TIDMSL.
RNS Number : 7410X
Standard Life plc
24 February 2017
Standard Life plc
Full Year Results 2016
Part 3 of 8
2. Board of Directors
Our business is managed by our Board of Directors.
Biographical details (and shareholdings) of the Directors
as at 24 February 2017 are listed below.
Sir Gerry Grimstone Keith Skeoch Luke Savage
Chairman Chief Executive Chief Financial
Officer
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Nationality: British British British
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Age: 67 60 55
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Tenure: Sir Gerry was Keith was appointed Luke was appointed
appointed Chairman Chief Executive Director and Chief
in May 2007, having in August 2015, Financial Officer
been Deputy Chairman having been a in August 2014.
since March 2006. Director since He has been a
He has been a May 2006. He has Director for 2
Director for 11 been a Director years.
years. for 10 years.
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Background: Sir Gerry has Keith's reputation For 30 years Luke
continued his and breadth of has provided corporate
excellent track experience in and financial
record with the the industry, support within
Group, leading his market insights the financial
the Board during and his extensive services sector
a period of significant knowledge of Standard and by bringing
change and strategic Life are of great that experience
development. His benefit to the to the Board,
international Board and to the has continued
experience, insight Group. to make an effective
and firm advocacy Keith joined Standard contribution to
of the benefits Life Investments Board deliberations.
of strong governance Limited in 1999 Prior to joining
are a great asset as Chief Investment Standard Life,
to the Board and Officer, and has Luke spent 10
to the Group. been its Chief years as director
Sir Gerry is senior Executive since of finance and
independent director 2004. Previously operations at
and deputy chairman he spent nearly Lloyd's of London.
of Barclays PLC. 20 years at James Previously, he
He has continued Capel & Company held senior finance
in his role as Limited in a number roles at Deutsche
an independent, of roles, including Bank (UK), Morgan
public interest, chief economist Stanley & Company
non-executive and managing director (UK) and Lloyds
board member of international Bank plc. He is
Deloitte LLP and equities. He is a member of the
as the lead non-executive a non-executive governing body
at the Ministry director of the of Queen Mary
of Defence. He Financial Reporting University of
is an adviser Council, where London.
to the board of he is a member He holds an Electrical
the Abu Dhabi of the codes and and Electronic
Commercial Bank. standards committee. Engineering degree
Previously, he He has been awarded (BEng), from the
held senior positions honorary doctorates University of
within the Department from the University London. He is
of Health and of Sussex and a Member of the
Social Security Teesside University Institute of Chartered
and HM Treasury for services to Accountants in
and with Schroders the financial England and Wales.
plc in London, services industry.
Hong Kong and He holds a BA
New York. He was from the University
vice chairman of Sussex and
of Schroders' an MA from the
worldwide investment University of
banking activities Warwick. He is
from 1998 to 1999. a Fellow of the
He holds an MA Chartered Institute
and MSc from the for Securities
University of and Investment
Oxford. and a Fellow of
the Society of
Business Economists.
-------------- ---------------------------------------------- ---------------------- -----------------------
Shareholding: 206,626 2,246,620 885
Committee
memberships: * Nomination and Governance, Chairman (c)
Colin Clark Paul Matthews Kevin Parry
Executive Director Executive Director Senior Independent
Director
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Nationality: British British British
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Age: 57 56 55
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Tenure: Colin was appointed Paul was appointed Kevin was appointed
Director in November Director in November Director in October
2015. He has been 2015. He has been 2014. He has been
a Director for a Director for a Director for
1 year. 1 year. Paul is 2 years.
standing down
from the Board
on 1 March 2017.
-------------- --------------------------- ------------------------- --------------------------------
Background: With his background Paul's appointment Kevin's international
in investment reflected his commercial and
management and depth of knowledge acquisition experience
client services, of Standard Life is particularly
both with Standard and experience valuable to the
Life and elsewhere, in the financial Board. He has
Colin brings important services industry extensive audit
skills to the spanning over and regulatory
Board. 30 years. He brings knowledge gained
Colin was appointed a strong customer in a 'Big 4' firm
to the Board of focus and significant and a FTSE 100
Standard Life marketing and asset management
Investments Limited distribution expertise and private banking
in 2004 as a non-executive to the Board. group.
director. In 2010, Paul joined Standard Kevin is chairman
he assumed executive Life in 1989, of Intermediate
responsibility working in a variety Capital Group
for global client of roles before plc (ICG) and
relationship activity, being appointed a non-executive
including client UK Chief Executive director of Nationwide
management, product in 2011 and then Building Society
development, distribution UK and Europe (Nationwide) and
management and Chief Executive Daily Mail and
also brand management. in 2012. His senior General Trust
Previously he management roles plc (DMGT). At
spent 20 years have included ICG he is chairman
with Mercury Asset UK Take to Market of the nominations
Management/Merrill Director, Managing committee and
Lynch Investment Director of UK a member of the
Managers, becoming Distribution, remuneration committee.
head of global and Head of IFA At Nationwide
marketing in 1999. Sales. he chairs the
He holds a BA Paul started work audit committee
(Hons) Philosophy, straight from and is a member
Politics and Economics school, initially of the risk and
degree from the balancing his nominations committees.
University of work with a rugby At DMGT he chairs
Oxford. career, captaining the audit and
the England U19s risk committee.
before a serious He is chairman
injury ended his of the Royal National
sporting ambitions. Children's Foundation.
Before joining He was formerly
Standard Life, chairman of the
Paul held a variety Homes and Communities
of sales and investments Agency, a non-executive
roles with National board member of
Mutual Life from Knight Frank LLP,
1979 to 1989. CFO of Schroders
He is a board plc, CEO at Management
member of the Consulting Group
Association of PLC and a managing
British Insurers partner at KPMG.
and is a member He holds an MA
of the Financial (Hons) in Management
Conduct Authority Studies from the
Practitioner Panel. University of
Cambridge. He
is a Fellow of
the Institute
of Chartered Accountants
in England and
Wales.
-------------- --------------------------- ------------------------- --------------------------------
Shareholding: 757,766 237,039 50,000
Committee
memberships: * Audit (c)
* Nomination and Governance
* Risk and Capital
Pierre Danon John Devine Melanie Gee
Non-executive Non-executive Non-executive
Director Director Director
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Nationality: French British British
-------------- -------------------------------- ------------------------ ---------------------------
Age: 60 58 55
-------------- -------------------------------- ------------------------ ---------------------------
Tenure: Pierre was appointed John was appointed Melanie was appointed
Director in October Director on 4 Director in November
2011. He has been July 2016. He 2015. She has
a Director for has been a Director been a Director
5 years. for 8 months. for 1 year.
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Background: With extensive John joined the Melanie brings
experience in Board in July deep understanding
leading technology 2016. He brings of investment
and customer-facing extensive financial banking and financial
businesses, Pierre and asset management services to the
brings a strong experience to Board.
combination of the Board. Melanie is a non-executive
international From April 2015 director of The
commercial and until August 2016, Weir Group PLC
customer skills John was non-executive where she chairs
to the Board. chairman of Standard the remuneration
Pierre is vice Life Investments committee and
chairman of TDC, (Holdings) Limited. is a member of
executive chairman He is a non-executive the audit and
of Volia, independent director of GE nomination committees.
director of CIEL Capital International She has also served
Investment Limited Holdings Limited, as a non-executive
and vice chairman Euroclear plc director of Drax
of AgroGeneration. and Citco Custody Group plc.
From 2000 to 2005, Limited. Melanie was appointed
Pierre was chief From 2008 to 2010, a managing director
executive officer John was chief of Lazard and
of BT Retail and, operating officer Co. Limited in
subsequently, of Threadneedle 2008 and became
chief operating Asset Management a senior adviser
officer of Capgemini Limited (Threadneedle). in 2012. Previously,
Group and chairman Prior to joining she held various
of Eircom. Until Threadneedle, roles with UBS,
June 2012, he John held a number having been appointed
served as chief of senior positions a managing director
executive officer at Merrill Lynch in 1999 and served
and then non-executive in London and as a senior relationship
chairman of Numericable New York. director from
Completel in Paris. He holds a BA 2006 to 2008.
He holds a degree (Hons) from Preston She holds an MA
in Civil Engineering, Polytechnic and in Mathematics
E cole Nationale is a Member of from the University
des Ponts et Chaussées, the Chartered of Oxford.
Paris, a Law degree Institute of Public
from the Faculté Finance and Accounting.
de droit, Paris,
together with
an MBA from HEC
Paris.
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Shareholding: 49,656 1,321 20,000
-------------- -------------------------------- ------------------------ ---------------------------
Committee
memberships: * Investment (c) * Investment * Remuneration (c)
* Nomination and Governance * Remuneration * Investment
* Risk and Capital * Risk and Capital
Noel Harwerth Lynne Peacock Martin Pike
Non-executive Non-executive Non-executive
Director Director Director
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Nationality: British and American British British
-------------- -------------------------------- ------------------------ ---------------------------
Age: 69 63 55
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Tenure: Noel was appointed Lynne was appointed Martin was appointed
Director in July Director in April Director in September
2012. She has 2012. She has 2013. He has been
been a Director been a Director a Director for
for 4 years. for 4 years. 3 years.
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Background: Noel's executive With a successful The Board continues
background is career in the to benefit from
in international UK financial services Martin's insight,
banking. She brings industry and a based on his broad
extensive knowledge strong focus on commercial and
of financial and customer care, strategic risk
governance issues Lynne brings important experience.
to the Board. skills to the Martin is a non-executive
In January she Board. Her experience director of esure
was appointed as a chief executive Group plc, where
chair of the UK officer and in he chairs the
Export Finance managing change remuneration committee
board. As part in the financial and is a member
of this role she services sector of the audit and
is also a non-executive has been of great risk committees.
member of the value to the Board. He is a non-executive
Department of In April 2016, director of Faraday
International Lynne was appointed Underwriting Limited
Trade board. Noel as non-executive which manages
is outgoing chairman chairman of Standard a syndicate at
of GE Capital Life Assurance Lloyds, where
Bank Limited. Limited. Lynne he is chair of
She also holds is a non-executive the audit and
non-executive director of Scottish risk committee
director appointments Water, where she and member of
with CHAPS Clearing chairs its audit the remuneration
Company Limited, committee. She committee. He
the London Metal is a non-executive is also a non-executive
Exchange, the director and senior adviser to Travers
British Horseracing independent director Smith LLP.
Authority and of Nationwide Martin spent nearly
Sirius Minerals Building Society 30 years as a
Plc. and chairs its strategic risk
Noel was previously remuneration committee. consultant carrying
with Citicorp She is also a out a wide range
for 15 years, member of its of strategic consulting
latterly as the audit, risk and projects and M&A
chief operating nomination and assignments. His
officer of Citibank governance committees. senior roles included
International. Lynne joined National managing director,
Her previous non-executive Australia Bank risk consulting
directorships Limited in 2003 & software, EMEA
include Alent and, from 2004 at Towers Watson.
plc, Logica PLC, to 2011, she was He holds an MA
RSA Insurance chief executive in Mathematics
Group plc and officer, UK (Clydesdale from the University
Sumitomo Mitsui Bank plc and Yorkshire of Oxford. He
Bank. Bank). Previously, is a Fellow of
She holds a Law Lynne was with the Institute
degree from the Woolwich plc from and Faculty of
University of 1983 to 2003, Actuaries.
Texas. finishing her
career there as
chief executive
officer.
She holds a BA
from North East
London Polytechnic.
-------------- -------------------------------- ------------------------ ---------------------------
Shareholding: 10,074 12,554 32,727
-------------- -------------------------------- ------------------------ ---------------------------
Committee
memberships: * Audit * Audit * Risk and Capital (c)
* Nomination and Governance * Audit
* Risk and Capital * Remuneration
3. Directors' report
The Directors present their annual report on the affairs of the
Standard Life group of companies (the Group), together with the
audited International Financial Reporting Standards (IFRS)
consolidated financial statements for the Group, financial
information for the Group and financial statements for Standard
Life plc (the Company) for the year ended 31 December 2016.
Reporting for the year ended 31 December 2016
The Company is the holding company of the Group. You can find
out about the relevant activities of the Company's principal
subsidiary undertakings and their overseas branches in the
Strategic report. During 2016, the Company's principal undertakings
operated branches in Germany, Hong Kong, India and Ireland.
The main trends and factors likely to affect the future
development, performance and position of the Group are outlined in
the Chief Executive's overview section of the Strategic report.
Reviews of the operating and financial performance of the Group for
the year ended
31 December 2016 are given in the Strategic report.
The Chairman's statement, the Directors' responsibility
statement and the Corporate governance statement form part of the
Directors' report. The Corporate governance statement is submitted
by the Board.
Using the IFRS basis, the results of the Group are presented in
the Group financial statements. A detailed description of the basis
of preparation of the IFRS results (including operating profit) is
set out in the Group financial statements section. More information
about the Group's use of financial instruments and related
financial risk management matters can be found in Note 23 and Note
41 to the Group financial statements.
This report was prepared by the executive team together with the
Board and forms part of the management report.
Dividends
The Board recommends paying a final dividend for 2016 of 13.35p
per ordinary share. This will be paid on 23 May 2017 to
shareholders whose names are on the Register of members (the
Register) at the close of business on 18 April 2017.
The total payment is estimated at GBP262m for the final dividend
and together with the interim dividend of 6.47p per share totalling
GBP127m paid on 19 October 2016, the total dividend for 2016 will
be 19.82p per share (2015: 18.36p) totalling GBP389m (2015:
GBP362m).
Share capital
You can find full details of the Company's share capital,
including movements in the Company's issued ordinary share capital
during the year, in Note 28 to the Group financial statements. You
can also find an analysis of registered shareholdings by size, as
at 31 December 2016, in the Shareholder information section.
As at 31 December 2016, there were 1,978,884,437 ordinary shares
in issue held by 102,942 registered members. The Standard Life
Share Account (the Company-sponsored nominee) held 746,304,323 of
those shares on behalf of 1,060,964 participants. No person has any
special rights of control over the Company's share capital and all
issued shares are fully paid.
During the year, and until the date this report was signed, the
Company received the following notifications in respect of major
shareholdings and major proportions of voting rights in accordance
with the Disclosure Guidance and Transparency Rules of the
Financial Conduct Authority (FCA).
Number Percentage
of voting of voting
rights rights
Date Type following following
Shareholder of transaction of transaction the transaction the transaction
------------ ---------------- ---------------- ---------------- ----------------
BlackRock,
Inc. 23.09.2016 Acquisition 98,854,534 5.00%
------------ ---------------- ---------------- ---------------- ----------------
In 2016, in accordance with the terms of the Standard Life
Employee Trust Deed, the trustees of the Standard Life Employee
Trust waived all entitlements to current or future dividend
payments for shares they hold under option on behalf of
participants in the Company's discretionary share plans between the
grant and vest dates. Details of ordinary shares under option in
respect of the Company's discretionary share plans are shown in
Note 47 to the Group financial statements.
The trustees of the Standard Life (Employee) Share Plan voted
the appropriate shares in accordance with any instructions received
from participants in the plan. Details of the Company's employee
share plan can be found in Note 47 to the Group financial
statements.
Restrictions on the transfer of shares and securities
Except where listed below, there are no specific restrictions on
the size of a holding or on the transfer of shares. Both are
governed by the general provisions of the Company's articles of
association (the Articles) and current legislation and
regulation.
You can also obtain a copy from Companies House or by writing to
the Company Secretary at our registered address (details of which
can be found in the Contact us section). The Articles may only be
amended by a special resolution passed by the shareholders.
You can read the Articles on our website
www.standardlife.com/annualreport
The Board may decline to register the transfer of:
-- A share that is not fully paid
-- A certificated share, unless the instrument of transfer is
duly stamped or duly certified and accompanied by the relevant
share certificate or other evidence of the right to transfer, is in
respect of only one class of share and is in favour of a sole
transferee or no more than four joint transferees
-- An uncertificated share, in the circumstances set out in the
uncertificated securities rules (as defined in the Articles) and,
in the case of a transfer to joint holders, where the transfer is
in favour of no more than four joint transferees
-- A certificated share by a person with a 0.25 per cent
interest (as defined in the Articles) in the Company, if that
person has been served with a restriction notice under the
Articles, after failing to provide the Company with information
about interests in those shares as set out in the Companies Act
2006 (unless the transfer is shown to the Board to be pursuant to
an arm's length sale under the Articles)
These restrictions are in line with the standards set out in the
FCA's Listing Rules and are considered to be standard for a listed
company.
The Directors are not aware of any other agreements between
holders of the Company's shares that may result in restrictions on
the transfer of securities or on voting rights.
Rights attached to shares
Subject to applicable statutes, any resolution passed by the
Company under the Companies Act 2006 and other shareholders'
rights, shares may be issued with such rights and restrictions as
the Company may decide by ordinary resolution, or (if there is no
such resolution or if it does not make specific provision) as the
Board may decide. Subject to the Articles, the Companies Act 2006
and other shareholders' rights, unissued shares are at the disposal
of the Board.
Every member and duly appointed proxy present at a general
meeting or class meeting has one vote on a show of hands, provided,
that where a proxy is appointed by more than one shareholder
entitled to vote on a resolution and is instructed by one
shareholder to vote 'for' the resolution and by another shareholder
to vote 'against' the resolution, then the proxy will be allowed
two votes on a show of hands - one vote 'for' and one vote
'against'. On a poll, every member present in person or by proxy
has one vote for every share they hold. For joint shareholders, the
vote of the senior joint shareholder who tenders a vote, in person
or by proxy, will be accepted and will exclude the votes of the
other joint shareholders. For this purpose, seniority is determined
by the order that the names appear on the Register for joint
shareholders.
A member will not be entitled to vote at any general meeting or
class meeting in respect of any share they hold if any call or
other sum then payable by them for that share remains unpaid or if
they have been served with a restriction notice (as defined in the
Articles) after failing to provide the Company with information
about interests in those shares required to be provided under the
Companies Act 2006.
The Company may, by ordinary resolution, declare dividends up to
the amount recommended by the Board. Subject to the Companies Act
2006, the Board may also pay an interim dividend, and any fixed
rate dividend, whenever the financial position of the Company, in
the opinion of the Board, justifies its payment. If the Board acts
in good faith, it is not liable to holders of shares with preferred
or 'pari passu' rights for losses that arise from paying interim or
fixed dividends on other shares.
The Board may withhold payment of all or part of any dividends
or other monies payable in respect of the Company's shares from a
person with a 0.25 per cent interest (as defined in the Articles)
if that person has been served with a restriction notice (as
defined in the Articles) after failure to provide the Company with
information about interests in those shares, which is required
under the Companies Act 2006.
Subject to the Companies Act 2006, rights attached to any class
of shares may be varied with the written consent of the holders of
not less than three-quarters in nominal value of the issued shares
of that class (excluding any shares held as treasury shares). These
rights can also be varied with the sanction of a special resolution
passed at a separate general meeting of the holders of those
shares. At every separate general meeting (except an adjourned
meeting) the quorum shall be two persons holding, or representing
by proxy, not less than one-third in nominal value of the issued
shares of the class (calculated excluding any shares held as
treasury shares).
A shareholder's rights will not change if additional shares
ranking 'pari passu' with their shares are created or issued -
unless this is expressly provided in the rights attaching to their
shares.
Power to purchase the Company's own shares
At the 2016 Annual General Meeting (AGM), shareholders granted
the Directors limited powers to:
-- Allot ordinary shares in the Company up to a maximum aggregate amount of GBP80,259,685
-- Disapply, up to a maximum total nominal amount of
GBP12,038,952 or 5% of its issued ordinary share capital,
shareholders' pre-emption rights in respect of new ordinary shares
issued for cash
-- Make market purchases of the Company's ordinary shares up to
a maximum of 197,001,046 or 10% of its issued ordinary shares
The Company did not make any market purchases of its ordinary
shares during the year ended 31 December 2016, and has not done so
since then and up to the date of this report.
Significant agreements
There are a number of agreements to which the Company, or one of
its subsidiaries, is party that entitle the counterparties to
exercise termination or other rights in the event of a change of
control of the Company. These agreements are noted in the
paragraphs below.
Credit Facility - under a GBP400m revolving credit facility
between the Company and the banks and financial institutions named
therein as lenders (Lender) dated 22 May 2015 (the Facility), in
the event that (i) any persons or group of persons acting in
concert, gain control of the Company or (ii) Standard Life
Assurance Limited ceases to be a member of the Group, then any
Lender may elect within a prescribed time frame to cancel its
outstanding commitment under the Facility and declare its
participation in all outstanding loans, together with accrued
interest and all amounts accrued immediately due and payable,
whereupon the commitment of that Lender under the Facility will be
cancelled and all such outstanding amounts will become immediately
due and payable.
India - under a shareholders' agreement dated 15 January 2002
(as amended) which is now between Housing Development Finance
Corporation Limited (HDFC) and Standard Life (Mauritius Holdings)
2006 Limited (SLMH06), being the relevant Group company which holds
the interest in HDFC Standard Life Insurance Company Limited (HDFC
Standard Life), upon a change of control of the Company which
results in a change of control of SLMH06 (as described in the
shareholders' agreement), HDFC potentially has the right to
terminate the venture and to purchase, or nominate a third party to
purchase, SLMH06's shares in HDFC Standard Life for a price
determined in accordance with the agreement.
India - under a shareholders' agreement dated 10 June 2003 (as
amended) between Standard Life Investments Limited and HDFC,
pursuant to which the relevant Group company holds its interest in
HDFC Asset Management Company Limited (HDFC AMC), upon a change in
the ownership structure of Standard Life Investments Limited that
results in the acquisition by a third party, either directly or
indirectly, of more than 20% of the issued, subscribed and paid-up
capital of Standard Life Investments Limited, HDFC will have 90
days from the date upon which Standard Life Investments Limited
notifies it in writing of the occurrence of such a change to
purchase the relevant Group company's shares in HDFC AMC for a
price determined in accordance with an agreed pricing formula.
China - under a joint venture agreement dated 12 October 2009
(as amended) between the Company and Tianjin TEDA International
Holding (Group) Co. Limited (TEDA), pursuant to which the Company
holds its interest in Heng An Standard Life Insurance Company
Limited (Heng An Standard Life), upon a change of control of the
Company, TEDA has the right to terminate the venture and to
purchase, or nominate a third party to purchase, the Company's
shares in Heng An Standard Life for a price determined in
accordance with the agreement.
A number of other agreements contain provisions that entitle the
counterparties to exercise termination or other rights in the event
of a change of control of the Company. However, these agreements
are not considered to be significant in terms of their likely
impact on the business of the Group as a whole.
The Directors are not aware of any agreements with any employee
that would provide compensation for loss of office or employment
resulting from a takeover bid. The Company also has no agreement
with any Director to provide compensation for loss of office or
employment resulting from a takeover.
Directors and their interests
The Directors who served throughout the year were:
-- Sir Gerry Grimstone (Chairman)
-- Keith Skeoch
-- Luke Savage
-- Colin Clark
-- Paul Matthews
-- Kevin Parry
-- Pierre Danon
-- John Devine (appointed 4 July 2016)
-- Melanie Gee
-- Noel Harwerth
-- Lynne Peacock
-- Martin Pike
-- Crawford Gillies (retired 17 May 2016)
-- Isabel Hudson (resigned 24 June 2016)
Biographies of the current Directors can be found on pages 50 to
53.
Details of the Directors' interests in the Company's ordinary
shares, the Standard Life (Employee) Share Plan, the Standard Life
Sharesave Plan and the share-based executive long-term incentive
plans (LTIPs) are set out in the Directors' remuneration report
together with details of the executive Directors' service contracts
and non-executive Directors' appointment letters.
No Director has any interest in the Company's listed debt
securities or in any shares, debentures or loan stock of the
Company's subsidiaries. No Director has any material interest in
any contract with the Company or a subsidiary undertaking which was
significant in relation to the Company's business, except for the
following:
-- The benefit of a continuing third party indemnity provided by
the Company (in accordance with company law and the Articles)
-- Service contracts between each executive Director and
subsidiary undertakings (Standard Life Employee Services Limited
and Standard Life Investments Limited)
Copies of the following documents can be viewed at the Company's
registered office (details of which can be found in the Contact us
section) during normal business hours (9am to 5pm Monday to Friday)
and will be available for inspection at the Company's AGM on 16 May
2017:
-- The Directors' service contracts or letters of appointment
-- The Directors' deeds of indemnity, entered into in connection
with the indemnification of Directors provisions in the
Articles
-- The rules of the Standard Life plc Executive Long-Term Incentive Plan
-- The Company's Articles
Appointment and retirement of Directors
The appointment and retirement of Directors is governed by the
Articles, the Companies Act 2006, the UK Corporate Governance Code
and related legislation.
The UK Corporate Governance Code recommends that directors of
FTSE 350 companies should stand for election every year. In line
with this, all our Directors as at the date of the AGM will retire
at the AGM on 16 May 2017. Paul Matthews is standing down as
Director on 1 March 2017 and Barry O'Dwyer will be appointed to the
Board as Director on the same day. John Devine and Barry O'Dwyer,
having been appointed since the last AGM, will stand for election
at the 2017 AGM. All remaining Directors who wish to continue in
office will stand for re-election.
The powers of the Directors can also be found in the
Articles.
Directors' liability insurance
During 2016, the Company maintained directors' and officers'
liability insurance on behalf of its directors and officers to
provide cover should any legal action be brought against them. The
Company also maintained a pension trustee liability indemnity
policy (which includes third party indemnity) for the boards of
trustees of the UK and Irish staff pension schemes. The trustees
include individuals who are directors of subsidiaries within the
Group.
Our people
Our people have always been central to delivering our strategy,
and we remain focused on bringing out the best in them.
You can read more on our people strategy in the Sustainability
section of the Strategic report
Diversity and Inclusion
Standard Life takes pride in the high achieving, diverse and
healthy working environment it has created, where all employees are
valued, empowered and treated as individuals. Our approach to
diversity and inclusion is defined in its broadest sense including,
for example, age, socio-economic background, gender, disability,
sexual orientation, experience and ethnicity. We are committed to
enabling all our people to fulfil their potential and to providing
an inclusive workplace where all forms of diversity are valued.
This covers our recruitment process, policies, working practices
and our people networks.
We treat those with disabilities fairly in relation to job
applications, training, promotion and career development.
Adjustments are made to train and enable employees who become
disabled whilst working at Standard Life to allow them to continue
and progress in their role.
In recent years we have seen considerable progress in our gender
balance within our talent pipeline particularly in our graduate,
emerging leaders and senior high potentials. This year we have
signed up to the Women in Finance Charter, supporting our aim for
an inclusive workplace and in particular, to support actions which
will improve the representation of senior women in our industry. We
are committed to continuing to improve the gender balance split at
a senior management level and in October 2016 we published our
target ranges for gender balance. Although 25% of our leadership
population is female, we appreciate that there is still more work
to be done. We continue to run our Non-Executive Director
curriculum to encourage female talent to develop executive team and
board experience and are working with our female employees to focus
career conversations on development. In addition, we are working
with executive search partners who have signed up to providing an
equal balance of men and women on shortlists provided.
In 2016 our established people networks continued to support our
people across the business. At present we have a successful Women's
Development Network, LGBT Network, Carers' Network, Armed Forces
Network and Young Persons' Development Network. In addition, we
have an LGBT+ Allies Group.
Talent
Since 2010 we have increased the number of employees aged 25 and
under in the UK and Ireland from 0.5% to 8%. Through a series of
initiatives and partnerships and by offering traineeships and
apprenticeships, Standard Life demonstrates it is committed to
youth employment. On our Edinburgh Guarantee programme we have, to
date, taken on more than 140 school leavers, providing six-month
placements across the business, paid at the living wage. Our
experience has been good, with 98% of our placements leading to a
positive destination - whether it be a role within Standard Life or
progression to further education, training or other employment.
This commitment extends to supporting young people through
education, as we work with Career Ready to equip young people for
better futures, with mentors and paid internships.
We are committed to retaining and attracting the best talent and
our recruitment campaigns advertise our flexible approach to
working patterns, capturing individuals at the beginning and middle
years of their careers. Our veteran and 'returnship' programmes
also support those in the middle and later years of their
careers.
Engagement
There are several separate employee representation arrangements
across the organisation aimed at providing insights from our people
to help drive the business towards becoming a world-class
investment company. In the UK, most employees are represented
through partnership agreements with the Group's staff associations,
Vivo and Bridge. In Ireland, there is an established agreement with
Unite, and a works council was established in Germany in 2008.
We want to hear from our people about how to make things better,
so we get insight from our employee engagement survey
'InterAction', as well as through our employee associations and
conversations with leavers. The InterAction survey gives our
employees the chance to tell the leadership teams how they feel
about working for Standard Life. In November 2016, 80% of our
employees completed our most recent InterAction survey, which is up
from 79% in 2015. The responses gave us a clear update on how our
people feel about a range of topics.
We want our employees to be engaged in their work and give their
best every day. We have collaborated with the voluntary movement
Engage for Success to focus on the best ways to make this happen.
Their aim - like ours - is to improve employee engagement.
As a result of these collaborations, we have launched our own
engagement network which will begin work early in 2017 to focus on
our group-wide engagement priorities.
To support our healthy body strategy, we took part in our fifth
Global Corporate Challenge - a 100-day walking challenge. We
averaged 14,037 steps a day (well above World Health Organisation
target of 10,000). We also work with our on-site caterers to
provide healthy, nutritious lunch and snack choices for our
people.
To help our people in work and home life, we provide a variety
of support from our people networks to our family friendly
policies, and we provide an employee assistance programme called
Solutions. It is a free, confidential service available to our
people and their families whenever they need it.
We also run free regular mindfulness and meditation sessions,
where employees can get space and time to clear their minds in the
middle of a working day.
Changes to the UK employee pension were implemented on 16 April
2016. From this date, pension scheme members build up future
pension on a defined contribution basis rather than a career
average defined benefit basis. In 2016 over 95% of our UK employees
were in our pension scheme.
We believe that we provide a consistent and competitive level of
support for our employees in their retirement savings provision,
and that this is sustainable going forward to ensure that we remain
competitive.
Our new Group intranet, Stan, launched in March 2016, enhances
engagement, collaboration and communication across the whole
business, helping employees to do their job more quickly and
connect with each other more easily. In addition, independent
analysis of Stan conducted by Digital Workplace Group highlighted
that we are well positioned to build on the initial positive impact
of the site. Stan achieved an extremely high score for its strategy
and governance, ranking third in the global league tables compiled
by Digital Workplace Group.
Reward
We rely on highly skilled employees. We are committed to
policies that are progressive and attract and retain the talent we
need to continue to build a world-class investment company. We
offer a range of benefits and financial rewards to our people. As
we are all different, our people can tailor their package to suit
their needs.
As part of our performance culture, employees and their managers
have regular conversations together where they agree performance
goals and how to develop and address the employee's aspirations,
strengths and development areas. We believe great performance
should be rewarded and our approach continues to support our reward
principles and links pay to performance. This ensures our
remuneration remains competitive in the market.
As at 31 December 2016, approximately 73% of the Group's
employees were shareholders through participation in the Standard
Life (Employee) Share Plan (the Plan). The Plan allows employees to
buy ordinary shares in the Company directly from their earnings up
to a market value of GBP150 per month, or an equivalent sum in a
relevant currency. These are called partnership shares. For each
partnership share that an employee buys under the Plan in the UK,
the Company matches the purchase by allocating them ordinary shares
up to a maximum total value of GBP50 per month. As at 31 December
2016, 68% of eligible employees in the UK were making a monthly
average contribution of GBP58. A similar tax approved plan is used
in Ireland, where the maximum monthly matched amount is EUR70, and
has a 55% take-up. Even though the Plan cannot be structured on a
tax favourable basis in Germany or Austria, at the end of the year,
35% of eligible employees were buying shares on a monthly
basis.
The Group also encourages share ownership in the Company in the
UK and Ireland through the Standard Life Sharesave Plan which was
launched in August 2011. In September 2016, we launched a sixth
invitation to UK employees and at the same time made a fifth
invitation to employees in Ireland. On 1 November 2016, the 2013
three-year UK and Ireland Sharesave invitations matured.
Participating employees have the opportunity, until 1 May 2017, to
buy Standard Life plc shares at a price of GBP2.834 per share (UK)
and EUR3.216 per share (Ireland) with their accumulated savings. On
1 November 2016 the 2011 five-year Sharesave invitation also
matured. Participating employees have the opportunity, until 1 May
2017, to buy Standard Life plc shares at a price of GBP1.576 per
share (UK) with their accumulated savings.
As a result, there are now over 3,400 employees in the UK and
Ireland participating in Sharesave plans.
Sustainability
The commercial aims of our business are linked to our
environmental, social and governance responsibilities. You can find
out more about how we run our business sustainably, including our
greenhouse gas emissions, in the Sustainability section of the
Strategic report.
Political donations
We did not make any political donations in the year ended 31
December 2016. The Company has limited authorisation from
shareholders to make political donations and incur political
expenditure (Resolution 14, 2016 AGM). We request this as a
precaution against any inadvertent breach of political donations
legislation. While Standard Life has regular interaction with
government and elected politicians in the UK and other
jurisdictions in which we operate, we are strictly apolitical. We
have a long-standing policy of not making political donations and
we have no plans to do so.
Auditors
The Audit Committee is responsible for considering the Group's
external audit arrangements. PricewaterhouseCoopers LLP is not
seeking re-appointment as auditors of the Company. Following the
conclusion of the audit tender process, resolutions proposing the
appointment of KPMG LLP as auditors of the Company and giving
authority to the Audit Committee to determine their remuneration
will be submitted at the AGM to be held on 16 May 2017.
Disclosure of information to the auditors
Each Director confirms that he or she has taken all reasonable
steps necessary, in his or her role as a Director, to be made aware
of any relevant audit information and to establish that
PricewaterhouseCoopers LLP is made aware of that information.
As far as each Director is aware, there is no relevant audit
information that PricewaterhouseCoopers LLP is not aware of as at
the date this report was approved.
Annual General Meeting
Details of the meeting content can be found in our AGM guide
2017 which will be available online at www.standardlife.com from 22
March 2017. The AGM was held in London for the first time last
year. As it is intended to hold the AGMs in Edinburgh and London in
alternate years, it will be held in Edinburgh in 2017.
Annual General Meeting - Tuesday 16 May 2017 at 2pm (UK
time)
Edinburgh International Conference Centre
The Exchange
150 Morrison Street
Edinburgh
EH3 8EE
Scotland
Overview
-- Introduction - the Chairman will introduce the Directors and outline the business of the AGM
-- Presentations and question and answer session - the Chairman
and the Chief Executive will review the business and provide an
overview of Standard Life's plans for 2017. After this, there will
be an opportunity to ask questions
-- Voting - shareholders will be asked to consider and vote on a number of resolutions
Other information
Under Listing Rule 9.8.4.CR, a listed company must include all
information required by LR 9.8.4R in a single identifiable location
or cross-reference table. For the purposes of LR 9.8.4CR, the
information required to be disclosed can be found in the following
locations. All the relevant information cross-referenced below is
hereby incorporated by reference into this Directors' report.
Location
--------------------------------------
Directors' None/
Directors' remuneration Not
Topic report report applicable
------------------------- ---------- ------------- -----------
Interest capitalised x
Publication of
unaudited financial
information in
a class 1 circular
or in a prospectus,
other than in
accordance with
Annexes 1 and
2 of the FCA's
Prospectus Rules x
Details of long-term
incentive schemes x
Waiver of emoluments
by a director x
Waiver of future
emoluments by
a director x
Non pre-emptive
issues of equity
for cash x
Non pre-emptive
issues of equity
for cash in relation
to major subsidiary
undertakings x
Parent participation
in a placing
by a listed subsidiary x
Contracts of
significance x
Provision of
services by a
controlling shareholder x
Shareholder waivers
of dividends x
Shareholder waivers
of future dividends x
Agreements with
controlling shareholders x
------------------------- ---------- ------------- -----------
The Directors' report was approved by the Board and signed on
its behalf by
Kenneth A Gilmour
Company Secretary
24 February 2017
4. Corporate governance statement
4.1 Nomination and Governance Committee report
The Nomination and Governance Committee oversees the governance
framework so the report on its activities is presented both in
summary on this page and integrated in more detail into the
relevant parts of the corporate governance statement.
Dear Shareholder
It is my pleasure to introduce the 2016 Corporate governance
statement and Nomination and Governance Committee report, in line
with my responsibility to ensure effective corporate governance
throughout the Group. Your Board adheres to the highest standards
of corporate governance and ethical behaviour in directing the
Group's affairs and in its accountability to you as shareholders.
As Directors, we believe these commitments are key to understanding
and managing our business effectively, providing engaged
leadership, and delivering shareholder value over the longer term.
Your Board takes the quality of its performance seriously and
strives to improve performance through annual reviews and
continuing self-assessment. As well as our key activities to
oversee the composition of the Board and its effectiveness, during
2016 we:
-- Reviewed and revised the composition of the boards of our
principal subsidiaries, Standard Life Assurance Limited (SLAL) and
Standard Life Investments (Holdings) Limited (SLIH)
-- Established the Investment Committee to support the Board in its oversight role
Sir Gerry Grimstone
Chairman, Nomination and Governance Committee
Membership
The members of the Committee are the Chairman and independent
non-executive directors. Their attendance at Committee meetings
was:
Member Attendance
--------------------- ----------
Sir Gerry Grimstone,
Chairman 6/6
Pierre Danon 5/6
Kevin Parry 5/5
Noel Harwerth 6/6
Former member
Crawford Gillies 1/1
--------------------- ----------
Keith Skeoch, in his role as Chief Executive, was invited to
Committee meetings to discuss relevant topics, such as talent
development and management succession.
The Committee supports the composition and effectiveness of the
Board, and oversees the Group's activities to strengthen its talent
pipeline at all levels. It also oversees the development and
implementation of the Group's governance framework.
In this statement you can read about the Committee's role
in:
-- Identifying and recommending Directors to be appointed to the Board
-- Reviewing Board diversity, skills and experience
-- Supporting the review of the Board's effectiveness
-- Overseeing succession planning, leadership and talent
development and diversity levels throughout the Group
Ultimate responsibility for these important topics rests with
the Board and the Committee reports regularly to the Board so that
all Directors can be involved as appropriate.
The Committee's work in 2016
An indicative breakdown as to how the Committee spent its time
is shown below:
Jan
- Mar * Reviewed compliance with the Corporate Governance
Code
* Reviewed the corporate governance statement
* Reviewed the Board Charter
* Committee Effectiveness review
* Recommended appointment of Senior Independent
Director (SID)
* Reviewed membership of Committees
------- -------------------------------------------------------------
Apr
- Jun * Reviewed executive succession and talent
* Reviewed emerging talent and support and development
programmes
* Appointment of subsidiary board members
* Reviewed preparation to support the Market Abuse
Regulation (MAR)
* Signed up to Women in Finance Charter
* Recommended appointment of non-executive Director
------- -------------------------------------------------------------
Jul
- Sep * Reviewed Organisation Design reshaping and output
* Reviewed executive succession and talent
------- -------------------------------------------------------------
Oct
- Dec * Reviewed results of Board Effectiveness
* Recommended establishment of Investment Committee
* Reviewed implementation of Senior Insurance Managers
Regime (SIMR) requirements
* Reviewed executive succession and talent
* Reviewed subsidiaries' committees' terms of reference
------- -------------------------------------------------------------
The Committee's work in 2016 Committee effectiveness
An indicative breakdown as The Committee reviews its
to how the Committee spent remit and effectiveness
its time is each year. The 2016 review
shown below: Diagram removed was carried out via an internal
for the purposes of this announcement. self-assessment questionnaire.
However it can be viewed in The review concluded that
full in the pdf document. the Committee:
* Continued to focus Director and senior manager
recruitment on the skills and experience required by
the Board, reflecting the changing shape of the
business
* Continued to look for strength in the succession,
talent and development, diversity and leadership
programmes across the Group
* Worked to deliver effective subsidiary board
composition and processes to support changing
governance requirements
Roles and responsibilities
The roles and responsibilities of the Board, Chairman and Chief
Executive are outlined below: Diagram removed for the purposes of
this announcement. However it can be viewed in full in the pdf
document.
Code compliance
As well as covering the formal disclosure requirements of the UK
Corporate Governance Code (the Code), this statement describes how
the Board meets its governance responsibilities.
Throughout 2016, the Company complied with all of the provisions
set out in the Code issued by the Financial Reporting Council (FRC)
in September 2014, which is available at www.frc.org.uk
Together with the Directors' remuneration report, this statement
explains how our governance framework supports the way we apply the
Code's principles of good governance.
Governance framework
The Group's governance framework is approved by the Board and
documented in the Board Charter.
You can read the Board Charter on our website at
www.standardlife.com/annualreport
The Group's Code of Conduct guides our people to do the right
thing and complements the Board Charter. It sets out our standards
of conduct and governing principles for operational excellence,
compliance responsibilities, customer service, our people, and
other stakeholders.
The Board expects the Group to be a leader in corporate
governance activities through its own actions and through its
stewardship activities. The Nomination and Governance Committee
regularly reviews the Group's corporate governance framework
against relevant generally accepted standards, guidance and best
practice, and, as appropriate, recommends to the Board changes to
the Board Charter.
During 2016, the Committee oversaw the implementation of the
governance map and processes to support SIMR and the preparation
for the introduction of MAR.
The governance framework sets out the Board's relationship with
the boards of the principal subsidiaries in the Group. In
particular, it specifies the matters which these subsidiaries are
required to refer to the Board or to a Committee of the Board for
approval. It also ensures that all decisions which require or would
benefit from it, receive the independent input of the non-executive
Directors.
The roles of the Chairman and the Chief Executive are separate.
Each has clearly defined responsibilities, which are described in
the Board Charter.
The heads of each business unit and the corporate centre
functions manage their teams within authorities set out in the
Board Charter and within an approved scheme of delegation. This
includes reporting to the Chief Executive on how they are complying
with Group policies and performing against approved plans and
budgets.
The Company Secretary is responsible for advising the Board on
governance matters.
Board composition, balance and diversity
The Board's policy is to appoint and retain non-executive
Directors who bring relevant expertise as well as a wide
perspective to the Group and its decision-making framework. The
Directors believe that at least half of the Board should be made up
of independent non-executive Directors. As at 24 February 2017, the
Board comprises the Chairman, seven independent non-executive
Directors and four executive Directors. The Board is made up of
nine men (75%) and three women (25%) (2015: men 69%, women 31%).
The Board continues to support its Board Diversity statement which
states that the Board:
-- Believes in equal opportunities and supports the principle
that due regard should be had for the benefits of diversity,
including gender, when undertaking a search for candidates, both
executive and non-executive
-- Recognises that diversity can bring insights and behaviours
that may make a valuable contribution to its effectiveness
-- Believes that it should have a blend of skills, experience,
independence, knowledge and gender amongst its individual members
that is appropriate to its needs
-- Believes that it should be able to demonstrate with
conviction that any new appointee can make a meaningful
contribution to its deliberations
-- Is committed to maintaining its diverse composition
-- Supports the Chief Executive's commitment to achieve and
maintain a diverse workforce, both throughout the Group, and within
his executive team
You can read more about our Directors in their biographies in
Section 2
The Nomination and Governance Committee receives updates on
progress towards achieving and maintaining diversity throughout the
Group. This includes reviewing statistics on age, gender and
full/part time working at all levels. The Group also promotes
initiatives and programmes to raise awareness of why diversity
matters. During 2016, the Board signed up to the Women in Finance
Charter and has published our progressive target ranges for our
leadership population to represent the gender split of our
workforce by 2025. You can read more about our diversity activities
in the Sustainability section of the Strategic report.
Board changes during the period
Appointments
John Devine was appointed to the Board on 3 July 2016. John had
served as the non-executive chairman of SLIH from 28 April 2015
until the end of August 2016. From 2008 to2010, John was chief
operating officer of Threadneedle Asset Management Limited. Prior
to joining Threadneedle, John held a number of senior positions at
Merrill Lynch in London and New York. As recently announced, Barry
O'Dwyer will be appointed as an executive Director to the Board on
1 March 2017, to replace Paul Matthews as CEO Pensions and
Savings.
Retirements
Crawford Gillies retired from the Board at the conclusion of the
2016 AGM, having served for nine years. Isabel Hudson stood down
from the Board on 24 June 2016, having served for 18 months. As
recently announced, Paul Matthews, CEO Pensions and Savings will
stand down from the Board on 1 March 2017 prior to his retirement
later this year.
Board appointment process, terms of service and role
Taking account of the Group's strategy, as well as industry and
regulatory developments, the Nomination and Governance Committee
evaluates the Board's balance of skills, diversity, knowledge and
experience, in the context of the time served by non-executive
Directors. The Committee uses the results of its analysis to direct
its recruitment activities and appointment recommendations and
reviews all recommendations to appoint independent non-executive
Directors to the boards of subsidiary companies.
Taking account of the regulatory changes that have been or will
be introduced to the responsibilities of the board of Standard Life
Assurance Limited (SLAL), including:
-- The transition from the current Individual Capital Assessment regime to Solvency II
-- The Prudential Regulation Authority's (PRA) Position Paper on
Corporate Governance: Board Responsibilities
-- SIMR regime changes
-- The role of the Independent Governance Committee
During 2016, the Committee considered and strengthened the
oversight of the governance of key subsidiaries. Specifically, the
Committee supported changes to the composition of the board of
SLAL, in particular that a non-executive chairman and three
independent non-executive directors should be appointed.
Recognising strategic developments and the impact of the change
noted above, the Committee also supported changes to the
composition of the board of SLIH, in particular that the
independent non-executive Directors should stand down. Following
this, to provide increased connectivity with Standard Life
Investments, the Committee supported the proposal to establish an
Investment Committee which will become operational in 2017 and
which is discussed in more detail in the Other committees section
on page 66.
After identifying the capabilities needed for Board roles, and
the succession timeframe, the Committee considers the related role
profile submitted to external search consultants along with the
request to prepare a list of suitable candidates. The Group has
used the services of JCA Group, Heidrick and Struggles, Odgers
Berndtson, Zygos and Egon Zehnder to support its recent recruitment
searches and Egon Zehnder has also provided executive development
assessment support. Standard Life administers three active pension
plans for Heidrick and Struggles and provides a group self-invested
pension plan for The Zygos Partnership. In addition, Standard Life
hold a fully paid-up executive pension plan for Egon Zehnder. The
Board is not aware of any other connection between the Group and
the aforementioned consultants, JCA Group or Odgers Berndtson.
The Nomination and Governance Committee considers the potential
suitable candidates and agrees a shortlist. Following interviews
with potential candidates, the Committee then makes recommendations
to the Board on any proposed appointment, subject always to the
satisfactory completion of all background checks and regulatory
approvals. The other Board members are also offered the opportunity
to meet the recommended candidates. The Committee considers the
external commitments of candidates to assess their ability to meet
the necessary time commitment and whether there are any conflict of
interest matters to address.
Each non-executive Director is appointed for a three-year fixed
term and shareholders vote on whether to elect/re-elect him or her
at every AGM. Once a three-year term has ended, a non-executive
Director can continue for further terms if the Board is satisfied
with the non-executive Director's performance, independence and
ongoing time commitment. There is no specified limit to the number
of terms that a non-executive Director can serve, although the
Board recognises the Code provisions regarding length of service
when considering whether or not their appointment should be
continued. The current average length of service of the
non-executive Directors (excluding the Chairman) is just over three
years. The Nomination and Governance Committee oversees the process
to recommend continued appointments, but members of the Committee
do not take part in discussions when their own performance - or
continued appointment - is being considered. During 2016, the
Committee recommended to the Board that the appointment of Martin
Pike should be continued for a second term.
The role of our non-executive Directors is to participate fully
in the Board's decision-making work - advising, supporting and
challenging management as appropriate.
You can see our standard letter of appointment on our website at
www.standardlife.com/annualreport or by writing to the Company
Secretary
The letter of appointment confirms that the amount of time we
expect each non-executive Director to commit to each year, once
they have met all of the approval and induction requirements, is
around 35 days. Non-executive Directors are required to confirm
that they can allocate sufficient time to carry out their duties
and responsibilities effectively. You can read more about the
induction and development programme later in this section.
Director election and re-election
At the 2017 AGM, all of the current Directors will retire. John
Devine and Barry O'Dwyer, having been appointed since the previous
AGM, will retire and stand for election. All the others, except
Paul Matthews who will have resigned as at 1 March 2017, will stand
for re-election.
You can read more background information about the Directors,
including the reasons why the Chairman believes you should support
their election or re-election, in our AGM guide 2017, which will be
published online at www.standardlife.com from 22 March 2017, and in
Section 2 - Board of Directors.
Director independence, external activities and conflicts of
interest
The Board carries out a formal review of the independence of
non-executive Directors annually. The review considers relevant
issues including the number and nature of their other appointments,
any other positions they hold within the Group, any potential
conflicts of interest they have identified and their length of
service. Their individual circumstances are also assessed against
independence criteria, including those in the Code. Following this
review, the Board has concluded that all the non-executive
Directors are independent.
Sir Gerry Grimstone was Chairman of the Board throughout the
year. He has retained his non-executive positions with Barclays
PLC, where he serves as deputy chairman and senior independent
director, Deloitte LLP and the UK Government's Ministry of Defence.
He is also an adviser to the board of the Abu Dhabi Commercial
Bank.
Crawford Gillies served as the Senior Independent Director (SID)
until his retirement on 17 May 2016, and Kevin Parry was appointed
as SID on that date. In this role, Kevin supports the Chairman, and
often meets with him one-to-one. He is also available to talk with
our shareholders about any concerns that they may not have been
able to resolve through the channels of Chairman, Chief Executive
or Chief Financial Officer, or where a shareholder considers these
channels are inappropriate. As part of his induction we offered
institutional shareholders the chance to meet with him, and one
chose to do so.
The Directors continued to review and authorise Board members'
actual and potential conflicts of interest on a regular and ad hoc
basis in line with the authority granted to them in the Company's
Articles. As part of the process to approve the appointment of a
new Director, the Board considers and, where appropriate,
authorises his or her potential or actual conflicts. The Board also
considers whether any new outside appointment of any current
Director creates a potential or actual conflict before, where
appropriate, authorising it. All appointments are approved in
accordance with the Group's Outside Appointments and Conflicts of
Interest policies.
In January 2017, the Board reviewed all previously authorised
potential and actual conflicts of interest of the Directors and
their connected persons, and concluded that the authorisations
should remain in place until January 2018. Under the terms of the
approval, conflicted Directors can be excluded from receiving
information, taking part in discussions and making decisions that
relate to the potential or actual conflict. The Board and relevant
Committees follow this process when appropriate. For example,
during 2016, when considering the external audit tender, the Board
recognised the Chairman's conflict resulting from his role with
Deloitte LLP and he took no part in the tender process. The Audit
Committee also considered Kevin Parry's previous employment with
KPMG. As this ended in 1999, the Committee did not consider that it
brought any potential conflict to the tender exercise or
decision.
The Board's policy encourages executive Directors to take up one
external non-executive director role. Keith Skeoch continued as a
non-executive director of the Financial Reporting Council. Paul
Matthews is a member of the Association of British Insurers board
and of the FCA's practitioner panel.
You can read more about the Directors' outside appointments in
their biographies in Section 2
Advice
Directors may sometimes need external professional advice to
carry out their responsibilities. The Board's policy is to allow
them to seek this where appropriate and at the Group's expense.
Directors also have access to the advice and services of the
Company Secretary, whose appointment and removal is a matter for
the Board. No Directors sought external advice in 2016.
Board effectiveness
Review process
The Board has, with the help of the Nomination and Governance
Committee, developed a formal review process to assess how well the
Board, its Committees, the Chairman and the Directors are
performing collectively and individually and how performance could
be improved.
As well as planning the 2016 review, the Nomination and
Governance Committee also considered how the themes from the
previous reviews continued to be taken forward. In respect of
engagement, the non-executive Directors continued their support for
participants in the leadership programmes, and executive Directors
held regular interactive sessions open to all employees.
The 2016 review was facilitated internally. It comprised an
online self-assessment questionnaire, followed up by individual
meetings between each Director and the Company Secretary and
individual meetings between the Chairman and each Director.
Directors completed questionnaires about the Board, each Committee
they sit on, the Chairman's performance and their own individual
performance. They were encouraged to provide open and honest
feedback, explain the ratings they gave and suggest how the Board
or Committee could improve.
Outcome
Following the review process, the Company Secretary analysed the
self-assessment responses and prepared a summary report which also
included the findings from his interviews and a series of related
points for possible action. The report was discussed with the
Chairman and then considered in detail by the Nomination and
Governance Committee at its October meeting before being formally
presented to the Board in December.
The key outputs from the review included:
-- Recognising the Directors' collective role in setting the
'tone from the top' and monitoring how culture was embedded across
the Group
-- Recognising the Board's role in supporting effective
behaviours in the Boardroom and constructive leadership and
management across the Group
-- Acknowledging that there had been improvements to Board
papers, but that there was still the need to focus on papers to
support succinct decision-making
-- The Board's continuing desire to connect with and hear from
people in the whole business to support future leaders and key role
successors
Progress to implement the recommendations is monitored by the
Company Secretary and reported to the Nomination and Governance
Committee. Each Board Committee followed a similar questionnaire,
reporting and discussion process and reviewed its own results and
recommendations in detail.
Chairman
The review of the Chairman's performance was led by the SID,
Kevin Parry. It was based on feedback given in the confidential
online questionnaires and followed up by individual interviews
between the SID and each Director. The questions covered:
-- The Chairman's role to lead the Board and encourage effective
participation and consensus decision-making
-- How he informs the Board of stakeholders' views
-- His relationship with both executive and non-executive Directors
The feedback was summarised into a report which was reviewed by
the SID and distributed to all Board members, except the Chairman.
The report also contained the reflections from the SID's individual
meetings. The Directors, led by the SID and without the Chairman
being present, met to consider the report. They concluded that the
Chairman had performed his role effectively, showed strong
leadership of the Board, continued to devote significant time to
the Group and continues to have sufficient time to carry out his
duties. The SID met with the Chairman to pass feedback from the
review directly to him.
Directors
The Chairman led the performance review of the Directors. He
held one-to-one meetings to assess their individual performance and
contribution against duties set out in the Board Charter and in
their appointment letters.
Before these meetings, the Directors assessed their own
performance by completing a confidential online questionnaire.
Individual development and engagement schedules were prepared to
support each meeting. These built on the responses to particular
questions and areas of interest and training needs identified by
each Director. The meetings were designed to review whether each
Director was contributing effectively to the Board and to the Board
Committees, meeting all of their statutory and regulatory duties,
and continued to have sufficient time to commit to the role. The
meetings also considered individual training, development and
engagement opportunities for each Director. The schedules
summarised the internal and external continuing development the
non-executive Directors had undertaken during the year and
considered the extent to which each non-executive Director had
implemented the points raised in the previous year's review. Each
Director takes forward the resulting actions, supported by the
Chairman and the Company, using either internal or external
resources.
Director induction and development
The Chairman, supported by the Company Secretary, is responsible
for arranging a comprehensive preparation and induction programme
for all new Directors. The programme is tailored to their
individual requirements and takes their background knowledge and
experience into account. All Directors are required to complete the
Financial Conduct Authority's (FCA) approval process and, if
relevant, the Prudential Regulation Authority's (PRA) SIMR
notification or approval process before they are appointed and to
self-certify annually that they remain competent to carry out this
aspect of their role. These processes continue to adapt to meet
evolving best practice in respect of SIMR.
The formal preparation and induction programme includes:
-- Meetings with the executive Directors, key members of senior
management, the heads of the operating businesses and our corporate
centre functions
-- Focused technical meetings with internal and external experts
on specific areas including investments, Solvency II, conduct risk,
risk and capital management, and financial reporting
-- Visits to business units to meet our people and gain a better
insight into the operation of the business and its culture
-- Meetings with the External auditors and the FCA/PRA supervisory teams
-- Meetings with the Company Secretary on the Group's corporate
governance framework and the role of the Board and its Committees,
with the Chief Risk Officer on the risk management framework as
well as meetings on their individual responsibilities both as
Directors and as holders of a Controlled Function/SIMR role
Background information is also provided including:
-- Key Board materials and information, shareholder communications and financial reports
-- The Group's organisational structure, strategy, business activities and operational plans
-- The Group's key performance indicators, financial and
operational measures and industry terminology
The induction programme provides the background knowledge new
Directors need to perform to a high level as soon as possible after
joining the Board and to support them as they build their knowledge
and strengthen their performance further. As mentioned above,
during 2016, John Devine was appointed to the Board. Given the
strength of his asset management experience, the induction
programme was tailored to complement this.
When a non-executive Director is appointed to one of the Board's
Committees, they receive relevant induction training on the
Committee's role and duties.
When Directors are appointed to the Board, they make a
commitment to broaden their understanding of the Group's business.
Our corporate centre monitors relevant external governance and
financial and regulatory developments and keeps the ongoing Board
training and information programme up to date. During 2016,
specific Board sessions took place on the Group's balance sheet,
Solvency II and conduct risk matters. Similarly, the relevant Board
Committees received updates on developments in financial reporting,
remuneration and corporate governance. Non-executive Directors are
actively invited to all parts of the Group's business in order to
familiarise themselves with how our business is conducted and to
meet with our people.
Succession and talent management activities
The Nomination and Governance Committee regularly reviews the
results of succession planning activities, including key person and
retention risk, and talent development programmes at all levels
across the Group.
At its meetings, the Committee discussed the future leadership
and talent needs of the Group and how the current programmes would
be revised to take account of the skills and expertise required by
the Board and senior management. The programmes recognise the
changing shape of the Group, and also identify both the talent
available within the Group and the need for external recruitment.
The programmes are led by the Chief People Officer, with input from
the Chief Executive and supported by the Group Talent and
Organisation Development team.
During the year, the Nomination and Governance Committee also
received updates on how the programmes at graduate and emerging
leader levels, as well as the accelerated programme for senior
leaders, and overseas placements, have operated to deliver a more
diverse leadership pipeline. In addition, they received updates on
the specific individual development programmes in place for
executive team members and their potential successors.
The results of the Committee's discussions are presented at
least annually to the Board. During 2016, the non-executive
Directors held specific discussions on Board and executive
succession, the results of which fed into the overall plan.
The Board members are keen to interact with the members of the
development schemes and have met with, and had presentations from,
key talent across the Group.
Annual review of internal control
The Directors have overall responsibility for the Group's System
of Governance (SoG), which includes the Enterprise Risk Management
(ERM) framework and System of Internal Control, and for the ongoing
review of their effectiveness. The SoG is designed to manage,
rather than eliminate, risk and can only provide reasonable, not
absolute, assurance against material misstatement or loss. The SoG
covers all of the Group's risks as set out in the ERM framework
section in the Strategic report. Internal audit regularly audits
the effectiveness of internal controls, which will include elements
of the SoG. Internal audit reports its findings to the Audit
Committee and the Risk and Capital Committee.
With regard to regular financial reporting and preparing
consolidated accounts, Group Finance participates in the control
self-assessment and policy compliance elements of the ERM
framework. Group Finance sets formal requirements for financial
reporting, defines the process and detailed controls for the IFRS
consolidation, reviews and challenges business unit submissions and
receives formal sign-off on financial reporting from business unit
finance directors. In addition, Group Finance runs the technical
review committee and the financial reporting executive review group
which review external technical developments and detailed reporting
disclosure and accounting policy issues.
In line with the Code and associated guidance, the Board has
conducted ongoing monitoring and review of the SoG through the Risk
and Capital Committee and the business unit Enterprise Risk
Management Committees (ERMCs). On behalf of the Board, the Risk
function has also carried out an annual review of the effectiveness
of the SoG. The SoG was in place throughout 2016 and up to the date
of approval of the Annual report and accounts 2016.
The review included all elements of the SoG as follows:
-- General requirements - governance structure, Board decision
making documentation, allocation of responsibilities, policy
framework, contingency plans, internal review of system of
governance, organisational and operational structure
-- Remuneration
-- Fit and proper requirements
-- Risk management including Own Risk and Solvency Assessment (ORSA)
-- Prudent person principle
-- Own fund requirements
-- Internal controls (covering strategic, financial, operational and compliance)
-- Internal audit function
-- Actuarial function plus opinion on technical provisions
-- Valuation of assets and liabilities other than technical provisions
-- Outsourcing
-- Group governance specific requirements
In carrying out the annual effectiveness review of the SoG, the
Risk function liaised with subject matter experts (SMEs) around the
business and reviewed and challenged all elements of the SoG to
ensure they were fit for purpose and had operated effectively
during 2016. The Risk function also produced a report detailing the
assurance activity which had been conducted throughout the year in
relation to the System of Internal Control and a summary of the key
risk items discussed at business unit ERMCs on an ongoing basis
throughout the year.
Summaries of the evidence of the effectiveness review, assurance
report and the key risk items were then presented for certification
to the business unit Chief Executive Officer, Chief Financial
Officer, Chief Risk Officer and Group function executive. Completed
certifications and supporting documentation were also presented to
the business unit ERMCs.
The certification exercise asked the Chief Executive Officers,
Chief Financial Officers, Chief Risk Officers and Group function
executives to confirm the following:
-- An effectiveness review over each component of the SoG has been conducted
-- Where the effectiveness review of the processes related to the SoG has found material issues, recommendations have been made to restore process effectiveness
-- Significant control breakdowns identified through the risk
management and internal control systems were reported during the
year and necessary actions have been or are being taken to remedy
these
-- Steps have been taken to identify any relevant audit
information that the External auditors should be made aware of
The Risk function prepared a report combining the output from
the business units and Group function executives. This was
presented to the Chief Executive, Chief Financial Officer and Chief
Risk Officer and they also completed the certification exercise.
The results of the output from the effectiveness review of the SoG,
which concluded that there had been no significant failings or
weaknesses, were presented to the Audit Committee which
subsequently reported this conclusion to the Board.
Communicating with investors
The Company continues to maintain and further develop a dialogue
with its shareholders. As part of this, our investor relations and
Group secretariat teams support communication with investors.
During 2016, the Group continued its programme of domestic and
international presentations and meetings between Directors and
institutional investors, fund managers and analysts. The wide range
of relevant issues discussed, in compliance with regulations, at
investor presentations and meetings, includes business strategy,
financial performance, operational activities and corporate
governance. The Chairman has his own investor contact programme and
brings relevant issues to the attention of the Board. The
Remuneration Committee also consulted with major institutional
investors regarding executive remuneration plans during the year.
More information on this consultation can be found in the
Directors' remuneration report.
The Board is equally committed to the interests of the Company's
1.2 million individual shareholders who hold approximately 52% of
the Company's issued shares. Given this large shareholder base, it
is impractical to communicate with all shareholders using the same
direct engagement model we follow for our institutional investors.
The Company has continued to gather and respond to shareholders'
views on the services and means of communication available to them,
mainly via the Shareholder Questions mailbox and surveys conducted
with shareholders contacting the shareholder helpline. Around
430,000 shareholders receive all communications electronically
helping to reduce our environmental impact. We encourage
shareholders to use our share portal to access information relating
to their personal shareholding and dividend history and around
300,000 have signed up to this service. Share portal participants
can also change their details and dividend mandates online and
receive tax information electronically. We also encourage our
individual shareholders to hold their shares in the Standard Life
Share Account where shares are held electronically in a secure
environment and 86% of individual shareholders hold their shares in
this way.
To give all shareholders access to the Company's announcements,
all material information reported via the London Stock Exchange's
regulatory news service is published on the Company's website. We
have continued to host formal presentations to support the release
of both the full year and half year financial results. These
results-related events are also made available live on the Group's
website, with the facility for all listeners to ask questions, as
well as having a permanent replay facility. We also held a Capital
Markets Day in May 2016 during which we took the opportunity to
update investors on the developments at Standard Life Investments,
the Group's principal asset management company, including our broad
range of investment solutions and growing international reach. We
also discussed the strength of our Pensions and Savings business
and the ongoing focus on improving efficiency in our business.
We publish company profiles to provide a high level introduction
to the Group and its divisions. We also distribute a quarterly
newsletter featuring articles designed to give investors deeper
insight into particular areas of our business including our
sustainability strategy. Copies of our Company profiles and
newsletters are available on the Investors section of the Group's
website.
The Chairman's statement and the Strategic report in the Annual
report and accounts aim to provide a balanced overall assessment of
the Group's activities, performance and prospects. This information
will be supported by a presentation at the 2017 AGM. Shareholders
will be invited to ask questions during the meeting and have an
opportunity to talk with the Directors after the formal part of the
meeting. The voting results will be published on our website at
www.standardlife.com after the meeting. These will include the
number of votes withheld.
The 2016 AGM was held at etc venues St. Paul's on 17 May 2016
when Directors were available to answer shareholders' questions. In
accordance with best practice, all resolutions were considered on a
poll which was conducted by our registrars and monitored by
independent scrutineers. The results, including proxy votes lodged
prior to the meeting, were made available on our website the same
day. 43% of the shares in issue were voted and all resolutions were
passed. The formal results announcement also included an extract
from the Chairman's script about the Board's continuing commitment
to respond to feedback from shareholders.
Our 2016 AGM was held in London for the first time. To give more
shareholders the opportunity to attend, we plan to hold the AGM in
Edinburgh and London in alternate years.
Our role as an institutional investor
Standard Life Investments is a signatory to and a supporter of
the UK Stewardship Code and the United Nations Principles for
Responsible Investment. It understands and promotes the importance
of good governance and stewardship including the management of
broader aspects of risk relating to the environment, society and
governance (ESG). In 2016, Standard Life Investments published a
new climate change statement demonstrating how climate related
factors are embedded in the investment process. Standard Life
Investments believes that it is mutually beneficial for companies
and the long-term investors it represents, to have a relationship
based on accountability, engagement and trust. As a major asset
manager, it monitors and analyses the long-term ESG investment
factors relating to the companies it invests in and holds regular
meetings with their senior management representatives. Standard
Life Investments maintains principles and policy guidelines on ESG
matters, stewardship and voting. These guidelines are applicable on
a global basis. The guidelines support Standard Life Investments'
approach to engaging and to voting at shareholder meetings.
Standard Life Investments also makes voting reports available to
clients and publishes summary information on its website. The
policy guidelines are applied pragmatically, after all relevant
information has been carefully considered. When assessing the
Company's compliance with the principles and provisions of the
Code, the Nomination and Governance Committee also reviewed the
Company's compliance with the Standard Life Investments principles
and policy guidelines. The Committee concluded that the Company
complied with the guidelines during the year.
Standard Life Investments has made public its processes to
comply with the Stewardship Code's seven best practice principles.
In line with Principle 7 of the Stewardship Code, Standard Life
Investments obtains appropriate independent assurance over the
policies and procedures which underpin its stewardship policy
statements.
You can read more about this and Standard Life Investments'
governance and stewardship annual review at
www.standardlifeinvestments.com
Other information
You can find details of the following, as required by Disclosure
and Transparency Rule 7.2.6, in the Directors' report and in the
Directors' remuneration report:
Share capital
-- Significant direct or indirect holdings of the Company's securities
-- Confirmation that there are no securities carrying special
rights with regard to control of the Company
-- Confirmation that there are no restrictions on voting rights in normal circumstances
-- How the Articles can be amended
-- The powers of the Directors, including when they can issue or buy back shares
Directors
-- How the Company appoints and replaces Directors
-- Directors' interests in shares
Board meetings and meeting attendance
The Board and its Committees meet regularly, operating to an
agreed timetable. Meetings are usually held in Edinburgh or London
and, on occasion, at the offices of one of our international
businesses. In September 2016, the Board travelled to Boston to
meet with key members of staff and hear presentations on
developments in the North American business. During the year, the
Board held specific sessions to consider the Group's strategy and
business planning. The Chairman and the non-executive Directors
also met several times during the year, formally and informally,
without the executive Directors present. At these meetings, matters
including executive performance and succession and Board
effectiveness were discussed.
Directors are required to attend all meetings of the Board and
the Committees they serve on, and to devote enough time to the
Company to perform their duties. Board and Committee papers are
distributed before meetings other than, by exception urgent papers
which may need to be tabled at the meeting. The Board sometimes
needs to call or rearrange meetings at short notice and it may be
difficult for all Directors to attend these meetings. If Directors
are not able to attend a meeting because of conflicts in their
schedules, they receive all the relevant papers and have the
opportunity to submit their comments in advance to the Chairman or
to the Company Secretary. If necessary, they can follow up with the
Chairman of the meeting. The Board has established the Standing
Committee as a formal procedure for holding unscheduled meetings.
The Standing Committee meets when, exceptionally, decisions on
matters specifically reserved for the Board need to be taken
urgently. During 2016, the Standing Committee did not meet.
The Chairman is not a member of the Audit, Risk and Capital,
Remuneration or Investment Committees. He does, however, attend the
meetings of all Committees, by invitation, in order to keep abreast
of their discussions. Directors' attendance at the 2016 Board
meetings is shown in the table below. The Board met nine times
during the year.
Number of meetings Board
------------------------ -----
Chairman
Sir Gerry Grimstone 9/9
Executive Directors
Keith Skeoch 9/9
Luke Savage 9/9
Paul Matthews 9/9
Colin Clark 8/9
Non-executive Directors
Pierre Danon 9/9
John Devine 4/4
Melanie Gee 9/9
Noel Harwerth 9/9
Kevin Parry 9/9
Lynne Peacock 9/9
Martin Pike 9/9
Former members
Crawford Gillies 3/4
Isabel Hudson 4/4
------------------------ -----
Board Committees
The Board has established Committees that oversee, consider and
make recommendations to the Board on important issues of policy and
governance. At each Board meeting, the Committee Chairmen provide
reports of the key issues considered at recent Committee meetings,
and minutes of Committee meetings are circulated to the appropriate
Board members. The Committees operate within specific terms of
reference approved by the Board and kept under review by the
Nomination and Governance Committee.
These terms of reference are published within the Board Charter
on our website at www.standardlife.com/annualreport
All Board Committees are authorised to engage the services of
external advisers at the Company's expense, whenever they consider
this necessary.
The Chairman of each Committee and of the Nomination and
Governance Committee review Committee membership at regular
intervals. The Nomination and Governance Committee considers all
proposed appointments before they are recommended to the Board.
Investment Committee
The Board has established the Investment Committee to provide
increased connectivity with, and Standard Life plc non-executive
Director oversight of, the investment performance of Standard Life
Investments, and to strengthen the Board's engagement with the fund
management team. The Board recognises the value this will bring,
both internally in terms of liaison with the Chief Investment
Officer and his fund management team, and externally from the
perspective of our clients. The Investment Committee has been
operational from the beginning of 2017. It is chaired by Pierre
Danon and the other members are John Devine and Melanie Gee. There
will be an open invitation to the other non-executive Directors to
attend the Committee's meetings.
Committee reports
This statement includes reports from each Committee Chairman
other than the report on the responsibilities and activities of the
Remuneration Committee which can be found in the Directors'
remuneration report following this statement.
The Committee Chairmen are happy to engage with you on their
reports. Please contact them via
questions@standardlifeshares.com
In the interests of transparency we have included the reports
from the Chairmen of the key Committees of Standard Life Assurance
Limited - the With Profits Committee and the Independent Governance
Committee as well as a report from the chairman of the Standard
Life Master Trust Co. Ltd. You can read more in Section 12.
4.2 Audit Committee report
The Audit Committee assists the Board in discharging its
responsibilities for financial reporting, internal control and the
relationship with the External auditors.
Dear Shareholder
During 2016, the activities of the Audit Committee increased
once again. We:
-- Undertook the external audit tender, resulting in the
recommendation to appoint KPMG LLP for the 2017 financial year
-- Monitored the implementation of Solvency II, the new
prudential regime that took effect from 1 January 2016, including
preparing for external narrative reporting required in 2017
-- Recruited a new Chief Internal Auditor and spent more time
discussing the work of Internal audit
-- Updated our approach to considering non-audit services from the External auditors
The Committee has also worked with executive management to
continue to improve the financial reporting. In July 2016 we
received a letter from the Financial Reporting Council (FRC)
informing us that they had carried out a review of our Annual
report and accounts 2015. I am pleased to report that the FRC
letter noted that there were no questions or queries that the FRC
wished to raise on our report and accounts. The FRC asked that we
make clear the inherent limitations of their review, which we have
set out in the financial reporting section of this report.
Our report to you is structured in four parts:
-- Governance
-- Report on the year
-- Internal audit
-- External audit
I look forward to engaging with you on the work of the
Committee.
Kevin Parry
Chairman, Audit Committee
Governance
Membership
All members of the Audit Committee are independent non-executive
Directors. Their attendance at Committee meetings was:
Member Attendance
---------------------- ----------
Kevin Parry, Chairman 8/8
Noel Harwerth 8/8
Lynne Peacock 8/8
Martin Pike 8/8
Former member
Isabel Hudson 5/5
---------------------- ----------
The Board believes members have the necessary range of
financial, risk, control and commercial expertise required to
provide effective challenge to management. Kevin Parry is a former
senior audit partner, was chief financial officer of Schroders plc
and is an experienced audit committee chairman. For the business of
the Committee, he is considered by the Board to have competence in
accounting and auditing as well as recent and relevant financial
experience.
The Committee schedules six meetings per annum, four of which
are co-ordinated with external reporting timetables. In 2016, there
were two extra meetings, of which one was focused solely on the
external audit tender and the other on a presentation of Solvency
II disclosures.
Invitations to attend Committee meetings are extended on a
regular basis to the Chairman, the Chief Executive, the Chief
Financial Officer, the Chief Executive UK and Europe, the Group
Financial Controller and Treasurer, the Chief Internal Auditor and
the Group Chief Risk Officer.
The Audit Committee meets privately for part of its meetings and
also has regular private meetings separately with the External
auditors, Chief Internal Auditor and Chief Financial Officer. These
meetings address the level of co-operation and information exchange
and provide an opportunity for participants to raise any concerns
directly with the Committee.
Key responsibilities
The Audit Committee's responsibilities are to oversee and report
to the Board on:
-- The appropriateness of the Group's accounting and accounting
policies, including the going concern presumption and viability
-- The findings of its reviews of the financial information in
the Group's annual and half year financial reports
-- The clarity of the disclosures relating to accounting judgements and estimates
-- Its view of the 'fair, balanced and understandable' reporting obligation
-- The findings of its review of key prudential returns and disclosures
-- Internal controls over financial reporting and procedures to
prevent money laundering, financial crime, bribery and
corruption
-- Outcomes of investigations resulting from whistleblowing
-- The appointment or dismissal of the Chief Internal Auditor,
the approved internal audit work programme, key audit findings and
the quality of internal audit work
-- The independence of the External auditors, the
appropriateness of the skills of the audit team, the approved audit
plan, the quality of the firm's execution of the audit, and the
agreed audit and non-audit fees
-- Any external audit tender process and the outcome of the tender
During the year, the audit, risk and compliance committee of
Standard Life Investments (Holdings) Limited was stood down as all
important financial and regulatory reporting matters are considered
at the Group Audit Committee from the overall perspective of the
Group. To comply with new EU rules for public interest entities, a
Standard Life Assurance Limited (SLAL) audit committee was
established. Its work is to be closely co-ordinated with the Group
Audit Committee. During 2016, this Committee considered all key
financial and regulatory reporting issues in relation to SLAL. The
Audit Committee chairman will regularly attend meetings of the SLAL
audit committee and the SLAL audit committee chairman will be
invited to report regularly to the Audit Committee.
In carrying out its duties, the Committee is authorised by the
Board to obtain any information it needs from any Director or
employee of the Group. It is also authorised to seek, at the
expense of the Group, appropriate external professional advice
whenever it considers this necessary. The Committee did not need to
take any independent advice during the year.
In accordance with the Senior Insurance Manager's Regime, the
Audit Committee Chairman is responsible for the oversight of the
independence, autonomy and effectiveness of our policies and
procedures on whistleblowing including the procedures for the
protection of staff that raise concerns from detrimental treatment.
Throughout the year the Audit Committee chairman met regularly with
the Chief Internal Auditor and the Head of Financial Crime to
discuss their work, findings and current developments.
Committee effectiveness
The Committee reviews its remit and effectiveness annually. The
2016 review was carried out using an internal self-assessment
questionnaire. The review concluded that the Committee had:
-- Performed effectively during the year and conducted a robust process to appoint new auditors
-- Fulfilled its duties under its terms of reference, and kept
its terms of reference up-to-date, recognising that in 2017 its
regulatory reporting duties would continue to cover Solvency II
-- Received sufficient, reliable and timely information from
management and the External auditors to enable it to fulfil its
responsibilities, recognising a desire to provide focused
information in the face of increasing obligations
The Board's review similarly confirmed its satisfaction with the
performance of the Committee.
Report on the year
Audit agenda
The Audit Committee has a rolling agenda comprising recurring
business, seasonal business and other business.
As recurring business, at every meeting the Committee reviews
and discusses:
-- Updates from Group Finance on significant financial
accounting, reporting and disclosure matters
-- Findings from Internal audit reports and how high priority
findings are being followed up by management
-- Regular refreshes and updates to the Internal audit plan
-- Results of the monitoring of financial crime, fraud risk
assessments and whistleblowing including calls to our dedicated
Speak Up helpline
-- Reports from the chairmen of the subsidiary audit committees
-- Updates on work completed by the External auditors
-- Details of non-audit services requested of the External auditors by business units
Other agenda items
Other agenda items were aligned to the annual financial cycle as
set out below.
Jan
- Mar * Annual report and accounts 2015
* 2015 Strategic report and financial highlights
* Solvency II reporting
* Audit tender
------- -------------------------------------------------------------
Apr
- Jun * Completion of the 2015 external audit for all audited
entities
* 2015 external audit fee and the proposed 2016 fee for
all audited entities
* Solvency II 'day one' reporting
* Audit tender (including special meeting)
------- -------------------------------------------------------------
Jul
- Sep * Half year results 2016
* External auditors' review of Half year results
* External audit plan for 2016 for all audited entities
* 2016 external audit engagement letter for all audited
entities
* Solvency II reporting
------- -------------------------------------------------------------
Oct
- Dec * Initial findings from the 2016 year end work
* The Internal audit global charter and the Internal
audit plan
* Effectiveness of the External auditors
* Group non-audit services provided by External
auditors
* Effectiveness of the Committee
* Solvency II reporting and related assurance
provisions and asset valuations
* Liaison with the Remuneration Committee on targets
and measures
* External Financial Reporting Policy
* Taxation policy and reporting
* Audit transition
------- -------------------------------------------------------------
The indicative proportion of time spent on the business of the
Committee is illustrated below: Diagram removed for the purposes of
this announcement. However it can be viewed in full in the pdf
document.
Detail of work
The focus of work in respect of 2016 is described below.
Financial reporting
The Committee supported the recommendation that International
Financial Reporting Standards (IFRS) provide a clearer view of the
performance and condition of the Group compared to other accounting
conventions such as embedded value.
The Committee believes that some Alternative Performance
Measures (APMs, which are also called non-GAAP measures) can add
insight to the IFRS reporting and help to give shareholders a
fuller understanding of the performance of the business. The
Committee considered guidance on APMs issued during the year as
discussed further in the 'Fair, balanced and understandable'
section below.
The Committee reviewed the Group accounting policies and
confirmed they were appropriate to be used for the 2016 Group
financial statements. There are no important changes this year. The
Committee also considered future changes to accounting standards
(in particular, IFRS 15 Revenue from Contracts with Customers and
IFRS 9 Financial Instruments) and ensured that the impact of these
future changes was appropriately disclosed in the financial
statements. The Committee also discussed that status of the new
insurance contracts standard (IFRS 17) which is expected to be
issued in 2017.
The Committee reviewed the basis of accounting and in particular
the appropriateness of adopting the going concern basis of
preparation of the financial statements. In doing so, it considered
the Group's cash flows resulting from its business activities and
factors likely to affect its future development, performance and
position together with related risks, as set out in more detail in
the Strategic report. The Committee recommended the going concern
statement to the Board.
In addition, the Committee considered the form of the viability
statement and in particular whether the three-year period remained
appropriate and concluded that it did. This reflects both our
internal planning cycle and the timescale over which changes to
major regulations and the external landscape affecting our business
typically take place. In formulating the statement, the Committee
used the same information it uses when considering the risks that
are taken into account to determine regulatory capital. The
Committee recommended the viability statement to the Board.
The Committee reviewed the Annual report and accounts 2015 and
the Half year results 2016. For the half year it received written
and/or oral reports from the Chief Financial Officer, subsidiary
audit committee chairmen or boards, the Company Secretary, the
Chief Internal Auditor and the External auditors. In addition for
the year end it received a report from the Head of Group Actuarial.
The Committee uses these reports to aid its understanding of the
composition of the financial statements, to confirm verification
and compliance with reporting standards and to justify accounting
judgements and estimates. Following its reviews, the Committee was
able to recommend the approval of each of the reports to the Board,
being satisfied that the annual and half year financial statements
complied with laws and regulations and had been appropriately
compiled.
We received a letter from the Financial Reporting Council
informing us that they had carried out a review of our Annual
report and accounts 2015 and that there were no questions or
queries that the FRC wished to raise. The FRC asked us to note that
their letter provides no assurance that our report and accounts are
correct in all material respects, and that the FRC's role is not to
verify the information provided but to consider compliance with
reporting requirements. The FRC noted that their review is based on
our report and accounts and does not benefit from detailed
knowledge of our business or an understanding of the underlying
transactions entered into.
Accounting estimates and judgements
The Committee focused on the disclosure of key accounting
estimates and judgements.
In compiling a set of Group financial statements, it is
necessary to make judgements and estimates about outcomes that are
typically dependent on future events. This is particularly relevant
to a life assurance business where profitability is inherently
dependent on economic and health related outcomes. Further, we have
a substantial defined benefit pension plan with liabilities that
are also dependent on economic and health related outcomes.
Estimates are not however limited to liabilities; our business and
pension funds invest in some hard to value investments, such as
over-the-counter derivatives, private equity, real estate and
commercial mortgages.
The Audit Committee considered all estimates and judgements that
Directors understood could be material to the financial statements.
In particular, actuarial valuations were considered in the context
of our experience over the short and medium term against base
assumptions and future assessed improvements. We compared our
actuaries' views with estimates made by other companies and pension
funds drawing on available benchmark data and looked at the changes
in outcomes attributable to a change in estimates determining that
annuitant mortality was the most material estimate (see Note 33 of
the Group financial statements for more detail).
We considered key assumptions determining the pension fund
surplus: inflation (including the gap between the retail price
index and the consumer price index), mortality and the discount
rate. The assumptions were compared with market data and expert
opinions. As with last year we also noted proposed new accounting
guidance on recognising a pension surplus on the consolidated
statement of financial position. Interpretation remains uncertain
and so the Committee supported continuing with additional
disclosures. Further details are set out in Note 37 of the Group
financial statements.
We considered the carrying value of intangible assets in a
number of areas including the acquisition of Ignis and agreed with
management that it was necessary to write them down by GBP9m (2015:
GBP5m) resulting from the loss of clients and associated revenues.
We also considered the valuation of intangibles relating to the
acquisition of the Elevate platform and concluded that a customer
contract asset should be recognised with a value of GBP6m. After
challenge, we agreed with management that it was appropriate to
recognise a 'bargain purchase' gain (where the purchase price of an
acquisition is less than the net assets acquired) arising from
near-term losses in the acquired business. We also discussed
capitalisation and useful lives for internally developed software.
This software is generally amortised over a period of between 3 and
6 years. In respect of one major software development asset, we
challenged management's view that a 10-year amortisation period was
appropriate, concurring with their conclusion following review of
supporting evidence. See Note 16 of the Group financial statements
for further details relating to intangible assets.
In 2015, we determined that there was a need to disclose a
contingent liability in relation to the sale of annuities in prior
years. In 2016, taking account of further investigatory work and
regulatory developments, we determined that we should book a
provision in respect of past sales practices of annuities. We
reviewed the estimate of the provision and considered sensitivities
on its calculation. We were satisfied that the quantification of
GBP175 million is an appropriate estimate at this time. In addition
to the provision, there remain a number of uncertainties in respect
of annuities sales practices so we continue to provide disclosures
in the contingent liability note.
We carried out a detailed review of the processes and controls
for valuing hard to value assets and were satisfied that we could
rely on the procedures for determining valuations. See Note 43 of
the Group financial statements.
Principal risks are disclosed in the Strategic report and
recommended to the Board by the Risk and Capital Committee. The
Committee was satisfied that the estimates and quantified risk
disclosures in the financial statements were consistent with the
Strategic report. The Committee concluded that appropriate
judgements had been applied in determining the estimates and that
sufficient disclosure had been made to allow readers to understand
the uncertainties surrounding outcomes.
Fair, balanced and understandable
The Committee supported the financial reporting team's continued
review of the Annual report and accounts. Notable improvements in
2016 include the addition of a Supplementary Information section in
this year's report, which provides more transparency around
Standard Life's key alternative performance measures, and enhanced
reporting of our business model and strategic objectives in the
Strategic report.
The creation of a core set of fair, balanced and understandable
principles for Standard Life has enhanced our approach towards
engraining these concepts throughout our Annual report and accounts
production and review process. These principles along with our
enhanced approach are detailed below.
Standard Life's principles
To create clarity around what Standard Life means when it talks
of being fair, balanced and understandable, a set of principles
were developed, which can also act as an organisational definition
for each aspect.
Fair
"We are being * The narrative contained in the report is honest and
open and accurate
honest in
the way we
present our * The key messages in the narrative in the 'front half'
discussions of the report reflect the financial reporting
and analysis, contained in the financial statements
and are providing
what we believe
to be an * The Key Performance Indicators (KPIs) results for the
accurate period are consistent with the key messages outlined
assessment in the Strategic report
of business
and economic
realities"
----------------------- -------------------------------------------------------------
Balanced
"We are fully * The report presents the 'whole' story where both
disclosing successes and challenges experienced during the year
our successes, and expected in the future are covered
the challenges
we have faced
in the period, * The level of prominence we give to successes in the
and the challenges year versus challenges faced is appropriate
and opportunities
we anticipate
in the future * The narrative and analysis contained in the report
- all with effectively balances the information needs and
equal importance interests of each of our key stakeholder groups
and at a
level of
detail that's
appropriate
for our stakeholders"
----------------------- -------------------------------------------------------------
Understandable
"The language * There is a clear and easy to understand framework to
we use and the report which is effective in addressing Standard
the way we Life's objectives, vision, mission and values
structure
our report
is helping * The layout is clear and consistent and the language
us present used is simple and easy to understand (industry
our business specific terms are defined where appropriate)
and its performance
clearly -
in a way * There is a consistent tone across and good linkage
that someone between all sections in a manner that reflects a
with a reasonably complete story and clear signposting to where
informed additional information can be found
knowledge
of financial
statements
and our industry
would understand"
----------------------- -------------------------------------------------------------
Prepare, Review and Challenge
The above principles and supporting statements are considered in
each stage of the Annual report and accounts production process.
They represent a set of key criteria that the Annual report and
accounts are prepared, reviewed and challenged against. The
financial reporting team are required to provide direct responses
to any challenges raised by the Internal Review Group (see more
below) in respect of the above principles and supporting
statements.
Activities
-- An Internal Review Group (IRG) is in place which reviews the
Annual report and accounts specifically from a fair, balanced and
understandable perspective and provides feedback to our financial
reporting team on whether it conforms to our standards. The members
of the IRG are independent of the financial reporting team.
-- We provided fair, balanced and understandable training and
guidance to all key stakeholders involved in the Annual report and
accounts production process
-- We, as an Audit Committee, reviewed the messaging in the
Annual report and accounts, taking into account material received
and discussion taken place during the year
-- Three drafts of the Annual report and accounts 2016 were
reviewed by the Audit Committee at three meetings. The Committee
complemented its knowledge with that of executive management and
the Internal and External auditors. An interactive process allowed
each draft to embrace contributions.
-- Our Annual report and accounts goes through an extensive
internal verification process of all content to verify accuracy
The Committee also reviewed the use and presentation of
Alternative Performance Measures (APMs) which complement the
statutory IFRS results in order to give a more complete view of the
performance of the business. This review considered guidelines
issued by the European Securities and Markets Authority in the
year. As noted previously an additional Supplementary Information
section has been added to the Annual report and accounts to explain
why we use these metrics and to provide reconciliations of these
metrics to IFRS measures where relevant. This section also provides
increased transparency over the calculation of reported financial
ratios.
Operating profit is a key APM. The Committee particularly
considered operating profit policies and ensured that the
allocation of items to operating profit were in line with our
established accounting policies and were consistent with previous
practice. The Committee relied on the verification process for
other financial metrics. Processes and controls relating to assets
under administration and net flows were also reviewed by Internal
audit during the year.
We agreed to recommend to the Board that the Annual report and
accounts 2016, taken as a whole, is fair, balanced and can be
understood by someone with a reasonably informed knowledge of
financial statements and our industry.
We are interested in feedback from stakeholders and will
carefully consider any feedback received.
Prudential reporting
Solvency II reporting applied with effect from 1 January 2016.
During 2016, the Group submitted regular reporting to the PRA. The
Committee built on procedures established last year that allow it
to adopt a compliance approach to Solvency II reporting drawing on
work undertaken by management, Group Risk, Internal audit and the
External auditors. The procedures are designed to give the Audit
Committee a high degree of comfort that returns have been properly
prepared.
The Committee considered actuarial assumptions used for year end
2016 Solvency II reporting, including mortality, persistency and
expense assumptions. Similar work was undertaken as for financial
reporting (see the Accounting estimates and judgements section
above).The Committee reviewed disclosures relating to Solvency II
results included in the Strategic report section of this Annual
report and accounts, and related assurance reports and was
satisfied with the disclosures.
Internal controls
As noted earlier, the Directors have overall responsibility for
the Group's internal controls and for ensuring their ongoing
effectiveness. Together with the Risk and Capital Committee, the
Committee provides comfort to the Board of their ongoing
effectiveness.
Internal audit regularly reviews the effectiveness of internal
controls and reports to the Committee and the Risk and Capital
Committee.
Group Finance sets formal requirements for financial reporting,
defines the processes and detailed controls for the consolidation
process and reviews and challenges reporting segment submissions.
Further, Group Finance runs a technical review committee and is
responsible for monitoring external technical developments.
The control environment around financial reporting will continue
to be monitored closely.
Financial crime and whistleblowing
Staff are trained to detect the signs of possible fraudulent or
improper activity and how to report concerns either directly or via
our independent whistleblowing hotline. The Committee receives
regular updates from the Head of Financial Crime who reports on
compliance with the Group's Anti-Financial Crime and Anti-Bribery
policy, and any other activities associated with financial crime,
including fraud risk.
The Committee reviews the whistleblowing arrangements for
employees to raise concerns, in confidence, about possible
wrongdoing in financial reporting and other matters.
The Committee oversees the findings of investigations and
required follow-up action. If there is any allegation against the
Risk or Internal audit functions, the Committee directs the
investigation. The Committee is satisfied that the Group's
procedures are currently operating effectively.
Internal audit
The Group has an Internal audit function comprising of
approximately 40 people. In addition, there was a co-sourcing
agreement with KPMG LLP and this was used to support specific
technical reviews. KPMG LLP were selected as External auditors for
year end 2017 and have not undertaken any internal audit work after
30 September 2016. Ernst and Young have been engaged to provide
co-source support for Internal audit until a tender process is
undertaken in 2017. The Chief Internal Auditor reports to the
Committee Chairman.
Internal audit operates in accordance with a global charter
which is reviewed by the Committee every year. Their work plan
covers all businesses in the Group after holding risk based
discussions with management, regulators, the External auditors and
the Committee. Identified areas of focus are mapped to the key
risks within the Own Risk and Solvency Assessment (ORSA), which is
a dynamic forward looking tool for decision making and strategic
analysis at the heart of the Solvency II prudential regime.
Consistent with that methodology, our regulators request specific
reviews as part of the Risk Mitigation Plan. The Committee approves
the scope and content of the annual internal audit plan, which is
updated on a rolling basis to allow Internal audit to address any
emerging issues and reflect changes in the Group's
organisation.
The Committee receives regular reports from the Chief Internal
Auditor on:
-- The implementation of the approved plan and proposed changes to it
-- Key findings from completed reviews, including the impact on
financial reporting processes and related applications
-- The status of management's implementation of agreed
improvement actions, where dates have been rescheduled
-- The assessment of the internal control environment at each business unit
During 2016, approximately 70 internal audits were completed.
The Committee considered the reports on:
-- Readiness for Solvency II reporting for the 2016 year end
-- Data governance, cyber security incident response and social media
-- Financial controls and end user applications
to be particularly insightful and contributed to the
strengthening of the control environment.
The Committee considers Internal audit's effectiveness annually,
monitoring its independence, objectivity and resourcing in the
context of the Institute of Internal Auditors' professional
standards. During the year, Internal audit carried out its own
internal effectiveness review as well as quality assurance
processes and reported the satisfactory results back to the
Committee.
During the year, Committee members increased the amount of time
spent with senior team members, meeting them before most formal
meetings to discuss emerging topics and to advise on the scope of
work they would like undertaken. This enhanced the regular dialogue
that takes place at least monthly between the Committee chairman
and the Chief Internal Auditor.
Following the succession process carried out in 2015, the new
Chief Internal Auditor commenced his role in May 2016. This was an
external appointment to broaden the experience of the senior
team.
Based on its review, the Committee concluded that the function
continued to be highly effective.
In accordance with the relevant independence standards, the
External auditors do not place reliance on the work of Internal
audit.
External auditors
The appointment
The Committee has responsibility for making recommendations to
the Board on the reappointment of the External auditors,
determining their independence from the Group and its management
and agreeing the scope and fee for the audit.
Following its review of the quality and independence of the 2015
audit, the Committee recommended to the Board that
PricewaterhouseCoopers (PwC) should be recommended to shareholders
as the auditors for 2016. The shareholders voted in favour of the
reappointment at the 2016 AGM.
PwC has been the Group's auditors since 1994. A tender was held
in 2016 to take effect for the year ending 31 December 2017. Whilst
PwC could have continued as auditors for three more years under
applicable law, a change of auditor has been co-ordinated with the
PwC partner rotation.
The Committee complies with the UK Corporate Governance Code,
the FRC Guidance on Audit Committees with regard to the external
audit tendering timetable and the provisions of the EU Regulation
on Audit Reform and the Competition and Markets Authority Statutory
Audit Services Order with regard to mandatory auditor rotation and
tendering. In compliance with those regulations, the Committee
tendered the audit for the year ending 31 December 2017, as
discussed in the audit tender section below.
Auditor independence
The Board has an established policy setting out what non-audit
services can be purchased from the firm appointed as External
auditors. The Committee monitors the implementation of the Policy
on behalf of the Board. The aim of the Policy, which is reviewed
annually, is to support and safeguard the objectivity and
independence of the External auditors and to comply with the FRC
Ethical standards for auditors (Ethical Standards). It does this by
prohibiting the auditors from carrying out certain types of
non-audit services to ensure that the audit services provided are
not impaired. It also ensures that where fees for approved
non-audit services are significant, they are subject to the
Committee's prior approval.
The services prohibited by the Policy include:
-- Book-keeping or other services related to the accounting records or financial statements
-- Financial information system design
-- Appraisal or valuation services where the results would be
material to the financial statements
-- Internal audit co-sourcing
-- Actuarial calculations
-- Management functions
-- Legal services
-- Forensic audit services
-- Temporary or permanent services as a director, officer or
employee or performance of any decision-making, supervisory or
monitoring function
-- Recruitment of senior management
-- Certain tax services including those related to Base Erosion and Profit Shifting
The Policy permits non-audit services to be purchased, following
approval, when they are closely aligned to the external audit
function and when the external audit firm's skills and experience
make it the most suitable supplier.
These include:
-- Accounting consultations and audits in connection with acquisitions and sales of businesses
-- Due diligence related to mergers and acquisitions
-- Tax compliance and advisory services
-- Employee benefit plan audits
-- Attesting to services not required by statute or regulation
-- Assurance services relating to regulatory developments affecting the Group
-- Consultations concerning financial accounting and reporting
standards not relating to the audit of the Group's financial
statements
-- Sustainability audits/review
PwC has reviewed its own independence in line with these
criteria and its own ethical guideline standards. PwC has confirmed
to the Committee that following its review it is satisfied that it
has acted in accordance with relevant regulatory and professional
requirements and that its objectivity is not impaired.
Having considered compliance with our policy and the fees paid
to PwC, the Committee is satisfied that PwC has remained
independent.
During 2016, the Committee approved a revised non-audit services
policy talking into account the revised Ethical Standards. The
revised policy sets out an updated list of prohibited services
which applies to KPMG LLP (subject to shareholder approval, our
auditors for the 2017 financial year), in line with the Ethical
Standards. This updated list of prohibited services is more
restrictive than the current list and, in particular, prohibits
KPMG LLP from providing almost all taxation services.
Audit and non-audit fees
The Group audit fee payable to PwC in respect of 2016 was
GBP4.1m (2015: GBP3.7m). In addition fees payable were GBP0.8m
(2015: GBP0.7m) in relation to the audit of investment funds which
are not consolidated by the Group, and GBP0.8m (2015: GBP1.6m) was
incurred on audit related services. Fees for audit related services
are primarily in respect of Solvency II regulatory reporting,
client money reporting and the half year review. The reduction in
these fees compared to 2015 largely relates to lower Solvency II
assurance services and no longer also requiring audit reporting
under the previous regulatory regime. The Committee is satisfied
that the audit fee is commensurate with permitting PwC to provide a
quality audit and monitors regularly the level of audit and
non-audit fees. Non-audit work can only be undertaken if the fees
have been approved in advance in accordance with the Board's policy
for non-audit fees. Unless fees are clearly trivial (which we have
defined as less than GBP50,000), the approval of the whole
Committee is now required.
Non-audit fees amounted to GBP1.4m (2015: GBP1.3 million). This
includes tax compliance fees of GBP0.4m (2015: GBP0.4m) which are
primarily services provided to Standard Life Investments' funds.
Tax advisory fees were GBP0.2m (2015: GBP0.1m) and related to areas
that the Committee was comfortable did not impact auditor
independence. Non-audit fees also included GBP0.5m (2015: GBP0.5m)
relating to control assurance reports, in particular those provided
to Standard Life Investments' clients, which are closely associated
with audit work. Other non-audit services of GBP0.3m (2015:
GBP0.3m) included a review of internal credit ratings and support
provided to fund mergers. The External auditors were considered the
most suitable supplier for these services taking into account the
alignment of these services to the work undertaken by external
audit and the firm's skill sets.
Further details of the fees paid to the External auditors for
audit and non-audit work carried out during the year in are set out
in Note 9 of the Group financial statements.
The ratio of non-audit fees to audit and audit related assurance
fees is 25% (2015: 22%). The level of non-audit fees is expected to
reduce in 2017 as a result of the revised non-audit services policy
discussed above.
The Committee is satisfied that the non-audit fees do not impair
PwC's independence.
Audit quality and materiality
The Committee places great importance on the quality and
effectiveness of the External audit. The Committee looks to the
audit team's objectivity, professional scepticism, continuing
professional education and its relationship with management, all in
the context of regulatory requirements and professional standards.
Specifically:
-- The Committee discussed the scope of the audit prior to its commencement
-- The Committee reviewed the annual findings of the Audit
Quality Review team of the FRC in respect of PwC's audits. We
requested a formal report from PwC of the applicability of the
findings to Standard Life both in respect of generally identified
failings and failings specific to individual audits. We were
satisfied insofar as the issues might be applicable to Standard
Life's audit, that PwC had proper and adequate procedures in place
for our audit.
-- PwC's transparency report for the year ended 30 June 2016 was reviewed
-- The Committee approved a formal engagement with the auditor and agreed its audit fee
-- The Committee Chairman had at least monthly meetings with the
lead audit partner to discuss Group developments
-- The Committee received at nearly every meeting an update of
PwC's work, compliance with independence and its findings
-- There was a detailed interview by the Committee Chairman with
the audit partners on the subject of the work undertaken to support
their opinion on the financial statements and the consistency of
the remainder of the Annual report and accounts with their work
-- The Committee reviewed and discussed the audit findings
including audit differences prior to the approval of the financial
statements. See the discussion on materiality in the paragraph
below for more detail.
-- Additional work was again undertaken on Solvency II reporting
and the Committee also reviewed separate papers from PwC covering
this specific work
We have discussed the accuracy of financial reporting (known as
materiality) with PwC both as regards accounting errors that will
be brought to the Committee's attention and as regards amounts that
would need to be adjusted so that the financial statements give a
true and fair view. Differences can arise for many reasons ranging
from deliberate errors (fraud etc.) to good estimates that were
made at a point in time that, with the benefit of more time, could
have been more accurately measured. Overall audit materiality has
been set at GBP34 million (2015: GBP31 million). This equates to
approximately 5% of continuing pre-tax operating profit. This is
within the range in which audit opinions are conventionally thought
to be reliable. To manage the risk that aggregate uncorrected
differences become material, we supported that audit testing would
be performed to a lower materiality threshold for individual
reporting units. Further, PwC agreed to draw the Committee's
attention to all identified uncorrected misstatements greater than
GBP2 million (2015: GBP2 million). The aggregated net difference
between the reported pre-tax profit and the auditor's judgment of
pre-tax profit was less than GBP8m which was significantly less
than audit materiality. The gross differences were attributable to
various individual components of the consolidated income statement
and balance sheet. No audit difference was material to any line
item in either the income statement or the balance sheet.
Accordingly, the Committee did not require any adjustment to be
made to the financial statements as a result of the audit
differences reported by the External auditors. Work that PwC
perform on Solvency II reporting uses a higher level of
materiality.
PwC has confirmed to us that the audit complies with their
independent review procedures. Last year's audit was subject to an
independent quality assurance process undertaken internally by
PwC.
Audit tender
This section sets out the audit tender process followed since
our announcement in last year's Annual report and accounts that we
would commence a tender process for the appointment of the External
auditors, through to the announcement to propose the appointment of
KPMG LLP as the Group's auditor for the financial year ending 31
December 2017.
Introduction
In our Annual report and accounts 2015, we disclosed the
decision to commence a process for the appointment of our External
auditors to be completed by Q2 2016, with the chosen firm to be
appointed for the 2017 financial year at the earliest. The external
audit tender resulted in the proposal, subject to shareholder
approval at the 2017 AGM, to appoint KPMG LLP as the External
auditors for the 2017 financial year.
PwC was not invited to tender as the maximum time under the new
regulations that they could serve as our auditor is three years.
The business would be too disrupted by another audit tender in
quick succession.
Scope
The scope of the tender consisted of the Standard Life Group
audit and statutory audits of subsidiaries with effect from the
2017 financial year for a tenure of five years* with the option of
an extension by another five years. The audit tender also
considered relevant fund audits, although recognising that these
are also subject to separate governance and appointment
arrangements.
* The appointment of KPMG LLP as External auditors for a
financial year is subject to approval by the Annual General Meeting
in that year.
Governance
The overall objective of the audit tender was to select the best
auditor in terms of quality within a reasonable price range. To
ensure a transparent and robust selection and evaluation process,
the following governance model was applied. A Selection Committee,
chaired by the Chairman of the Audit Committee and consisting of
two members of the Audit Committee and co-opting the Chief
Financial Officer (CFO) was formed to oversee the tender
process.
A Steering Committee, chaired by the Group Financial Controller
and Treasurer, and consisting of the Company Secretary and the
Deputy Company Secretary, the Head of Group Reporting and the
Strategic Procurement Manager was set-up to coordinate and execute
the audit tender process. The main responsibilities of the
different governance bodies were:
Governance
body Key responsibilities
--------------- -------------------------
Ultimate authority
over the tender
process and audit
Audit Committee firm evaluation
Approve tender strategy
Recommend selection
of the audit firm
to the Board
--------------- -------------------------
Selection Approve the detail
Committee of the audit tender
Agree objectives
and evaluation criteria
Oversee the execution
of the audit tender
--------------- -------------------------
Approve Request
Steering for Proposal and
Committee Information Requirements
Coordinate detailed
assessment of individual
audit firms
Execute audit tender
process
--------------- -------------------------
To avoid influencing or the perception of influencing the tender
decision, a strict policy was agreed with the participants in the
tender process prohibiting the provision of any gifts and
hospitality and restricting other engagement with key decision
makers to regular business matters only.
Market assessment and selection criteria
A desktop market assessment focusing on the audit market and
firms' capabilities, network, experience in the financial services
industry and findings of audit regulator reports, was completed in
November 2015 and resulted in a shortlist of three audit firms.
In order to be successful in the audit tender, the participants
were assessed on certain minimum requirements. In addition, a
number of selection criteria were applied with specific weightings,
as described below:
Minimum requirements were in respect of:
-- Willingness to bid
-- Audit firm and auditor independence
-- Commercial scoping, including price range
-- Ethics and compliance standards
-- Investigations by regulators
-- Acceptance of legal terms and conditions
Selection criteria:
-- Technical criteria, including the proposed audit plan, audit
quality, structure of audit, innovative tools and the transition
plan
-- Team quality, including lead partner and team, industry
knowledge, access to specialists and mitigation of frequent team
changes
-- Resources and organisation, including representation in
industry and accounting bodies and conflict resolution mechanism in
the audit firm
-- Value added, including access to accounting training and additional assurance obtained
-- Weight factors were applied to each of the selection criteria
with the technical criteria and team quality being the most
significant criteria
The selection criteria to evaluate each of the audit firms
participating in the tender formed the basis for the questions
included in the request for proposal.
Request for proposal
In December 2015, the request for proposal was issued to the
three audit firms invited to the audit tender. Relevant information
on Standard Life was shared with each of the firms through an
electronic data room that was accessible during the tender period.
In this period a structured Q&A process was in place where
responses to clarification questions and additional information
requests were shared with all participating firms through the
electronic data room.
At this stage, one firm withdrew from the process and therefore
two firms progressed to the next stages.
Engagement sessions
To promote a level playing field, Standard Life arranged a
series of structured and targeted engagement sessions with Standard
Life's key business and function leaders. These sessions provided
participating firms the opportunity to understand Standard Life's
business and discuss certain subject matter areas in greater
depth.
In addition to the engagement sessions the participating firms
were given the opportunity to meet with the Chief Executive, the
CFO, the Audit Committee Chairman and all of the Audit Committee
members.
Technical tests
Each of the participants in the tender was given the opportunity
to demonstrate its differentiating technical capability relevant to
the Standard Life audit in a presentation dedicated to that
subject. This meeting was attended by the Audit Committee, the
Steering Committee and selected functional specialists.
1 to 1 interviews
Each of the participating firms' lead engagement partners met
with the Chairman of the Audit Committee and the CFO, with the
Company Secretary in attendance, and answered a series of identical
questions related to Standard Life's financial reporting and wider
industry matters.
Final presentations and evaluation
Each firm provided a final presentation of their proposal to the
Audit Committee in early May 2016, with the Chief Executive and the
CFO in attendance.
The final proposals submitted were compliant with the minimum
requirements set and the bids qualified and were assessed against
the selection criteria. The Steering Committee reviewed each of the
proposals and sought additional clarifications from the audit firms
through a structured Q&A.
In early May 2016 the Audit Committee reviewed the evaluation
conducted by the Steering Committee and concluded that KPMG LLP was
the preferred firm to conduct the Standard Life audit engagement.
The Audit Committee also considered the transition arrangements and
concluded there were no significant blockers.
Conclusion
The Audit Committee during its May 2016 meeting considered the
results of the tender and agreed to recommend to the Board that it
would propose KPMG LLP for appointment as the External auditors of
Standard Life plc at the Annual General Meeting (AGM) for the 2017
financial year. The Committee believed that the strength of the
various presentations, and the interaction with the proposed
engagement team during the course of the tender supported this
decision. This advice resulted in a resolution by the Board to
recommend KPMG LLP to shareholders at the 2017 AGM.
The Committee will continue to follow the annual appointment
process but does not currently anticipate re-tendering the audit
before 2026.
Transition
We are now working closely with both PwC and KPMG LLP to ensure
an efficient transition of the external audit. KPMG LLP are
shadowing key meetings and regular reports on transition are
provided to the Committee.
4.3 Risk and Capital Committee report
The Risk and Capital Committee supports the Board in the
effective oversight and challenge of risk management and the use of
capital across the Group.
Dear Shareholder
The work of the Risk and Capital Committee in 2016 continued to
focus on ensuring the effective oversight and independent challenge
of the use of capital and the management of risks, in particular
the management of conduct risk. The year has been characterised by
heightened uncertainty as a result of global economic and political
developments as well as further regulatory focus on conduct risk
and these factors have provided a keen focus for the Committee.
Following regulatory approval for the Group to use an Internal
Model for the purpose of calculating its capital requirements for
Solvency II reporting, the Committee has also focused on ensuring
the Group's Internal Model remains fit for purpose.
The report that follows provides further detail on the
activities performed by the Committee in 2016 in discharging its
responsibilities.
Martin Pike
Chairman, Risk and Capital Committee
Membership
All members of the Risk and Capital Committee are independent
non-executive Directors. Their attendance at Committee meetings
was:
Member Attendance
---------------------- ----------
Martin Pike, Chairman 7/7
John Devine 3/3
Melanie Gee 4/4
Noel Harwerth 7/7
Kevin Parry 7/7
---------------------- ----------
Former member
Pierre Danon 3/3
Crawford Gillies 3/3
Isabel Hudson 3/3
---------------------- ----------
The Committee meetings are attended by the Group Chief Risk
Officer, the Deputy Group Chief Risk Officer and the UK and Europe
Chief Risk Officer. Others invited to attend on a regular basis
include the Chairman, the Chief Executive, the Chief Financial
Officer, the Chief Executive Pensions and Savings, the Chief
Investment Officer, the Company Secretary and the Chief Internal
Auditor as well as the External auditors. During 2016, the Chief
Investment Officer was invited to attend meetings on a regular
basis reflecting the increased significance of Standard Life
Investments within the business and the importance attached to the
management of investment risk.
Regular private meetings of the Committee's members have been
held during the year providing an opportunity to raise any issues
or concerns with the Chairman of the Committee. The Committee's
members have also been given access to management and subject
matter experts outside of the Committee meetings in order to
support them in gaining an in-depth understanding of specific
topics.
Key responsibilities
Our ambition of being a world-class investment company results
in exposure to a range of risks and uncertainties. Understanding
and actively managing the sources and scale of these risks and
uncertainties are key to fulfilling this ambition.
In supporting the Company's work to fulfil its ambition, the
Risk and Capital Committee is responsible for overseeing,
challenging and advising the Board on:
-- The Group's risk appetite, material risk exposures and the
impact of these on the levels and allocation of capital
-- The structure and implementation of the Group's Enterprise
Risk Management (ERM) framework and its suitability to react to
forward-looking issues and the changing nature of risks
-- Changes to the risk appetite framework and quantitative risk limits
-- Risk aspects of major investments, major product developments and other corporate transactions
-- Regulatory compliance across the Group
Further detail on the work performed in each of these areas is
set out in the report below.
In carrying out its duties, the Committee is authorised by the
Board to obtain any information it needs from any Director or
employee of the Group. It is also authorised to seek, at the
expense of the Group, appropriate external professional advice
whenever it considers this necessary. The Committee did not need to
take any independent advice during the year.
The Committee's work in 2016
An indicative breakdown as to how the Committee spent its time
is shown below: Diagram removed for the purposes of this
announcement. However it can be viewed in full in the pdf
document.
The Committee operates a rolling agenda which comprises both
recurring items and items that are more ad hoc in nature. Recurring
items that are reviewed and discussed in our meetings include:
-- Matters escalated from the Standard Life Enterprise Risk Management Committee
-- The Group Views on Risk report which provides a holistic view
of the key risks and uncertainties across all of the Group's
businesses and the actions being taken to manage these
-- Customer proposition developments
-- The Group's Own Risk and Solvency Assessment (ORSA)
In addition to these standing agenda items, the Committee also
receives periodic reports from the Business Risk Review team. The
Business Risk Review team is tasked with reviewing specific
business activities and issues and providing independent
assessments and reports that assist management to anticipate,
manage and mitigate risk. Items subject to Business Risk Reviews
are proposed by members of the executive team with the Committee
also providing input into this process.
Other matters considered by the Committee during the year
included:
Jan
- * Advised the Remuneration Committee regarding the
Mar delivery of performance in 2015 relative to risk
appetites
* Process used to manage IT obsolescence
* Overview of the management awareness of risks (MARS)
process
* The impact of global risks on the nature and
complexity of our business environment
----- -------------------------------------------------------------
Apr
- * Review of third party supplier management
Jun
* Conduct risk in the context of Workplace pricing
policy
* Review stress test results ahead of the results of
the UK referendum on EU membership
* Overview of the triggers framework used to support
the Internal Model
* Update on the FCA thematic review: Meeting Investors'
Expectations
----- -------------------------------------------------------------
Jul
- * Update on the market response to the results of the
Sep UK referendum on EU membership
* Risk assessment relating to the proposed acquisition
of Elevate
* Overview of the EU General Data Protection Regulation
* Proposed risk and capital disclosures in the half
year financial statements
----- -------------------------------------------------------------
Oct
- * Update on the status of acquisitions within the 1825
Dec advice business
* Critical IT applications and services, hot spots and
the framework used to manage associated risks
* Managing risks relating to call volumes within
Customer Operations
* Principal risks proposed for disclosure in the Annual
report and accounts
* Review of material supporting the viability statement
proposed for inclusion in the Annual report and
accounts
* Initial advice to the Remuneration Committee
regarding the delivery of performance in 2016
* Plans to introduce a new governance, risk and
compliance system
* Proposed changes to the Committee's terms of
reference relating to the governance of Standard Life
Investments Limited, Standard Life Assurance Limited
(SLAL), Standard Life Savings Limited and AXA
Portfolio Services Limited.
----- -------------------------------------------------------------
After each meeting, the Committee Chairman reports to the Board,
summarising the key points from the Committee's discussions and any
specific recommendations.
Risk appetites, exposures and capital
The Group continues to use its risk appetite framework to
provide a common framework to enable stakeholders to communicate,
understand and control the risks that Standard Life is willing to
accept in pursuing its business plan objectives and the associated
capital required.
During the year we received the results of the Risk function's
annual review of the framework. This concluded that the framework
remained fit for purpose and recommended quantitative risk limits
for use in managing the business during 2017. The Committee also
reviewed minor changes proposed to the framework, including an
update to the conduct risk appetite statement to reflect the
increasing maturity of conduct risk management within Standard Life
and to support further embedding of this through improving the
articulation of behaviours considered unacceptable. The Committee
supported the conclusions and recommendations from the Risk
function and advised the Board accordingly.
The Group Views on Risk report includes dashboards on financial
exposures, conduct and operational risks and capital. The Committee
reviews this information at each meeting to monitor risks relative
to quantitative and qualitative appetites and the resilience of the
capital position under current and stressed conditions. The report
also includes dashboards covering regulatory risk and financial
crime providing the Committee with status updates on the regulatory
outlook and the financial crime framework with the latter
addressing risks related to money laundering, terrorist financing,
market abuse, fraud and bribery and corruption. Environmental,
social and governance risks are actively managed within the
business and updates on this are also included within the report.
Using this material, the Committee is able to oversee, challenge
and advise the Board on the Group's risk appetite, material risk
exposures and the impact of these on the levels and allocation of
capital.
Specific items discussed in this context included the impact on
the measurement of longevity risk exposure as a result of falling
yields and narrowing credit spreads during the year, backlogs in
the handling of customer calls, risks arising from material
projects undertaken as part of the change programme and risks
arising from the suspension of certain property funds during the
year.
As highlighted in the table opposite, we received a number of
one-off papers during the year which directly supported the
Committee in our oversight of risk appetites, exposures and
capital. One example of this was the review of third party supplier
management provided by the Risk function which provided an
assessment of Standard Life's capabilities relative to external
benchmarking data. In reviewing this item the Committee noted the
conclusion that Standard Life compared well against the external
benchmark in its management of large suppliers and supported
proposals for clarifying the ownership of governance, appetite
setting and training.
Another paper which supported the Committee in discharging our
responsibilities in this area was the paper regarding conduct risk
in the context of Workplace pricing policy. This paper responded to
a request from the Committee for information on the approach to
pricing Workplace propositions and an assessment of why the
business was comfortable that any differences in pricing did not
give rise to conduct risk. The paper concluded that Workplace
provided fair value to customers and highlighted that this
conclusion was consistent with the independent views of the
Standard Life Master Trust Co. Ltd. and the Independent Governance
Committee.
We also received an update from the Standard Life Investments
Chief Investment Officer on the market response to the results of
the UK referendum on EU membership where we explored the potential
impacts of this on investment performance and the risks posed to
our fee based business. The results of the referendum were noted as
having contributed to momentum-driven trading conditions with the
expectation that these conditions would persist until US interest
rates increased and there was a return to more cyclical investing
conditions. One consequence of the referendum was that a number of
UK property funds were temporarily suspended leading to certain
unit linked funds being placed into deferral. The Committee
received regular reporting on this matter including the additional
steps being taken to protect customers' interests at that time.
The Group's stress and scenario testing programme has continued
to support the Committee in understanding, monitoring and managing
the Group's risk and capital profile under stressed conditions. The
programme provides a forward-looking assessment of resilience to
significant adverse events affecting key risk exposures and in 2016
comprised:
-- Univariate stresses - looking at stresses to financial and demographic risks in isolation
-- Combined stresses - looking at simultaneous stresses to a
combination of financial and demographic risks
-- Reverse stress testing - considering circumstances or severe
events, including as a result of operational, conduct and
reputational risks, that have the potential to cause the business
plan to become unviable
-- Tail risk analysis - exploring the possible sequential
development of a low likelihood but high impact scenario
The conclusion of the stress and scenario testing was that
Standard Life had high quality regulatory capital and remained
solvent under the stress scenarios considered. Furthermore the
reverse stress testing exercise confirmed that Standard Life is
resilient to extreme events as a result of the robust controls,
monitoring and triggers in place to identify events quickly and to
help mitigate their escalation.
The tail risk analysis performed by the Risk function
investigated a severe financial stress prompted by falling oil
prices and record low growth in China which, given the severity of
the overall stress, was estimated as having a less than 0.5%
likelihood of occurrence. The choice of scenario recognised the
reliance of Standard Life's business plan on fee revenue from
assets under management and that solvency is sensitive to changes
in yields and credit spreads and sought to provide insight relating
to this.
The analysis highlighted the triggers and actions that could be
taken by the business to protect solvency and delivery of the
business plan. Overall Standard Life remained solvent but was
reliant on reducing expenses to protect profits and dividends under
the assumed stressed conditions.
In addition to receiving information on liquidity risk through
the dashboard reporting, the Committee received the results of the
Group's annual quantitative assessment of liquidity risk. This
highlighted the estimated realisable value of assets in a
distressed market relative to requirements following significant
adverse shifts in customer demand. This allowed the Committee to
understand the extent of liquidity risk and indicated that the
Company and its subsidiaries were able to meet customer demands in
the scenarios considered.
Having reviewed the regular updates presented regarding
developments affecting the ORSA processes, the Committee determined
that these were well understood and there was no need for the full
ORSA report to be updated outside of the routine annual cycle.
Enterprise Risk Management (ERM) framework
The ERM framework is used to identify, assess, control and model
the Group's risks and consists of five elements:
-- Risk control processes
-- Strategic risk management
-- Risk and capital models
-- Emerging risks
-- Risk culture
During the year, the Committee has continued to monitor the
structure and implementation of the Group's ERM framework to ensure
the framework remains suitable for identifying, assessing and
managing current and new risk types and for reacting to
forward-looking risk issues and the changing nature of risks.
At a high level the Committee has gained assurance regarding
operation of the ERM framework from its review of regular content
within the Group Views on Risk report. In particular we have used
our review of the various risk and capital dashboards, including
the consolidated dashboard on key conduct risk indicators and
conduct risk outcomes, to understand the Group's risk profile and
the effectiveness of the framework in supporting the management of
these risks.
Our view of the ERM framework is also informed by the Chief
Internal Auditor's assessment of the internal control environment
related to the management of risk and capital. The Committee
receives semi-annual assessments for Standard Life Investments and
our Pensions and Savings business with the most recent assessments
highlighting both businesses had maintained a stable control
environment in the face of challenging external conditions.
The Committee specifically monitors risk control processes
through reviewing the results of policy compliance reporting and
updates regarding action plans raised in response to risk events
which is included within the Group Views on Risk report.
Strategic risk management within the context of the ERM
framework refers to the process of optimising risk-adjusted returns
and for evaluating and prioritising strategic options. This takes
place as part of the Group's ORSA reporting process whereby the
Risk function provides a forward-looking assessment of the Group's
risk and capital position as a result of the business strategy and
business plan. The operation of this process was observed during
the year with the Committee reviewing this reporting when assessing
the business plan. Aligned to this, the Committee also received a
presentation from the Finance function in 2016 outlining work being
undertaken to enhance the optimisation of the balance sheet and
ensure the optimal use of capital.
Solvency II was implemented at the start of 2016. The Committee
has continued to keep under review the methodology of the Group's
Internal Model which was developed in response to the new regime
and which represents a key component within the risk and capital
models section of the ERM framework. This has included reviewing
the key elements of design, the use of significant assumptions and
expert judgements, key sensitivities, significant limitations and
uncertainty in the model.
Emerging risks have been actively monitored and assessed during
the year with regular reporting provided to the Committee through
the Group Views on Risk report. This reporting focuses on the key
geo-political, economic, societal, legal, regulatory, technological
and economic risks that are emerging and provides an assessment of
the relative likelihood and significance of these. In supporting
the management of emerging risks, we also received a paper
highlighting the potential impacts on the business of global risks
identified by external organisations. Although we are not directly
exposed to many of these risks, the increasing global footprint of
Standard Life presents indirect exposures as a consequence of risks
to financial markets and the environment of our customers and
clients.
Recognising the importance of risk culture and good risk
governance within the ERM framework, changes have been made to the
governance arrangements within certain operating subsidiaries with
effect from 2017. This includes the creation of risk and capital
committees within SLAL, Standard Life Savings Limited and AXA
Portfolio Services Limited with an audit committee also being
established in SLAL. The terms of reference for the Committee were
also refreshed to reflect the impact of the Standard Life
Investments (Holdings) Limited (SLIH) audit, risk and compliance
committee standing down in 2016.
Scrutiny of with profits risk and capital matters
The Committee is advised of relevant updates on with profits
risk and capital matters through content in the Group Chief Risk
Officer's regular risk reporting. In addition, mechanisms exist for
the Chairman of the SLAL With Profits Committee to highlight
specific matters to the Committee. No matters were highlighted to
the Committee during the year.
Due to the timing of production of this year's annual report by
the With Profits Committee on the management of SLAL's with profits
business, it was considered that the Board was better placed to
perform a timely review of the report. As a result this Committee
was not required to review the report this year.
As part of the tail risk analysis looking into a possible severe
financial stress prompted by falling oil prices and record low
growth in China the Risk function explored the potential impact on
the with profits funds. The analysis presented to the Committee
highlighted that, in response to a tail risk event such as the one
investigated, there were a range of triggers and actions available
within the with profits funds to protect the solvency of these
funds.
Regulatory compliance
During the year we reviewed and assessed the regulatory
compliance plans detailing the planned assurance activities to be
performed across the Group in 2016. Subsequent reporting presented
to the Committee provided updates on the progress of this work and
key findings from it. In reviewing this reporting we noted
improvements to the controls supporting regulatory compliance in
both the Investment and Pensions and Savings businesses.
The Committee noted the enhanced data analytics capability
developed in Standard Life Investments during the year relating to
transactions monitoring and oversight of trading decisions. This
enhanced capability helps support regulatory compliance through
providing improved monitoring and detection of potential instances
of conflicts of interest or market abuse.
The Committee also noted enhancements to the assurance processes
within the Pensions and Savings business through improvements made
to the framework for monitoring customer calls. Other improvements
in this business resulted from the completion of internal thematic
reviews performed to further support regulatory compliance and
reflected:
-- Regulatory changes
-- External risk events
-- Components of the ERM framework
-- Results of regular compliance testing
-- Business changes
During the year the Committee received a dedicated training and
challenge session on the Internal Capital Adequacy Assessment
Process (ICAAP) for SLIH. This supported the Committee in
discharging their responsibility to review the key assumptions and
bases underlying the SLIH ICAAP document submitted to the FCA. The
Committee also reviewed the ICAAP document for Standard Life
Savings Limited during the year.
The regulatory agenda for the financial services sector in 2016
has been a busy one, prompted by numerous data requests and
industry thematic reviews from regulators. As a Committee we have
closely monitored these developments to understand and seek to
anticipate potential implications for Standard Life and the wider
financial services sector. One example of this was the FCA's
Meeting Investors' Expectations thematic review which, amongst
other things, prompted the Committee to consider the processes used
by Standard Life Investments to monitor and control fund literature
published on websites including those owned by third parties. To
support us in understanding and anticipating the regulatory agenda,
and to provide an independent perspective, we engaged an external
consultant to provide a presentation on potential future
developments relating to conduct risk regulatory activity.
Business Risk Reviews and other reporting
The Committee has continued to receive a number of reports from
the Business Risk Review team in 2016. These reports provide the
Committee with an independent assessment from the Risk function of
aspects of the business that could have a material impact on
long-term profitability or delivery of strategy, or that introduce
a material new risk. Business Risk Reviews presented to the
Committee in 2016 have included:
-- Standard Life Investments, liability aware insurance
proposition - assessing the readiness of the business to provide
third party insurance asset management
-- Pensions and Savings' guidance at retirement proposition -
assessing the sustainability of the telephone and on-line journeys
offered to non-advised customers
-- Strategy for the Pensions and Savings Workplace business -
assessing the threats and uncertainty affecting the strategy
-- 1825 business readiness review - assessing the defined target
operating model and adequacy of the framework for managing risks
including conduct risk
-- Pensions and Savings' non-advised income drawdown proposition
- assessing the extent to which the proposition is commercially
viable and risks are at an acceptable level
These Business Risk Reviews reports supported the Committee in
allowing informed discussion regarding the progress of these
propositions and businesses and included various recommendations
aimed at supporting the businesses and propositions achieve their
respective objectives. The Committee endorsed the recommendations
that were presented.
During the year, the Committee has reviewed and challenged due
diligence risk assessments relating to proposed material strategic
transactions. This included considering the risks relating to the
acquisition of Elevate and the risks associated with the proposed
combination of the life insurance businesses of HDFC Life and Max
Life.
Governance changes
As already highlighted in this report, with effect from 2017
risk and capital committees have been established within SLAL,
Standard Life Savings Limited and AXA Portfolio Services
Limited.
The responsibilities of the Committee remain largely unchanged
as a result of the creation of these new committees, other than
responsibility for scrutinising with profits risk and capital
matters, which is transferred to the SLAL risk and capital
committee.
Governance arrangements have been put in place to ensure that
the Committee retains appropriate oversight of material risk and
capital matters following the introduction of the new committees.
This includes this Committee being responsible for approving the
terms of reference for the risk and capital committee of SLAL
(being a direct subsidiary of the Company) and any subsequent
material changes to those terms of reference.
This Committee receives and reviews minutes from the SLAL risk
and capital committee and any other reports escalated by the
chairman of that committee. Arrangements also exist for the
Committee Chairman to attend the SLAL risk and capital committee.
Corresponding arrangements have been put in place between the SLAL
risk and capital committee and the risk and capital committees for
Standard Life Savings Limited and AXA Portfolio Services
Limited.
Given the Committee's existing responsibilities regarding
oversight of Group companies, the decision to stand down the SLIH
Audit, Risk and Compliance Committee in 2016 has not significantly
impacted the responsibilities of this Committee.
Committee effectiveness
The Committee reviews its remit and effectiveness annually. In
2016 this review was completed via an internal self-assessment
questionnaire.
The overall conclusion of the review was that the Committee
operated effectively in 2016. In particular, comments highlighted
the benefits of the Business Risk Review reports in highlighting
and assessing risks and the role of the risk assessments in
supporting consideration of proposed corporate transactions.
For 2017, the review highlighted an expectation that to continue
to operate effectively the Committee would need to remain focused
on evolving in response to a range of factors including the
changing risk profile of the Group as well as the increased
regulatory focus on matters such as conduct risk.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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