Annual Report 2017

Rothschild & Co | Annual Report 2017

1. Overview

4. Financial statements

Management report

2. Business review

4.4 Liquidity risk

Liquidity risk is defined as the risk that the Group is not able to maintain or

generate sufficient cash resources to meet its payment obligations as they

fall due. Managing liquidity risk is therefore a crucial element in ensuring

the future viability and prosperity of the Group.

4.4.1 Governance of liquidity risk

The Group adopts a conservative approach to liquidity risk and its

management and has designed its approach in the overall context of the

Banking and Wealth Management strategy.

The Group Risk Appetite Statement establishes limits to ensure that the

Group will maintain sufficient liquid resources to meet cash flow obligations

and maintain a buffer over regulatory and internal assessment of liquidity

requirements. The Group Liquidity Risk Policy is reviewed annually. Each

banking entity must have in place a liquidity risk policy approved by the

Group ALCO and which defines its liquidity risk limits and how liquidity risk

is measured, monitored and controlled.

In line with the directions given by the Managing Partner, the Group ALCO

is responsible for the development and oversight of the implementation

of liquidity strategy, the approval of local Liquidity Risk Policies and limits,

and the implementation of reasonable steps to ensure these are consistent

with the Group’s risk appetite. The Group ALCO establishes and maintains

a structure for the management of liquidity risk including allocations

of authority and responsibility to senior managers and ensures that all

reasonable steps are taken to measure, monitor and control liquidity risk

and identify material changes to the liquidity profile. The Group ALCO

evaluates the results of stress testing on the liquidity profile and is

responsible for the invocation of any Contingency Funding Plan (“CFP”)

measures if necessary. The Group ALCO ensures that the appropriate

liquidity impact and liquidity cost of transactions is taken into account in the

credit processes and approves the benchmark rate for the cost of liquidity

used by banking teams as a key element of their pricing and risk-reward

assessment in respect of existing and new business.

The Risk Committee has responsibility for reviewing the Group’s liquidity risk

identification, measurement, monitoring and control policies and procedures.

4.4.2 System for monitoring liquidity risk

The liquidity positions for Rothschild Bank International Limited, Rothschild

Bank AG and Rothschild Martin Maurel are reviewed and reported in depth

to the Group ALCO and summarised for the Risk Committee in accordance

with the Risk Committee’s terms of reference. In addition, the Group is

required to have a contingency funding plan in place which requires a

periodic review of the relevance and degree of severity of the assumptions

used, the level and sustainability of the funding commitments received and

the amount and quality of the liquid assets held. The Group also requires

a Recovery Plan for liquidity, which sets out adequate strategies and

measures to address any possible shortfalls. These complement the

existing plans for individual Group entities.

The Heads of Treasury are responsible for day-to-day management of

liquidity, operating the business within liquidity limits set under their local

policy and as approved by the Group ALCO, and for reporting to its meetings.

Group Finance is responsible for monitoring adherence to the liquidity risk

limits and for reporting any limits or target breaches as soon as practicable.

Additionally the team is responsible for preparing and submitting regulatory

liquidity returns, performing stress tests on the liquidity profile, verifying the

appropriateness of such stress tests in consultation with Group Risk and

reporting stress test results to Group ALCO.

Group Risk is responsible for monitoring the Group’s liquidity risk and

preparing periodic reports on it for the Risk Committee, and verifying the

appropriateness of stress testing in consultation with Finance.

5 Organisation of the Group accounting

arrangements

Group Finance has the necessary people to produce the financial,

accounting and regulatory information of the Group on a consolidated

and regulatory basis. The Finance Department consists of three sections:

management accounting, financial accounting (including consolidations)

and regulatory reporting.

5.1 Overview of statutory accounting

arrangements

The local accounting departments are responsible for local statutory

accounts. Group Finance produces the consolidated Rothschild & Co

accounts, although it does review Rothschild & Co’s solo statutory accounts

to ensure consistency where appropriate.

5.2 Process for establishing consolidated

accounts

The consolidation department of Rothschild & Co manages the chart of

accounts at Group level and the associated databases, performs the Group

consolidation, controls the consistency and completeness of data and

draws up the consolidated accounts and related notes.

In SAP FC, the consolidation tool of Group Finance, all subsidiaries report

their individual accounting information using a chart of accounts and a

format that are common to the whole Group.

Accounting data is reported directly under IFRS in SAP FC. The Group

defines in its data dictionary how to record specific transactions and defines

how the notes to the accounts should be prepared. The data dictionary, as

well as other accounting guidance, is available for all offices on Rothschild &

Co’s intranet. There are also quarterly reporting instructions and a quarterly

Group Finance newsletter/circular.