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Rothschild & Co | Annual Report 2017
3.4.1 Group Compliance (including AML/CFT)
The Group Legal & Compliance responsibilities include among other things:
development and maintenance of compliance policies and procedures
(including those dealing with anti-money laundering and combating the
financing of terrorism), execution or supervision of monitoring programmes,
conduct of any required investigation and advice on compliance aspects
of any transactional or business processes, facilitation of certain aspects
of risk governance (e.g. Rothschild Global Advisory Risk Committee or the
Group Financial Crime Committee, etc.), monitoring and review of legislation
and regulatory developments which might affect the Group’s business and
reporting results of monitoring programmes to Senior Management and
agreeing any remedial action or changes to all of the above with Senior
Management. This independent internal control function reports to the
Group Head of Legal & Compliance, who is a member of the Group
Executive Committee. The Group Head of Legal & Compliance reports to
the Group Executive Committee, the Managing Partner, the Supervisory
Board’s Audit and Risk committees and to various boards around the Group.
3.4.2 Group Risk
Group Risk is responsible for ensuring that suitable risk management
processes are in place across the Group and for reporting a consolidated view
of risk exposures across the Group. As part of its role, Group Risk assesses
the risks in each business and how they are managed, aims to establish a
forward-looking view over emerging risks within the businesses or the external
environment and delivers an independent and objective perspective on the
risks in the business and whether they are consistent with approved strategy
and risk appetite. The Group Chief Risk Officer reports to one of the two
dirigeants responsables
within the meaning of the provisions of the French
Monetary and Financial Code applicable to Rothschild & Co, as the financial
holding company. Group Risk reports to Executive Management on significant
incidents in accordance with the provisions of the Group Operational Risk
Policy. This policy sets out the criteria and thresholds for identifying significant
operational risk incidents and the process for escalating them and ensuring
that any remedial actions are appropriately monitored.
In addition to the activities highlighted above, Group Risk presents a
report on the risk management to the Risk Committee on a quarterly basis.
This report covers capital reporting for Rothschild & Co, analysis of credit,
liquidity, market and operational risk, regulatory and legal issues, any new
products and highlights any material limit breaches or issues identified by
Group Risk in its day-to-day activities.
Other functions are important and participate in the internal control
system in their specific areas of responsibilities such as Group Finance
and Human Resources.
3.4.3 Group Internal Audit
Periodic control is independently exercised by Group Internal Audit. The
Group Head of Internal Audit meets formally every three to four months with
the concerned Managing Partners of the Managing Partner, and whenever
necessary, to present the activity of the Internal Audit function and discuss
any material findings raised during the period. The Group Head of Internal
Audit presents the activity of Internal Audit to the Audit Committee which
meets four times a year. At the beginning of the financial year, the Audit
Committee of Rothschild & Co Supervisory Board approves the audit plan
for the coming year and during its meetings in May and September it
reviews in detail the activity of the Internal Audit function as described
below. The Group Head of Internal Audit meets regularly, usually every
quarter, with the heads of the main lines of business to discuss progress on
activity and the evolution of risks for their respective area of responsibility.
This forms part of the regular information of the Internal Audit function on
the evolution of the Group’s risk profile.
Each of the Internal Audit officers is responsible for the audit coverage
of some specific lines of business: Global Advisory, Private Wealth, Asset
Management, Merchant Banking, Banking and Treasury and Information
Technology, in parallel with their local geographical coverage. The other
members of the Internal Audit function are not allocated by business and
are assigned to different audits according to the scheduling of the annual
audit plan. The Group Head of Internal Audit of Rothschild & Co Supervisory
Board reports to the Officers of Rothschild & Co Gestion and to the Audit
Committee, which receives a summary of every audit report drawn up by
the Internal Audit function.
4 Risk Management
The guiding philosophy of risk management in the Group is for the
management to adopt a prudent and conservative approach to the taking
and management of risk management. The maintenance of reputation is a
fundamental driver of risk appetite and of risk management. The protection
of reputation guides the type of clients and businesses with which the
Group will engage.
The nature and method of monitoring and reporting varies according to
the risk type. Most risks are monitored daily with management information
being provided to relevant committees on a weekly, monthly or quarterly
basis. Where appropriate to the risk type, the level of risk faced by the
Group is also managed through a series of sensitivity and stress tests.
The identification, measurement and control of risk are integral to the
management of Rothschild & Co’s businesses. Risk policies and procedures
are regularly updated to meet changing business requirements and to
comply with best practice.
4.1 Credit and counterparty risk
The Group’s credit risk exposure primarily arises from its private client
lending activity (through Rothschild Bank International Limited, Rothschild
Bank AG and Rothschild Martin Maurel SCS), and from corporate lending
through Banque Martin Maurel together with a small amount of mezzanine
debt financing in Merchant Banking. In addition, the legacy banking
activities undertaken in N M Rothschild & Sons Ltd (commercial loans
to corporates) result in some credit risk.
All credit exposures are closely monitored on a regular basis, and a
quarterly review of bad and doubtful debts is undertaken.
All material credit exposures are subjected to an intensive process of
credit analysis by expert teams and review and approval by formal credit
committees. A high proportion of the credit exposures are secured.
Internal control, risk management and accounting procedures