TIDMSLA
RNS Number : 7244F
Standard Life Aberdeen plc
23 February 2018
Standard Life Aberdeen plc
Full Year Results 2017
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
23 February 2018 are listed below.
Sir Gerry Grimstone Chairman
Nomination and governance committee chair
Sir Gerry was appointed Chairman in May 2007, having been Deputy
Chairman since March 2006. He is also deputy chairman and senior
independent director of Barclays PLC, an independent non-executive
board member of Deloitte North West Europe and the lead
non-executive at the Ministry of Defence. Previously, he held
senior positions within the Department of Health and Social
Security and HM Treasury until 1986. He then spent 13 years with
Schroders in London, Hong Kong and New York, and was vice chairman
of Schroders' worldwide investment banking activities from 1998 to
1999. He is British, aged 68 and holds 206,626 shares.
Simon Troughton Deputy Chairman
Nomination and governance committee member
Simon was appointed Deputy Chairman on 14 August 2017, having
been a non-executive director of Aberdeen Asset Management PLC
since July 2009 and chairman since July 2016. Simon is also
chairman of Redburn (Europe) Limited. Previously, he was a partner
at Cazenove and Company Limited before moving to Fauchier Partners
in 2003 where he became chief operating officer. He is British,
aged 64 and holds 52,990 shares.
Martin Gilbert Co-Chief Executive
Martin was appointed Director and Co-Chief Executive on 14
August 2017. He is co-founder (and former chief executive) of
Aberdeen Asset Management PLC and has been a director since 1983.
He is deputy chairman of Sky plc, a non-executive director of
Glencore plc, chairman of the Prudential Regulation Authority's
Practitioner Panel and a board member of the Institute of
International Finance, as well as a member of the International
Advisory Panel of the Monetary Authority of Singapore and the
International Advisory Board of British American Business. He is
British, aged 62 and holds 139,185 shares.
Keith Skeoch Co-Chief Executive
Keith was appointed Co-Chief Executive on 14 August 2017. He was
formerly Chief Executive of Standard Life plc, having been a
Director since 2006 and Chief Executive of Standard Life
Investments since 2004. He joined Standard Life Investments Limited
in 1999 as Chief Investment Officer after nearly 20 years'
investment experience at James Capel & Company Limited in a
number of roles, including chief economist and managing director
international equities. He is also a non-executive director of the
Financial Reporting Council and a member of the Asset Management
Taskforce led by HM Treasury. He is British, aged 61 and holds
2,347,507 shares.
Bill Rattray Chief Financial Officer
Bill was appointed Director and Chief Financial Officer on 14
August 2017, having been finance director of Aberdeen Asset
Management PLC from January 1991. He is also a non-executive
director of Curtis Banks Group Plc. Prior to joining the Aberdeen
Group, Bill trained as a chartered accountant with Ernst &
Whinney, qualifying in 1982. He is British, aged 59 and holds
1,743,549 shares.
Rod Paris Chief Investment Officer
Appointed Director on 14 August 2017, Rod joined Standard Life
Investments in 2002 as Head of Global Fixed Income and was
appointed as Head of Investments in 2007 and latterly as Chief
Investment Officer in 2013. Previously, he was a managing director
at Merrill Lynch Investment Managers, and before that a director at
Mercury Asset Management which he joined in 1984. He is British,
aged 58 and holds 602,303 shares.
Kevin Parry Senior Independent Director
Investment performance committee member
Nomination and governance committee member
Remuneration committee member
Appointed Director in October 2014, Kevin is the Company's
Senior Independent Director. He is also chairman of Intermediate
Capital Group plc and non-executive director of Daily Mail and
General Trust plc and Nationwide Building Society. Kevin was
previously with Schroders plc, firstly as a non-executive director
between 2002 and 2008 and, latterly, as CFO between 2009 and 2013.
Prior to this, Kevin served as CEO of Management Consulting Group
between 2000 and 2008. He was awarded an OBE for charitable
services in the New Year's Honours List. He is British, aged 56 and
holds 60,754 shares.
Julie Chakraverty Non-executive Director
Audit Committee member
Nomination and governance committee member
Remuneration committee member
Julie was appointed Director on 14 August 2017, having been a
non-executive director of Aberdeen Asset Management PLC since May
2011 and senior independent director since October 2016. Julie is
also a director of Rungway Limited. Previously, she served on the
boards of MS Amlin plc, Spirit Pubs and Paternoster Insurance, and
as a board member of UBS Investment Bank where she held a number of
global leadership positions. She is British, aged 46 and holds
2,302 shares.
John Devine Non-executive Director
Audit Committee chair
Remuneration committee member
Risk and capital committee member
Appointed Director in July 2016, John is also a non-executive
director of Credit Suisse International, Credit Suisse Securities
(Europe) Limited, Citco Custody Limited and Citco Custody (UK)
Limited. From 2008-2010, 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. He is British, aged 59 and holds
1,321 shares.
Gerhard Fusenig Non-executive Director
Investment performance committee chair
Remuneration committee member
Risk and capital committee member
Gerhard was appointed Director on 14 August 2017, having been a
non-executive director of Aberdeen Asset Management PLC since April
2016. Gerhard is also director of Credit Suisse Insurance Linked
Strategies Limited. Over the last 25 years he has held a number of
senior management roles in asset management at Credit Suisse Group
AG and UBS AG. He is German and Swiss, aged 54 and holds 26,495
shares.
Melanie Gee Non-executive Director
Audit Committee member
Investment performance committee member
Nomination and governance committee member
Risk and capital committee member
Appointed Director in November 2015, Melanie is also a senior
adviser at Lazard and Co. Limited, having been a managing director
between 2008 and 2012. Previously, she held various roles with UBS,
and was appointed a managing director in 1999. Melanie was a
non-executive director of The Weir Group PLC between 2011 and 2017
and the Drax Group plc between 2013 and 2016. She is also a
non-executive director of Ridgeway Partners Holdings Limited. She
is British, aged 56 and holds 20,000 shares.
Richard Mully Non-executive Director
Investment performance committee member
Nomination and governance committee member
Remuneration committee chair
Richard was appointed Director on 14 August 2017, having been a
non-executive director of Aberdeen Asset Management PLC since April
2012. Richard is also deputy chairman of alstria office REIT-AG,
senior independent director of St Modwen Properties PLC, a
non-executive director of Great Portland Estates plc and senior
adviser to TPG Real Estate (Europe). Previously, Richard spent much
of his career in financial services as an investment banker and was
the co-founder and managing partner of Grove International Partners
LLP. He is British, aged 56 and holds 52,990 shares.
Lynne Peacock Non-executive Director
Nomination and governance committee member
Appointed Director in April 2012, Lynne is also Chairman of
Standard Life Assurance Limited. She is senior independent director
of Nationwide Building Society and a non-executive director of
Serco Group plc. She joined National Australia Bank Limited in 2003
and, from 2004 to 2011, she was chief executive officer, UK
(Clydesdale Bank plc and Yorkshire Bank). Prior to that, Lynne was
with Woolwich plc from 1983 to 2003, finishing her career there as
chief executive officer. She is British, aged 64 and holds 12,554
shares.
Martin Pike Non-executive Director
Audit Committee member
Risk and capital committee chair
Martin was appointed Director in September 2013. He is also a
non-executive director of esure Group plc and Faraday Underwriting
Limited and a non-executive advisor to Travers Smith LLP. He joined
R Watson & Sons in 1983, and progressed his career with the
firm to partner level. His senior roles included head of european
insurance and financial services practice, Watson Wyatt from 2006
to 2009, vice-president and global practice director, insurance and
financial services, Watson Wyatt during 2009 and, latterly,
managing director, risk consulting & software, EMEA, Towers
Watson from 2010 to 2013. He is British, aged 56 and holds 32,727
shares.
Jutta af Rosenborg Non-executive Director
Audit Committee member
Remuneration committee member
Jutta was appointed Director on 14 August 2017, having been a
non-executive director of Aberdeen Asset Management PLC since
January 2013. She is also chairman of Det Danske Klasselotteri A/S
and a non-executive director of JPMorgan European Investment Trust
plc, NKT A/S and Nilfisk Holding A/S. Previously, she was the
executive vice president, CFO of ALK-Abell A/S. She is Danish and
aged 59. Nil shareholding.
Akira Suzuki Non-executive Director
Akira was appointed Director on 14 August 2017, having been a
non-executive director of Aberdeen Asset Management PLC since
August 2013 through their business and capital alliance with
Mitsubishi UFJ Trust and Banking Corporation . Akira has undertaken
a wide variety of roles, primarily in asset management, in
Mitsubishi UFJ Trust and Banking Corporation and is currently a
managing executive officer. He is Japanese and aged 58. Nil
shareholding.
3. Directors' report
The Directors present their annual report on the affairs of the
Standard Life Aberdeen 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 Aberdeen plc (the Company) for the year ended 31 December
2017.
Reporting for the year ended 31 December 2017
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 2017, the Company's principal undertakings
operated branches in Europe, together with Hong Kong and India.
The main trends and factors likely to affect the future
development, performance and position of the Group are outlined in
the Co-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 2017 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 adjusted 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 21 and Note
39 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 2017 of 14.30p
per ordinary share. This will be paid on 30 May 2018 to
shareholders whose names are on the Register of members (the
Register) at the close of business on 20 April 2018.
The total payment is estimated at GBP421m for the final dividend
and together with the interim dividend of 7.00p per share totalling
GBP206m paid on 18 October 2017, the total dividend for 2017 will
be 21.30p per share (2016: 19.82p) totalling GBP627m (2016:
GBP389m).
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 26 to the Group financial statements. You
can also find an analysis of registered shareholdings by size, as
at 31 December 2017, in the Shareholder information section.
Standard Life plc and Aberdeen Asset Management PLC made an
announcement on 6 March 2017 relating to the recommended all-share
acquisition by Standard Life plc of Aberdeen Asset Management PLC.
This was implemented by way of a court-sanctioned scheme of
arrangement under Part 26 of the Companies Act 2006 (the Scheme).
The Scheme became effective in accordance with its terms, following
the sanction of the Scheme by the Court of Session in Scotland on
11 August 2017 and the delivery of the court order to the Registrar
of Companies. Standard Life plc was renamed Standard Life Aberdeen
plc immediately following the Scheme becoming effective.
The entire issued ordinary share capital of Aberdeen Asset
Management PLC is now owned by Standard Life Aberdeen plc.
Holders of ordinary shares of 10 pence each in the capital of
Aberdeen Asset Management PLC (Aberdeen Shares) on the register at
the Scheme record time, being 6.00 p.m. on 11 August 2017, received
0.757 of an ordinary share of 12 2/9 pence each in the capital of
Standard Life Aberdeen plc (New Shares) in exchange for each
Aberdeen Share. As a result, 997,661,231 New Shares were listed on
the Premium Listing segment of the Official List of the UK Listing
Authority and were admitted to trading on the London Stock
Exchange's main market at 8.00 a.m. on Monday 14 August 2017.
As at 31 December 2017, there were 2,978,936,877 ordinary shares
in issue held by 102,763 registered members. The Standard Life
Aberdeen Share Account (the Company-sponsored nominee) held
736,555,571 of those shares on behalf of 1,039,617 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). The companies detailed below
notified their positions following the merger.
Number Percentage
of voting of voting
rights rights
Date Type following following
Shareholder of transaction of transaction the transaction the transaction
------------- ---------------- ---------------- ---------------- ----------------
Mitsubishi
UFJ Trust
and Banking
Corporation 14.08.2017 Acquisition 175,200,098 5.9%
------------- ---------------- ---------------- ---------------- ----------------
Event
Lloyds changing
Banking the breakdown
Group of voting
plc 14.08.2017 rights 97,714,624 3.282%
------------- ---------------- ---------------- ---------------- ----------------
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 45 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 45 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.standardlifeaberdeen.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 number of
joint holders to whom the share is to be transferred does not
exceed four
-- 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 2017 Annual General Meeting (AGM), shareholders granted
the Directors limited powers to:
-- Allot ordinary shares in the Company up to a maximum
aggregate amount of GBP80,628,369
-- Disapply, up to a maximum total nominal amount of
GBP12,094,255 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 197,905,999 of its issued ordinary shares
The Company did not make any market purchases of its ordinary
shares during the year ended 31 December 2017, 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.
Aberdeen Asset Management PLC has two GBP60m revolving credit
facilities, one with HSBC Bank plc and one with Abbey National
Treasury Services plc,( each the Lender). Both are dated 27 July
2016 and run to 27 July 2019. In the event of a change of control
of Aberdeen Asset Management PLC the Lender may by not less than 15
business days' notice to Aberdeen Asset Management PLC cancel the
commitment and require immediate repayment of all loans together
with accrued interest and all other amounts accrued under the
finance documents whereupon the commitment shall be cancelled and
all such outstanding Loans and amounts will become immediately due
and payable. Prior to the merger, written waivers were obtained
from each of the Lenders, agreeing to the change of control.
India - under a shareholders' agreement dated 10 June 2003 (as
amended) between Standard Life Investments Limited and Housing
Development Finance Corporation Limited (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.
Asset Management - under various agreements dated 31 March 2014
(as amended) between members of the Group (Managers) and
subsidiaries of Lloyds Banking Group plc (Customers), pursuant to
which the Managers provide investment management and services to
the Customers, upon a change of control of the relevant Manager
where the new controller's group either is in material competition
in the UK with the Lloyds Banking Group or does not have investment
capabilities comparable to the group it was in on 31 March 2014,
then the relevant Customer has the right to terminate the relevant
agreement. A description of events since the balance sheet date
relevant to this agreement can be found on page 71 and for further
information, please see Note 14 of the Group financial
statements.
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.
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. During the
year, Paul Matthews resigned as Director on 1 March 2017 and Colin
Clark, Pierre Danon, Noel Harwerth, Barry O'Dwyer and Luke Savage
resigned as Directors on 14 August 2017.
Following the Merger, Martin Gilbert, Bill Rattray, Rod Paris,
Simon Troughton, Julie Chakraverty, Gerhard Fusenig, Richard Mully,
Jutta af Rosenborg and Akira Suzuki were appointed to the Board on
14 August 2017. Having been appointed since the last AGM, these
Directors, apart from Julie Chakraverty and Akira Suzuki, will
stand for election at the 2018 AGM. Julie Chakraverty and Akira
Suzuki will stand down as Directors at the conclusion of the 2018
AGM.
All remaining Directors as at the date of the AGM will retire at
the 2018 AGM and, if they wish to continue in office, will stand
for re-election. Lynne Peacock will stand down as Director at the
conclusion of the 2018 AGM.
The powers of the Directors can also be found in the
Articles.
Directors and their interests
The Directors who served during the year were:
Sir Gerry Grimstone (Chairman) Lynne Peacock
Keith Skeoch Martin Pike
Jutta af
Martin Gilbert(3) Rosenborg(3)
Bill Rattray(3) Akira Suzuki(3)
Rod Paris(3) Simon Troughton(3)
Kevin Parry Colin Clark(4)
Julie Chakraverty(3) Pierre Danon(4)
John Devine Noel Harwerth(4)
Gerhard Fusenig (3) Paul Matthews(2)
Melanie Gee Barry O'Dwyer(1,4)
Richard Mully(3) Luke Savage(4)
------------------------------ ------------------
(1.) Appointed 1 March 2017
(2.) Resigned 1 March 2017
(3.) Appointed 14 August 2017
(4.) Resigned 14 August 2017
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 discretionary plans 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 Aberdeen Asset Management PLC)
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:
-- 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 rules of the Standard Life Aberdeen plc Deferred Share
Plan
-- The Company's Articles
Directors' liability insurance
During 2017, 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 pension trustee liability indemnity
policies (which includes third party indemnity) for the boards of
trustees of the UK and Irish staff pension schemes where required
to do so.
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, including diversity
and inclusion, in the Strategic report section of this report.
Diversity and Inclusion
At Standard Life Aberdeen our aim is that all our people are
able to reach their potential and build long term-careers in a
workplace which values everything they bring. We do this by
building and sustaining a diverse pipeline of talent in an
inclusive workplace. And we believe this provides our customers and
clients with the diversity of thought and creativity necessary to
build long-term value and develop products and services to best
support their needs.
This year, we published our inclusion strategy, which was
created by our business leaders, and which defines our priorities
over the next three to five years. It aims to embed inclusion in
everything we do, and improve transparency in how we talk about and
report on diversity in our business. We know this will take time,
but we have made it a priority.
We all have a role in creating an inclusive environment, and
empower our people to take an active and collaborative approach.
Our seven employee network groups, for example, support members of
the diverse groups and communities they represent, and raise
awareness of issues that affect them. With over 1,900 members, our
networks continue to expand their global reach, and focus on
gender, LGBT+, ethnicity, disability (including a mental health
group), young people, carers and armed forces.
We consider diversity in the broadest sense - in our
backgrounds, experiences, strengths and thinking. 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 while working at Standard Life
Aberdeen to allow them to continue and progress in their
career.
Achieving a better gender balance at all levels is a priority
for us. We have published our gender pay gap this year and know we
have more to do to improve the number of women in our senior roles
and certain parts of our business (which will therefore improve our
gender pay gap). For example, our senior female representation is
currently 27%. For this reason, we have a gender diversity action
plan which is owned by our CEOs, and our Nomination and Governance
Committee formally oversee progress against this every six months.
We have had targets in place to increase the representation of
women at different levels since 2016, however our CEOs have now
recommitted to new targets for Standard Life Aberdeen to accelerate
our progress and focus.
Our actions are making a difference. Our strong gender balanced
pipeline continues to grow; 44% of those in our talent pool who are
considered capable of operating at Executive Committee level in the
next three to five years are female and our 2017 graduate intake is
54% female and from a broad range of universities.
Talent
The recruitment and development of early careers talent is a
critical and integral part of our talent management agenda. Over
the past
12 months, we have recruited a total of 185 individuals on early
careers programmes into a variety of programmes across Standard
Life Aberdeen. These include our Graduate and Intern programme,
Investment 2020 and the Edinburgh Guarantee Scheme. Since 2010, we
have increased the number of employees aged 25 and under in the UK
and Ireland from 0.5% to 8.5%. This illustrates our direct
commitment to youth employment and the strategic development of
young people to meet our business demands. This commitment extends
to young people who are currently in education through our
strategic partnership with Career Ready. In 2017, we aligned 40
individuals with mentors and paid internships in Edinburgh and
London.
Looking forward, our newly combined business is starting from a
strong foundation to continue to attract talent into our
organisation. Both businesses have historically been recognised as
employers of choice within the UK early careers market. For
example, Standard Life Aberdeen currently holds the 19th position
in the Top 100 UK Undergraduate Employers for 2017-2018. We have a
unique opportunity to bring together and create one powerful market
offering which illustrates our ongoing commitment to attracting and
retaining the best talent to grow our organisation.
Engagement
There are several separate employee representation arrangements
across the organisation aimed at providing insights from our people
to help the Company understand the employee perspective. 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.
Measuring employee engagement remains key to understanding how
our people feel about working at Standard Life Aberdeen. The merger
on 14 August 2017 between Standard Life plc and Aberdeen Asset
Management PLC meant that surveying employees in 2017 focused on
sentiment towards the merger, mood, and providing employees with an
opportunity to describe the current culture and define the culture
in the new company. This type of survey was new to both heritage
organisations and provided an expanded baseline measure of
additional employee insights that go beyond engagement and
enablement. The survey was carried out between 17 August and
6 September.
Results:
-- Participation: 60% (5,486 colleagues) had their say
-- Merger sentiment: 87% feel the merger represents an
opportunity and 13% do not or are yet to be convinced
-- Mood: 52% describe feeling positive about coming to work and
the remaining 48% feel neutral or not positive
-- Current culture: 70% chose positive words to describe the
current culture, 7% chose neutral words and 23% selected negative
words
Our employee insights partner Karian and Box believes that our
results show high levels of positivity towards the opportunity that
the merger presents. In comparison to others in a
merger/acquisition situation this presents a very strong baseline
to build on. There is a sense of momentum and excitement around the
merger, particularly towards the potential for global reach,
world-class investment and diverse talent. The results come with
their own challenge however; colleagues are looking to leaders for
a clear future that will make the most of the opportunity. As the
impact of the merger unfolds over the coming months, colleagues
will need to see evidence that the right action is being taken to
make the most of the opportunity.
Previous Heritage Business Survey Results:
-- Aberdeen Asset Management PLC - December 2016: 73%
Engagement
-- Standard Life plc - October/November 2016: 65% Engagement and
62% Enablement
In 2018 we will continue to measure mood, sentiment and culture
whilst reviewing our approach to engagement and enablement for the
newly formed Standard Life Aberdeen plc.
Developing our People
We've continued to invest in our people with a focus on
development across Standard Life Aberdeen. To help our leaders
manage through change, the 'Engaging Leader' workshop was held
between April and September for 852 leaders and achieved an overall
course rating of 8.4 out of 10.
In addition, we've recently launched a digital learning campaign
for all employees, 'The Leading Edge - Challenge Series.' Focusing
on the key themes identified in the employee engagement survey,
this series showcases a variety of employees across Standard Life
Aberdeen sharing their personal views on topics such as well-being
and mentoring with related online learning materials. Within the
first four weeks, more than 3,000 colleagues across the globe
accessed the videos and resources provided through the
campaign.
We've trialled a new approach in 2017 to focus on 'Developing
Leadership' in bite-sized learning format to all employees. These
courses have focused on a broad range of topics including coaching,
non-executive Director skills and deeper leadership. To date, 575
employees have participated, with plans for further roll out in
2018.
Eighty four per cent. of our employees told us financial
education in the workplace is important. Consequently we embarked
on a financial wellness programme that tackled subjects such as tax
planning, retirement planning, advice on wills and estate planning.
During 2017 we have held financial wellness sessions with over
1,200 employees and received very positive feedback. Sixty per
cent. felt more confident about their company pension and 87% said
they would recommend the programme to a colleague.
In 2017 we have continued to develop our intranet to ensure it
retains its employee focus, making significant changes to content
structure in response to employee feedback. In addition colleagues
in Germany and Austria, as well as former Elevate employees based
in Bristol, now have access. Planning has commenced for the next
major iteration of the intranet to ensure that it continues to
support the business fully during the merger integration period and
beyond.
Reward
We believe that when our employees own shares in the Company
they understand better the interests of the Company's
shareholders.
In September 2017, the Standard Life Sharesave Plan, launched by
Standard Life Group in 2011, was extended to the UK based employees
of Aberdeen and invitations were made to employees of Standard Life
Aberdeen in UK and Ireland. The invitation was accepted by 2,999
employees who will have the opportunity to acquire Standard Life
Aberdeen plc shares for GBP3.449 (UK) and EUR3.749 (Ireland) with
their accumulated savings when their savings contracts end in three
or five years' time.
On 1 November 2017, the 2014 three-year UK and Ireland Standard
Life Sharesave invitations matured. Participating employees have
the opportunity, until 1 May 2018, to buy Standard Life Aberdeen
plc shares at a price of GBP2.961 per share (UK) and EUR3.70 per
share (Ireland) with their accumulated savings. On 1 November 2017
the 2012 five-year Sharesave invitation also matured. Participating
employees have the opportunity, until 1 May 2018, to buy Standard
Life Aberdeen plc shares at a per share price of GBP2.208 (UK) and
EUR2.8112 (Ireland) with their accumulated savings.
As a result, there are now over 4,298 employees in the UK and
Ireland participating in Sharesave plans.
As at 31 December 2017, 4,814 of the Group's employees were
shareholders through participation in the Standard Life (Employee)
Share Plan (the Plan). This Plan, currently offered to most
employees of Standard Life Group in the UK, Ireland, Germany and
Austria, 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 the 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 2017, 63% of eligible
employees in the UK were making a monthly average contribution of
GBP59. A similar tax approved plan is used in Ireland, where the
maximum monthly matched amount is EUR70, and has a 53% take-up.
Even though the Plan cannot be structured on a tax favourable basis
in Germany or Austria, at the end of the year, 102 employees were
buying shares on a monthly basis.
Standard Life Aberdeen now has employees in a number of
countries and we will take account of this in shaping our employee
share ownership offering.
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 throughout the
Strategic report. For details of our greenhouse gas emissions,
please see page 60.
Political donations
We have a long-standing policy of not making political donations
and we have no plans to do so. The Company has limited
authorisation from shareholders to make political donations and
incur political expenditure (Resolution 8, 2017 AGM). We request
this as a precaution against any inadvertent breach of political
donations legislation. While Standard Life Aberdeen has regular
interaction with government and elected politicians in the UK and
other jurisdictions in which we operate, we are strictly
apolitical.
Auditors
The Audit Committee is responsible for considering the Group's
external audit arrangements. Resolutions proposing the
re-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 2018 AGM.
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 KPMG LLP is
made aware of that information.
As far as each Director is aware, there is no relevant audit
information that KPMG 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
2018. AGMs are held in Edinburgh and London in alternate years. The
AGM will be held in London in 2018. The AGM guide and other
materials will be published online at www.standardlifeaberdeen.com
in advance of this year's AGM.
Post balance sheet events
Following the year end, Lloyds Banking Group and Scottish Widows
have informed the Company that Scottish Widows and Lloyds Banking
Group's Wealth business intend to review their long term asset
management arrangements including those services that are currently
undertaken by certain legacy Aberdeen Asset Management PLC entities
under arrangements covering in aggregate cGBP109 billion of assets
under management. For further information, please see Note 14 of
the Group financial statements.
The Company announced on 23 February 2018 that it intended to
sell the majority of its UK and Europe Pensions and Savings
business to Phoenix Group Holdings ('Phoenix') (the 'Sale'). The
Sale involves the disposal of Standard Life Assurance Limited with
the Company retaining its UK retail platforms and advice business.
The businesses transferring to Phoenix as part of the Sale include
the UK Mature Retail and Spread/risk books and the European, UK
Retail and Workplace businesses. The Sale constitutes a Class 1
transaction for the purpose of the Listing Rules and is conditional
upon the approval of shareholders at a General Meeting.
Shareholders will receive further information in due course.
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'
Directors' remuneration None/
Topic report report Not 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
23 February 2018
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 and integrated in more detail into the relevant parts of
the corporate governance statement.
Dear Shareholder
It is my pleasure to introduce the 2017 Corporate governance
statement and Nomination and Governance Committee report, in line
with my responsibility to ensure effective corporate governance
throughout the Group. During 2017, our main focus was to ensure
that our leadership and governance processes remained robust in the
run up to the completion of the Merger with Aberdeen Asset
Management PLC, and that the post Merger leadership and governance
structures and processes we put in place were the right ones for
the new Board and the new Group. Throughout these significant
changes, the members of your Board, both pre and post the Merger,
continued to adhere to the highest standards of corporate
governance and ethical behaviour in directing the Group's affairs
and in their 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 learning from the best elements of both the predecessor
boards. Our key governance activities during the year related to
the Merger and included:
-- Establishing the highest quality membership of the Board and
Committees post-Merger
-- Reviewing the governance content of the Prospectus and
Circular
-- Reviewing the executive governance structures, including the
individual roles and responsibilities of the Co-Chief Executives
and the key management committees
-- Establishing the Investment Performance Committee to provide
insight into investment performance
Sir Gerry Grimstone
Chairman, Nomination and Governance Committee
Membership
The members of the Committee are the Chairman and a number of
the independent non-executive Directors. The table below reflects
the composition of the Committee and the members' attendance both
pre and post the Merger:
Member Attendance
--------------------- ----------
Sir Gerry Grimstone,
Chairman 8/8
Julie Chakraverty 3/3
Melanie Gee 3/3
Richard Mully 3/3
Kevin Parry 8/8
Lynne Peacock 2/3
Simon Troughton 3/3
Former member
Pierre Danon 5/5
Noel Harwerth 4/5
--------------------- ----------
Keith Skeoch and, post the Merger, Martin Gilbert, in their
Co-Chief Executive roles, were invited to Committee meetings to
discuss relevant topics, such as the role and members of key
executive management committees, 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, both
in the context of business as usual activities and in the Merger
discussions in relation to:
-- 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 2017
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
* Following the announcement of the potential Merger
* Reviewed proposed post-Merger executive committee
membership
* Appointed Independent Board Evaluation (IBE) to
support the post-Merger Board composition review
* Appointment of subsidiary board members
--------- -----------------------------------------------------------------
Apr - Jun
* Board and Committee composition post-Merger
* Merger governance oversight
* Board effectiveness review proposal for 2017/2018
* Merger preparation and extension of regulatory duties
- controlled functions
* Appointment of subsidiary board members
--------- ---------------------------------------------------------------
Jul - Sep
* Talent and diversity in executive succession planning
* Appointment of subsidiary board members
--------- ---------------------------------------------------------------
Oct - Dec
* Appointment of subsidiary board members
* Reviewed results of Board Effectiveness review
* Recommended establishment of Innovation Panel and
Investment Performance Committee
* Consideration of Colleague Mood and Sentiment survey
* Discussed talent development in early stage careers
* Reviewed subsidiary committees' terms of reference
--------- ---------------------------------------------------------------
The Committee's work in 2017
An indicative breakdown as to how the Committee spent its time
is shown below:
Chart removed for the purposes of this announcement. However it
can be viewed in full in the pdf document.
Committee effectiveness
The Committee reviews its remit and effectiveness each year. The
2017 review was carried out via an internal self-assessment
questionnaire which took account of the Committee's membership and
role. The review concluded that the Committee remained effective
and fulfilled its remit, and going forward, would focus on
succession and contingency planning and engagement with talent.
Roles and responsibilities
The roles and responsibilities of the Board, Chairman and
Co-Chief Executives are outlined below. The role of the Deputy
Chairman is to stand in for the Chairman in his absence.
The Board
The Board's role is to organise and direct the affairs of the
Company and the Group in accordance with the Company's
constitution, all relevant laws, regulations, corporate governance
and stewardship standards. The Board's role and responsibilities,
collectively and for individual Directors, are set out in the Board
Charter. The Board Charter also identifies matters that are
specifically reserved for decision by the Board. These include
approving, overseeing and challenging:
-- The development and implementation of strategy, objectives
and business plans
-- Capital and management structures including capital
allocation strategy and how it supports the Group's long-term
sustainable growth
-- Dividend policy
-- Appointment of the External auditor
-- Financial reporting which, during 2017 included the impact of
the merger and the agreement of the level of provision in respect
of past annuity sales practices
-- How risks are managed, including the Enterprise Risk
Management (ERM) framework, risk strategy, risk appetite limits and
internal controls
-- Significant corporate and other transactions during 2017
which, as well as the Merger, included the initial public offering
(IPO) process for our Indian life insurance associate HDFC Standard
Life Insurance Company Limited, approval to progress the IPO of our
Indian asset management associate HDFC Asset Management Company
Limited, and the proposed sale of our Hong Kong subsidiary,
Standard Life (Asia) Limited to our Chinese Joint Venture business,
Heng An Standard Life Insurance Company Limited
-- Remuneration policy
-- Succession planning
-- The sustainability of the Group's business and our own
sustainability responsibilities
-- Significant external communications
-- Terms of reference of Board Committees
-- Appointments to the Board and to Board Committees
-- Matters escalated from subsidiary boards to the Board for
approval
-- Oversight of culture, our standards and ethical
behaviours
The Board regularly reviews reports from the Co-Chief Executives
and from the Chief Financial Officer on progress against approved
strategies, plans and budgets, as well as updates on stock market
and global economic conditions. There are also regular
presentations from key business units and corporate centre
functions including from the Chief Risk Officer. The Chairman
reports at each Board meeting on the activities he has undertaken
on behalf of the Board and the Group since the previous
meeting.
The Chairman
-- Leads the Board and ensures that its principles and processes
are maintained
-- Promotes high standards of corporate governance
-- Together with the Co-Chief Executives and the Company
Secretary, sets agendas for meetings of the Board
-- Ensures Board members receive accurate, timely and clear
information on the Group and its activities
-- Encourages open debate and constructive discussion and
decision making
-- Leads the Board and individual Director performance
assessments and training needs
-- Speaks on behalf of the Board and represents the Board to
shareholders and other stakeholders
The Co-Chief Executives:
The Co-Chief Executives, within authorities delegated by the
Board:
-- Develop strategic plans and structures for presentation to
the Board
-- Make and implement operational decisions
-- Lead the other executive Directors and the executive team in
the day-to-day running of the Group
-- Report to the Board with relevant and timely information
-- Develop appropriate capital, corporate, management and
succession structures to support the Group's objectives
-- Together with the Chairman, represent the Group to external
stakeholders, including shareholders, customers, suppliers,
regulatory and governmental authorities, and the local and wider
communities
-- Keith Skeoch has individual accountability for the day to day
running of the fabric of the combined business including
responsibility for Investments, Pensions and Savings, the Indian
associates and the China Insurance Joint Venture, Operations,
Finance, HR, Risk and Regulatory Culture, as well as the Legal and
Secretariat functions
-- Martin Gilbert has individual accountability for external
matters including responsibility for International Activities,
Distribution including client engagement and business development,
Marketing and Corporate Development
As identified above, the Co-Chief Executives have clear
accountabilities in the combined business. At the time of the
Merger both boards thought about the key responsibilities and
believed that the division of responsibilities would play well to
Keith's and Martin's respective leadership strengths. We believe
that this blend of complementary skills and experience serves the
Company well. A Chairman's committee has been established to
continually review the effectiveness the Co-Chief Executive
arrangement. It is chaired by Sir Gerry Grimstone, with Simon
Troughton, Keith Skeoch and Martin Gilbert as its other
members.
Code compliance
As well as covering the formal disclosure requirements of the UK
Corporate Governance Code (the Code) issued by the Financial
Reporting Council (FRC), this statement describes how the Board
meets its governance responsibilities.
Throughout 2017, the Company complied with all of the provisions
set out in the Code issued by the FRC in April 2016 other than the
following:
Provision B.3.3 states that 'The board should not agree to a
full time executive director taking on more than one non-executive
directorship in a FTSE 100 company nor the chairmanship of such a
company'. As of the Merger, Martin Gilbert has continued to hold
non-executive directorships with Sky plc and Glencore plc. He has
given a commitment to the Board that by the time of the Company's
AGM, he will hold only one non-executive director position.
Provision B.6.2 requires that 'Evaluation of the board of FTSE
350 companies should be externally facilitated at least every three
years. The external facilitator should be identified in the annual
report and a statement should be made available of whether they
have any other connection with the company.' This external
evaluation was last carried out in 2014 and was anticipated for
2017. However, due to the activities related to the Merger and the
consequential significant changes to the composition and activities
of the Standard Life Aberdeen plc Board which took place in August
2017, the Board determined that it would be more appropriate to
carry out an external Board evaluation in 2018. An external
evaluation, performed by IBE is currently taking place (see the
Board Effectiveness section below).
The Code 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.
During 2018, the Committee will follow closely the development
of the revised Code to ensure that the Group is well placed to
implement and comply with its requirements for 2019.
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.standardlifeaberdeen.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 directors' duties, 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 the Senior Insurance
Managers Regime (SIMR). During 2017, we began the process to
implement the Senior Managers and Certification Regime (SMCR)
across the rest of the combined business.
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 Co-Chief Executives 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 Co-Chief Executives 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
This was a particular focus for the Committee in 2017. 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 23 February 2018, the Board
comprises the Chairman, 10 independent non-executive Directors, 1
non-independent non-executive Director and 4 executive Directors.
The membership of the Board has undergone significant change
following the Merger with a breadth of new talent and experience
joining an already strong Board. On completion of the Merger, the
Board comprised of the Chairman, 11 non-executive Directors and
four executive Directors. This size of Board was appropriate to
support the merging of the two companies and to ensure there is
sufficient knowledge of and challenge of the merged Group's
business and client activities, but will be reduced in size and its
composition evolved going forward. The Board is made up of 12 men
(75%) and 4 women (25%) (2016: men 75%, women 25%). 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 Co-Chief Executives' commitment to achieve and
maintain a diverse workforce, both throughout the Group, and within
the executive team
You can read more about our Directors in their biographies in
Section 2
The Nomination and Governance Committee supports the Group's
commitment to diversity and inclusion in the broadest sense and
receives updates on progress towards achieving and maintaining
diversity targets throughout the Group. This includes reviewing
statistics on gender representation and approving gender diversity
targets, including our reset targets for the Group following the
Merger and will formally oversee progress against these on a
bi-annual basis. The Group also promotes initiatives and programmes
to raise awareness of why diversity and inclusion matter. You can
read more about our diversity activities and current targets in the
People and Culture section of the Strategic report and in our stand
alone Corporate Sustainability and Stewardship report. We are
committed to working to make the Group as inclusive a place to work
as possible. Our activities and targets are in achievement of 'our
vision for an inclusive future' which was published following the
Merger on our website www.standardlifeaberdeen.com. In 2017, the
Gender Pay Gap Regulations were published and you can find our
gender pay gap disclosure statement on page 31. The Committee
continues to follow the development of and the Group's
participation in significant diversity reviews, including the
Hampton Alexander review, and as reported last year, supported our
move to be one of the initial signatories to the Women in Finance
Charter. The Committee supports our commitments under this charter
and continues to oversee our progress against these, which we
report publically on an annual basis.
Board changes during the period
Many of the changes during 2017 were related directly to the
Merger.
Appointments
Barry O'Dwyer, Chief Executive of Standard Life Assurance
Limited was appointed to the Board on 1 March 2017. He replaced
Paul Matthews as executive Director and Chief Executive of the
Pensions and Savings business. On completion of the Merger on 14
August 2017, Martin Gilbert, Co-Chief Executive; Bill Rattray,
Chief Financial Officer and Rod Paris, Chief Investment Officer
were appointed as executive Directors. Simon Troughton, Deputy
Chairman; Julie Chakraverty; Gerhard Fusenig; Akira Suzuki; Jutta
af Rosenborg and Richard Mully were appointed as non-executive
Directors.
Retirements
Paul Matthews stood down from the Board on 1 March 2017, prior
to his retirement, having served as a Director for 16 months. On
completion of the Merger on 14 August 2017, Colin Clark stepped
down from the Board after 21 months along with Barry O'Dwyer who
remains in post as Chief Executive of Standard Life Pensions and
Savings. Luke Savage also stepped down from the Board on 14 August
2017 after serving for three years along with Pierre Danon and Noel
Harwerth who each served for over five years.
Board appointment process, terms of service and role
During 2017, all Board appointments were internal or in relation
to the Merger. In order to assist with determining the right
balance of skills, diversity, knowledge and expertise for the post
Merger Board, IBE were engaged. The Board is not aware of any other
connection between the Group and IBE.
When seeking to make appointments from outside the Group, and
having already identified 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 Committee
then 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 two
terms are generally considered appropriate. The Board recognises
the Code provisions regarding length of service when considering
whether or not their appointment should be continued. Taking
account of their appointment dates to the predecessor boards, the
current average length of service of the non-executive Directors
(excluding the Chairman) is 4.5 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.
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.
The letter of appointment confirms that the amount of time we
expect each non-executive Director to commit to each year which,
once they have met all of the approval and induction requirements,
is around 35 days. The service agreements/letters of appointment
for Directors are available to shareholders to view on request from
the Company Secretary at the Company's registered address (which
can be found in the Shareholder information section) and at the
2018 AGM. 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
One of the Committee's duties is to make recommendations
regarding the election or re-election by members of any Director.
In making its recommendations, the Committee reviews, as
applicable, the appropriateness of continued service beyond a term
of six years. Recognising this timeframe and the need for the Board
to continue to oversee a successful integration, the Committee
agreed to recommend the continuing appointments of Simon Troughton
and Richard Mully.
Therefore, at the 2018 AGM, all of the current Directors will
retire. Martin Gilbert, Bill Rattray, Rod Paris, Simon Troughton,
Gerhard Fusenig, Jutta af Rosenborg and Richard Mully, having been
appointed since the previous AGM, will retire and stand for
election. Julie Chakraverty, Lynne Peacock and Akira Suzuki will
retire at the conclusion of the 2018 AGM and will not stand for
election or re-election. All the others 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 2018, which will be
published online at www.standardlifeaberdeen.com in advance of this
year's AGM, and in Section 2.
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 other than Akira Suzuki, as the representative of a
shareholder, are independent. Akira will be stepping down from the
Board at this year's AGM. The Board continues to comprise a
majority of independent non-executive Directors.
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 North West Europe and the UK Government's
Ministry of Defence where he is the lead non-executive. He is also
an adviser to the board of the Abu Dhabi Commercial Bank.
Kevin Parry was appointed as Senior Independent Director (SID)
on 17 May 2016. In this role, Kevin supports the Chairman, and
often meets with him one-to-one. Since his appointment he has met
with all the Directors on an individual basis. 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, the
Co-Chief Executives or Chief Financial Officer, or where a
shareholder considers these channels are inappropriate. Some
shareholders have discussed the Company's corporate governance
procedures with him, including those that were being put in place
in connection with the Merger. On his appointment institutional
shareholders were offered the opportunity to meet with him, and one
chose to do so. The Prudential Regulation Authority (PRA) and the
Financial Conduct Authority (FCA) also have periodic meetings with
the SID.
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 2018, 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 2020. 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.
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. Martin
Gilbert is a non-executive director of Glencore plc and Sky plc (as
noted above, he has given a commitment to the Board that by the
time of the Company's AGM, he will hold only one non-executive
director position). Bill Rattray is a non-executive director at
Curtis Banks Group Plc.
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 2017.
Appointments to subsidiary boards
Following the Merger in 2017, the Committee considered and
strengthened the oversight of the key investment management
subsidiaries Standard Life Investments (Holdings) Limited (SLIH)
and Aberdeen Asset Management PLC (Aberdeen). Specifically, the
Committee supported changes to make the boards of these two
entities mirror the Board of Standard Life Aberdeen plc.
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.
The Company was due to have the 2017 review facilitated by an
external provider, as per Provision B.6.2 of the Code which states
that 'evaluation of the board of FTSE 350 companies should be
externally facilitated at least every three years'. However, given
that the Board was going to change significantly with effect from
completion of the Merger and its role would adjust and develop
further, it was agreed that the value of the externally facilitated
review would be enhanced if it was a review of the post-Merger
Board and took place some months after the members of the
post-Merger Board had time to come together. It was therefore
recommended that an internally-facilitated review be carried out,
consistent with previous years but adjusted to reflect the Board's
circumstances at the time. IBE has been appointed as the external
facilitator and is currently carrying out the 2018 review.
The 2017 review comprised an online self-assessment
questionnaire, followed up by 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 Secretariat analysed the
self-assessment responses and prepared a summary report. The report
was discussed with the Chairman and then considered in detail by
the Nomination and Governance Committee before being formally
presented to the Board at its meeting in October.
The key outputs from the review included:
-- Strategy: Progress has been made in defining and
understanding the strategic direction but there is still
opportunity to learn from the outcomes of previous decisions
-- Risks: Risk appetite reporting could be stronger, as well as
reporting on specific risks
-- Leadership: Continuing desire to interact with top leaders
across the Company
-- Succession Planning: Further work on the structure of the
approach required
-- Board Information: Continuing need for Board papers to be
more concise
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
holds 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
FCA's approval process and, if relevant, the PRA's 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.
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 2017, while
the Board spent a significant amount of its time discussing the
Merger and integration activities, specific Board awareness
sessions took place on cyber risks and security, the UK withdrawal
from the EU, the Group's strategy regarding joint venture
operations, staff interaction surveys and corporate culture.
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.
As the composition of the Board changed significantly post the
Merger, specific training and awareness sessions were held in
August and September 2017 to introduce the Aberdeen Directors to
Standard Life's life and pensions business and to strengthen the
knowledge of the Standard Life Group Directors of the culture,
distribution strategy and risks of the Aberdeen business. The Board
was also kept up-to-date on integration activities.
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. This was particularly relevant during 2017 as the
Group sought to bring together the best of the talent in both
Standard Life Group and Aberdeen and to plan for the future needs
of the Standard Life Aberdeen 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 Co-Chief Executives and supported by the Group Talent and
Organisation Development team.
During the year, the Nomination and Governance Committee also
received updates on how the 'early careers' programmes were being
amended to reflect the opportunities arising from the merged
Group.
During 2017, the Board received regular updates on the results
of the Committee's discussions related to the Merger. Also during
2017, 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.
Chairman's Succession
As set out in his Statement, the Chairman has indicated his
intention to step down from his role by the end of 2019. In
February 2018, the Nomination and Governance Committee considered
and agreed the appropriate arrangements to oversee the governance
of the succession process. An Appointments Committee will be
established, chaired jointly by Simon Troughton and Melanie Gee and
comprising all of the non-executive Directors other than any who
indicate they wish to be considered as internal candidates. The
Appointments Committee will begin its work in Q2 2018. The Chairman
will not be a member and the process is subject to his annual
election by shareholders at the AGM and continued high
performance.
The Committee recognised that Simon Troughton's term of service
as a Director will reach nine years in July 2018 and after
consideration, agreed that given his knowledge and experience, it
would be appropriate for him to remain in position beyond this time
to co-chair the Chairman's succession process.
Annual review of internal control
The Directors have overall responsibility for the System of
Governance (SoG), stemming from the Solvency II Directive, which
includes the Enterprise Risk Management (ERM) framework and System
of Internal Control, and for the ongoing review of their
compliance. 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
risks as set out in the risk management 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.
In line with the relevant elements of the Code and the FRC
guidance on Risk Management, Internal Control and Related Financial
and Business Reporting, pre and post-Merger, ongoing monitoring,
review and reporting of the SoG was conducted through the risk
committees, Enterprise Risk Management Committees (ERMCs) and
relevant boards. On behalf of the Board, the Risk function has also
carried out an annual review of compliance with the SoG. The SoG
was in place throughout 2017 and up to the date of approval of the
Annual report and accounts 2017.
With regard to regular financial reporting and preparing
consolidated accounts, the Group Finance function participates in
the control self-assessment and policy compliance elements of the
ERM framework. The Group Finance function 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, the Group
Finance function 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 2017, there were separate processes in place to review the
SoG for Aberdeen Asset Management Life and Pensions and Standard
Life Pensions and Savings.
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)
-- Compliance function
-- 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
-- Solvency needs
-- Premiums for new business
-- Restriction of business
In carrying out the annual compliance review of the SoG, all
Solvency II SoG requirements are allocated to senior business
owners on a line by line basis to ensure clear ownership and
accountability for compliance. The Solvency II SoG requirements
only apply to the insurance entities and the business owners in
these entities were required to:
-- Review the arrangements and self-certify compliance (or
otherwise) with the rules throughout 2017 and clarify the reasons
for any non-compliance
-- Ensure action plans were in place to close any identified
gaps and agree a timeline for implementation
Following completion of the above, the Risk function performed a
review and check on the quality of the commentary provided and
challenged business owners where the evidence provided required
further investigation. Results of the self-certification were
verified against relevant Risk reports and Compliance Assurance or
Internal audit findings.
Summaries of the evidence of the compliance review for the
insurance entities plus the output from a review of the relevant
sections of the Code and guidance for Standard Life Aberdeen were
then presented to the business unit ERMC and, where appropriate,
the relevant business unit board.
In addition, the Risk function carried out ongoing assurance
activity during 2017 to provide assurance on Standard Life
Aberdeen's ability to meet regulatory requirements. The Risk
function has also produced summaries of the key risk items
discussed at business unit ERMCs on an ongoing basis throughout the
year. Steps have also been taken to identify any relevant audit
information that the External auditors should be made aware of.
The Risk function then prepared a report combining the output
from the business units. The results, 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.
For Aberdeen Asset Management Life and Pensions, the compliance
Key Function Holder (KFH) co-ordinated an exercise which required
detailing all the Solvency II requirements in relation to the SoG
and documenting how Aberdeen Asset Management Life and Pensions
complies. In addition, a range of individuals holding Senior
Insurance Management Functions (SIMFs) or KFHs were allocated
ownership for each individual requirement. The governance map has a
responsibility formalised for each relevant individual. The
governance map was presented to the Aberdeen Asset Management Life
and Pensions Limited board quarterly. The European Insurance and
Occupational Pensions Authority gap analysis and governance map
were sent to SIMFs and KFHs annually and individuals were requested
to confirm compliance.
Due to the simple risk profile of Aberdeen Asset Management Life
and Pensions, the compliance KFH and Aberdeen Asset Management Life
and Pensions chief executive reviewed this gap analysis in detail
prior to circulation to other individuals and the exercise
concluded with the chief risk officer signing it off prior to it
being presented to the Aberdeen Asset Management Life and Pensions
Limited board for noting.
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 2017, the Group continued its programme of domestic and
international presentations and meetings between Directors and
institutional investors, fund managers and analysts. As well as the
Merger, the wide range of relevant issues discussed, in compliance
with regulations, at investor presentations and meetings, included
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 one
third 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 400,000 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 Aberdeen Share Account where shares are held
electronically in a secure environment and 90% 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 and have a permanent replay facility. We also undertook a
comprehensive programme of investor engagement following the
announcement of the Merger including investor presentations and
meetings.
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 2018 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.standardlifeaberdeen.com after the meeting. These will include
the number of votes withheld.
The 2017 AGM was held at the Edinburgh International Conference
Centre on 16 May 2017 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. 40% of the shares in issue
were voted and all resolutions were passed.
In addition, a General Meeting was held on 19 June 2017 at which
shareholders were asked to consider the resolutions recommended by
the Board, to approve the Merger, the issue and allotment of new
shares and an amended remuneration policy. 42% of the shares in
issue were voted and the resolutions were passed.
Our 2018 AGM will be held in London in line with our plan to
hold the AGM in Edinburgh and London in alternate years in order to
give more shareholders the opportunity to attend.
Our role as an institutional investor
Standard Life Investments and Aberdeen Asset Management were
signatories to and supporters of 23 stewardship codes around the
globe including the UK Stewardship Code and the United Nations
Principles for Responsible Investment. Both companies promoted the
importance of good governance and stewardship including the
management of broader aspects of risk relating to the environment,
society and governance (ESG). The Merger of Standard Life Group and
Aberdeen Asset Management and the creation of Aberdeen Standard
Investments benefits from the heritage of both companies. The
progress of integrating the operations of the companies is well
underway and the result will be an approach which will embed the
consideration of ESG risks into our investment decisions, building
on the global reach and expertise available to the newly merged
entity.
In addition to holding to account the boards of the companies in
which we invest, through our ongoing engagement and voting at
general meetings, we will work to encourage the high levels of
governance and management of environmental and societal risks in
the markets around the world in which we invest on behalf of our
clients. We believe that it is important for us to transparently
report on our activities so that our clients can, in turn, hold us
to account for the delivery of the very highest standards.
Aberdeen Standard Investments' role, as an institutional
investor that invests its clients' savings in a responsible manner,
is key to Standard Life Aberdeen behaving as a responsible
business. Its influence over the companies in which it invests,
provides the Group with the ability to encourage others to act
similarly.
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 ESG investment principles and policy guidelines, and
with the Aberdeen Asset Management holistic risk and assessment
criteria. The Committee concluded that the Company complied with
the guidelines and fulfilled the criteria during the year.
You can read more about this at www.aberdeenstandard.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. 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 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. During 2017, these meetings
also covered discussions in relation to the Merger.
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 2017, the Standing Committee met three times to
consider matters relating to the Merger. All Directors are invited
to attend Standing Committee meetings.
The Chairman is not a member of the Audit, Risk and Capital,
Remuneration or Investment Performance Committees. He does,
however, attend meetings of all Committees, by invitation, in order
to keep abreast of their discussions. The table below reflects the
composition of the Board during 2017 and the members' attendance
both pre and post the Merger. The Board met nine times during the
year.
Number of meetings Board
------------------------ -----
Chairman
Sir Gerry Grimstone 9/9
Executive Directors
Keith Skeoch 9/9
Martin Gilbert 3/3
Bill Rattray 3/3
Rod Paris 3/3
Non-executive Directors
Julie Chakraverty 3/3
John Devine 9/9
Gerhard Fusenig 3/3
Melanie Gee 9/9
Richard Mully 3/3
Kevin Parry 9/9
Lynne Peacock 9/9
Martin Pike 9/9
Jutta af Rosenborg 3/3
Akira Suzuki 3/3
Simon Troughton 3/3
Former members
Colin Clark 6/6
Pierre Danon 6/6
Noel Harwerth 6/6
Paul Matthews 2/2
Barry O'Dwyer 4/4
Luke Savage 6/6
------------------------ -----
Board Committees
Chart removed for the purposes of this announcement. However it
can be viewed in full in the pdf document.
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.standardlifeaberdeen.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 Performance Committee (formerly the Investment
Committee)
During 2017, the Board reviewed the activities of the Investment
Committee. Following the Merger, the investment management arm of
the wider business has expanded considerably. The Merger also
brought a number of changes at the Board of Standard Life Aberdeen
plc and the decision was taken to appoint all of the Directors of
Standard Life Aberdeen plc to the boards of Standard Life
Investment (Holdings) Limited and Aberdeen Asset Management PLC,
the two holding companies of the various investment management
firms within the Group. As a result of this, there is a large
degree of non-executive Director oversight of the investment
business and consequently the Investment Committee of Standard Life
Group in its previous form was deemed to be no longer appropriate.
It was disbanded on completion of the Merger. The Committee was
chaired by Pierre Danon and met twice in 2017 prior to the
completion of the Merger. At its meetings, it received market
outlook updates and reviewed investment performance and governance
and stewardship activities.
In October 2017, following further consideration of its
oversight responsibilities, the Board established the Investment
Performance Committee. This Committee provides insight into
investment performance results by asset class, the market and
economic environment influencing investment results, supports the
review and oversight of performance issues and supports the ongoing
innovation and evolution of the investment process and capabilities
of the Group. Gerhard Fusenig is the Chairman of this committee and
Melanie Gee, Richard Mully and Kevin Parry are currently members.
The Committee will have its first meeting in Q1 2018.
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@standardlifeaberdeenshares.com
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
I'm delighted to have been asked to take on the role as Chair of
the Audit Committee in August and would like to thank Kevin Parry
for his excellent work as Chair before me.
A major role of the Audit Committee in 2017 was related to the
Merger with Aberdeen Asset Management PLC. In advance of this, the
Audit Committee's specific focus was on the work to support the
relevant financial disclosures in the Merger Circular and
Prospectus and in particular the Working Capital Report, the
Financial Position and Prospects report and the Quantified
Financial Benefits Statement. Post-Merger, this focus switched to
the impact on the group financial reporting of the Merger, along
with the integration costs and synergies. During the year the
Committee also:
-- Oversaw the external audit transition from
PricewaterhouseCoopers LLP (PwC) to KPMG LLP, who were appointed at
the 2017 AGM
-- Assessed the provision relating to the FCA's enhanced annuity
thematic review
-- Reviewed the Solvency and Financial Condition Report as part
of the Company's first annual Solvency II reporting
-- Received reports on compliance with the Financial Conduct
Authority Client Assets Sourcebook (CASS) rules in the Company's
CASS permissioned regulated legal entities
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.
John Devine
Chairman, Audit Committee
Governance
Membership
All members of the Audit Committee are independent non-executive
Directors. The table below reflects the composition of the
Committee and the members' attendance both pre and post the
Merger:
Member Attendance
---------------------- ----------
John Devine, Chairman 2/2
Julie Chakraverty 2/2
Melanie Gee 2/2
Martin Pike 7/7
Jutta af Rosenborg 2/2
Former member
Noel Harwerth 5/5
Kevin Parry 5/5
Lynne Peacock 5/5
---------------------- ----------
The Board believes members have the necessary range of
financial, risk, control and commercial expertise required to
provide effective challenge to management. John Devine is a member
of the Chartered Institute of Public Finance and Accounting. 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 2017, there
was one additional meeting, which was focused solely on the
Merger
Invitations to attend Committee meetings are extended on a
regular basis to the Chairman, the Co-Chief Executives, the Chief
Financial Officer, the Chief Executive Standard Life Pensions and
Savings, the Group Financial Controller, 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 Group 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
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
2017 review was carried out using an internal self-assessment
questionnaire. The review concluded that the Committee had:
-- Performed effectively during the year and overseen a robust
process to deliver Solvency II reporting
-- Fulfilled its duties under its terms of reference, and kept
its terms of reference up-to-date
-- Received sufficient, reliable and timely information from
management and the Internal and External auditors to enable it to
fulfil its responsibilities
Going forward, the review highlighted the Committee's wish to
consider further where the reporting of financial performance in
the investment business could be strengthened.
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 the Group Finance function 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 2016
* Strategic report and financial highlights 2016
* Solvency II reporting
* Provision for the FCA's enhanced annuity thematic
review
* External audit transition
--------- ------------------------------------------------------------
Apr - Jun
* Completion of the 2016 external audit for all audited
entities
* 2016 external audit fee and the proposed 2017 fee for
all audited entities
* Solvency II Solvency and Financial Condition Report
* Special meeting on the Merger
--------- ------------------------------------------------------------
Jul - Sep
* Half year results 2017
* External auditors' review of half year results
* Impact on reporting of the Merger
* CASS update
* Internal Control Environment assessment
--------- ------------------------------------------------------------
Oct - Dec
* Initial findings from the 2017 year end work
* The Internal audit plan
* Effectiveness of the External auditors
* Group non-audit services provided by External
auditors
* Effectiveness of the Committee
* Solvency II reporting
* Liaison with the Remuneration Committee on targets
and measures
* Integration cost and synergies update
--------- ------------------------------------------------------------
The indicative proportion of time spent on the business of the
Committee is illustrated below:
Chart 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 2017 is described below.
Financial reporting
Our accounts are prepared in accordance with International
Financial Reporting Standards (IFRS). 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 the presentation of APMs and
related guidance 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 2017 Group
financial statements. During the year the Committee considered the
presentation and accounting policy for when funds are classified as
associates. Following discussions with the External auditors it was
decided to change the treatment as disclosed in Note 16 of the
Group financial statements. This did not have an impact on our
reported profits but did impact the balance sheet presentation and
disclosures.
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 spent time discussing the
new insurance contracts standard (IFRS 17) which was issued in 2017
and will be effective in 2021.
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 2016 and
the half year results 2017. 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.
Accounting estimates and judgements
The Audit Committee considered all estimates and judgements that
Directors understood could be material to the financial statements.
The Committee also focused on disclosure of these 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 annuity business where profitability is inherently dependent on
how long people live and future economic 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.
Annuitant mortality assumptions 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 drawing on
available benchmark data and looked at the changes in outcomes
attributable to a change in estimates (see Note 31 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 possible 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 35 of the Group
financial statements.
The Merger is accounted for under IFRS as an acquisition by
Standard Life plc of Aberdeen Asset Management PLC. This
acquisition accounting requires significant judgement and was a
major area of focus for the Committee in the second half of 2017
and early 2018. The key judgements related to the recognition and
valuation of intangibles on the acquisition. The major intangibles
recognised related to customer relationships and brand. The
Committee reviewed and challenged the assumptions underlying the
valuation of these intangibles, including useful lives, and
reviewed reporting from third party valuation experts. The
Committee also considered the appropriate amortisation method for
each intangible and the allocation of the goodwill arising on the
acquisition to groups of cash generating units. See Note 14 of the
Group financial statements.
In relation to the Lloyds Banking Group customer relationship
intangible asset, the Committee considered that an impairment of
GBP40m was appropriate. The Committee also considered intangible
assets relating to internally developed software and agreed with
management that an impairment of GBP31m was appropriate in relation
to a discontinuation of part of an IT transformation project.
In 2016 the Company recognised a provision of GBP175m in respect
of past sales practices of annuities. In 2017, following further
analysis work and an update to assumptions based on sample testing
following the receipt of the FCA redress calculator, management
concluded that an additional provision of GBP100m should be
recognised. The Committee reviewed the estimate of the provision
and considered sensitivities on its calculation. We were satisfied
that the provision level is an appropriate estimate at this time.
In addition to the provision, there remain a number of
uncertainties in respect of annuities sales practices, in
particular in relation to the regulatory investigation, so we
continue to provide disclosures in the contingent liability note.
See Note 38 of the Group financial statements.
We carried out a 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 41 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. A focus in 2017 was
ensuring that the Strategic report appropriately explained the
rationale and implications of the Merger.
Standard Life Aberdeen's principles
To create clarity around what Standard Life Aberdeen 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 Aberdeen's objectives, vision, mission and
structure values
our report
is helping
us present * The layout is clear and consistent and the language
our business used is simple and easy to understand (industry
and its performance specific terms are defined where appropriate)
clearly -
in a way
that someone * There is a consistent tone across and good linkage
with a reasonably between all sections in a manner that reflects a
informed complete story and clear signposting to where
knowledge additional information can be found
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.
Chart removed for the purposes of this announcement. However it
can be viewed in full in the pdf document.
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 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 2016 and the thematic review by the Financial
Reporting Council (FRC) during 2017. A Supplementary information
section is included in 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. The Committee noted that management continued to develop
and enhance the detail in this Supplementary information section in
2017 in response to emerging practice.
Following the Merger, management reconsidered the appropriate
KPIs for the Group, taking into account the shift towards asset
management business. The Supplementary information section sets out
the changes in financial KPIs and the reasons for these
changes.
Adjusted profit before tax is a key profit APM. The Standard
Life Group key profit APM was 'operating profit before tax', but
this was renamed to 'Adjusted profit before tax' following the
Merger. The Committee agreed with management that 'operating
profit' could be a confusing name and that 'adjusted profit' was
therefore more appropriate. The Committee also spent time
considering the definition of 'adjusted profit' taking into account
the previous Standard Life Group 'operating profit' metric and
Aberdeen 'underlying profit' metric. Details of changes relative to
these previous definitions are included in the Supplementary
Information section. The Committee also considered whether the
allocation of items to adjusted profit were in line with the
defined accounting policies, were consistent with previous practice
and were appropriately disclosed.
We agreed to recommend to the Board that the Annual report and
accounts 2017, 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
During 2017 the Group published its first Solvency and Financial
Condition Report (for the year ended 31 December 2016), and
submitted full annual Solvency II reporting to the PRA for the
first time. In general, the Committee continued 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 also reviewed both a draft and a final
version of the Solvency and financial condition report, and
following due consideration agreed to recommend the Solvency and
financial condition report to the Board for approval.
In relation to actuarial assumptions used for year end 2017
Solvency II reporting, including mortality, persistency and
expenses assumptions, the Committee received a report from the
Chair of the Standard Life Assurance Limited (SLAL) Audit Committee
which noted the consideration of these assumptions by the SLAL
Audit Committee and External auditors. After due consideration of
this reporting the Committee were satisfied that these assumptions
were appropriate for year end Solvency II reporting. The Committee
also 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.
The Group Finance function sets formal requirements for
financial reporting which apply to the Group as a whole, defines
the processes and detailed controls for the consolidation process
and reviews and challenges reporting segment submissions. Further,
the Group Finance function 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 Chairman is the designated whistleblower's
champion and the Committee receives regular updates on the
operation of the whistleblowing procedures from the Global Head of
Conduct and Compliance. The anonymised reports include a summary of
the incidents raised as whistleblowing, and information on
developments of the arrangements in place, to ensure concerns can
be raised in confidence, about possible malpractice, wrongdoing 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 now has an Internal audit function comprising of
approximately 70 people post-Merger. Internal audit is supported by
a co-source provider which recently transitioned from legacy
arrangements to PwC from 1 January 2018. The process involved the
Chairman of the Committee and PwC's appointment was approved by the
Committee. 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 and
Internal Capital Adequacy Assessment Process (ICAAP) for the asset
management business. 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 2017, approximately 100 internal audits were completed.
The Committee considered the reports below to be particularly
insightful and contributed to the strengthening of the control
environment:
-- Conduct risk
-- IT security
-- Key regulatory change projects such as the Markets in
Financial Instruments Directive (MiFID II) and the General Data
Protection Regulation (GDPR)
-- Property fund suspension - lessons learned
-- Brexit preparations
The Committee considers Internal audit's effectiveness annually,
monitoring its independence, objectivity and resourcing in the
context of the Chartered 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, regular dialogue takes place, at least monthly,
between the Committee Chairman and the Chief Internal Auditor. The
newly appointed Committee Chairman also engaged with the combined
function at their post-Merger conference in October.
The Chief Internal Auditor was an external appointment to
broaden the experience of the senior team and commenced his role in
May 2016. The Chief Internal Auditor is now focused on aligning his
team to meet the requirements of the merged Group.
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 KPMG's performance, the Committee concluded that there should be
a resolution to shareholders to recommend the reappointment of KPMG
at the 2018 AGM.
As discussed in the 2016 Audit Committee report, the Committee
tendered the audit for the year ended 31 December 2017 and
recommended to the Board that KPMG should be recommended to
shareholders as the auditors for 2017. The shareholders voted in
favour of the appointment at the 2017 AGM.
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. The Committee will continue to follow the annual
appointment process but does not currently anticipate re-tendering
the audit before 2026.
Auditor independence
Following the Merger, the Committee sought assurance that KPMG's
independence would not be compromised as a result of their previous
position as External auditor of Aberdeen Asset Management PLC until
30 September 2015. A paper outlining the matters which had been
considered was brought to the Committee and, following the review,
the Committee was satisfied that there were no impacting
issues.
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 are in line with the
Ethical Standards and include:
-- Tax services, other than in exceptional circumstances and
subject to specific audit committee approval in line with ethical
standards
-- Services that involve playing any part in the management of
decision-making of the audited entity
-- Book-keeping and preparing accounting records and financial
statements
-- Payroll services
-- Designing and implementing internal control or risk
management procedures related to the preparation and/or control of
financial information or designing and implementing financial
information technology systems
-- Valuation services, including valuations performed in
connection with actuarial services or litigation support
services
-- The majority of legal services
-- Services related to the audited entity's internal audit
function
-- Services linked to the financing, capital structure and
allocation and investment strategy of the audited entity, except
providing assurance services in relation to the financial
statements, such as the issuing of comfort letters in connection
with prospectuses
-- Promoting, dealing in, or underwriting shares in the audited
entity
-- The majority of human resources services
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:
-- Audit related services, such as regulatory reporting
-- Accounting consultations and audits in connection with
proposed transactions
-- Investment circular reporting accountant engagements
-- Due diligence related to mergers and acquisitions
-- Employee benefit plan audits
-- Attesting to services not required by statute or regulation
(e.g. controls reports)
-- Consultations concerning financial accounting and reporting
standards not relating to the audit of the Group's financial
statements
-- Other reports required by a regulator or assurance services
relating to regulatory developments
-- Sustainability audits/reviews
-- Auditing IT security where this does not extend to designing
and implementing internal control or risk management procedures
KPMG has reviewed its own independence in line with these
criteria and its own ethical guideline standards. KPMG 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 KPMG, the Committee is satisfied that KPMG has remained
independent.
Audit and non-audit fees
The Group audit fee payable to KPMG in respect of 2017 was
GBP5.7m (2016: PwC GBP4.1m). In addition GBP1.9m (2016: GBP0.8m)
was incurred on audit related assurance services. Fees for audit
related assurance services are primarily in respect of Solvency II
regulatory reporting, client money reporting and the half year
review. The increase in both audit and audit related assurance fees
primarily reflects the larger scale of the Group following the
merger. The Committee is satisfied that the audit fee is
commensurate with permitting KPMG 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
GBP75,000), the approval of the whole Committee is now
required.
Non-audit fees amounted to GBP0.4m (2016: GBP1.4m) of which
GBP0.3m (2016: GBP0.5m) related to other assurance services. Other
assurance services in 2017 primarily relate to control assurance
reports, in particular those provided to Aberdeen Standard
Investments' clients, which are closely associated with audit work.
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. The Committee also monitors audit and non-audit
services provided to non-consolidated funds and were satisfied fees
for those services did not impact auditor independence.
Further details of the fees paid to the External auditors for
audit and non-audit work carried out during the year are set out in
Note 8 of the Group financial statements.
The ratio of non-audit fees to audit and audit related assurance
fees is 5% (2016: 29%). The total of audit related assurance fees
(GBP1.9m) and non-audit fees (GBP0.4m) is GBP2.3m, and the ratio of
these audit related assurance fees and non-audit fees to audit fees
is 40% (2016: 54%). As noted above the audit related assurance fees
are primarily fees in relation to required regulatory reporting,
where it is normal practice for the work to be performed by the
external auditor.
The Committee is satisfied that the non-audit fees do not impair
KPMG's independence.
Audit quality and materiality
The Committee places great importance on the quality and
effectiveness of the External audit. The Senior Statutory Auditor
is Jonathan Mills. 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 KPMG's audits. We
requested a formal report from KPMG of the applicability of the
findings to Standard Life Aberdeen 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 Aberdeen's audit, that KPMG had proper and adequate
procedures in place for our audit.
-- 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
KPMG'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 KPMG covering
this specific work
We have discussed the accuracy of financial reporting (known as
materiality) with KPMG 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 GBP38m (2016: GBP34m). This equates to approximately
4.5% of normalised profit before tax. 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, KPMG agreed to draw the Committee's attention to all
identified uncorrected misstatements greater than GBP2 million
(2016: GBP2m). The aggregated net difference between the reported
pre-tax profit and the auditor's judgment of pre-tax profit was
less than GBP21m 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 KPMG perform on Solvency II
reporting uses a higher level of materiality.
KPMG has confirmed to us that the audit complies with their
independent review procedures.
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
During 2017 the Risk and Capital Committee has 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, across the Group.
In performing these tasks the Committee is supported by the
activity of risk and capital committees in subsidiary companies
where these exist. This has included receiving support from the
Standard Life Assurance Limited Risk and Capital Committee which
was established in 2017.
A large part of the Committee's work this year has been focused
on the merger of Standard Life plc and Aberdeen Asset Management
PLC. Key activities undertaken prior to completion of the Merger
included reviewing and challenging:
-- The assessment of risks posed by the Merger and their
mitigants
-- The appropriateness of risk related disclosures included in
the Prospectus and Circular documents issued in connection with the
Merger
-- The anticipated structure of the Risk and Compliance function
and operation of risk processes on Day One
-- Plans for managing the integration programme following Day
One
Since the Merger the Committee has monitored the evolution of
risk management across the merged Group and received progress
updates from the integration programme.
Further details on this and other activities carried out by the
Committee during the year can be found in the report that
follows.
Martin Pike
Chairman, Risk and Capital Committee
Membership
All members of the Risk and Capital Committee are independent
non-executive Directors. The table below reflects the composition
of the Committee and the members' attendance both pre and post the
Merger:
Member Attendance
---------------------- ----------
Martin Pike, Chairman 9/9
Julie Chakraverty 2/2
John Devine 9/9
Gerhard Fusenig 2/2
Melanie Gee 9/9
---------------------- ----------
Former member
Noel Harwerth 7/7
Kevin Parry 7/7
---------------------- ----------
The Committee meetings are attended by the Chief Risk Officer,
the Aberdeen Standard Investments (ASI) Chief Risk Officer and the
Standard Life Pensions and Savings Chief Risk Officer. Others
invited to attend on a regular basis include the Chairman, the
Co-Chief Executives, the Chief Financial Officer, the Chief
Executive Standard Life Pensions and Savings, the Chief Investment
Officer and the Chief Internal Auditor as well as the External
auditors.
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.
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 2017
An indicative breakdown as to how the Committee spent its time
is shown below:
Chart 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.
One of the recurring items that is reviewed and discussed at
each meeting is the Views on Risk report which provides a holistic
view of the Group Chief Risk Officer's assessment of the key risks
and uncertainties faced by the Group's businesses and the actions
being taken to manage these.
Other recurring items that are reviewed by the Committee
include:
-- Matters arising at the Standard Life Aberdeen Enterprise Risk
Management Committee
-- Matters arising at the Standard Life Assurance Limited Risk
and Capital Committee
-- Customer proposition developments
-- Ongoing developments relating to the management of conduct
risk
-- The management of cyber risk across the Group
-- Items supporting the ongoing assessment of the Group's own
risk and solvency assessment (ORSA)
The Committee has also continued to receive periodic reports
from the Business Risk Review team. The Business Risk Review team
operates within the Risk and Compliance function and is tasked with
reviewing specific business activities and issues of a strategic
significance. The output from the Business Risk Review team
comprises independent assessments and reports that assist
management in anticipating, managing and mitigating risk. The items
subject to Business Risk Reviews are proposed by members of the
executive team with the Committee providing further input into this
process.
During the year the Committee's work covered a range of risks
faced by the business and included consideration of:
Jan
- Mar * Advice to be provided to the Remuneration Committee
regarding the delivery of performance in 2016
relative to risk appetites
* Findings included in the Standard Life Investments
Internal Controls Report
* Standard Life Investment's Conflicts of Interest
Register
* Plans for testing, assurance reviews, business risk
reviews and validation activity to be performed in
2017
------ ------------------------------------------------------------
Apr
- Jun * The approach to be followed by the Standard Life plc
Risk and Capital Committee in reviewing documentation
relating to the proposed merger
* Documentation produced in connection with the
proposed merger
* Data privacy and data management practices
* The management of cyber risk including an update on
cyber insurance cover in the UK market
* Lessons learned from the acquisition of Elevate
Portfolio Services Limited
------ ------------------------------------------------------------
Jul
- Sep * The proposed structure of the Risk and Compliance
function following the merger
* The views of the risk function on the state of
preparedness for the first day of operation following
the merger
* Information security considerations relating to the
merger
* Update on the management of IT obsolescence
------ ------------------------------------------------------------
Oct
- Dec * Initial assessment of the risks and risk management
approach within the integration programme
* Plans for developing investment risk oversight
capability within the Risk and Compliance function
* Due diligence on the proposed acquisition of certain
assets related to the investment management business
of Alpine Woods Capital Investors, LLC
* Update on the management of risks relating to the
delivery of IT change
* Update on progress towards delivering compliance with
the EU General Data Protection Regulation
* Findings from an independent review of the conduct
risk framework
* Update on the assessment of risk culture within the
organisation
* Risk oversight arrangements in respect of investment
risk in Standard Life Wealth Limited
* Proposed enhancements to the investment risk
management systems architecture
* Progress on preparations for the implementation of
the second Markets in Financial Instruments Directive
(MiFID II)
------ ------------------------------------------------------------
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
As previously noted, prior to the merger the Committee was
actively engaged in assessing the likely changes to the risk and
capital profile of the merged business. In particular this included
considering the extent to which the business combination would
result in risk exposures that were not simply the sum of the risks
of the underlying businesses. In this context the Committee noted
that the increased diversity of funds and talent were expected to
result in relative reductions in risks such as investment
performance, customer and client preferences and market risk. By
contrast, the increased scale and global presence of the business
was expected to lead to relative increases in risks relating to
regulatory scrutiny, IT risks due to possible targeting by cyber
criminals and change risk as a result of merger integration
activity. The output of this exercise was noted as helpful in
focusing the deployment of resources following the merger.
Prior to the merger both Standard Life plc and Aberdeen Asset
Management PLC operated their own risk appetite frameworks. These
frameworks supported the respective businesses in managing their
risks and capital requirements by providing a mechanism for
stakeholders to communicate, understand and control risks. A
detailed review of these frameworks following the merger indicated
a high degree of commonality between the respective frameworks and
provided the Committee with comfort that risks and capital were
being well-managed across both businesses.
Since the merger a single risk appetite framework has been
developed drawing on the best aspects of the two existing
frameworks and reflecting the shape of the merged business and the
risks it faces. This revised risk appetite framework now provides a
common framework to enable stakeholders to communicate, understand
and control the risks that Standard Life Aberdeen is willing to
accept in pursuing its business plan objectives and the associated
capital required. The Committee reviewed this revised risk appetite
framework at its December meeting and agreed to recommend to the
Board that it be implemented across the Group.
Regular reporting on financial exposures, conduct and
operational risks, and the capital position are reported to the
Committee through the Views on Risk report which is presented at
each meeting of the Committee. Through reviewing the relevant
dashboards, commentaries and associated management information, the
Committee has monitored risks relative to applicable quantitative
and qualitative appetites and views on the resilience of the
capital position under current and stressed conditions.
The Views on Risk report also includes dashboards covering
financial crime and regulatory risk. These provide the Committee
with status updates on the financial crime framework, addressing
risks related to money laundering, terrorist financing, market
abuse, fraud and bribery and corruption, and the regulatory
outlook. 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 that the Committee discussed during the year in
this context included:
-- Risks relating to the significant volume of regulatory
projects that were progressing simultaneously throughout 2017
-- The impact of outflows in the asset management business on
both profits and capital resources
-- The extent to which there was a systemic cause for losses
incurred as a result of operational errors
-- Enhancements to the conduct risk framework and associated
management information that would further support the effective
management of conduct risk
-- The balance between the focus on risks related to the
integration process and BAU activities
As highlighted in the table on page 90, we received a number of
one-off reports during the year which directly supported the
Committee in our oversight of risk appetites, exposures and
capital.
One example of this was the report on work performed in
assessing the nature of cyber insurance available in the market and
the extent to which this could help mitigate the impact of any
successful cyber attack. In particular the Committee noted the
protection provided through existing insurance policies and
management plans to further assess options as part of the annual
insurance policy renewal exercise.
Another example is the report from the Business Risk Review team
on the fair treatment of longstanding customers which supported the
Committee in its oversight of conduct risk. This highlighted
planned changes in governance arrangements to ensure the fair
treatment of long standing customers and recommended enhancing
reviews of customer activity to minimise the risk of customer
inertia adversely impacting on customer outcomes. The report also
recommended enhancements to the reviews performed in respect of the
direct retail offering within Aberdeen Standard Investments.
The Committee also received a report from the Chief Investment
Officer on an internal review commissioned to consider governance
of investment risk within Standard Life Wealth Limited and the
extent to which dispersion between performance in the asset
management and wealth management businesses could potentially lead
to branding or reputational risks. The Committee noted the
conclusions of the review were that Standard Life Wealth Limited's
governance arrangements were considered fit for purpose and there
was no evidence of systemic issues in portfolio construction that
were likely to adversely impact on dispersion and hence brand or
reputational damage.
Stress and scenario testing performed across the Group has also
supported the Committee in understanding, monitoring and managing
the risk and capital profile of the business under stressed
conditions. In addition to the stress and scenario testing
performed across the Group in support of Internal Capital Adequacy
Assessment Process (ICAAP) and Solvency II reporting, assurance has
been taken from the results of the Standard Life plc stress and
scenario testing performed in 2017 prior to the merger. This
provided a forward-looking assessment of resilience to significant
adverse events affecting key risk exposures and 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
Four scenarios were explored as part of the reverse stress
testing exercise. The scenarios considered were: an effective cyber
attack; a major financial shock which triggered high remediation
costs in cases of customer detriment; pressure on fund charges,
performance and flows; and the failure of key services performed by
outsourced investment administration providers.
Three scenarios were explored as part of the tail risk analysis
and were designed to focus on scenarios which could have a
potentially significant adverse impact on liquid resources. In
particular this recognised the potential for liquidity strains to
arise as a result of the uncertain geo-political environment. The
scenarios considered were: a sophisticated and collusive payment
fraud committed in a derivative collateral transaction resulting in
a significant loss for Standard Life Investments; a corporate bond
shock including large corporations defaulting on payments; and a
large number of advisers requesting rebalances on and withdrawals
from Standard Life Pensions and Savings platform business at the
same time as a pricing error occurred.
Based on the above analysis, the Committee concluded there was
no requirement for the business to reduce its risk exposures and
that the business was 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. Under some
circumstances the Committee noted that contingency funding may need
to be relied on to support cash outflows, and dividends from
Standard Life Investments and Standard Life Assurance Limited may
be reduced.
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 continued to monitor the
structure and implementation of the Group's ERM framework to ensure
the framework remained 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.
The Committee continues to receive assurance regarding the
operation of the ERM framework through its review of regular
content within the 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.
The Committee also receives semi-annual reporting from the Chief
Internal Auditor providing an independent assessment of the
internal control environment relating to the management of risk and
capital. This also supports the Committee in performing its
oversight and challenge.
The Committee specifically monitors risk control processes
through reviewing the results of quarterly policy compliance
reporting and updates regarding action plans raised in response to
risk events which is included within the Views on Risk report.
Following the completion of the merger, Aberdeen Asset Management
PLC and its subsidiaries adopted the policies previously operated
by Standard Life plc and group-wide policy compliance reporting was
completed for Q3 2017 with no significant issues noted.
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 business planning process whereby forecast
profits are considered alongside a forward-looking assessment of
the Group's risk and capital position. The December meeting of the
Committee reviewed an annual report on the Group's ORSA which
reported on these two elements.
A Risk Modelling policy has been rolled out across the Group in
2017 aimed at providing a consistent benchmark for the development
and use of risk and capital models. The policy covers a range of
models and includes the Group Internal Model introduced in response
to the requirements of Solvency II. The extent of compliance with
the Risk Modelling policy is reported to the Committee within the
Views on Risk report alongside other policy compliance reporting.
During 2017 the Committee has continued to keep under review the
methodology of the Solvency II Group Internal Model which, in line
with the Committee's terms of reference, 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 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 2017 risk and capital committees were established within
Standard Life Assurance Limited, Standard Life Savings Limited and
Elevate Portfolio Services Limited. These actions recognise the
importance of risk culture and good risk governance within the ERM
framework. During the year the Committee received a report setting
out the results of a risk culture awareness questionnaire carried
out across key individuals in the merged business. Based on the
responses to the questionnaire, the Committee concluded that the
business was generally well-placed relative to its peers and noted
that activity was planned to drive best-in-class risk culture
awareness.
Regulatory compliance and reporting
The Committee reviews and assesses regulatory compliance plans
detailing the planned assurance activities to be performed across
the Group on an ongoing basis. In particular, the Committee
scrutinised the scope of activities planned by Risk and Compliance
and Internal Audit to ensure there was appropriate coverage at an
aggregate level. In reviewing these plans the Committee challenged
the extent of testing planned in respect of the overseas operations
of the investment business. The Committee was advised that
increased emphasis was being placed on regulatory considerations
where the business was investing in overseas markets and in
ensuring the relevant conduct of business rules were understood in
overseas jurisdictions where products were being sold. Regular
updates on key findings from regulatory compliance activity were
reported to the Committee through the Views on Risk report.
Prior to the merger, the Committee carried out its duties
through reviewing the key assumptions and bases underlying the
calculation of the Group Solvency II Internal Model results for
Standard Life plc and the ICAAP for Standard Life Investments
(Holdings) Limited.
In reviewing the Group Solvency II Internal Model results the
Committee paid particular attention to the assumptions relating to
the longevity stress and the treatment of the provision to address
the finding that a portion of non-advised annuity sales in previous
years did not adequately explain to customers that they may have
been eligible for an enhanced annuity. The Committee noted the
validation work that had been performed by the Risk and Compliance
function in respect of the Internal Model and satisfied itself that
it was appropriate to recommend that the Standard Life plc Board
approve the proposed methodology and judgements for use in the
calculation of the December 2016 Solvency Capital Requirements.
The regulatory agenda for the financial services sector in 2017
has continued to be a busy one, prompted by a number of data
requests and industry thematic reviews from regulators. One such
item highlighted to the Committee in this regard was the UK
Financial Conduct Authority's (FCA) Final Report on Asset
Management. Based on the findings of this report we anticipate
continued margin pressure for the asset management business.
As a Committee we have closely monitored regulatory developments
to understand and seek to anticipate potential implications for the
Group and the wider financial services sector. In this context the
Committee has noted the proactive engagement with the Prudential
Regulation Authority and the FCA during the year, as well as
responding to particular requests including the submission of
details of our Brexit contingency plans.
As part of discussions on regulatory activity, the Committee
noted that the business had been invited to join one of the FCA's
Cyber Coordination Groups. These groups are intended to promote
increased sharing of information regarding learnings and cyber
threats. The Committee acknowledged this development and the
expectation that it would provide the business with the opportunity
to share experiences, to learn from others in the industry and to
identify best practice.
Business Risk Reviews and other reporting
The Committee has continued to receive a number of reports from
the Business Risk Review team in 2017. These reports provide the
Committee with an independent assessment from the Risk and
Compliance 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. Further details on some of
the Business Risk Reviews presented in 2017 are set out below.
A cross-business client and asset retention Business Risk Review
was performed prior to the merger looking at activity across the
Standard Life Investments and Pensions and Savings distribution
channels.
The Committee noted the activity undertaken across the various
channels to retain business and client assets and the
recommendations from the review team about possible ways of
strengthening this.
The Committee also received a Business Risk Review report on the
Fair Treatment of Longstanding Customers. This focused on
considering the extent to which there was a clear and consistent
approach within the Standard Life Pensions and Savings and Standard
Life Investments UK businesses to ensure the fair treatment of
longstanding customers and clients, and the processes in place to
support this. Key considerations of the Committee in this context
were ensuring:
-- The proposition management governance process was
effective
-- There was adequate visibility of longstanding customer
fairness risks
-- The robustness of the reviews performed in respect of the
direct retail offering within Aberdeen Standard Investments
The presentation of Business Risk Reviews reports to the
Committee in 2017 has supported the Committee in allowing informed
discussion regarding the progress of key business activities.
Having considered the material presented, the Committee endorsed
the recommendations contained in the Business Risk Reviews
reports.
In addition to reviewing reporting relating to the merger, the
Committee has reviewed and challenged due diligence risk
assessments relating to proposed material strategic transactions.
This included assessments relating to the proposed acquisition of
certain assets related to the investment management business of
Alpine Woods Capital Investors, LLC.
Governance changes
As already highlighted in this report, risk and capital
committees have been established within Standard Life Assurance
Limited (SLAL), Standard Life Savings Limited and Elevate Portfolio
Services Limited during 2017.
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 these new committees.
This includes the Committee being responsible for approving the
terms of reference for the risk and capital committee of Standard
Life Assurance Limited (being a direct subsidiary of the Company)
and any subsequent material changes to those terms of
reference.
The Committee receives and reviews minutes from the Standard
Life Assurance Limited 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 Standard Life
Assurance Limited risk and capital committee. Corresponding
arrangements have been put in place between the Standard Life
Assurance Limited risk and capital committee and equivalent
committees in place in its subsidiaries.
In 2018 a similar risk committee will be established for
Standard Life Asia Limited. This will allow similar governance
arrangements to be implemented to those introduced for Standard
Life Assurance Limited in 2017.
Chief Risk Officer
Raj Singh stood down as Chief Risk Officer at the beginning of
2018 to take up a new position as Executive Financial Institutions
and Senior Risk Advisor, working with the ASI Global Head of
Insurance and Head of EMEA Distribution to leverage his global
insurance experience as well as to provide an ambassadorial role
for our office and operations in Switzerland. Following due
consideration by the Committee and the approval of the Board and
the Regulators, Gareth Murphy, previously Deputy Chief Risk
Officer, succeeded Raj as Chief Risk Officer.
Committee effectiveness
The Committee reviews its remit and effectiveness annually. In
August 2017 the members of the Standard Life plc Risk and Capital
Committee completed this review via an internal self-assessment
questionnaire.
The overall conclusion of the review was that the Committee had
operated effectively. In particular, comments from the Committee
recognised the additional time spent on conduct risk and cyber risk
and, in respect of pre-merger considerations, the strength of
oversight provided by the Committee.
For 2018, 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 external and internal factors
including the changing risk profile of the Group, the continued
regulatory focus on matters such as conduct risk and the evolving
governance arrangements within subsidiary companies.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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