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									                        APS ASSET MANAGEMENT FRAMEWORK


This document constitutes the Asset Management Framework applicable to The Royal Bank of
Scotland plc’s (“RBS”) participation in the UK Asset Protection Scheme (“APS”), as referred to
in the terms and conditions of the APS set out in the document entitled “UK Asset Protection
Scheme Terms and Conditions” which is in agreed form (the “Conditions”).

This document is a Scheme Document.

This Asset Management Framework and all Information contained in it constitutes Participant
Confidential Information for the purposes of Condition 42 (Confidential Information and
Restricted Asset Information).

Capitalised terms used but not defined in this document have the meanings given to them in the
Scheme Documents or the RBS glossary of terms (set out at Appendix 3), as applicable.

This Asset Management Framework will be reviewed by the SOC, in consultation with the
Commissioners of Her Majesty’s Treasury (the “Treasury” or “HMT”), no less frequently than
semi-annually during 2010 and annually thereafter, to determine any modifications to this Asset
Management Framework that the SOC or HMT reasonably considers to be necessary or
appropriate for the purpose of ensuring that this Asset Management Framework complies with
the Scheme Documents and addresses areas where the operation of this Asset Management
Framework (including the effect of any thresholds) has turned out to be deficient or has had
unintended or inappropriate consequences. In considering any proposed modification, the SOC
will ensure that the same is consistent with Condition 10 and the other requirements of the
Conditions. If any modifications are determined to be required such modifications must be
approved and communicated and approved as below.

No part of this Asset Management Framework may be modified or disapplied, nor any proposed
modification implemented or adopted, without the prior written approval of the Scheme Head,
the responsible APS Compliance Officer, Representatives of Group Legal and Group Regulatory
Risk, the SOC and the Treasury in writing.
                                                  2



INTRODUCTION AND CONTENTS


The Conditions regulate the conduct of personnel with respect to all aspects of the Management
and Administration of the Protected Assets and certain Related Party Assets (see below). These
requirements cover, amongst other things: (i) all amendments to Covered Assets (including
increased lending commitments and Rollovers); (ii) disposals of Covered Assets; and (iii)
specific types of conduct which constitute Prohibited Conduct unless approved in accordance
with the Conduct Approvals Hierarchy set out in this document.

The overarching requirement in the Conditions is that all Protected Assets should be Managed
and Administered in accordance with the Asset Management Objective, namely “to maximise
the expected net present value of the Protected Assets, including by minimising losses and
potential losses and maximising recoveries and potential recoveries”. Net present value is to be
assessed on a risk-adjusted basis using a discount rate corresponding to the Treasury’s cost of
funds being derived from the new loan fixed rates and premature prepayment fixed rates for
maturity loans of the Public Works Loan Board published on the website of the Debt
Management Office of Her Majesty’s Government, or (at HMT’s option) a similar government
rate from time to time. However, the Asset Management Objective need not be complied with
where RBS (or the other relevant member of its group) is Managing and Administering the
relevant Protected Assets in accordance with specific requirements applied to Blind Pool
Assets. The obligation to manage a Protected Asset in accordance with the Asset Management
Objective is also qualified, in the relevant circumstances, by Conditions 10.12, 10.14 and 10.21.

Given that the above requirements may give rise to a Conflict, the Conditions also require
development of, and compliance with, a Conflicts Management Policy. This is supplemented by
a requirement that certain Related Party Assets which will or are likely to give rise to a Conflict,
(or, broadly, which are treated as Related Party Assets pursuant to RBS’s Credit Aggregation
Policy) must also be Managed and Administered to ensure that the Asset Management
Objective is satisfied with respect to the Protected Assets, although this requirement does not
apply where RBS (or the other relevant members of its group) is Managing and Administering
the relevant Related Party Assets in accordance with the requirements applied to Blind Pool
Assets. The obligation to Manage and Administer a Related Party Asset to ensure that the
Asset Management Objective is satisfied with respect to Protected Assets is also qualified, in
the relevant circumstances, by Conditions 10.12, 10.14 and 10.21.

It is acknowledged that some Covered Assets may be Managed and Administered by entities
outside the RBS Group pursuant to the requirements of Condition 11.
The contents of this document set out how RBS proposes to ensure compliance with the
Conditions referred to above through adopting the following procedures:

      1. The identification of all Protected Assets or Related Party Assets as Blind Pool Assets;
      2. A governance framework;
      3. Approval procedures and hierarchy for various decisions regarding the Protected
         Assets and the Related Party Assets (including the Conduct Approvals Hierarchy
         required under Condition 12.3) (any such approvals hierarchy referred to in this
         document being the “APS Approval Hierarchy”); and
      4. Monitoring and Administration in respect of the Protected Assets and Related Party
         Assets, including the Blind Pool Assets.

In addition, this document has four appendices:

  •     Appendix 1: Commercial strategies
  •     Appendix 2: Conflicts Management Policy
  •     Appendix 3: RBS Glossary
  •     Appendix 4: Management and Administration Process Maps

The terms of this document are qualified by the terms of the Transitional Exceptions Document
which sets out certain matters which the Treasury must take into consideration in exercising its
                                                3


rights in connection with a breach of certain Conditions relating to the Management and
Administration of the Protected Assets during the transitional period specified in the Transitional
Exceptions Document.
                                                  4



1. "Blind" and "Sighted" Assets

In order to apply a strict control environment to the Protected Assets and Related Party Assets
that complies with the Conditions, RBS will identify which are to be Managed and Administered
as Blind Pool Assets in accordance with Condition 10.18.

    •    "Blind" pools of Protected Assets and Related Party Assets ("Blind Pool Assets") will be
         Managed and Administered, subject to the following paragraphs, by RBS personnel that
         do not know (and are not authorised to access any Information which will enable them to
         determine) which assets and exposures are Protected Assets or Related Party Assets.

    •    "Sighted" pools of Protected Assets and Related Party Assets will be Managed and
         Administered by RBS personnel that do know (and/or are authorised to access any
         Information which will enable them to determine) which assets and exposures are
         Protected Assets or Related Party Assets.

Blind Pool Assets

RBS need not ensure that the Management and Administration of any Blind Pool Asset is
undertaken in accordance with the Asset Management Objective and in accordance with the
requirements specified in Condition 12 in respect of Prohibited Conduct as specified under
Condition 12.2(A). All other Conditions relevant to the Management and Administration of
Protected Assets and Related Party Assets (including the Asset Management Conditions) will
continue to apply to Blind Pool Assets.

In accordance with Condition 10.18, a Protected Asset or Related Party Asset is deemed to be
Managed and Administered as a Blind Pool Asset if it satisfies the requirements of Condition
10.18 and it is a:

•       Retail Protected Asset or Related Party Asset which falls within the “Consumer Finance” or
        “Residential Mortgage” Covered Asset Classes as specified in the Conditions;

•       SME Protected Asset or Related Party Asset which falls within the “Consumer Finance”
        Covered Asset Class as specified in the Conditions;

•       Protected Asset or Related Party Asset which falls within the “Loans” or “Lease Finance”
        Covered Asset Classes, which has been Managed and Administered by RBS’ Lombard
        Division at all times since 31 December 2008 and which has a Covered Amount (as
        specified in the Initial Data) equal to or less than *** (or its equivalent); and

•       GBM Related Party Asset on the public-side (which, in compliance with applicable
        regulatory rules, is Managed and Administered in accordance with the Conflicts
        Management Policy behind “Chinese walls” independently of the Management and
        Administration with respect to any Covered Assets)


In order that RBS is not required to ensure that the Management and Administration of Blind
Pool Assets is undertaken in accordance with the Asset Management Objective and in
accordance with the requirements of Condition 12 in respect of Prohibited Conduct specified
under Condition 12.2(A), RBS will enforce strict controls to maintain the “blindness” of these
“Blind” pools. Personnel Managing and Administering Protected Assets and Related Party
Assets in these pools will not be authorised to access such Information (including on the
relevant systems) that identifies whether any assets are Protected Assets or Related Party
Assets. A very restricted population of senior managers and Risk and Finance personnel will
have access to this Information; these personnel will be trained in APS compliance issues and

*** Indicates omitted information.
                                                 5


will only be allowed to influence the Management and Administration of a Blind Pool Asset to
the extent they do so in accordance with the Asset Management Conditions (including the Asset
Management Objective and the provisions of the Conditions covering Prohibited Conduct).

"Sighted" individuals in respect of a Blind Pool Asset will be limited to individuals with reporting
and monitoring responsibilities across the portfolios of assets and exposures, but without any
capacity to influence any single asset or exposure’s decision-making process. APS Compliance
Teams centrally will be sighted only at the level necessary to ensure compliance with the
applicable Asset Management Conditions and will participate in any decisions regarding
portfolios of Blind Pool Assets rather than single Blind Pool Assets (e.g. outsourcing,
securitisations and disposals). As examples, this may apply when Credit Scoring principles are
changed (e.g. in relation to the asset continuity rules in Retail) or where there is a decision to
sell a business or portfolio of Blind Pool Assets or to securitise the relevant assets and
exposures.

RBS will also monitor the Asset Actions relating to Blind Pool Assets to ensure that the
Management and Administration of Blind Pool Assets is undertaken by the application of
policies, practices and procedures which are being consistently applied to a particular type or
class of asset or exposure regardless of whether or not the asset or exposure is a Covered
Asset or a Related Party Asset, to ensure that there are no trends that imply any systemic
different treatment and in such a way as to ensure that there is no prejudice to, discrimination
against, or disproportionate and adverse effect upon Protected Assets when compared with
other assets and exposures which are not covered under the APS (including Related Party
Assets).

RBS will review data to ensure systemic differences (other than those required by the APS
itself) between Blind Pool Assets and assets and exposures not covered by the APS do not
occur. The reviews will, amongst other things, test the cycle of transfers to Collections and
Recoveries Units to ensure there are no accelerated transfers being arranged and when the
assets and exposures are in Collections and Recoveries processes, that they are treated in the
same way as RBS’s other assets and exposures in that distressed situation. RBS will: a) review
all credit scoring and committee decisions to ensure equal treatment is in place and maintained,
and b) attend, when required in regards the level of decision, meetings and risk committees, in
order to maintain visibility and therefore adherence to the Conditions.

If and to the extent that “Sighted” personnel, such as certain senior managers of RBS divisions
that contain Blind Pool Assets are involved in making any credit decisions in relation to
individual Blind Pool Assets, such "Sighted" personnel must treat those Blind Pool Assets as if
they were "Sighted" pool Protected Assets and Related Party Assets.

"Sighted" pool

All requirements of the Conditions will apply to Protected Assets and Related Party Assets in
the "Sighted" pool with no exceptions but subject always to Conditions 10.12, 10.14 and 10.21.
RBS must therefore ensure that the Management and Administration of any Protected Assets or
Related Party Assets which are in a "Sighted" pool is undertaken in accordance with the Asset
Management Objective, as well as in accordance with all other requirements of the Conditions
(including the provisions of the Conditions covering Prohibited Conduct).

"Sighted" pool assets and exposures comprise all Covered Assets and Related Party Assets
that do not fall within a "Blind" pool as described above.
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2. GOVERNANCE FRAMEWORK

General principle

RBS must ensure compliance with all applicable requirements of the Conditions, including the
Asset Management Conditions. Subject to this, RBS will apply two general principles to the
implementation of the APS: (1) that the governance of the APS is as close to business-as-usual
as possible; and (2) that the procedures surrounding such governance build on the existing
processes and in-house knowledge/experience of Risk personnel. These general principles help
to secure:

 •   quick adoption of the APS by all relevant individuals; and
 •   benefits from the robustness and control environments created by existing processes.

Where consistent with the requirements of the Conditions, RBS has applied these principles
throughout its governance framework, including reporting and Asset Action approvals.

APS governance

RBS participation in the APS will operate in accordance with a governance hierarchy headed by
the SOC as follows:

 •   The SOC (as set out in the SOC Terms of Reference) includes representation from each
     of the following: HMT (non-voting), the RBS Board (including at all times at least one non-
     executive director of RBS Group PLC), Risk, Finance and the Scheme Head. As the
     ultimate owner of this Asset Management Framework within RBS, the SOC has the power
     to approve or veto certain actions with respect to Protected Assets and Related Party
     Assets to ensure compliance with the Asset Management Framework and the
     requirements of the Conditions (subject to a HMT power to approve or veto certain
     conduct with respect to Covered Assets which would be Prohibited Conduct if undertaken
     without first obtaining the requisite approval specified in the “Approval Procedures and
     APS Approval Hierarchy” defined below). The SOC also has overall responsibility for
     ensuring that the strategy in respect of the Protected Assets as a portfolio, and the
     strategy with respect to each Protected Asset, complies with the requirements of the
     Conditions and will therefore exercise, directly or indirectly, its control both at an individual
     asset level and with respect to portfolios of assets.

 •   The Scheme Head manages and administers RBS’s participation in the APS, including
     day-to-day oversight of compliance with the Conditions (including the Asset Management
     Conditions). The Scheme Head ensures that the relevant information on and from the
     Asset Management Framework is disseminated to all RBS personnel that need to know
     such information in order to ensure RBS’s compliance with the Scheme Documents.

 •   The Scheme Executive Team (“SET”) members all report directly to the Scheme Head.
     The SET comprises four individuals; two separate heads of APS Compliance (each for
     different business types), a member responsible for Regulatory Advisory and the Head of
     APS Finance & Management. The SET members are responsible for liaising with relevant
     personnel to ensure that those personnel comply with the Asset Management Conditions.
     The only SET members who are APS Approvers are the Scheme Head and the two
     Heads of APS Compliance.

     −   The two Heads of APS Compliance cover GBM (and related Non-Core) assets and
         the Corporate and Retail assets (and related Non-Core assets) respectively. These
         Heads of APS Compliance will be APS Approvers and have the relevant authority and
         are responsible for advice in respect of APS approvals and the monitoring of Asset
         Actions and trends. Heads of APS Compliance are also liaison officers in relation to
         HMT for any specific request in relation to their portfolios and are responsible for
         ensuring RBS’s activities comply with the Conditions.
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      −   The Regulatory Advisory member of the SET provides specialised accounting policy
          and regulatory capital advice in respect of RBS’s participation in the APS. This
          includes advice on the treatment of back-to-back arrangements and the calculation of
          Losses and Recoveries.

      −   The Head of Finance & Management is responsible for a number of aspects of RBS’s
          participation in the APS, including financial control, external disclosure of all APS
          financial and risk metrics, provision of internal management information to support the
          SET and the SOC in performing their obligations, managing the SOC agenda, the
          Transitional Exceptions Document (and related issues) and delivery and maintaining
          training to RBS staff related to APS.

To support this governance structure, RBS has put in place the following:

  •   APS Delegated Authority: The SOC will have the right to delegate the power to approve
      or veto certain actions with respect to Protected Assets and Related Party Assets to
      ensure compliance with the Asset Management Framework and the requirements of the
      Conditions to APS Approvers subject to the APS Approval Hierarchy. In particular, the
      SOC will exercise its right to delegate power to approve or veto actions so as to ensure
      that all Asset Actions are considered at the appropriate level of the APS Approval
      Hierarchy.

  •   APS Approval Hierarchy: The APS Approval Hierarchy and procedures are closely
      modelled upon RBS’s existing Credit Approval Framework in order to build upon the
      existing tight control environment surrounding this process within RBS.

  •   Training: RBS will train all “Sighted” personnel to ensure that the Conditions (including the
      Asset Management Conditions) and APS policies and procedures are closely adhered to.
      This will include more sophisticated detailed training for those personnel empowered to
      take decisions in respect of Protected Assets and Related Party Assets, and specialist
      reporting training for those personnel connected to the calculation of the inputs to the
      Quarterly Statements.

  •   Documented guidance: RBS will produce materials for “Sighted” personnel to support
      their APS activities. This will include an overview of their APS responsibilities, the core
      principles (as outlined in “Key considerations for an APS Approver” below) that should be
      applied when reviewing Asset Actions in order to ensure compliance with the Conditions
      (including the Asset Management Conditions), details of who to contact in the event of
      any specialised questions and information on which APS Approvers have the power to
      take particular decisions.

  •   Audit trail: RBS will implement a detailed audit trail for APS decisions and reporting in
      order to comply with the Conditions. This will build on RBS’s existing extensive internal
      audit procedures, including the audit procedures to support other regulations (such as
      Sarbanes-Oxley) and the external audit of financial statements. In addition, RBS will
      establish an Assurance Team to support the SET and provide internal audit of APS-
      specific policies and procedures within RBS for the purposes of ensuring compliance with
      the Conditions (as detailed in the Assurance Plan).

Upon request by the Treasury, RBS will provide to the Treasury the current version from time to
time of its Credit Approval Framework.

Reporting

Reporting on the Protected Assets and Related Party Assets will be undertaken in compliance
with the requirements of the Conditions and will be executed by existing Finance and Risk
functions throughout RBS.

The SOC will oversee the reporting on Protected Assets and Related Party Assets on the basis
of the following 6 main categories:
                                                8



  •   Executive Summary of Key Measures
  •   Financial Performance
  •   Risk Metrics
  •   Governance/Compliance
  •   Control Environment
  •   Expenses

Personnel with responsibility for and in close connection with APS reporting will receive
appropriate training.

By building on existing systems and processes in a way which ensures that the systems and
processes are consistent with the requirements of the Conditions, RBS intends to reinforce the
APS control environment. For example, this will ensure that APS financial information is signed
off by divisional CFOs in the same way as it currently is for other divisional disclosures.

APS Finance & Management is a central team responsible for the statutory reporting required
by the APS, the Quarterly Statements and other such information provided to HMT. This team
ensures that there is a full audit trail for all information supplied by the divisions.

Reporting on the Protected Assets and Related Party Assets will vary depending on whether
those assets and exposures are Blind Pool Assets or in the “Sighted” pool. The Blind Pool
Assets will be reviewed after the event and comparisons made with other parts of RBS’s Group
which do not benefit from protection under the APS, in order to confirm that Blind Pool Assets
are not prejudiced, discriminated against or disproportionately adversely affected in comparison
to other assets. The activities of the Collections and Recoveries functions will receive particular
attention. “Sighted” pool reporting will include checks to ensure that APS compliance is in place
and is working effectively in the operating divisions, as well as reviewing information on trend
and volume analysis with a view to ensuring that this Asset Management Framework and the
requirements of the APS are being correctly applied.

Certain details of the development of the Finance and Risk APS reporting structure and systems
are set out in the Transitional Exceptions Document.

Asset Action approvals

The governance surrounding Asset Action approvals is set out in the next section.

Business Strategies and the SOC

The SOC shall review, approve and reassess the business strategy and governance
arrangements of the Group and will do so having regard to business conditions, Applicable Law
and Good Industry Practice. For these purposes, a portfolio review (essentially an analysis of
sectoral exposures) covering both commercial and risk parameters will be prepared for each
class of asset identified by the Group from time to time and this will be presented to the SOC on
a regular basis, no less than annually.
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3. APPROVAL PROCEDURES AND APS APPROVAL HIERARCHY

General

Protected Assets and Related Party Assets are subject to all of the requirements of the
Conditions (subject to (a) Conditions 10.12, 10.14 and 10.21 and (b) the exception for Blind
Pool Assets with respect to the (i) Asset Management Objective and (ii) the requirements of
Condition 12 in respect of Prohibited Conduct specified under Condition 12.2(A) as described
above). In particular, the requirements of Condition 12 covering Conduct Requiring Approval
which if not duly approved in accordance with this Asset Management Framework and the
Conditions would constitute Prohibited Conduct will apply to Covered Assets and Related Party
Assets in the “Sighted” pool and (except in relation to Prohibited Conduct specified under
Condition 12.2(A)) will also apply to Blind Pool Assets.

In addition, if and to the extent that “Sighted” personnel, such as certain senior managers of
RBS divisions that contain Blind Pool Assets are involved in making any credit decisions in
relation to individual Blind Pool Assets, such “Sighted” personnel must also treat those Blind
Pool Assets as if they were in the “Sighted” pool.

In accordance with RBS’s general principle that the implementation of the governance of the
APS should be as close to business-as-usual (“BAU”) as possible (to the extent that is
compatible with the Conditions, including the Asset Management Conditions), the conduct
procedures and APS Approval Hierarchy are built into RBS’s existing Credit Approval
Framework approved by the RBS Board. Risk as an independent custodian of the business has
the ability to provide the necessary internal checks and monitoring systems required to ensure
APS compliance. In addition, the dedicated APS Compliance team will be required to provide
Secondary Approval for certain categories of Asset Actions to enhance the control environment
around those activities.

The Approvals Procedure and the APS Approvals Hierarchy is based on a series of core
principles that will make the process sound, consistent with business as usual and efficient:
  • Independence of Risk from Business – The Risk Framework in RBS, recently established,
       is built around a sound risk governance, and separation of roles between Risk and
       Business. Risk has control on final decision making. Overriding of risk decisions by the
       business units is forbidden by the current process. The same concept will apply to APS
       Approvals.
  • Risk decisions are escalated according to a series of rules to a higher level of authority,
       providing for higher and more senior overview where required by materiality of exposure
       or event.
  • Risk Managers in the divisions are responsible for a first assessment of Risk and Asset
       Actions (see below).
  • In addition a number of categories of approvals will require a Secondary Approval/Check
       by the APS Compliance Team or, where applicable, the SOC and HMT

RBS will develop as soon as possible process and administration maps covering the detailed
operation of the approvals processes referred to in this Asset Management Framework. RBS
will provide in a timely fashion copies of such process and administration maps (once
completed) to HMT upon request.

Asset Actions

In this Asset Management Framework, “Approval” means any decision in respect of any action
concerning a Protected Asset or Related Party Asset in order to comply with the Conditions,
including in order to retain cover under the APS (any such action, an “Asset Action”).
Approvals include *** decisions in respect of these Protected Assets and Related Party Assets
and other related conduct, including:

*** Indicates omitted information.
                                                  10



     ***
     •     Prohibited Conduct referred to in Condition 12.2;
     ***



This includes, but is not limited to, actions taken to comply with the Asset Management
Objective, the Asset Management Conditions, the provisions of the Conditions covering
Prohibited Conduct and the Conflicts Management Policy. Each proposed Asset Action will be
subject to the Approvals Procedure, which will require assessment of the action against key
requirements of the Conditions, including amongst others, the Conditions relating to Rollovers,
Restructurings and additional lending (including Extended Protection Assets). Each APS
Approver will be able to communicate with the dedicated APS Compliance teams (discussed
below) for guidance on the impact of proposed Asset Actions which constitute Rollovers and
Restructurings or which may require additional lending under Condition 10.13 and/or
consultation with HMT under Condition 10.15. If and to the extent any additional lending is
made and constitutes an Extended Protection Asset, depending on the terms of the cover for
that Extended Protection Asset pursuant to Conditions 6.36 to 6.42 of the Conditions, RBS will
consider whether further procedures and arrangements need to be implemented for the
Management and Administration of that Extended Protection Asset and will communicate any
such procedures and arrangements to HMT at such time.

Asset Continuity Requirements - "reasonable criteria"

In determining whether an Asset Action is compliant with the Conditions, one of the key criteria
that needs to be satisfied is the Asset Continuity Requirements in Condition 4 of the APS. In
certain cases, an APS Approver will use “reasonable criteria” in making a decision in respect of
compliance with the Asset Continuity Requirements. The basis of the “reasonable criteria” test
and some details of its application is set out below.

     •     Condition 4.5(D)(iii)(b): For assets and exposures other than in the “Residential
           Mortgages” and “Consumer Finance” Covered Asset Classes, “reasonable criteria”
           consistently applied must be used in deciding whether or not a proposed Asset Action
           increases the expected loss on an asset where the obligors change but, broadly, the
           new obligor is in the same group as the old obligor or the new obligor (or any parent
           undertaking) is a successor of the old obligor (or any parent undertaking). “Reasonable
           criteria” for decision making in this context may comprise but not be limited to:


           (i)      assessment of the related credit rating that the RBS Group has assigned to the
                    new obligor using its internal Master Grading Scale;

           (ii)     assessment of the LGD (loss given default, which is a regulatory based
                    measure for expected loss) for the new obligor which is linked to the Master
                    Grading Scale and available on internal systems.

           Moreover, the relevant APS Approver will be required to consider these issues having
           regard to past experience with the proposed new obligor and any assessment available
           to the APS Approver outlining the medium term prospects for that obligor.

     •     Condition 4.5(D)(iii)(c): For “Residential Mortgages” and “Consumer Finance” assets
           and exposures, “reasonable criteria” (consistently applied) must be used in determining
           whether or not a new obligor has a "close connection" with an old obligor, where “close
           connection” is defined in Condition 4.8. For those assets which are Blind Pool Assets,
           normal business as usual processes which constitute “reasonable criteria” in this
           context apply. These may include, but are not limited to, the following criteria:



*** Indicates omitted information.
                                               11


        (i)     when a proposed new obligor becomes a client of the RBS group for the first
                time the standard "Know your customer" and Money Laundering checks are run
                (which, amongst other things, highlight full legal name and address details
                which must be supported by Government issued identity documents and utility
                bills);

        (ii)    when a proposed obligor is to become an obligor of an asset or exposure then
                (in addition to information required under item (i) above as relevant) the obligor
                is required to complete an application form which, as well as all usual identity
                and contact information, will require confirmation of that obligor's relationship
                status, which information is then subject to separate credit checks which among
                other things can confirm consistency of information; and

        (iii)   in particular, where there is an obligor change of name (for example on
                marriage) a copy of the marriage certificate and evidence of residency at the
                relevant address ( e.g. utility bills) is required.


Key considerations for an APS Approver

APS Approvers are persons responsible for ensuring that all Asset Actions on Protected Assets
and Related Party Assets comply with the Conditions. This requires them to review all such
Asset Actions in the light of the Conditions and attribute them to one of the following:

 1. A proposed Asset Action that is not of the type regulated by the Conditions and may
    therefore proceed in accordance with RBS’s ordinary business practices; or
 2. A proposed Asset Action is of the type regulated by the Conditions and is compliant with
    the Conditions, and may therefore proceed; or
 3. A proposed Asset Action is of the type regulated by the Conditions but is not compliant
    with the Conditions, and may therefore not proceed in the form originally proposed.

In addition to these requirements, RBS also requires its personnel to ensure that the
Management and Administration of (1) the portfolio of Covered Assets as a whole, (2) the
portfolio of Covered Assets within each Covered Asset Class and (3) each Covered Asset is,
subject to the exceptions stated in the Conditions, executed in light of the following core
principles (in accordance with the following hierarchy):

 •   In accordance with Applicable Law

 •   Other than in respect of Blind Pool Assets and Related Party Assets, in accordance with
     the Asset Management Objective

 •   In such a way as to ensure that there is no prejudice to, discrimination against, or
     disproportionate adverse effect on Covered Assets when compared with the Management
     and Administration of non-APS assets (including Related Party Assets)

 •   In accordance with any provisions of the Accession Agreement relating to the
     Management and Administration of the Covered Assets (including this Asset Management
     Framework and the Conflicts Management Policy).

 •   In a manner which will facilitate compliance with the Monitoring and Reporting Conditions
     and the Governance and Oversight Conditions

 •   At all times and in all respects in accordance with the ordinary course business and
     banking policies, practices and procedures of RBS or other relevant member of its Group
     (including the policies, practices and procedures which RBS or other relevant member of
     its Group would apply in the ordinary course of business when Managing and
     Administering any asset, exposure, liability or risk which is equivalent or similar to the
                                                 12


       relevant Covered Asset), to the extent consistent with (1) the business and banking
       policies, practices and procedures of a reasonable and prudent banking organisation and
       (2) Good Industry Practice.

Any APS Approval will be recorded and subject to audit by the APS Compliance team, the APS
Assurance Team and Group Internal Audit.

APS Approval Hierarchy

RBS will build upon the existing Credit Approval Framework to establish the APS Approval
Hierarchy. The RBS Credit Approval Framework delegates Credit approval authority to
individuals across RBS according to their seniority, experience and expertise. There will be a
separation of roles between Risk and Business. Risk has control on final decision making.
Overriding of Risk decisions by the business units is forbidden by the current process. The
same concept will apply to APS Approvals. In addition a number of categories of approvals will
require a Secondary Approval/Check by the APS Compliance Team or, where applicable, HMT.

The delegation grids used in the Credit Approval Framework and included in this Asset
Management Framework identify rankings for decision-making authority. The delegation grids
are updated from time to time. The Participant will consult with HMT regarding any future
updates to the delegation grids.

The most junior ranking for decision-making authority is a Credit Officer ***, rising to Credit
Officer ***; above these are a Senior Credit Officer *** rising to a Senior Credit Officer ***, above
which is the Group Chief Credit Officer or his or her delegates. The Executive Committee
Group, a committee of the RBS Board, is the most senior credit decision-making body in RBS.

APS Approval authorities for larger exposures are exercised by those individuals that RBS has
identified as Group Chief Credit Officers and Senior Credit Officers. This ensures an appropriate
level of seniority, experience and expertise is applied to larger exposures. However, for certain
categories of Asset Actions, a mandatory Secondary Approval by the APS Compliance team will
be required, as detailed below.

For smaller exposures APS Approval authority would be exercised by Credit Officers *** and ***
based on their Risk Delegated Authorities. These individuals hold APS Approval authority as a
consequence of their credit officer ranking.

All APS Approvals in excess of the authorisations limits of those with Group Chief Credit Officer
or an equivalent status will be for the consideration of the SOC.

APS Approvers have the power to approve, veto or require an Asset Action in order to ensure
that RBS complies with the Conditions. For the avoidance of doubt, this includes the power to
manage conflicts and approve Conduct Requiring Approval which, without such approval, would
constitute Prohibited Conduct. In certain circumstances, HMT will also have the power to
approve or veto an Asset Action which would otherwise be Prohibited Conduct.

SET Heads (i.e. the Scheme Head and the two Heads of APS Compliance) will have been
allocated APS Approval capacity in line with a Senior Credit Officer 1 authority and they are able
to delegate certain APS Approval capacity to their team members subject to evidencing
appropriate experience and seniority of those individuals.

Approval procedure


  1. All RBS’s proposed Asset Actions relating to Protected Assets and Related Party Assets
     other than Blind Pool Assets will be subject to an initial check to review whether the


*** Indicates omitted information.
                                                13


      proposed Asset Action affects a Protected Asset or Related Party Asset. An automated
      process will be developed to facilitate the undertaking of these initial checks but until the
      implementation of this automated process the initial checks will be undertaken manually.
      This will be done by Credit Risk for credit-related proposed Asset Actions, and by
      Regulatory Risk for non-credit-related proposed Asset Actions or proposed Asset Actions
      related to new transactions that go through Regulatory Risk checks.

  2. If a Protected Asset or Related Party Asset is affected, the proposed Asset Action will be
     referred to an APS Approver for clearance. If there is a later change to the proposed
     Asset Action, then, for continuity, the same APS approver may need to revisit his/her
     decision and confirm the approval. The same principles of materiality will apply for later
     changes to the proposed Asset Action. This clearance is not approval to undertake the
     proposed Asset Action, but is clearance to proceed with the client mandate and
     transaction structuring.

  3. If a proposed Asset Action affecting a Protected Asset or Related Party Asset is cleared
     to proceed, the business will prepare all materials necessary to support RBS’s approval
     procedures for the proposed Asset Action.

  4. The business will then submit the proposed Asset Action for approval.

      −   In the event of a non-credit-related proposed Asset Action this will require the usual
          business and associated sign-offs, plus APS Approval from an appropriately
          authorised APS Approver, which will be determined by the appropriate Risk manager
          responsible for the overall connection.

      −   In the event of a credit-related proposed Asset Action, this will require credit approval
          from a credit officer in accordance with the Credit Approval Framework, and APS
          Approval from an appropriately authorised APS Approver. The credit officer and APS
          Approver may be the same person.

In all cases APS Approvers can only approve proposed Asset Actions according to the
appropriate limits set out in the Approval Grids and only for the categories of Asset Action that
they have specific authority to approve. In the event that an APS Approver does not have the
appropriate authority s/he is obliged to escalate the proposal to an APS Approver with the
required authority.

It may not be practicable to calculate the Asset Management Objective solely on the basis of a
formula (i.e. to determine the net present value (“NPV”) of the Protected Asset) in the context of
each proposed Asset Action.

For example, where an Asset Action does not result in an immediate liquidation of the positions,
exposures or underlying collateral or assets in respect of a Protected Asset, a conclusion
regarding the impact of that Asset Action on the NPV of the Protected Asset is likely to involve
not just a formulaic approach, but will require a degree of subjective judgement, on the part of
the relevant APS Approver.

The relevant APS Approver should act reasonably in undertaking this process and in a manner
consistent with the APS. As such, in exercising his or her subjective judgement the relevant
APS Approver will endeavour to ensure that the Asset Action is consistent with the Asset
Management Objective, taking account of objective measures, metrics and criteria where
available and reaching a decision based on an appropriate assessment of the risks associated
with the proposed Asset Action (including its impact on credit metrics).


Approval Grids – Prohibited Conduct

A Conduct Requiring Approval framework will be created to establish the limits for all APS
Approvers’ approval authority in relation to Prohibited Conduct which will be based on the
Approval Grids below. The approval authorities under the Conduct Requiring Approval
                                                 14


framework will contain a right for HMT/APA to approve or refuse Conduct Requiring Approval in
respect of the following circumstances (the “HMT Approval Matters”):

      1. If the Conduct Requiring Approval is conduct described in (a) Condition 12.2(A) relating
         to the release of Security, guarantee, indemnity or collateral in respect of a Covered
         Asset, or (b) Condition 12.2(B) relating to a return of value on equity in respect of a
         Covered Asset, or (c) Condition 12.2(C) relating to the sale, transfer or other disposal of
         a Triggered Asset and:

        −    As at 31 2008 December the Covered Amount in respect of the applicable Covered
             Asset or the Triggered Asset (as the case may be) which is the subject of the Conduct
             Requiring Approval exceeded ***; or
        −    As at the date of the relevant proposed Conduct Requiring Approval, the Outstanding
             Amount of the Covered Asset or Triggered Asset (as the case may be) which is the
             subject of the Conduct Requiring Approval exceeds or exceeded ***.

      2. If the Conduct Requiring Approval is any conduct described in Condition 12.2(D)
         relating to any amendment, replacement or termination of any Closely Related Hedge,
         subject to the applicable provisions of Conditions 12.2 and 12.4.

      3. For the purposes of paragraph 1 above, the *** threshold may be exceeded by:
        − a single transaction; or
        − a number of separate transactions which, when taken together, form part of the same
           transaction; or
        − a series of independent but related transactions to or with a person or persons
           connected to or with that person which, when taken together, form part of the same
           transaction.

Any Conduct Requiring Approval which is not a HMT Approval Matter may be approved or
refused by the relevant APS Approver in accordance with the APS Approvals Hierarchy. The
approval authority of the relevant APS Approver in relation to Conduct Requiring Approval will
be based on the Approval Grids and methodology for Credit Approvals and Other Conduct
Approvals (as set out below)

Any Conduct Requiring Approval which is a HMT Approval Matter must be notified by the
relevant APS Approver to APS Central Compliance:

  •     If APS Central Compliance determines that the relevant Conduct Requiring Approval
        should not be undertaken APS Central Compliance may refuse the Conduct Requiring
        Approval and such conduct shall not be undertaken.

  •     If APS Central Compliance determines that approval of the relevant Conduct Requiring
        Approval should be undertaken, and therefore approved by HMT/APA, then APS Central
        Compliance will notify HMT/APA of its recommendation and seek HMT/APA’s consent to
        the Conduct Requiring Approval.

Subject to the provisions of Condition 39, if the SOC notifies HMT/APA of the Conduct
Requiring Approval which is an HMT Approval Matter and seeks HMT/APA’s consent for such
Conduct Requiring Approval, HMT/APA shall provide to the SOC its approval or refusal of the
Conduct Requiring Approval within 5 Business Days of notification by the SOC.

If HMT/APA does not provide to the SOC its approval or refusal of any Conduct Requiring
Approval escalated to HMT/APA within 5 Business Days, then subject to the provisions in
Condition 39, HMT/APA will be deemed to have approved the relevant Conduct Requiring
Approval.


*** Indicates omitted information.
                                               15


Approval Grids – Other Conduct

The Credit Approval Framework establishes the limits for all credit officers’ approval authority,
according to RBS’s total counterparty exposure to the connection (determined in accordance
with RBS’s credit aggregation procedures) and the internal credit rating applied to the proposed
action.
  • Because the decision-making limits in the Credit Approval Framework apply to RBS’s total
      exposures to the entire connection, this effectively provides a tool for a combined
      assessment of the Protected Assets and Related Party Assets.

  •     The internal credit rating is the master grading scale (“MGS”) ***. Aligning the APS
        Approval Hierarchy with the Credit Approval Framework is one aspect of how RBS
        complies with the requirement in the Conditions to ensure that the level of scrutiny
        increases concurrently with the likelihood of Losses.

The Credit Approval Framework has a number of standard grids which apply relevant limits. The
most relevant grids in an Approvals context are those relating to Direct Risk (see below), though
those relating to Settlement Risk (see below) have operational relevance:
  ***



Where:
 • The distinction is made *** so that RBS can apply lower limits *** to reflect the greater
     general *** risk entailed with ***.
 • “Direct Risk” means actions where RBS extends funds to a counterparty (such as a loan)
 • “Settlement Risk” means actions where RBS depends upon a counterparty for the
     settlement of a transaction ***.

The Credit Approval Framework applies limits based on RBS’s total exposure to an entire
connection. For example, this means that an additional £*** loan to a connection with a total
exposure of £*** will require a more senior approval than a £*** loan to a connection with a total
exposure of £*** (assuming the same MGS rating).

Set out below are the two most commonly applicable grids and the limits they apply to APS
Approvals in RBS.




*** Indicates omitted information.
                                     16



Approval Grids for ***



Approval Grids for ***




*** Indicates omitted information.
                                                17



Work-out

RBS has a dedicated work-out team, the Global Restructuring Group (“GRG”) which handles
almost all corporate work-out activity. *** The Credit Approval Framework for the GRG sets out a
different type of grid for decision-making that also includes some consideration of the type of
transaction proposed. The APS Approval Hierarchy will apply in GRG as set out below.

The Credit Approval Framework for GRG sets out a different approach to deal with troubled and
non-performing assets:
  ***



Watch List

The Credit Approval Framework also addresses the requirement in the Conditions to enhance
the level of scrutiny for those Covered Assets and Related Party Assets that have an increased
likelihood of Losses.

RBS uses a Watch List to monitor the most troubled assets. According to their status, assets
are ranked from *** (being the least troubled) to *** (being the most troubled). Watch List clients
are subject to heightened monitoring as RBS employs a proactive approach to managing the
possible deterioration of the creditworthiness of its counterparties. ***

RBS’s divisions establish early warning indicator processes, which include ongoing monitoring
that is capable of detecting changes in customer behaviour or credit risk quality using
appropriate internal and external information sources to determine whether any particular
customers or assets or exposures should be on a Watch List. These include but are not limited
to

  •     Internal Sources – account performance information that indicates performance is not in
        line with expectations e.g. late payments, excesses, failure to meet terms and conditions
        of approval, ***
  •     External Sources – ***

Secondary Approvals

In addition to the APS Approvers, there are dedicated APS Compliance teams reporting to the
two Heads of APS Compliance that are members of the SET. The role of the APS Compliance
Officers in these teams is to:
  • Monitor Asset Actions (after the event) in all “Blind” and “Sighted” portfolios
  • Advise APS Approvers in respect of whether proposed Asset Actions comply with the
      applicable Conditions
Provide mandatory Secondary Approvals for certain proposed Asset Actions (in addition to the
APS Approver) in respect to both “Sighted” and “Blind” portfolios.

Mandatory Secondary Approvals exist to enhance RBS’s control environment in respect of the
following events:
  ***



In addition to the above Mandatory Secondary Approvals, APS Approvers may (but are not
obliged to) refer any other Asset Action for a Secondary Approval.

RBS will provide information regarding the materiality thresholds referred to above to HMT upon
request.

*** Indicates omitted information.
                                                  18



4. MONITORING AND ASSURANCE


Monitoring

RBS will monitor the Asset Actions after the event in both the “Sighted” and “Blind” pools. This
will be carried out by the dedicated APS Compliance teams reporting to the SET.

“Sighted” Assets and “Blind” Pool Assets will require different techniques to assess overall
compliance (including compliance with the Conditions) and confirmation of effectiveness.

  •   “Sighted” pool monitoring will involve sample checks of the Credit Approval Framework
      system to ensure individual credit cases are correctly marked (via electronic tags), that
      the correct processes were followed, and that the APS decisions were robust, evidenced,
      recorded and escalated as necessary and that Approvals were subsequently made at the
      correct level in accordance with the APS Approval Hierarchy.

  •   “Blind” Pool Assets require an approach that ensures that they are treated in an identical
      manner to non-APS assets (including Related Party Assets) so as to ensure that there is
      no prejudice to, discrimination against, or disproportionate adverse effect on Protected
      Assets.

This monitoring will focus on the volumes and types of actions (as well as their integrity). In
addition, the APS Compliance team will conduct portfolio analysis to compare the Covered
Assets against the wider performance of RBS.

The APS Compliance team will also review RBS’s existing Credit Quality Assurance reports in
respect of Covered Assets and Related Party Assets. This is an audit process that ensures
credit exposures are correctly Managed and Administered within RBS.

Reporting to the SOC will be provided in accordance with this Asset Management Framework in
compliance with the Conditions. This reporting will cover in particular: (1) compliance with all
aspects of the APS Approval Hierarchy, (2) monitoring of Blind Pool Asset actions to ensure that
the Management and Administration of the Blind Pool Assets within such pools is being
undertaken in compliance with the Conditions (including ensuring that there is no prejudice to,
discrimination against, or disproportionate adverse effect on Protected Assets when compared
with assets and exposures which are not in the APS) and (3) the heightened monitoring
applicable to Protected Assets and Related Party Assets on the Watch List.

Performance measures

Key performance measures (“KPIs”) will be set at overall Bank and business levels.

Operating procedures

Operating procedures KPIs will include (but not be limited to) for example:

  •   Volume of Blind Pool Asset and other Covered Asset Asset Actions transactions (and
      amount)
  •   Volume of Asset Actions declined/rejected and an analysis of the underlying rationale
  •   Volume of cases and amount of Covered Assets withdrawn from the APS, including
      Disposals

Portfolio quality

Portfolio quality KPIs will include (but not be limited to) for example:

  •   Total Covered Assets against provision coverage
  •   Total Covered Assets against provision charge per business
                                               19


  •   Granular migration analysis of the MGS of the portfolio
  •   Watch List data and migration trends
  •   Portfolio movements per industry sector or asset class
  •   Comparison of total Covered Assets against total RBS credit portfolios
  •   Comparison of derivatives portfolio quality
  •   Transfers to work-out teams (such as GRG) for Covered Assets and Related Party Assets

APS compliance

APS compliance KPIs will include (but not be limited to) for example:

  •   Assessment of the businesses’ certification process
  •   Testing findings of sample statistics and reports of APS Compliance monitoring teams
  •   Tracking of non-compliance activity by APS Compliance monitoring teams

Where appropriate existing Group Internal Audit or Risk classifications will be used to assess
and grade the materiality of the findings and will be aligned to the Assurance Plan.

Assurance Plan

As set out in the Assurance Plan, RBS will also establish an APS Assurance Team to
supplement the second line of defence. The Assurance Team will be responsible for maintaining
and reporting on the execution of the Assurance Plan.

The “first line of defence” (as set out in the Assurance Plan) is those persons who are
responsible for the Management and Administration of the Covered Assets and the Related
Party Assets and such persons will perform testing to certify to APS Compliance their level of
compliance with APS requirements. The “second line of defence” (as set out in the Assurance
Plan) is the Risk function and the APS Compliance team who will perform additional testing,
checking and challenge the level of compliance with the Conditions. The “third line of defence”
is RBS’s Group Internal Audit who will perform independent testing over RBS’s compliance with
the Conditions. Third party audit providers may be used to address shortfalls in knowledge,
skills and resource levels. Any use of third parties will need to be endorsed by the SOC.
                                             20


APPENDIX 1: COMMERCIAL STRATEGIES

The commercial strategies that RBS deploys will vary ***. RBS will use its expertise to assess
the most appropriate actions to achieve compliance with the Asset Management Objective,
Asset Management Conditions and the rest of the Conditions. Set out here is the range of
commercial strategies that will be used in respect of Covered Assets. Due to the significant
variation of circumstances for each asset, the commercial strategies pursued will vary by
asset/client and over time.
***




*** Indicates omitted information.
                                             21


APPENDIX 2: APS CONFLICTS MANAGEMENT POLICY

This Asset Management Framework and the Approvals under it shall be applied in conjunction
and in accordance with the Conflicts Management Policy.

RBS shall ensure that the Management and Administration processes under the Asset
Management Framework are developed to avoid any Conflicts in accordance with the Conflicts
Management Policy. In particular RBS shall ensure that:

 •   Conflicts arising from potential new transactions, in particular surrounding Compliance,
     are to be minimised in accordance with the Conflicts Management Policy;
 •   Conflicts concerning the Asset Management Objective will be subject to specific Approval
     and oversight by APS Approvers.

Further details are contained in the Conflicts Management Policy.
                                                  22


APPENDIX 3: RBS GLOSSARY


***


“CFO” means chief financial officer;

“Corporate Asset” means an asset originated in or Managed and Administered within the
Corporate Banking division of RBS;

“Credit” means the credit function within Risk;

“Credit Approval Framework” means the credit approval framework implemented by RBS on
31 May 2009;

“Debt to Equity” means a debt for equity swap effected during a work out process under which
debt is cancelled, reduced or waived (or otherwise compromised) in exchange for equity;

“Executive Committee Group” means a committee of the RBS Board, being the most senior
credit decision making body with RBS;

“Finance” means the Finance function of RBS;

“GBM” means the Global Banking & Markets division of RBS;

“Global Restructuring Group” means the dedicated work out team within Restructuring & Risk,
which deals with distressed and defaulted counterparties within RBS;

“Group CCO” means the Chief Credit Officer of RBS;

“Group Internal Audit” means the internal audit function of RBS;

“GRG Restructuring” means the postponement, deferral or rescheduling of payments by RBS
in respect of monies owed to it by one or more Obligors effected during a work out process;

“Master Grading Scale” or “MGS” is the internal credit rating scale of RBS, ***;

“MI” means high level management information prepared for the purposes of presentation to
senior management;

“Non-Core” means the Non-Core division within Restructuring & Risk;

“RBS Board” means the board of directors of The Royal Bank of Scotland Group plc;

“RBS Facility And Security Documentation Policy” means the facility and security
documentation policy applicable with RBS, as the same may be amended from time to time;

“Regulatory Risk” means the Group Regulatory and Operational risk function within
Restructuring & Risk;

“Restructuring & Risk” means the Restructuring & Risk division of RBS;

“Retail asset” means an asset originated in or Managed and Administered within the Retail
division of RBS;

“Risk” means the Group Risk function within Restructuring & Risk;


*** Indicates omitted information.
                                             23


“Sarbanes-Oxley” means the United States Sarbanes-Oxley Act of 2002;

“Senior Credit Officer” has the meaning ascribed thereto in the Credit Approval Framework;

“Single Name Concentration Limit” means the maximum credit concentration limit for any
single customer or client of RBS;

“SME” means small and medium enterprise; and

“Watch List” means an internal list maintained within RBS for the purposes of monitoring the
most troubled assets within RBS’s portfolio, where assets are allocated a ranking according to
their status, ranging from ***.




*** Indicates omitted information.

								
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