Annual Report 2017

Rothschild & Co | Annual Report 2017

1. Overview

4. Financial statements

Management report

2. Business review

The chart below shows the internal control governance structure through which the Group seeks to comply with these obligations:

Rothschild & Co

Supervisory Board

Rothschild & Co Gestion

Group Executive Committee

Rothschild Global Advisory

Rothschild Private Wealth

Rothschild Asset Management

Rothschild Merchant Banking

First line of defence

Second line of defence

Legal, Compliance

and Risk

Internal Audit

Third line of defence

Committees of the Supervisory

Board: Risk, Audit and

Remuneration & Nomination

Group Assets and

Liabilities Committee

3.1 Rothschild & Co Supervisory Board

The Supervisory Board, through the workings and reporting of the Risk

Committee, the Audit Committee and the Remuneration and Nomination

Committee for matters which have an impact on risk management, ensures

the implementation by Executive Management as defined below in Section

3.2 of reliable procedures and processes for monitoring the internal control

systems of the Group in order to identify, assess and manage risk.

The Heads of the Compliance, Risk and Internal Audit functions report on

the performance of their duties to the Managing Partner, and, whenever it

is necessary in accordance with legal and regulatory provisions, to the

Supervisory Board.

3.2 Rothschild & Co Gestion SAS

The Managing Partner is responsible for the overall management of

Rothschild & Co, the Group’s holding company. This includes, among other

things, establishing the strategic direction of the business, supervising the

accounting and financial information, and directing the internal control

framework for Rothschild & Co and the Group’s entities on a consolidated

basis. The Managing Partner exercises its management and supervising

responsibilities through its Chairman, Mr. David de Rothschild, assisted by

the Management Board (

Conseil de gérance

In addition, a senior committee at Rothschild & Co, the Group Executive

Committee, assists the Managing Partner in the overall management,

the definition of the strategy of the Group and the direction of the Group

internal control framework, so that Rothschild & Co ensures its proper

implementation across the Group.

The Managing Partner, its Management Board and the Group Executive

Committee are referred to as “Executive Management” but for the

avoidance of doubt, the final decision-making authority rests with the

Managing Partner, represented by its Chairman.

Executive Management, reporting to the Supervisory Board, is responsible

for the Group’s overall internal control system. The Managing Partner

defines the general guidelines of the internal control and risk management

systems and monitors the actions implemented within the Group and the

local management committees of each business unit.

3.3 Group Executive Committee

The Group Executive Committee plays an active role in internal control

matters by assisting the Managing Partner in defining the general guidelines

of the internal control and risk management systems and monitoring

the actions implemented within the Group and the local management

committees of each business unit, enabling the Managing Partner on

behalf of Rothschild & Co to formulate:

• the Group strategy, long-term strategic projects and three-year business plan;

• the Group’s strategic capital determination and allocation; and

• the Group’s risk management and control framework.

The Managing Partner is represented at the Group Executive Committee

by five members of the Management Board of Rothschild & Co Gestion

(i.e. the Managing Partner of Rothschild & Co), Messrs. Nigel Higgins and

Olivier Pécoux, who co-chair the Group Executive Committee, plus Messrs.

Alexandre de Rothschild, Marc-Olivier Laurent and Robert Leitão.

3.4 Independent control functions

Internal control at Rothschild & Co consists of permanent and periodic

controls. While they are complementary, they are distinct and independent

of one another:

• permanent control is the overall process for monitoring the risks to

which the Group is exposed as a result of its ongoing activities and

operations. It is carried out by operational staff, and their line managers,

and by independent permanent control functions either within, or

independent of, these operational entities; and

• periodic control is the overall process for

ex post

verification of the

operations of the Group, based on investigations that are conducted by

the Group Internal Audit function, which performs periodic checks on an

independent basis on the design and the effectiveness of the two first

lines of defence.