The role and structure of the Board
The Board of Directors (the ‘Board’) is responsible for the long-term success of the Company and provides leadership to the Group.
The Board focuses on setting strategy, monitoring performance and ensures that the necessary financial and human resources are in place to enable the Company to meet its objectives. In addition, it ensures appropriate financial and business systems and controls are in place to safeguard shareholders’ interests and to maintain effective corporate governance.
The Board is also responsible for setting the tone from the top in relation to conduct, culture and values, for ensuring continuing commitment to treating customers fairly, carrying out business honestly and openly and preventing bribery, corruption, fraud or the facilitation of tax evasion.
The Board operates in accordance with the Company’s Articles of Association (the ‘Articles’) and its own written terms of reference. The Board has established a number of Committees as indicated in the chart on page 39. Each Committee has its own terms of reference which are reviewed at least annually. Details of each Committee’s activities during 2018 are shown in the Nomination and Governance, Audit, Risk and Remuneration Committee reports on pages 80 to 105.
The Board retains specific powers in relation to the approval of the Bank’s strategic aims, policies and other matters, which must be approved by it under legislation or the Articles. These powers are set out in the Board’s written terms of reference and Matters Reserved to the Board which are reviewed at least annually. A summary of the matters reserved for decision by the Board is set out below:
Strategy and management
- Overall strategy of the Group
- Approval of long-term objectives
- Approval of annual operating and capital expenditure budgets
- Review of performance against strategy and objectives
Structure and capital
- Changes to the Group’s capital or corporate structure
- Changes to the Group’s management and control structure
- Overall risk appetite of the Group
- Approval of the strategic risk management framework
Financial reporting and controls
- Approval of financial statements
- Approval of dividend policy
- Approval of significant changes in accounting policies
- Ensuring maintenance of a sound system of internal control and risk management
- Determining the Remuneration Policy for the Directors, Company Secretary and other senior executives
- Determining the remuneration of the Non-Executive Directors
- Introduction of new share incentive plans or major changes to existing plans
- Review of the Group’s overall governance structure
- Determining the independence of Directors
- Changes to the structure, size and composition of the Board
- Appointment or removal of the Chairman, CEO, SID and Company Secretary
- The making of political donations
- Approval of the overall levels of insurance for the Group
In line with the Code provisions, the Board ensures that a fair, balanced and understandable assessment of the Group’s position and prospects is presented in all financial and business reporting. The Board is responsible for determining the nature and extent of the principal risks it is willing to take in achieving its strategic objectives and maintains sound risk management and internal control systems. The Board has established formal and transparent arrangements for considering how it should apply the corporate reporting, risk management and internal control principles and for maintaining an appropriate relationship with the Group’s auditors.
Financial and business reporting
The Board is committed to ensuring that all external financial reporting presents a fair, balanced and understandable assessment of the Group’s position and prospects. To achieve this, the Board reviews each report and considers the level of consistency throughout: whether there is a balanced review of the competitive landscape; the use of sufficiently simple language; the analysis of risks facing the business; and that there is equal prominence given to statutory and underlying profit. The Board has established an Audit Committee to assist in making its assessment. The activities of the Audit Committee are set out on pages 82 to 86.
Risk management and internal control
The Board retains ultimate responsibility for setting the Group’s risk appetite and ensuring that there is an effective risk management framework to maintain levels of risk within the risk appetite. The Board regularly reviews its procedures for identifying, evaluating and managing risk, acknowledging that a sound system of internal control should be designed to manage rather than eliminate the risk of failure to achieve business objectives.
The Board has carried out a robust assessment of the principal risks facing the business, including those that would threaten its business model, future performance, solvency or liquidity. Further details are contained in the viability statement on page 49 of the annual report.
The Board has carried out a robust assessment of the principal risks facing the business, including those that would threaten its business model, future performance, solvency or liquidity. Further details are contained in the viability statement on page 51.
The Board has established a Risk Committee to which it has delegated authority for oversight of the Group’s risk appetite, risk monitoring and capital management. The Risk Committee provides oversight and advice to the Board on current risk exposures and future risk strategy and assists the Board in fostering a culture within the Group, which emphasises and demonstrates the benefits of a risk-based approach to internal control and management.
Further details of the Group’s risk management approach, structure and principal risks are set out in the Risk review on pages 36 to 49. The Board has delegated authority to the Audit Committee for reviewing the effectiveness of the Company’s internal control systems. The Audit Committee is supported by the Internal Audit function in discharging this responsibility, and receives regular reports from the Chief Internal Auditor as to the overall effectiveness of the control system within the Group. Details of the review of the effectiveness of the Company’s internal control systems are set out in the Audit Committee report on page 84.
The Group is organised along the ‘three lines of defence’ model to ensure at least three stages of independent oversight to protect the customer and the Group from undue influence, conflict of interest and poor controls.
The first line of defence is provided by the operational business lines which measure, assess and control risks through the day-to-day activities of the business within the frameworks set by the second line of defence. The second line of defence is provided by the risk, compliance and governance functions which include the Board and Executive Committee. As noted above, the Board sets the Company’s risk appetite and is ultimately responsible for ensuring an effective risk management framework is in place. The Compliance function maintains the ‘key controls framework’ which tracks and reports on key controls within the business to ensure compliance with the main provisions of the Financial Conduct Authority (‘FCA’) and the Prudential Regulation Authority (‘PRA’) handbooks. Policy documents also include key controls that map back to the key controls framework. The third line of defence is the Internal Audit function.
The Board is committed to the consistent application of appropriate ethical standards, and the Conduct Risk Policy sets out the basic principles to be followed to ensure ethical considerations are embedded in all business processes and decision-making forums. The Group also maintains detailed policies and procedures in relation to the prevention of bribery and corruption, and a Whistleblowing Policy.