens, London, EC3A 6AP England RBS Covered Bonds LLP BF FC 73 1 Princes Street, London, EC2R 8BP England RBS Secured Funding (LM) Ltd BF FC 20 C/O SFM Corporate Services Ltd, 35 Great St. Helens, London,
RBS Sempra Commodities LLP BF FC 51 24/25 St Andrew Square, Edinburgh, EH2 1AF Scotland
RBS Sempra Products Ltd BF FC 51 20-22 Bedford Row, London, WC1R 4JS, England Tay Valley Lighting (Leeds) Ltd BF EAJV 50 The Quadrangle, The Promenade, Cheltenham, GL50 1PX
BF EAJV 50 The Quadrangle, The Promenade, Cheltenham, GL50 1PX England
The Appeal Group Ltd OTH IA 25 6 Vale Road, Bedminster, Bristol, BS3 5SD Wales The Scottish Agricultural Securities Corporation P.L.C.
Vocalink Holdings Ltd BF EAA 21 Drake House, Three Rivers Court, Homestead, Rickmansworth, Hertfordshire, WD3 1FX England
Wealdland Ltd OTH EAA 29 10 Norwich Street, London, EC4A 1BD England
The following table details active related undertakings incorporated outside the United Kingdom where the Group ownership is less than 100%.
BF IA 33 Boundary Hall, Cricket Square, 171 Elgin Avenue, Grand Cayman, KY1-1104
China Galaxy Futures Company Ltd BF EA 17 Floor 9th, SOHO Century Plaza,1501 Century Avenue, Pudong New Area, Shanghai
China Suzhou Trust Co. Ltd BF EAJV 20 Suzhou Industrial Park, Investment Building, No. 308, Suya Road, Suzhou, 215021, China
Cyprus Pharos Estates Ltd OTH EAA 49 24 Demostheni Severi, 1st Floor, Nicosia, 1080
France Quatrième Lease G.I.E. BF EAJV 33 94, Boulevard Haussman, Paris, 75008 France
Qulpic Ltd BF FC 67 70 Sir John Rogerson's Quay, Dublin 2
Italy Maja Finance S.R.L. BF FC 0 Via Vittorio Alfieri 1, Conegliano, 31015
Netherlands Exfin Capital B.V. BF FC 0 Amsteldijk 166, Amsterdam, 1082 MD
Netherlands Herge Holding B.V. BF IA 62 Verlengde Poolseweg 16, 4818CL, Breda, Nederland (7)
Netherlands RFS Holdings B.V. BF FC 98 Herikerbergweg 238, Luna ArenA, 1101 CM, Amsterdam Zuidoost
Sweden Bong Fastigheter KB BF FC 51 C/O Nordisk Renting AB, Box 14044, SE-104 40 Sweden, Stockholm
BF FC 51 C/O Nordisk Renting AB, Box 14044, SE-104 40 Sweden, Stockholm
Sweden Optimus KB BF FC 51 C/O Nordisk Renting AB, Box 14044, SE-104 40 Sweden, Stockholm
United States Amtrust Acquisition LLC BF IA 24 2711 Centerville Road Suite 400, Wilmington, Delaware, 19808
United States Sempra Energy Trading LLC BF FC 51 160 Greentree Drive, Suite 101, Dover, United States
United States RBSG Capital Corporation BF NC 2711 Centerville Road Suite 400, Wilmington, Delaware, 19808 (10) United States West Granite Homes Inc. OTH NC Bellevue Parkway, Suite 210, Wilmington, Delaware, 19809 (9)
The following tables detail related undertakings that are not active. Actively being dissolved
Cayman Islands Blackridge Finance Ltd FC 100 Maples Corporate Services Limited, PO Box 309, Ugland House, South Church Street, George Town, Grand Cayman, KY1-1104
Cayman Islands Greenridge Finance Ltd FC 100 C/O M & C Corporate Services PO Box 309GT, Ugland House, South Church Street, George Town, Grand Cayman
Cayman Islands RBS Ravelston Ltd FC 98 PO Box 309GT, Ugland House, Ugland House, South Church Street, George Town, Grand Cayman
Cayman Islands Whiteridge Finance Ltd FC 98 Queensgate House, South Church Street, P.O. Box 1093GT, George Town, Grand Cayman
Gibraltar Gosport Ltd FC 100 1 Corral Road Gibraltar Java Interco (Gibraltar) Ltd FC 98 6A Queensway, P.O. Box 64, Gibraltar Gibraltar Kalimantan Holdings (Gibraltar) Ltd FC 98 6A Queensway, P.O. Box 64, Gibraltar Gibraltar RBS Services (Gibraltar) Ltd FC 98 6A Queensway, P.O. Box 64, Gibraltar
RoyScot Guernsey Ltd FC 100 PO Box 597, Royal Bank Place, 1 Glategny Esplanade, St Peter Port, GY1 6NF
First Active Investments No. 3 Ltd FC 100 Ulster Bank Group Centre, George's Quay, Dublin 2
Meritvale Ltd FC 100 Ulster Bank Group Centre, George's Quay, Dublin 2
FC 100 Ulster Bank Group Centre, George's Quay, Dublin 2, Ireland
RBS Trustees (Ireland) Ltd FC 98 First Floor, 10/11 Exchange Place, International Financial Services Centre, Dublin 1
Ulster Bank Investment Funds Ltd FC 100 Ulster Bank Group Centre, George's Quay, Dublin 2, Ireland
Isle of Man Isle of Man Bank (Nominees) Ltd FC 100 2 Athol Street, Douglas, IM99 1AN
Mulcaster Street Nominees Ltd FC 100 Royal Bank House, 71 Bath Street, St Helier, JE4 8PJ Jersey
Malaysia Gale Force Sdn Bhd EAA 25 Level 7, Setia 1, 15 Lorong Dungun, Damansara Heights, Kuala Lumpur, 50490
Netherlands Intermediaire Compagnie "ICO" B.V. FC 98 Gustav Mahlerlaan 350, Amsterdam, 1082 ME
United Kingdom Beveltop Ltd FC 100 135 Bishopsgate, London, EC2M 3UR England United Kingdom BL Residential General Partner Ltd EAJV 100 York House, 45 Seymour Street, London, W1H 7LX,
United Kingdom Cornhill Holdings Ltd FC 100 135 Bishopsgate, London, EC2M 3UR England United Kingdom District Bank Ltd FC 100 1 Princes Street, London, EC2R 8PB England United Kingdom Ecosse Regeneration Ltd FC 100 24/25 St Andrew Square, Edinburgh, EH2 1AF Scotland United Kingdom GATX Asset Residual Management Ltd EAA 50 No 1 Dorset Street, Southampton, SO15 2DP England
United Kingdom Progress Health (Peterborough) Ltd FC 100 250 Bishopsgate, London, EC2M 4AA, England United Kingdom Pulley's Nominees Ltd FC 100 250 Bishopsgate, London, EC2M 4AA, England
United Kingdom Quoted U.K. Ltd FC 100 250 Bishopsgate, London, EC2M 4AA, England United Kingdom Raingrove Ltd FC 100 250 Bishopsgate, London, EC2M 4AA, England United Kingdom RBOS Indices Ltd FC 100 250 Bishopsgate, London, EC2M 4AA, England United Kingdom RBS Development (UK) Ltd FC 100 250 Bishopsgate, London, EC2M 4AA, England
United Kingdom RBS Residential Venture No.2 Ltd FC 100 135 Bishopsgate, London, EC2M 3UR England United Kingdom RBSG Collective Investments Ltd FC 100 24/25 St. Andrew Square, Edinburgh, EH2 1AF Scotland United Kingdom RoyScot Vehicle Contracts Ltd FC 100 135 Bishopsgate, London, EC2M 3UR England United Kingdom STAR 1 Special Partner Ltd FC 100 135 Bishopsgate, London, EC2M 3UR England
United Kingdom Thrapston Triangle Ltd FC 100 1 Princes Street, London, EC2R 8PB England United Kingdom UB SIG (NI) Ltd FC 100 11-16 Donegall Square East, Belfast, BT1 5UB, Northern
Denmark Nordisk Renting A/S FC 100 c/o Adv Jan-Erik Svensson, HC Andersens Boulevard 12, Kopenhaum V, 1553 Denmark
Hong Kong Atlas Nominees Ltd FC 100 7/F, Lincoln House, Taikoo Place, 979 King's Road, Quarry Bay
Republic of Ireland First Active Ltd FC 100 Ulster Bank Group Centre, George's Quay, Dublin 2 Jersey Arran Cards Loan Note Issuer No.2 Ltd FC 0 47 Esplanade, St Helier Jersey, Channel Islands, JE1 0BD
Jersey RBS Cards Securitisation Funding Ltd FC 100 Royal Bank House, 71 Bath Street, St Helier, JE4 8PJ Jersey
Sweden Nordisk Renting HB FC 100 C/O Nordisk Renting AB, Box 14044, SE-104 40 Sweden, Stockholm
United Kingdom Buchanan Holdings Ltd FC 100 1 Princes Street, London, EC2R 8PB England United Kingdom CNW Group Ltd FC 100 135 Bishopsgate, London, EC2M 3UR England United Kingdom Coutts Group FC 100 1 Princes Street, London, EC2R 8PB England United Kingdom CTL Nominees Ltd FC 100 22 King Street, London, SW1Y 6QY England
Ireland United Kingdom Latam Directors Ltd NC 100 Quartermile Two, 2 Lister Square, Edinburgh, Midlothian,
England United Kingdom Lombard North Central Wheelease Ltd FC 100 280 Bishopsgate, London, EC2M 4RB England United Kingdom Marigold Nominees Ltd FC 100 1 Princes Street, London, EC2R 8PB England
United Kingdom N.C. Head Office Nominees Ltd FC 100 24/25 St Andrew Square, Edinburgh, EH2 1AF Scotland United Kingdom National Westminster Ltd FC 100 1 Princes Street, London, EC2R 8PB England United Kingdom NatWest Aerospace Trust Company Ltd FC 100 135 Bishopsgate, London, EC2M 3UR England United Kingdom NatWest FIS Nominees Ltd FC 100 Premier Place, 2 1/2 Devonshire Square, London, EC2M
United Kingdom NatWest Nominees Ltd FC 100 Premier Place, 2 1/2 Devonshire Square, London, EC2M 4BA England
United Kingdom NatWest PEP Nominees Ltd FC 100 1 Princes Street, London, EC2R 8PB England
United Kingdom NatWest Security Trustee Company Ltd FC 100 135 Bishopsgate, London, EC2M 3UR England United Kingdom Project & Export Finance (Nominees) Ltd FC 100 1 Princes Street, London, EC2R 8PB England United Kingdom R.B.S. Property (Greenock) Ltd FC 100 24/25 St Andrew Square, Edinburgh, EH2 1AF Scotland United Kingdom RB Investments 5 Ltd FC 100 135 Bishopsgate, London, EC2M 3UR England
United Kingdom RBS Pension Trustee Ltd NC 100 1 Princes Street, London, EC2R 8PB England United Kingdom RBS Retirement Savings Trustee Ltd FC 100 1 Princes Street, London, EC2R 8PB England United Kingdom RBS Secretarial Services Ltd FC 100 24/25 St Andrew Square, Edinburgh, Midlothian, EH2 1AF
Scotland United Kingdom RBS Shelf Nominees Ltd FC 100 24/25 St Andrew Square, Edinburgh, Midlothian, EH2 1AF
United Kingdom RoboScot (64) Ltd FC 100 24/25 St Andrew Square, Edinburgh, Midlothian, EH2 1AF Scotland
United Kingdom Strand Nominees Ltd FC 100 440 Strand, London, WC2R 0QS England United Kingdom Syndicate Nominees Ltd FC 100 1 Princes Street, London, EC2R 8PB England United Kingdom The National Bank Ltd FC 100 1 Princes Street, London, EC2R 8PB England United Kingdom The Royal Bank of Scotland (1727) Ltd FC 100 24/25 St Andrew Square, Edinburgh, Midlothian, EH2 1AF
United Kingdom W.G.T.C.Nominees Ltd FC 100 135 Bishopsgate, London, EC2M 3UR, England United Kingdom Westminster Bank Ltd FC 100 1 Princes Street, London, EC2R 8PB England United Kingdom Williams & Glyn Holdings Ltd FC 100 135 Bishopsgate, London, EC2M 3UR England
(2) Accounting treatment: Equity accounting - Associate - EAA Equity accounting - Joint Venture - EAJV Fully consolidated - FC Investment Accounting - IA Not consolidated – NC
(3) Wholly-owned subsidiary of RFS Holdings B.V. which is 98% owned by the Group. (4) The Group is interested in 25% of the voting rights (5) The Group is interested in none of the voting rights (6) Related undertaking consolidated because the Group controls the company by virtue of contractual agreements (7) By contractual agreement the Group holds 50% of the voting rights. (8) Related undertaking not consolidated as it is not controlled by the Group. (9) Related undertaking owned for the benefit of Group pension schemes. (10) Related undertaking for the benefit of trust preferred security holders.
The Royal Bank of Scotland International Ltd Gibraltar, Guernsey, Isle of Man, Luxembourg
The Royal Bank of Scotland N.V. Australia, Hong Kong, India, Indonesia, United Kingdom
RBS's financial statements are prepared in accordance with IFRS. Selected data under IFRS for each of the last five years is presented below.
Profit/(loss) from discontinued operations, net of tax (5) — 1,541 (3,445) 558 318
Notes: (1) Includes profit on strategic disposals of £164 million (2015 - £157 million loss; 2014 - £191 million profit; 2013 - £161 million profit; 2012 - £111 million profit). (2) Includes loss on redemption of own debt of £126 million (2015 - £263 million loss; 2014 - £20 million gain; 2013 - £175 million gain; 2012 - £454 million gain). (3) Includes own credit adjustments of £180 million gain (2015 - £309 million gain; 2014 - £146 million loss; 2013 - £120 million loss; 2012 - £4,649 million loss). (4) Includes write down of goodwill of nil in 2016 (2015 - £498 million; 2014 - £130 million; 2013 - £1,059 million; 2012 - £18 million). (5) Includes a gain of £1,117 million relating to the sell-down of Citizens in 2015 (2014 - £3,994 million loss).
Share price per ordinary share at year end - £ 2.25 3.02 3.94 3.38 3.25
Market capitalisation at year end - £bn 26.6 35.1 45.2 38.2 36.3
Net asset value per ordinary share - £ 4.18 4.66 5.12 5.23 6.30
Average total equity as a percentage of average total assets 6.2% 6.0% 5.8% 5.5% 5.2%
The geographic analysis, including the average balance sheet and interest rates, changes in net interest income and average interest rates, yields, spreads and margins in this report have generally been compiled on the basis of location of office - UK and overseas unless indicated otherwise. ‘UK’ in this context includes transactions conducted through the offices in the UK which service international banking transactions.
Loans and advances to customers - gross 120,380 95,823 140,202 356,405 341,010 395,698 465,875 521,271
Loans and advances to customers - UK 267,141 10,098 3.78 247,678 10,205 4.12
Total interest-earning assets - banking business (1,2,3,5) 399,598 11,182 2.80 413,345 11,925 2.88
Customer accounts: demand deposits - UK 146,340 390 0.27 131,617 537 0.41
Customer accounts: savings deposits - UK 62,097 425 0.68 70,803 435 0.61
Customer accounts: other time deposits - UK 8,984 149 1.66 14,018 221 1.58
Total interest-bearing liabilities - banking business (1,2) 264,471 2,474 0.94 285,045 3,173 1.11
(3) Interest receivable includes £290 million (2015 - £400 million; 2014 - £453 million) in respect of loan fees forming part of the effective interest rate of loans and receivables. (4) Interest receivable and interest payable on trading assets and liabilities are included in income from trading activities. (5) Interest receivable includes amounts (unwind of discount) recognised on impaired loans and receivables. The average balances of such loans are included in average loans and advances to banks and loans and advances to customers. (6) The analysis into UK and overseas has been compiled on the basis of location of office.
Volume and rate variances have been calculated based on movements in average balances over the period and changes in interest rates on average interest-earning assets and average interest-bearing liabilities. Changes due to a combination of volume and rate are allocated pro rata to volume and rate movements. 2016 over 2015 2015 over 2014
Customer (releases)/losses to income statement as a % of gross loans and advances to customers (2)
As a % of average loans and advances to customers during the year Total customer provisions (released)/charged to income statement 0.1% (0.2%) (0.3%) 1.6% 0.9%
Amounts written-off (net of recoveries) - customers 1.0% 2.3% 1.1% 0.8% 0.7%
Closing Total Closing Total provision loans provision loans provision loans provision loans provision loans
Service industries and business activities 1,131 16.2 993 16.4 1,510 14.4 2,192 12.6 1,480 12.5
Finance leases and instalment credit 69 3.7 69 3.6 82 3.1 136 2.5 184 2.3
The following table analyses deposits excluding repos by geographical area (location of office) and type of deposit.
Over 2016 0-3 months 3-6 months 6-12 months 12 months Total £m £m £m £m £m
Short-term borrowings comprise repurchase agreements, borrowings from financial institutions, commercial paper and certificates of deposit. Derivative collateral received from financial institutions is excluded from the table, as are certain long-term borrowings.
Note: (1) Excludes derivative cash collateral of £32 billion at 31 December 2016 (2015 - £30 billion; 2014 - £39 billion); and 2016 average of £34 billion (2015 - £36 billion; 2014 - £30 billion).
Balances are generally based on monthly data. Average interest rates during the year are computed by dividing total interest expense by the average amount borrowed. Weighted average interest rates at year end are for a single day and as such may reflect one-day market distortions, which may not be indicative of generally prevailing rates.
On 26 November 2009, the company and HM Treasury entered into the Acquisition and Contingent Capital Agreement pursuant to which HM Treasury subscribed for the initial B shares and the
Dividend Access Share (the "Acquisitions") and agreed the terms of HM Treasury's contingent subscription (the “Contingent
For as long as it is a substantial shareholder of the company
The Dividend Access Share (“DAS”) was created in 2009 (see B
Agreement (“DRA”) with HMT which was approved by the company’s shareholders on 25 June 2014. Pursuant to the terms of the DRA the company paid HMT an initial DAS dividend of £320 million. A further £1.18 billion was payable to HMT (together with the initial dividend, the “DAS Retirement Dividend Amount”), in the form of one or more further DAS dividends, at the discretion of the directors of the company. The unpaid portion of the DAS Retirement Dividend Amount was subject to an increase of 5 percent. per annum, calculated on a daily accruals basis from 1 January 2016, and an increase of 10 per cent. per annum, calculated on a daily accruals basis from 1 January 2021, on any part of the balance that had not been paid before 1 January 2021. On 22 March 2016, the company paid HMT a dividend of £1.193 billion representing the final amount payable to HMT and effecting the immediate retirement of the DAS. Upon its retirement, the DAS was re-designated as a single B share which was subsequently cancelled.
State Aid (a "Repayment Decision") and the recovery order of the
General Court or the European Court of Justice, then RBS must repay HM Treasury any aid ordered to be recovered under the
The State Aid Commitment Deeds also provide for RBS's undertakings in respect of State Aid to be modified in certain limited circumstances. However, HM Treasury has undertaken that it will not, without the consent of RBS, agree modifications to
RBS's undertakings with respect to State Aid which are significantly more onerous to RBS than those granted in order to obtain the State Aid approval. Further details are provided in the
Under the State Aid Costs Reimbursement Deed, RBS has agreed to reimburse HM Treasury for fees, costs and expenses associated with the State Aid and State Aid approval.
On 7 November 2014, in order to comply with an amendment to the UK Listing Rules, the company entered into a Relationship
The Group’s operations remain diverse and complex and it operates in legal and regulatory environments that expose it to potentially significant legal and regulatory actions, including litigation claims and proceedings and civil and criminal regulatory and governmental investigations, and other regulatory risk. The
Group is also subject to a number of additional claims, proceedings and investigations, the adverse resolution of which may also have a material adverse impact on the Group and which include ongoing reviews, investigations and proceedings
The duration and outcome of the DOJ’s civil and criminal investigations remain uncertain. No settlement may be reached with the DoJ and further substantial additional provisions and costs may be recognised. Any finding of criminal liability by US
authorities (including as a result of guilty pleas) could have material collateral consequences for the Group’s operations.
The Group is also facing litigation in the UK in connection with its 2008 shareholder rights issue. In December 2016, the Group concluded full and final settlements with four of the five shareholder groups representing 78% of the claims by value. As announced in December, although the Group has determined a settlement figure of up to £800 million for the resolution of these matters (including the settlement referred to above), which amount is covered by existing provisions. This figure assumes that agreement is also reached with the remaining claimant group, is split proportionally and is subject to validation of claims.
In addition, the Group is undertaking various remediation programmes in response to past conduct issues. As announced on 8 November 2016, the Group is also taking steps, including automatic refunds of certain complex fees and a new complaints process, overseen by an independent third party for small and medium entity (SME) customers in the UK and the Republic of
The Group booked a provision of £400 million in Q4 2016, based on its estimates of the costs associated with the new complaints review process and the automatic refund of complex fees for
In 2016, the Group booked additional provisions of £601 million with respect to payment protection insurance (PPI), resulting in total provisions made for such matters of £4.9 billion, of which £3.7 billion had been utilised by 31 December 2016 and additional future provisions and costs are possible until such time as the FCA’s consultation on the deadline for PPI is concluded.
Group may give rise to additional legal claims being asserted against the Group. Adverse outcomes or resolution of current or future legal or regulatory actions could result in restrictions or limitations on the Group’s operations, adversely impact the implementation of Group’s current transformation programme as well as its capital position and its ability to meet regulatory capital adequacy requirements. The remediation programmes or commitments which the Group has agreed to in connection with past settlements or investigations, could require significant financial costs and personnel investment for the Group and may result in changes in its operations or product offerings, and failure to comply with undertakings made by the Group to its regulators may result in additional measures or penalties being taken against the Group.
In a referendum held on 23 June 2016, a majority voted for the
UK to leave the European Union (EU). There is now prevailing uncertainty relating to the timing of the UK’s exit from the EU, as well as the negotiation and form of the UK’s relationships with the
EU, with other multilateral organisations and with individual countries at the time of exit and beyond. Once the exit process is triggered by the UK government, Article 50 of the Treaty on the
EU stipulates that a maximum two year period of negotiation will begin to determine the new terms of the UK’s exit from the EU ad set the framework for the UK’s new relationship with the EU, after which period its EU membership and all associated treaties will cease to apply, unless some form of transitional arrangement encompassing those associated treaties is agreed or there is unanimous agreement amongst EU member states and the
European Commission to extend the negotiation period. The direct and indirect effects of the UK’s decision to leave the EU
are expected to affect many aspects of the Group’s business, including as described elsewhere in these risk factors, and may be material. During the period in which the UK is negotiating its exit from the EU, the Group may face an increasingly uncertain operating environment.
EU or personnel from the EU and may result in periodic financial volatility and slower economic growth, in the UK in particular, but also in Republic of Ireland (ROI), Europe and potentially the global economy. These longer-term effects may endure until the bilateral and multilateral trading and economic relationships between the UK, the EU, members of the World Trade
Organisation and other key trading partners are agreed, implemented and settled.
The outcome of the EU Referendum has created constitutional and political uncertainty as to how the Scottish parliamentary process may impact the negotiations relating to the UK’s exit from the EU. As RBSG and RBS plc, its principal operating subsidiary, are both headquartered and incorporated in Scotland, any changes to Scotland’s relationship with the UK or the EU
may further impact the environment in which the Group and its subsidiaries operate, including as it may require changes to be made to the Group’s structure, independently or in conjunction with other mandatory or strategic structural and organisational changes and as a result could adversely impact the Group.
Referendum may result in one or more structural and reorganisation changes being implemented within the Group, in addition to those currently planned for. Current proposed changes to the European prudential regulatory framework for banks and investment banks may result in additional prudential or structural requirements being imposed on financial institutions based outside the EU wishing to provide financial services within the EU which may apply to the Group once the UK has formally exited the EU. One of the proposals would impose a requirement for any third country banks with two or more institutions within the
European Union. These are currently draft proposals which, if adopted, are not expected to come into force until after the implementation deadline for the UK ring fencing regime (1
January 2019). The Group is currently assessing how these proposals, if adopted, may impact the Group and its current restructuring plans to implement the UK ring-fencing regime. If implemented, the impact of these proposals could be material given the expectation that both the ring-fenced banking entities organised as a sub-group (the “RFB”) and the non-ring fenced group would continue to carry out operations in the EU. If adopted, these proposals would require further additional restructuring of the Group’s operations and legal structure, in addition to the changes already planned to be implemented for the purposes of compliance with the UK ring-fencing regime and any other changes required to be implemented as a result of other regulatory, political or strategic developments and could result in material additional capital requirements and have adverse tax implications. Planning and implementation of any additional restructuring of the Group’s activities may also divert management and personnel resources from the effective conduct of the Group’s operations, result in further material restructuring costs, jeopardise the delivery and implementation of a number of other significant change projects resulting from mandatory regulatory developments or as part of its transformation programme, impact the Group’s product offering or business model or adversely impact the Group’s ability to deliver its strategy and meet its targets and guidance, each of which could have a material adverse impact on the Group’s results of operations, financial condition and prospects.
The Group is in the process of seeking to satisfy its commitments arising as a result of the receipt of State Aid in
December 2008. The process to amend the Group’s State Aid obligations in respect of Williams & Glyn may not ultimately amend such obligations or the revised obligations may be more onerous than those currently being discussed. The diversion of Group resources required to meeting the
Group’s obligations in respect of Williams & Glyn, associated costs or delays in meeting, or a failure to meet, the deadline for compliance, could have a material adverse effect on the Group’s operations, operating results, financial position and reputation.
NatWest branches in Scotland, Direct SME banking and certain mid-corporate customers (Williams & Glyn) by the end of 2017. In light of its obligations under the State Aid Commitment Deed, the
Under the current form of the alternative plan, the Group will deliver a package of measures to promote competition in the market for banking services to small and medium enterprises
(SMEs) in the UK. This package will include: (i) an SME banking capability fund, administered by an independent body, which eligible challenger banks could access to increase their SME
European Commission will ultimately agree to this or any package of alternative measures in replacement of the original terms of the State Aid Commitment Deed in relation to Williams &
Commission, either of which may result in amendments to the scope of and costs associated with this package as a result of which the final terms of a package of alternative measures may be more onerous than the scope of the plan set out above.
Execution of the alternative measures package plan entails significant costs, including the funding commitments and financial incentives envisaged to be provided under the plan. In addition, the final terms of the agreement entered into among the Group,
HM Treasury and the European Commission may include sanctions or additional financial incentives designed to ensure that the Group delivers its commitments. The Group will also need to assess the timing and manner in which to reintegrate the remaining Williams & Glyn business into the Group which is expected to result in additional restructuring charges and may adversely impact the Group’s existing restructuring plans, including in respect of the implementation of the UK ring-fencing regime.
As a direct consequence of the incentivised switching component of the package of alternative measures described above, the
If the Group fails to come to an agreement with HM Treasury and the European Commission in respect of the proposed package of alternative measures, and a determination is made that the
Group would be required to conduct further restructuring in order to divest the Williams & Glyn business, at the same time that it is implementing significant restructuring changes in connection with the implementation of the UK ring-fencing regime and other restructuring changes which may be required as a result of the
UK terminating its membership of the European Union, which entails material execution risks and costs, as well as diverting
Group and management resources. In addition, if no alternative to the Group’s current State Aid Commitment Deed obligations becomes effective, the Group would be unable to meet the principal obligation in the State Aid Commitment Deed to divest
Williams & Glyn by 31 December 2017, which could entail material sanctions (including the appointment of a divestiture trustee, with the mandate to complete the divestment at no minimum price).
Group’s ability to carry out its transformation programme, including the implementation of cost saving initiatives and implement mandatory regulatory requirements, including the UK
ring-fencing regime. Such risks will increase in line with any additional delays.
Implementation of the ring-fencing regime in the UK which began in 2015 and must be completed before 1 January 2019 will result in material structural changes to the Group’s business. These changes could have a material adverse effect on the Group.
Act 2013 (the “Banking Reform Act 2013”) and adopted through secondary legislation (the “UK ring-fencing regime”). These reforms form part of a broader range of structural reforms of the banking industry seeking to improve the resilience and resolvability of banks and which range from structural reforms
(including ring-fencing) to the implementation of a new recovery and resolution framework (which in the UK will incorporate elements of the ring-fencing regime). See “The Group and its subsidiaries are subject to a new and evolving framework on recovery and resolution, the impact of which remains uncertain, and which may result in additional compliance challenges and costs.”
On 30 September 2016, the Group announced plans for its future ring-fencing compliant structure. By the end of 2018, the Group intends to place the majority of its UK and Western European banking business in ring-fenced banking entities organised as a sub-group under an intermediate holding company named
(Ulster Bank). As a result, National Westminster Bank Plc will no longer be a subsidiary of RBS plc. The NatWest Markets franchise (formerly known as the Corporate and Institutional
Banking business) and the RBS International business will be outside the ring-fence in other banking subsidiaries of RBSG.
UK ring-fencing rules, including in areas such as information technology (IT) infrastructure, human resources and critical service providers which may involve associated execution risk and may result in increased costs. Arrangements between RFB and other Group entities will also need to be reviewed in light of these requirements and the requirement that all such transactions take place on an arm’s-length basis.
• From 2026 it will not be possible for the RFB and other
(including The Royal Bank of Scotland Group Pension Fund, the Group’s main defined benefit pension scheme (the “Main
• The restructuring and planned transfers may also result in accounting consequences for the Group. Although a number of transfers will be made at book value between fully owned
Group entities and will therefore not have an accounting impact, certain transfers will be made at fair value which may result in a profit or loss being recognised by Group entities. In addition, transfers of assets that have related hedging arrangements may result in adverse operational, financial or accounting consequences if the transfer is not consistent with the unaffected continuation of such hedging arrangements.
The steps required to implement the UK ring-fencing regime within the Group to comply with the relevant rules and regulations are extraordinarily complex and require an extended period of time to plan, execute and implement and entail significant costs and operational, legal and execution risks, which risks may be exacerbated by the Group’s other ongoing restructuring efforts.
Since early 2015, the Group has been implementing a major restructuring and transformation programme, articulated around a strategy focused on the growth of its strategic operations in
Markets franchise, to focus mainly on UK and Western European corporate and financial institutions. As part of this programme, the Group also continues to run-down certain of its operations, businesses and portfolios in order to reduce risk-weighted assets as well as the scope and complexity of its activities, including through the run-down of the higher risk and capital intensive assets in Capital Resolution. Throughout 2016, the Group stepped up the run-down of the higher risk and capital intensive assets in Capital Resolution, reducing risk-weighted assets by £14.5 billion.
The successful implementation of the Group’s transformation programme and the Group’s ability to meet associated targets and expectations, are subject to various internal and external factors and risks, including those described in this risk factor, the other risk factors included in this section and the disclosure included in the rest of this document. These include, but are not limited to, market, regulatory, economic and political uncertainties, developments relating to litigation and regulatory matters, operational risks, risks relating to the Group’s business model and strategy and delays or difficulties in implementing its transformation programme, including the restructuring of its
NatWest Markets franchise, the implementation of the UK ringfencing regime and compliance with the Group’s State Aid obligations. A number of factors may impact the Group’s ability to maintain its CET1 ratio target at or over 13% throughout the restructuring period, including conduct related costs, pension or legacy charges, accounting impairments or limited organic capital generation through profits. In addition, the run-down of riskweighted assets may be accompanied by the recognition of disposal losses which may be higher than anticipated, including due to a degraded economic environment. Further regulatory changes may also result in risk-weighted assets inflation in the medium term. For a further discussion of the risks associated with meeting the Group’s capital targets, see" The Group’s business performance and financial position could be adversely affected if its capital is not managed effectively or if it is unable to meet its capital targets.”. The Group’s ability to meet its cost:income ratio target and the planned reductions in its annual underlying costs (excluding restructuring and conduct-related charges) may also be impacted, and the focus on meeting cost reduction targets may result in limited investment in other areas which could affect the Group’s long-term product offering or competitive position.
Due to the changed nature of the Group’s business model, the
Group’s expectations with respect to its return to profitability and the timing thereof may not be achieved in the timescale envisaged or at any time. An adverse macroeconomic environment, including sustained low interest rates, political and regulatory uncertainty, increased market competition and/or heightened litigation costs may also pose significant headwinds to the profitability of the Group. In addition there can be no certainty that the new business model defined for the NatWest
Implementation of the Group’s transformation programme is expected to result in significant costs, which could be materially higher than currently contemplated, including due to material uncertainties and factors outside of the Group’s control.
Implementing the Group’s current transformation programme, including the restructuring of its NatWest Markets franchise, requires further material changes to be implemented within the
Group and will continue to divert management resources from the conduct of the Group’s operations and development of its business.
The scale of changes being concurrently implemented has and will continue to require the implementation and application of robust governance and controls frameworks and there is no guarantee that the Group will be successful in doing so.
Due to changes in the micro and macro-economic and political and regulatory environment in which it operates, in particular as a result of the consequences of the EU Referendum, the Group may also be required to reconsider certain aspects of its current restructuring programme, or the timeframe for its implementation.
Group’s Western European operations, including for example, as a result of potential changes in the prudential regulatory framework for banks and investment banks within the EU or if the
Operational risks are inherent in the Group’s businesses and these risks are heightened as the Group implements its transformation programme, including significant cost reductions, the UK ring-fencing regime and compliance with its State Aid obligations against the backdrop of legal and regulatory changes.
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people or systems, or from external events, including legal risks. The Group has complex and diverse operations and operational risk and losses can result from a number of internal or external factors, including: • internal and external fraud and theft from the Group; • compromise of the confidentiality, integrity, or availability of the Group’s data, systems and services; • failure to identify or maintain the Group’s key data within the limits of the Group’s agreed risk appetite; • failure of the Group’s technology services due to loss of data, systems or data centre failure or failure by third parties to restore services; • failure to appropriately or accurately manage the Group’s operations, transactions or security; • incorrect specification of models used by the Group, implementing or using such models incorrectly; • failure to effectively design, execute or deliver the Group’s transformation programme; • failure to attract retain or engage staff; • insufficient resources to deliver change and business-asusual activity; • decreasing employee engagement or failure by the Group to embed new ways of working and values; or
State Aid obligations. Individually, these initiatives carry significant execution and delivery risk and such risks are heightened as their implementation is generally highly correlated and dependent on the successful implementation of interdependent initiatives.
These initiatives are being delivered against the backdrop of ongoing cost challenges and increasing legal and regulatory uncertainty and will put significant pressure on the Group’s ability to maintain effective internal controls and governance frameworks. Although the Group has implemented risk controls and loss mitigation actions and significant resources and planning have been devoted to mitigate operational risk, it is not possible to be certain that such actions have been or will be effective in controlling each of the operational risks faced by the
Group. Ineffective management of operational risks could have a material adverse effect on the Group’s business, financial condition and results of operations.
The Group is exposed to cyberattacks and a failure to prevent or defend against such attacks could have a material adverse effect on the Group’s operations, results of operations or reputation.
Group relies on the effectiveness of its internal policies and associated procedures, IT infrastructure and capabilities to protect the confidentiality, integrity and availability of information held on its computer systems, networks and mobile devices, and on the computer systems, networks and mobile devices of third parties on whom the Group relies.
Failure to protect the Group’s operations from cyberattacks or to continuously review and update current processes in response to new threats could result in the loss of customer data or other sensitive information as well as instances of denial of service for the Group’s customers. Although the Group experienced attempted distributed denial of service (DDoS) attacks in 2016, none of these attacks were successful. During 2015, the Group experienced a number of DDoS attacks, one of which had a temporary impact on some of NatWest’s web services, as well as a smaller number of malware attacks.
However, the Group expects to be the target of continued attacks in the future and there can be no certainty that the Group will be able to effectively mitigate the impact of such attacks.
The Group currently targets a CET1 ratio at or above 13%
The Group is subject to extensive regulatory supervision in relation to the levels and quality of capital it is required to hold in connection with its business, including as a result of the transposition of the Basel Committee on Banking Supervision’s regulatory capital framework (Basel III) in Europe by a Directive and Regulation (collectively known as “CRD IV”).
In addition, the Group is currently identified as a global systemically important bank (G-SIB) by the Financial Stability
Board (FSB) and is therefore subject to more intensive oversight and supervision by its regulators as well as additional capital requirements, although the Group belongs to the last “bucket” of the FSB G-SIB list and is therefore subject to the lowest level of additional loss-absorbing capital requirements. As the Group reduces its global footprint and its balance sheet, the FSB may, at its discretion, determine that the Group is no longer a G-SIB.
Under CRD IV, the Group is required to hold at all times a minimum amount of regulatory capital calculated as a percentage of risk-weighted assets (Pillar 1 requirement). CRD IV also introduced a number of new capital buffers that are in addition to the Pillar 1 and Pillar 2A requirements (as described below) that must be met with CET1 capital. The combination of the capital conservation buffer (which, subject to transitional provisions, will be set at 2.5% from 2019), the countercyclical capital buffer (of up to 2.5% which is currently set at 0% by the FPC for UK banks)
and the higher of (depending on the institution) the systemic risk buffer, the global systemically important institutions buffer (G-SIB
Buffer) and the other systemically important institutions buffer, is referred to as the “combined buffer requirement”. These rules entered into force on 1 May 2014 for the countercyclical capital buffer and on 1 January 2016 for the capital conservation buffer and the G-SIB buffer. The G-SIB buffer is currently set at 1.0%
Policy Committee (the “FPC”) was responsible for setting the framework for the systemic risk buffer and the PRA adopted in
In addition, national supervisory authorities may add extra capital requirements (the “Pillar 2A requirements”) to cover risks that they believe are not covered or insufficiently covered by Pillar 1 requirements. The Group’s current Pillar 2A requirement set by the PRA at an equivalent of 3.8% of risk-weighted assets. The
Where appropriate, the PRA may require an increase in an institution's PRA buffer to reflect additional capital required to be held to mitigate the risk of additional losses that could be incurred as a result of risk management and governance weaknesses, including with respect to the effectiveness of the internal stress testing framework and control environment. UK banks are required to meet the higher of the combined buffer requirement or
In addition to capital requirements and buffers, the regulatory framework adopted under CRD IV, as transposed in the UK, sets out minimum leverage ratio requirements for financial institutions, namely: (i) a minimum leverage requirement of 3% which applies to major UK banks, (ii) an additional leverage ratio to be met by
Most of the capital requirements which apply or will apply to the
Group will need to be met in whole or in part with CET1 capital.
The Basel Committee and other agencies remain focused on changes that will increase, or recalibrate, measures of riskweighted assets as the key measure of the different categories of risk in the denominator of the risk-based capital ratio. While they are at different stages of maturity, a number of initiatives across risk types and business lines are in progress that are expected to impact the calculation of risk-weighted assets.
Although the above provides an overview of the capital and leverage requirements currently applicable to the Group, such requirements are subject to ongoing amendments and revisions, including as a result of final rules and recommendations adopted by the FSB or by European or UK regulators. In particular, on 23
Resolution Directive “BRRD”. Although such proposals are currently being considered and discussed among the European
Commission, the European Parliament and the European Council and their final form and the timetable for their implementation are not known, such amendments may result in increased or more stringent requirements applying to the Group or its subsidiaries.
In accordance with the provisions of CRD IV, a minimum level of capital adequacy is required to be met by the Group in order for it to be entitled to make certain discretionary payments.
as payments relating to CET1 instruments (dividends), variable remuneration and coupon payments on additional tier 1 instruments). The resulting restrictions are scaled according to the extent of the breach of the “combined buffer requirement” and calculated as a percentage of the profits of the institution since the last distribution of profits or “discretionary payment” which gives rise to a maximum distributable amount (MDA) (if any) that the financial institution can distribute through discretionary payments. The EBA has clarified that the CET1 capital to be taken into account for the MDA calculation should be limited to the amount not used to meet the Pillar 1 and Pillar 2 own funds requirements of the institution. In the event of a breach of the combined buffer requirement, the Group will be required to calculate its MDA, and as a consequence it may be necessary for the Group to reduce or cease discretionary payments to the extent of the breach.
The ability of the Group to meet the combined buffer requirement will be subject to the Group holding sufficient CET1 capital in excess of its minimum Pillar 1 and Pillar 2 capital requirements.
In addition, the interaction of such restrictions on distributions with the capital requirements and buffers applicable to the Group remains uncertain in many respects while the relevant authorities in the EU and the UK consult on and develop their proposals and guidance on the application of the rules. In particular, the proposals published by the European Commission in November 2016 contain certain proposed amendments to Article 141, including to introduce a “stacking order” in the calculation of the maximum distributable amount and establish certain priorities in the payments which could be made in the event the restrictions apply (with payments relating to additional tier 1 instruments being required to be made before payments on CET1 instruments (dividends) or other discretionary payments). The treatment of MDA breaches under the European Commission proposals differ from the proposed consequences set out in the final PRA rules and may result in uncertainty in the application of these rules.
In addition to these rules, in order to make distributions (including dividend payments) in the first place, RBSG is required to have sufficient distributable reserves available. Furthermore, coupon payments due on the additional tier 1 instruments issued by
“distributable items” as defined under CRD IV. Both distributable reserves and distributable items are largely impacted by the
Group’s ability to generate and accumulate profits or conversely by material losses (including losses resulting from conduct related-costs, restructuring costs or impairments).
RBSG’s distributable reserves and distributable items are sensitive to the accounting impact of factors including the redemption of preference shares, restructuring costs and impairment charges and the carrying value of its investments in subsidiaries which are carried at the lower of cost and their prevailing recoverable amount. Recoverable amounts depend on discounted future cash flows which can be affected by restructurings, including the restructuring required to implement the UK ring-fencing regime, or unforeseen events. The distributable reserves of RBSG also depend on the receipt of income from subsidiaries, principally as dividends. The ability of subsidiaries to pay dividends is subject to their performance and applicable local laws and other restrictions, including their respective regulatory requirements and distributable reserves.
RBSG’s ability to maintain sufficient distributable reserves to be able to pay coupons on certain capital instruments and dividends to its ordinary shareholders. In Q3 2016, the Group reviewed the value of the investments in subsidiaries held in the parent company, RBSG, and in light of the deterioration in the economic outlook, impaired the carrying value of the investments by £6.0 billion to £44.7 billion.
This had the effect of reducing distributable profits of RBSG by £6.0 billion and the Group may be required to recognise further impairments in the future if the outlook for its subsidiaries were to worsen. Whilst this level of distributable profits does not impact upon RBSG’s ability to pay coupons on existing securities, the
UK and also subject to stress tests by the European regulators with respect to RBSG, RBS NV and Ulster Bank. Stress tests provide an estimate of the amount of capital banks might deplete in a hypothetical stress scenario. In addition, if the stress tests reveal that a bank’s existing regulatory capital buffers are not sufficient to absorb the impact of the stress, it is possible that it will need to take action to strengthen its capital position. There is a strong expectation that the PRA would require a bank to take action if, at any point during the stress, a bank were projected to breach any of its minimum CET1 capital or leverage ratio requirements. However, if a bank is projected to fail to meet its systemic buffers, it will still be expected to strengthen its capital position over time but the supervisory response is expected to be less intensive than if it were projected to breach its minimum capital requirements. The PRA will also use the annual stress test results to inform its determination of whether individual banks’ current capital positions are adequate or need strengthening. For some banks, their individual stress-test results might imply that the capital conservation buffer and countercyclical rates set for all banks is not consistent with the impact of the stress on them. In that case, the PRA can increase regulatory capital buffers for individual banks by adjusting their
Under the 2016 Bank of England stress tests, which were based on the balance sheet of the Group for the year ended 31
Group; further run-down and sale of other non-core loan portfolios in relation to the personal and commercial franchises and the management of undrawn facilities in 2017. Additional management actions may be required by the PRA until the
Group’s balance sheet is sufficiently resilient to meet the regulator’s stressed scenarios.
Consistent with the approach set out in the 2015, the 2017 Bank of England stress test will, for the first time, test the resilience of the system, and individual banks within it, against two stress scenarios. In addition to the annual cyclical scenario, there will be an additional ‘exploratory’ scenario that will be tested for the first time in 2017. This will allow the Bank of England to assess the resilience of the system, and the individual banks within it, to a wider range of potential threats, including weak global supply growth, persistently low interest rates, and a continuation of declines in both world trade relative to GDP and cross-border banking activity. If the Group were to fail under either of these scenarios, it may be required to take further action to strengthen its capital position. In addition, the introduction of IFRS 9, effective for annual periods beginning on or after 1 January 2018, is expected to result in capital volatility for the Group, which in turn could have an impact on the Group’s ability to meet its required CET1 ratio in a stress test scenario.
As a result of extensive reforms being implemented relating to the resolution of financial institutions within the UK, the
EU and globally, material additional requirements will arise to ensure that financial institutions maintain sufficient lossabsorbing capacity. Such changes to the funding and regulatory capital framework may require the Group to meet higher capital levels than the Group anticipated within its strategic plans and affect the Group’s funding costs.
in the EU and the consistency of MREL with the final TLAC
December 2016. On the basis of the EBA’s work and its own assessment of CRD IV and the BRRD, the European
These final rules (which were adopted on the basis of the current
requirements for each UK bank, building society and certain investment firms in consultation with the PRA and the FCA, and such requirement will be set depending on the resolution strategy of the financial institution. In its final rules, the Bank of England has set out a staggered compliance timeline for UK banks, including with respect to those requirements applicable to G-SIBs
FSB’s TLAC term sheet from 1 January 2019 (i.e. the higher of 16% of risk-weighted assets or 6% of leverage exposures), and
For institutions, including the Group, for which bail-in is the required resolution strategy and which are structured to permit single point of entry resolution due to their size and systemic importance, the Bank of England has indicated that in order to qualify as MREL, eligible liabilities must be issued by the resolution entity (i.e. the holding company for the Group) and be structurally subordinated to operating and excluded liabilities
“structurally subordinated” to senior liabilities of operating companies, allowing losses from operating companies to be transferred to the holding company and - if necessary - for resolution to occur at the holding company level, without placing the operating companies into a resolution process. The TLAC
standard includes an exemption from this requirement if the total amount of excluded liabilities on RBSG’s balance sheet does not exceed 5% of its external TLAC (i.e. the eligible liabilities RBSG
has issued to investors which meet the TLAC requirements) and the Bank of England has adopted this criterion in its final rules. If the Group were to fail to comply with this “clean balance sheet”
requirement, it could disqualify otherwise eligible liabilities from counting towards MREL and result in the Group breaching its
There remain some areas of uncertainty as to how these rules will be implemented within the UK, the EU and globally and the final requirements to which the Group will be subject, and the
Group, it could impact the ranking of current or future senior unsecured creditors of the Group.
RBSG are below investment grade by Moody’s, and investment grade by S&P and Fitch. The senior unsecured long-term and short-term credit ratings of RBS plc are investment grade by
Moody’s, S&P and Fitch. The outlook for RBSG and RBS plc by
The major credit rating agencies downgraded and changed their outlook to negative on the UK’s sovereign credit rating following the results of the EU Referendum in June 2016. Any further downgrade in the UK Government’s credit ratings could adversely affect the credit ratings of Group companies and may result in the effects noted above. Further political developments, including in relation to the UK’s exit from the EU or the outcome of any further Scottish referendum could negatively impact the credit ratings of the UK Government and result in a downgrade of the credit ratings of RBSG and Group entities.
Group’s overall liquidity position remained strong, credit markets experienced elevated volatility and certain European banks, in particular in the peripheral countries of Spain, Portugal, Greece and Italy, remained reliant on the ECB as one of their principal sources of liquidity.
Group’s ability to satisfy its liquidity needs. Increases in the cost of retail deposit funding may impact the Group’s margins and profitability.
Rules currently proposed by the FSB and in the EU in relation to the implementation of TLAC and MREL may also limit the ability of certain large financial institutions to hold debt instruments issued by other large financial institutions. The ability of the Bank of England to resolve the Group in an orderly manner may also increase investors’ perception of risk and hence affect the availability and cost of funding for the Group. Any uncertainty relating to the credit risk of financial institutions may lead to reductions in levels of interbank lending or may restrict the
Group’s access to traditional sources of funding or increase the costs or collateral requirements for accessing such funding.
Western Europe and, accordingly is more exposed to the economic conditions of the British economy as well as the
The outlook for the global economy over the medium-term remains uncertain due to a number of factors including: political instability, continued slowdown of global growth, an extended period of low inflation and low interest rates and delays in normalising monetary policy. Such conditions could be worsened by a number of factors including political uncertainty or macroeconomic deterioration in the Eurozone or the US, increased instability in the global financial system and concerns relating to further financial shocks or contagion, a further weakening of the pound sterling, new or extended economic sanctions, volatility in commodity prices or concerns regarding sovereign debt. In particular, concerns relating to emerging markets, including lower economic growth or recession, concerns relating to the Chinese economy and financial markets, reduced global trade in emerging market economies to which the Group is exposed (including those economies to which the Group remains exposed pending the exit of certain of its businesses and which include China,
subsidiaries and may affect the Group’s reported consolidated financial condition or its income from foreign exchange dealing.
England, ECB or of the US Federal Reserve or from political events and lead to sharp and sudden variations in foreign exchange rates, such as those seen in the GBP/USD exchange rates during the second half of 2016 following the EU
The Group’s earnings and financial condition have been, and its future earnings and financial condition may continue to be, materially affected by depressed asset valuations resulting from poor market conditions.
Group’s interest in the remainder of the businesses and portfolios within the exiting business may be difficult to sell due to unfavourable market conditions for such assets or businesses.
Moreover, market volatility and illiquidity (and the assumptions, judgements and estimates in relation to such matters that may change over time and may ultimately not turn out to be accurate)
In particular, the Group has significant exposure to certain individual customers and other counterparties in weaker business sectors and geographic markets and also has concentrated country exposure in the UK, the US and across the rest of
At 31 December 2016, current exposure in the UK was £338.9 billion, in the US was £22.4 billion and in Western Europe
(excluding the UK) was £79.7 billion); and within certain business sectors, namely personal, financial institutions, property, shipping and the oil and gas sector (at 31 December 2016, personal lending amounted to £166.2 billion, lending to banks and other financial institutions was £47.7 billion, property lending was £42.4 billion, lending to the oil and gas sector was £2.9 billion and shipping was £4.6 billion).
Provisions held on loans in default have decreased in recent years due to asset sales and the portfolio run-down in Ulster
In addition, as the Group implements its new strategy and withdraws from many geographic markets and continues to materially scale down its international activities, the Group’s relative exposure to the UK and certain sectors and asset classes in the UK will increase significantly as its business becomes more concentrated in the UK. The level of UK household indebtedness remains high and the ability of some households to service their debts could be challenged by a period of higher unemployment.
Highly indebted households are particularly vulnerable to shocks, such as falls in incomes or increases in interest rates, which threaten their ability to service their debts.
In particular, in the UK the Group is at risk from volatility in property prices in both the residential and commercial sectors.
With UK home loans representing the most significant portion of the Group’s total loans and advances to the retail sector, the
Group has a large exposure to adverse developments in the UK
In addition, the Group’s credit risk is exacerbated when the collateral it holds cannot be realised as a result of market conditions or regulatory intervention or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure that is due to the Group, which is most likely to occur during periods of illiquidity and depressed asset valuations, such as those experienced in recent years. This has particularly been the case with respect to large parts of the Group’s commercial real estate portfolio. Any such deteriorations in the Group’s recoveries on defaulting loans could have an adverse effect on the Group’s results of operations and financial condition.
The effectiveness of recent prudential reforms designed to contain systemic risk in the EU and the UK is yet to be tested.
Group’s financial counterparties could have a material adverse effect on the Group’s access to liquidity or could result in losses which could have a material adverse effect on the Group’s financial condition, results of operations and prospects.
The vulnerabilities of the Group’s IT systems are due to their complexity, attributable in part to overlapping multiple dated systems that result from the Group’s historical acquisitions and insufficient investment prior to 2013 to keep the IT applications and infrastructure up-to-date. A complex IT estate containing end-of-life hardware and software creates challenges in recovering from system breakdowns. IT failures adversely affect the Group’s relationship with its customers and reputation and have led, and may in the future, lead to regulatory investigations and redress.
The Group’s regulators in the UK are actively surveying progress made by banks in the UK to modernise, manage and secure their
IT infrastructures, in order to prevent future failures affecting customers. Any critical system failure, any prolonged loss of service availability or any material breach of data security could cause serious damage to the Group’s ability to service its customers, could result in significant compensation costs or fines resulting from regulatory investigations and could breach regulations under which the Group operates.
The Group is currently implementing a number of complex initiatives, including its transformation programme, the UK ringfencing regime and the restructuring of the NatWest Markets franchise, all which put additional strains on the Group’s existing
IT systems. A failure to safely and timely implement one or several of these initiatives could lead to disruptions of the
Group’s IT infrastructure and in turn cause long-term damage to the Group’s reputation, brands, results of operations and financial position.
The Group is subject to extensive laws, regulations, corporate governance requirements, administrative actions and policies in each jurisdiction in which it operates. Many of these have been introduced or amended recently and are subject to further material changes. Among others, the implementation and strengthening of the prudential and resolution framework applicable to financial institutions in the UK, the EU and the US, and future amendments to such rules, are considerably affecting the regulatory landscape in which the Group operates and will operate in the future, including as a result of the adoption of rules relating to the UK ring-fencing regime, prohibitions on proprietary trading, CRD IV and the BRRD and certain other measures.
Group conducts its business, its authorisations and licences, the products and services it offers, its reputation and the value of its assets, the Group’s operations or legal entity structure, including attendant restructuring costs and consequently have a material adverse effect on its business, funding costs, results of operations, financial condition and future prospects.
Areas in which, and examples of where, governmental policies, regulatory and accounting changes and increased public and regulatory scrutiny could have an adverse impact (some of which could be material) on the Group include, but are not limited to, those set out above as well as the following: • amendments to the framework or requirements relating to the quality and quantity of regulatory capital to be held by the Group as well as liquidity and leverage requirements, either on a solo, consolidated or subgroup level (and taking into account the Group’s new legal structure following the implementation of the UK ring-fencing regime), including amendments to the rules relating to the calculation of riskweighted assets and reliance on internal models and credit ratings as well as rules affecting the eligibility of deferred tax assets; • the design and implementation of national or supranational mandated recovery, resolution or insolvency regimes or the implementation of additional or conflicting loss-absorption requirements, including those mandated under MREL or by the FSB’s recommendations on TLAC; • new or amended regulations or taxes that reduce profits attributable to shareholders which may diminish, or restrict, the accumulation of the distributable reserves or distributable items necessary to make distributions or coupon payments or limit the circumstances in which such distributions may be made or the extent thereof; • the monetary, fiscal, interest rate and other policies of central banks and other governmental or regulatory bodies; • further investigations, proceedings or fines either against the
mortgage market review and other initiatives led by the Bank of England or European regulators; • additional rules and regulatory initiatives and review relating to customer protection, including the FCA’s Treating
Customers Fairly regime and increased focus by regulators on how institutions conduct business, particularly with regard to the delivery of fair outcomes for customers and orderly/transparent markets; • the imposition of additional restrictions on the Group’s ability to compensate its senior management and other employees and increased responsibility and liability rules applicable to senior and key employees;
• regulations relating to, and enforcement of, anti-bribery, antimoney laundering, anti-terrorism or other similar sanctions regimes; • rules relating to foreign ownership, expropriation, nationalisation and confiscation of assets; • changes to financial reporting standards (including accounting standards or guidance) and guidance or the timing of their implementation; • changes to risk aggregation and reporting standards; • changes to corporate governance requirements, senior manager responsibility, corporate structures and conduct of business rules; • competition reviews and investigations relating to the retail banking sector in the UK, including with respect to SME
Protection Act of 2010 in the US; • increased attention to competition and innovation in UK
Payments Systems Regulator and developments relating to the UK initiative on Open Banking and the European directive on payment services; • new or increased regulations relating to customer data and privacy protection, including the EU General Data Protection
Regulation; • restrictions on proprietary trading and similar activities within a commercial bank and/or a group; • the introduction of, and changes to, taxes, levies or fees applicable to the Group’s operations, such as the imposition of a financial transaction tax, changes in tax rates, increases in the bank corporation tax surcharge in the UK, restrictions on the tax deductibility of interest payments or further restrictions imposed on the treatment of carry-forward tax losses that reduce the value of deferred tax assets and require increased payments of tax; • investigations into facilitation of tax evasion or avoidance or the creation of new civil or criminal offences relating thereto; • the regulation or endorsement of credit ratings used in the
• other requirements or policies affecting the Group’s profitability or product offering, including through the imposition of increased compliance obligations or obligations which may lead to restrictions on business growth, product offerings, or pricing.
The Group maintains a number of defined benefit pension schemes for certain former and current employees. Pension risk includes the risk that the assets of the Group’s various defined benefit pension schemes do not fully match the timing and amount of the schemes’ liabilities, as a result of which the Group is required or chooses to make additional contributions to address deficits that may emerge. Risk arises from the schemes because the value of the asset portfolios may be less than expected and because there may be greater than expected increases in the estimated value of the schemes’ liabilities and additional future contributions to the schemes may be required.
The value of pension scheme liabilities varies with changes to long-term interest rates (including prolonged periods of low interest rates as is currently the case), inflation, monetary policy, pensionable salaries and the longevity of scheme members, as well as changes in applicable legislation. In particular, as life expectancies increase, so too will the pension scheme liabilities; the impact on the pension scheme liabilities due to a one year increase in longevity would have been expected to be £1.5 billion as at 31 December 2016.
Group, which may impact the Group’s results of operations and capital position.
The last triennial valuation of the Main Scheme, had an effective date of 31 December 2015. This valuation was concluded with the acceleration of the nominal value of all committed contributions in respect of past service (£4.2 billion), which was paid in Q1 2016.
Group expects to have to agree to additional contributions, over and above the existing committed past service contributions, as a result of the next triennial valuation. Under current legislation, such agreement would need to be reached no later than Q1 2020. The cost of such additional contributions could be material and any additional contributions that are committed to the Main
In addition, the UK ring-fencing regime will require significant changes to the structure of the Group’s existing defined benefit pension schemes as RFB entities may not be liable for debts to pension schemes that might arise as a result of the failure of an entity that is not an RFB or wholly owned subsidiary thereof after 1 January 2026. The restructuring of the Group and its defined benefit pension plans to implement the UK ring-fencing regime could affect assessments of the Group’s pension scheme deficits or result in the pension scheme trustees considering that the employer covenant has been weakened and result in additional contributions being required.
Group’s capital position may significantly deteriorate and fall below the minimum capital requirements applicable to the Group or Group entities, and in turn result in increased regulatory supervision or sanctions, restrictions on discretionary distributions or loss of investor confidence, which could individually or in aggregate have a material adverse effect on the
The Group relies on valuation, capital and stress test models to conduct its business, assess its risk exposure and anticipate capital and funding requirements. Failure of these models to provide accurate results or accurately reflect changes in the micro-and macroeconomic environment in which the Group operates or findings of deficiencies by the
Given the complexity of the Group’s business, strategy and capital requirements, the Group relies on analytical models to manage its business, assess the value of its assets and its risk exposure and anticipate capital and funding requirements, including with stress testing. The Group’s valuation, capital and stress test models and the parameters and assumptions on which they are based, need to be periodically reviewed and updated to maximise their accuracy.
Failure of these models to accurately reflect changes in the environment in which the Group operates or to be updated in line with the Group’s business model or operations, or the failure to properly input any such changes could have an adverse impact on the modelled results or could fail to accurately capture the
Group may be required to make changes to such models or may be precluded from using any such models, which could result in an additional capital requirement which could have a material impact on the Group’s capital position.
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses.
In July 2014, the IASB published a new accounting standard for financial instruments (IFRS 9) effective for annual periods beginning on or after 1 January 2018. It introduces a new framework for the recognition and measurement of credit impairment, based on expected credit losses, rather than the incurred loss model currently applied under IAS 39. The inclusion of loss allowances with respect to all financial assets that are not recorded at fair value will tend to result in an increase in overall impairment balances when compared with the existing basis of measurement under IAS 39. As a result of ongoing regulatory consultation, there is currently uncertainty as to the impact of the implementation of this standard on the Group’s CET1 capital (and therefore CET1 ratio), although it is expected that this will result in increased earnings and capital volatility for the Group.
Reputational risk, meaning the risk of brand damage and/or financial loss due to a failure to meet stakeholders’
Stakeholders include customers, investors, rating agencies, employees, suppliers, governments, politicians, regulators, special interest groups, consumer groups, media and the general public.
Reputational risks may also be increased as a result of the restructuring of the Group to implement its transformation programme and the UK ring-fencing regime. Although the Group has implemented a Reputational Risk Policy across customerfacing businesses to improve the identification, assessment and management of customers, transactions, products and issues which represent a reputational risk, the Group cannot ensure that it will be successful in avoiding damage to its business from reputational risk, which could result in a material adverse effect on the Group’s business, financial condition, results of operations and prospects.
The Group is exposed to conduct risk which may adversely impact the Group or its employees and may result in conduct having a detrimental impact on the Group’s customers or counterparties.
In recent years, the Group has sought to refocus its culture on serving the needs of its customers and continues to redesign many of its systems and processes to promote this focus and strategy. However, the Group is exposed to various forms of conduct risk in its operations. These include business and strategic planning that does not consider customers’ needs, ineffective management and monitoring of products and their distribution, a culture that is not customer-centric, outsourcing of customer service and product delivery via third parties that do not have appropriate levels of control, oversight and culture, the possibility of alleged mis-selling of financial products or the mishandling of complaints related to the sale of such product, or poor governance of incentives and rewards. Some of these risks have materialised in the past and ineffective management and oversight of conduct issues may result in customers being poorly or unfairly treated and may in the future lead to further remediation and regulatory intervention/enforcement.
The Group’s transformation programme is also intended to improve the Group’s control environment. Nonetheless, no assurance can be given that the Group’s strategy and control framework will be effective and that conduct issues will not have an adverse effect on the Group’s results of operations, financial condition or prospects.
The Group may be adversely impacted if its risk management is not effective and there may be significant challenges in maintaining the effectiveness of the Group’s risk management framework as a result of the number of strategic and restructuring initiatives being carried out by the RBS Group simultaneously.
The management of risk is an integral part of all of the Group’s activities. Risk management includes the definition and monitoring of the Group’s risk appetite and reporting of the
Ineffective risk management may arise from a wide variety of events and behaviours, including lack of transparency or incomplete risk reporting, unidentified conflicts or misaligned incentives, lack of accountability control and governance, lack of consistency in risk monitoring and management or insufficient challenges or assurance processes.
A failure by the Group to embed a strong risk culture across the organisation could adversely affect the Group’s ability to achieve its strategic objective.
Group from future instances of misconduct. A failure by any of these three lines to carry out their responsibilities or to effectively embed this culture could have a material adverse effect on the
(including the growth of digital banking), competitor behaviour, new entrants to the market (including non-traditional financial services providers such as large retail or technology conglomerates), new lending models (such as peer-to-peer lending), industry trends resulting in increased disaggregation or unbundling of financial services or conversely the reintermediation of traditional banking services, and the impact of regulatory actions and other factors. In particular, developments in the financial sector resulting from new banking, lending and payment solutions offered by rapidly evolving incumbents, challengers and new entrants, in particular with respect to payment services and products, and the introduction of disruptive technology may impede the Group’s ability to grow or retain its market share and impact its revenues and profitability, particularly in its key UK retail banking segment. These trends may be catalysed by regulatory and competition policy implemented by the UK government, particularly as a result of the
IT systems allowing them to implement innovative technologies for delivering services to their customers. Furthermore, the
Group relating to the implementation of non-customer facing elements of its transformation programme and the UK ringfencing regime, or required by the Group’s regulators, as well as constraints imposed on the Group’s ability to compensate its employees at the same level as its competitors, may also have an impact on its ability to compete effectively. Intensified competition from incumbents, challengers and new entrants in the Group’s core markets could lead to greater pressure on the
Group to maintain returns and may lead to unsustainable growth decisions. These and other changes in the Group’s competitive environment could have a material adverse effect on the Group’s business, margins, profitability, financial condition and prospects.
The UK retail banking sector has been subjected to intense scrutiny by the UK competition authorities and by other bodies, including the FCA, in recent years, including with a number of reviews/inquiries being carried out, including market reviews conducted by the CMA and its predecessor the Office of Fair
Parliamentary Commission on Banking Standards. These reviews raised significant concerns about the effectiveness of competition in the banking sector. The CMA’s Retail Banking
and other skilled personnel of the appropriate qualification and competence. The Group may also suffer if it does not maintain good employee relations.
Implementation of the Group’s transformation programme and its future success depend on its ability to attract, retain and remunerate highly skilled and qualified personnel, including senior management (which includes directors and other key employees), in a highly competitive labour market. This cannot be guaranteed, particularly in light of heightened regulatory oversight of banks and the increasing scrutiny of, and (in some cases) restrictions placed upon, employee compensation arrangements, in particular those of banks in receipt of
March 2016, whilst the conduct rules will apply to the wider employee population from 7 March 2017 onwards, with the exception of some transitional provisions. The new regulatory regime may contribute to reduce the pool of candidates for key management and non-executive roles, including non-executive directors with the right skills, knowledge and experience, or increase the number of departures of existing employees, given concerns over the allocation of responsibilities and personal liability introduced by the new rules.
Group will be required to recruit new independent directors and senior members of management to sit on the boards of directors and board committees of the RFB and other Group entities, and there may be a limited pool of competent candidates from which such appointments can be made.
The Group’s evolving strategy has led to the departure of a large number of experienced and capable employees. The restructuring relating to the ongoing implementation of the
HM Treasury (or UKFI on its behalf) may be able to exercise a significant degree of influence over the Group and any further offer or sale of its interests may affect the price of securities issued by the Group.
On 6 August 2015, the UK Government made its first sale of
The UK Government, through HM Treasury, currently holds 71.3% of the issued ordinary share capital of the Group. The UK
Government has indicated its intention to continue to sell down its shareholding in the Group.
Treasury’s rights as majority shareholder could give rise to conflicts between the interests of HM Treasury and the interests of other shareholders. The Board has a duty to promote the success of the Group for the benefit of its members as a whole.
The Group is committed to executing the run-down and sale of certain businesses, portfolios and assets forming part of the businesses and activities being exited by the Group.
Group has purchased depends on the value of the underlying assets and the financial condition of the insurers and counterparties.
The Group has some remaining credit exposure arising from over-the-counter derivative contracts, mainly credit default swaps
(CDSs), and other credit derivatives, each of which are carried at fair value.
In the EU, the UK and the US, regulators have implemented or are in the process of implementing recovery and resolution regimes designed to prevent the failure of financial institutions and resolution tools to ensure the timely and orderly resolution of financial institutions. These initiatives have been complemented by a broader set of initiatives to improve the resilience of financial institutions and reduce systemic risk, including the UK ringfencing regime, the introduction of certain prudential requirements and powers under CRD IV, and certain other measures introduced under the BRRD, including the requirements relating to loss absorbing capital.
The BRRD which was implemented in the UK from January 2015, provides a framework for the recovery and resolution of credit institutions and investment firms, their subsidiaries and certain holding companies in the EU, and the tools and powers introduced under the BRRD include preparatory and preventive measures, early supervisory intervention powers and resolution tools.
and the BRRD as well as a new proposal seeking to harmonize creditor hierarchy. These proposals are now subject to further discussions and negotiations among the European institutions and it is not possible to anticipate their final content. Further amendments to the BRRD or the implementing rules in the EU
FSB recommendations on resolution regimes and resolution planning for G-SIBs, including with respect to TLAC
November 2014, the ECB assumed direct supervisory responsibility for RBS NV and Ulster Bank Ireland under the
contributions on banks and investment firms in proportion to their liabilities and risk profiles and allow them to raise additional “ex post” funding contributions in the event the ex-ante contributions do not cover the losses, costs or other expenses incurred by use of the resolution fund. Although receipts from the UK bank levy are currently being used to meet the ex-ante and ex post funding requirements, the Group may be required to make additional contributions in the future. In addition, Group entities in countries subject to the European banking union are required to pay supervisory fees towards the funding of the SSM as well as contributions to the single resolution fund.
in the UK replaces the previous regime and has imposed and is expected to impose in the near-to medium-term future, additional compliance and reporting obligations on the Group which may result in increased costs, including as a result of the Group’s mandatory participation in resolution funds, and heightened compliance risks and the Group may not be in a position to comply with all such requirements within the prescribed deadlines or at all.
In addition, compliance by the Group with this new recovery and resolution framework has required and is expected to continue to require significant work and engagement with the Group’s regulators, including in order for the Group to submit to the PRA
credible recovery and resolution plans, the outcome of which may impact the Group’s operations or structure. Such rules will need to be implemented consistently with the UK ring-fencing regime.
RBSG) (each a “relevant entity”) in circumstances in which the relevant UK resolution authority is satisfied that the resolution conditions are met. Under the applicable regulatory framework and pursuant to guidance issued by the Bank of England, governmental capital support, if any is provided, would only be used as a last resort measure where a serious threat to financial stability cannot be avoided by other measures (such as the stabilisation options described below, including the UK bail-in power) and subject to the limitations set out in the Banking Act.
Several stabilisation options and tools are available to the relevant UK resolution authority under the SRR, where a resolution has been triggered. In addition, the UK resolution authority may commence special administration or liquidation procedures specifically applicable to banks. Where stabilisation options are used which rely on the use of public funds, the option can only be used once there has been a contribution to loss absorption and recapitalisation of at least 8% of the total liabilities of the institution under resolution. The Bank of England has indicated that among these options, the UK bail-in tool (as described further below) would apply in the event a resolution of the Group were triggered.
resolution authority, the application of which may adversely affect contractual arrangements and which include the ability to (i)
The stabilisation options are intended to be applied prior to the point at which any insolvency proceedings with respect to the relevant entity would otherwise have been initiated. Accordingly, the stabilisation options may be exercised if the relevant UK
In the event that the relevant UK resolution authority seeks to exercise its powers in relation to a UK banking group company
Banking Reform Act 2013. The UK government amended the provisions of the Banking Act to ensure the consistency of these provisions with the bail-in provisions under the BRRD, which amendments came into effect on 1 January 2015. The UK bail-in tool includes both a power to write-down or convert capital instruments and triggered at the point of non-viability of a financial institution and a bail-in tool applicable to eligible liabilities (including senior unsecured debt securities issued by the Group) and available in resolution.
The capital instruments write-down and conversion power may be exercised independently of, or in combination with, the exercise of a resolution tool, and it allows resolution authorities to cancel all or a portion of the principal amount of capital instruments and/or convert such capital instruments into common equity Tier 1 instruments when an institution is no longer viable.
The point of non-viability for such purposes is the point at which the Bank of England or the PRA determines that the institution meets the conditions for entry into the Special Resolution Regime as defined under the Banking Act or will no longer be viable unless the relevant capital instruments are written down or extraordinary public support is provided, and without such support the appropriate authority determines that the institution would no longer be viable.
In addition, the Bank of England may use the bail-in tool to, among other things, replace or substitute the issuer as obligor in respect of debt instruments, modify the terms of debt instruments
The potential impact of these powers and their prospective use may include increased volatility in the market price of shares and other securities issued by the Group, as well as increased difficulties in issuing securities in the capital markets and increased costs of raising such funds.
was established under the Financial Services and Markets Act 2000 and is the UK’s statutory fund of last resort for customers of authorised financial services firms. The FSCS pays compensation if a firm is unable to meet its obligations. The
In the event that the FSCS needs to raise additional and unexpected funding, is required to raise funds more frequently or significantly increases the levies to be paid by authorised firms, the associated costs to the Group may have an adverse impact on its results of operations and financial condition. For example the deposit protection limit increased by £10,000 to £85,000 effective from 30 January 2017, which will result in an increase to the Group’s FSCS levies.
Group’s cash-generating units are affected by market conditions and the performance of the economies in which the Group operates.
UK are likely to result in increased tax payments by the
In the UK, legislation has been introduced over the past few years which seeks to impose restrictions on the use of certain brought forward tax losses of banking companies. This has impacted and will continue to impact the extent to which the
Group is able to recognise deferred tax assets. Failure to generate sufficient future taxable profits or further changes in tax legislation (including rates of tax) or accounting standards may reduce the recoverable amount of the recognised deferred tax assets. Further changes to the treatment of deferred tax assets may impact the Group’s capital, for example by reducing further the Group’s ability to recognise deferred tax assets. The implementation of the rules relating to the UK ring-fencing regime and the resulting restructuring of the Group may further restrict the Group’s ability to recognise tax deferred tax assets in respect of brought forward losses.
• downloadable forms - including stock transfer and change of address forms.
Shareholders requiring a Braille or audio version of the Strategic report with additional information should contact the Registrar on
Orr Mackintosh Foundation (registered charity 1052686) to enable shareholders to donate shares to charity.
Should you wish to donate your shares to charity in this way you should contact ShareGift for further information: ShareGift, The Orr Mackintosh Foundation 17 Carlton House Terrace, London SW1Y 5AH
Remember, if it sounds too good to be true, it probably is.
Certain sections in this document contain ‘forward-looking statements’ as that term is defined in the United States Private Securities
RBS’s balance sheet reduction programme, including the reduction of risk-weighted assets (RWAs) and the timing thereof; capital and strategic plans and targets; capital, liquidity and leverage ratios and requirements, including CET1 Ratio, RWA equivalents (RWAe),
Arrears - the aggregate of contractual payments due on a debt that have not been met by the borrower. A loan or other financial asset is said to be 'in arrears' when payments have not been made.
Collateralised debt obligations, collateralised loan obligations, commercial mortgage backed securities and residential mortgage backed securities are all types of ABS.
(collateralised loan obligations) or both. The credit exposure underlying synthetic CDOs derives from credit default swaps. The
Covered bonds - debt securities backed by a portfolio of mortgages that are segregated from the issuer's other assets solely for the benefit of the holders of the covered bonds.
Credit derivatives - contractual agreements that provide protection against a credit event on one or more reference entities or financial assets. The nature of a credit event is established by the protection buyer and protection seller at the inception of a transaction, and such events include bankruptcy, insolvency or failure to meet payment obligations when due. The buyer of the credit derivative pays a periodic fee in return for a payment by the protection seller upon the occurrence of a credit event. Credit derivatives include credit default swaps, total return swaps and credit swap options.
Credit grade - a rating that represents an assessment of the creditworthiness of a customer. It is a point on a scale representing the probability of default of a customer.
Customer accounts - money deposited with RBS by counterparties other than banks and classified as liabilities. They include demand, savings and time deposits; securities sold under repurchase agreements; and other short term deposits. Deposits received from banks are classified as deposits by banks.
Deferred tax liability - income taxes payable in future periods as a result of taxable temporary differences (temporary differences between the accounting and tax base of an asset or liability that will result in taxable amounts in future periods).
Equity risk - the risk of changes in the market price of the equities or equity instruments arising from positions, either long or short, in equities or equity-based financial instruments.
Financial Conduct Authority (FCA) - the statutory body responsible for conduct of business regulation and supervision of
Hedge funds - pooled investment vehicles that are not widely available to the public; their assets are managed by professional asset managers who participate in the performance of the fund.
International Swaps and Derivatives Association (ISDA) master agreement - a standardised contract developed by ISDA for bilateral derivatives transactions. The contract grants legal rights of set-off for derivative transactions with the same counterparty.
Level 2 - level 2 fair value measurements use inputs, other than quoted prices included within level 1, that are observable for the asset or liability, either directly or indirectly.
Leverage ratio - a measure prescribed under Basel III. It is the ratio of Tier 1 capital to total exposures. Total exposures include on-balance sheet items, off-balance sheet items and derivatives, and generally follow the accounting measure of exposure.
Liquidity and funding risk - the risk that RBS is unable to meet its financial liabilities when they fall due.
Model Risk Management - performs independent model validation for material models where necessary.
Mortgage-backed securities - asset-backed securities for which the underlying asset portfolios are loans secured on property.
Net stable funding ratio (NSFR) - the ratio of available stable funding to required stable funding over a one year time horizon, assuming a stressed scenario. Available stable funding includes items such as equity capital, preferred stock with a maturity of over one year and liabilities with an assessed maturity of over one year.
(e.g. due to changes to the economic environment) during the supervisory review and evaluation process. All firms will be subject to a PRA buffer assessment and the PRA will set a PRA
Return on equity - profit attributable to ordinary shareholders divided by average shareholders’ equity as a percentage.
Risk appetite - an expression of the maximum level of risk that
Risk asset ratio (RAR) - total regulatory capital as a percentage of risk-weighted assets.
Sale and repurchase agreements - in a sale and repurchase agreement one party, the seller, sells a financial asset to another party, the buyer, at the same time the seller agrees to reacquire and the buyer to resell the asset at a later date. From the seller's perspective such agreements are repurchase agreements
Standardised approach - a method used to calculate credit risk capital requirements under Pillar 1. In this approach the risk weights used in the capital calculation are determined by regulators. For operational risk, capital requirements are determined by multiplying three years’ historical gross income by a percentage determined by the regulator. The percentage ranges from 12 to 18%, depending on the type of underlying business being considered.
Stress testing - a technique used to evaluate the potential effects on an institution’s financial condition of an exceptional but plausible event and/or movement in a set of financial variables.
Super senior CDO - the most senior class of instrument issued by a CDO vehicle. They benefit from the subordination of all other instruments, including AAA rated securities, issued by the CDO
Tier 2 capital - qualifying subordinated debt and other Tier 2 securities in issue, eligible collective impairment allowances less certain regulatory deductions.