FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For
February 18, 2022
Commission
File Number: 001-10306
NatWest
Group plc
RBS,
Gogarburn, PO Box 1000
Edinburgh
EH12 1HQ
(Address
of principal executive offices)
Indicate
by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.
Form
20-F X Form 40-F
___
Indicate
by check mark if the registrant is submitting the Form 6-K in paper
as permitted by Regulation S-T Rule
101(b)(1):_________
Indicate
by check mark if the registrant is submitting the Form 6-K in paper
as permitted by Regulation S-T Rule
101(b)(7):_________
Indicate
by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information
to the Commission pursuant to Rule 12g3-2(b) under the Securities
Exchange Act of 1934.
Yes ___
No X
If
"Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-
________
The following information was issued as Company announcements
in London, England and is furnished pursuant to General Instruction
B to the General Instructions to Form
6-K:
NatWest Group plc 18 February 2022
Annual Report and Accounts 2021
Pillar 3 Report 2021
A copy of the Annual Report and Accounts 2021 for NatWest
Group plc will shortly be submitted to
the National Storage Mechanism and will be available for inspection
at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
The document will be available on
NatWest Group plc’s website at https://investors.natwestgroup.com/reports-archive
A printed version will be mailed to shareholders who have opted for
a hard copy ahead of the Annual General Meeting for which formal
Notice will be given in due course.
We have also published the 2021 Pillar 3 report, available on our
website. For further information, please contact:
Media Relations
+44 (0) 131 523 4205
Investors Alexander Holcroft
Investor Relations
+44 (0) 207 672 1982
For the purpose of compliance with the Disclosure Guidance and
Transparency Rules, this announcement also contains risk factors
and details of related party transactions extracted from the Annual
Report and Accounts 2021 in full unedited text. Page references in
the text refer to page numbers in the Annual Report and Accounts
2021.
Principal Risks and Uncertainties
Set out
below are certain risk factors that could adversely affect NatWest
Group’s future results, its financial condition and prospects
and cause them to be materially different from what is forecast or
expected, and directly or indirectly impact the value of its
securities in issue. These risk factors are broadly categorised and
should be read in conjunction with other sections of this annual
report, including the forward-looking statements section, the
strategic report and the risk and capital management section. They
should not be regarded as a complete and comprehensive statement of
all potential risks and uncertainties facing NatWest Group. The
COVID-19 pandemic may exacerbate any of the risks described
below.
Economic and political risk
The impact of the COVID-19
pandemic and related uncertainties continue to affect the UK,
global economies and financial markets and NatWest Group’s
customers, as well as its competitive environment, which may
continue to have an adverse effect on NatWest
Group.
In many countries, including the
UK (NatWest Group’s most significant market), the COVID-19
pandemic has, at times, resulted in the imposition of strict social
distancing measures, restrictions on non-essential activities and
travel quarantines, in an attempt to slow the spread and reduce the
impact of the COVID-19 pandemic. The COVID-19 pandemic has also, at
times, caused significant reductions in levels of consumer and
commercial activity, reductions in consumer spending, increased
levels of corporate debt and, for some customers, personal debt,
increased unemployment and significant market volatility in asset
prices, interest rates and foreign exchange rates. It has also, at
times, caused physical disruption to global supply chains and
working practices, all of which have affected NatWest Group’s
customers. NatWest Group has significant exposures to many of the
commercial sectors economically impacted by the COVID-19 pandemic,
including property, retail, leisure and travel.
Despite
widespread COVID-19 vaccination within the geographical regions in
which NatWest Group operates, the proliferation of COVID-19
variants continues to affect the UK and global economies. Further
waves of infection or the spread of new strains may result in
renewed restrictions in affected countries and regions. As a
result, significant uncertainties remain as to how long the impact
of the COVID-19 pandemic will last, and how it will continue to
affect the global economy.
In
response to the COVID-19 pandemic, central banks, governments,
regulators and legislatures in the UK and elsewhere have offered
unprecedented levels of support and various schemes to assist
impacted businesses and individuals. This has included forms of
financial assistance and legal and regulatory initiatives. Many of
these support schemes have now been curtailed. However, uncertainty
remains as to the impact of the ending or tapering of these schemes
and the repayment of the loans involved on customers, the economic
environment and NatWest Group. Moreover, it is unclear as to how
any further measures, such as rising interest rates and inflation,
may affect NatWest Group’s business and
performance.
The
COVID-19 pandemic has prompted many changes that may prove to be
permanent shifts in customer behaviour and economic activity, such
as changes in spending patterns and significantly more people
working from home. These changes may have long lasting impacts on
asset prices, the economic environment and its customers financial
needs.
Uncertainties
relating to the COVID-19 pandemic has made reliance on analytical
models and planning and forecasting for NatWest Group more complex,
and may result in uncertainty impacting the risk profile of NatWest
Group and/or that of the wider banking industry. The medium and
long-term implications of the COVID-19 pandemic for NatWest Group
customers, the UK housing market, and the UK and global economies
and financial markets remain uncertain.
Any of
the above may have a negative impact on NatWest Group.
NatWest Group faces continued economic and political risks and uncertainty in
the UK and global markets.
The
outlook for the global economy over the medium-term remains
uncertain due to a number of factors including: the COVID-19
pandemic, societal inequalities and changes, trade barriers and the
increased possibility of and/or continuation of trade wars,
widespread political instability (including as a result of populism
and nationalism, which may lead to protectionist policies, state
and privately sponsored cyber and terrorist acts or threats,
efforts to destabilise regimes or armed conflict), changes in
inflation and interest rates (including negative interest rates),
supply chain disruption, climate, environmental, social and other
sustainability-related risks and global regional variations in the
impact and responses to these factors.
These
conditions could be worsened by a number of factors including
macro-economic deterioration, increased instability in the global
financial system and concerns relating to further financial shocks
or contagion (for example, due to economic concerns in emerging
markets), market volatility or fluctuations in the value of the
pound sterling, new or extended economic sanctions, volatility in
commodity prices or concerns regarding sovereign debt. This may be
compounded by the changing demographics of the populations in the
markets that NatWest Group serves, increasing social and other
inequalities, or rapid change to the economic environment due to
the adoption of technology and artificial intelligence. Any of the
above developments could adversely impact NatWest Group directly
(for example, as a result of credit losses) or indirectly (for
example, by impacting global economic growth and financial markets
and NatWest Group’s customers and their banking
needs).
In
addition, NatWest Group is exposed to risks arising out of
geopolitical events or political developments, such as exchange
controls and other measures taken by sovereign governments that may
hinder economic or financial activity levels. Furthermore,
unfavourable political, military or diplomatic events, including
secession movements or the exit of other member states from the EU,
armed conflict, pandemics and widespread public health crises
(including the current COVID-19 pandemic and any future epidemics
or pandemics), state and privately sponsored cyber and terrorist
acts or threats, and the responses to them by governments and
markets, could negatively affect the business and performance of
NatWest Group, including as a result of the indirect effect on
regional or global trade and/or NatWest Group’s
customers.
NatWest
Group faces political uncertainty in Scotland, as a result of a
possible second Scottish independence referendum. Independence may
adversely impact NatWest Group since NatWest Group plc and other
NatWest Group entities (including NWM Plc) are incorporated in
Scotland. Any changes to Scotland’s relationship with the UK
or the EU would impact the environment in which NatWest Group and
its subsidiaries operate, and may require further changes to
NatWest Group’s structure, independently or in conjunction
with other mandatory or strategic structural and organisational
changes which, any of which could adversely impact NatWest Group.
The value of NatWest Group’s financial instruments may be
materially affected by market risk, including as a result of market
fluctuations. Market volatility, illiquid market conditions and
disruptions in the credit markets may make it extremely difficult
to value certain of NatWest Group’s financial instruments,
particularly during periods of market displacement. This could
cause a decline in the value of NatWest Group’s financial
instruments, which may have an adverse effect on NatWest
Group’s results of operations in future periods, or
inaccurate carrying values for certain financial
instruments.
In
addition, financial markets are susceptible to severe events
evidenced by rapid depreciation in asset values, which may be
accompanied by a reduction in asset liquidity. Under these
conditions, hedging and other risk management strategies may not be
as effective at mitigating trading losses as they would be under
more normal market conditions. Moreover, under these conditions,
market participants are particularly exposed to trading strategies
employed by many market participants simultaneously and on a large
scale, increasing NatWest Group’s counterparty risk. NatWest
Group’s risk management and monitoring processes seek to
quantify and mitigate NatWest Group’s exposure to more
extreme market moves. However, severe market events have
historically been difficult to predict and NatWest Group could
realise significant losses if extreme market events were to
occur.
Any of
the above may have a negative effect on NatWest Group.
Continuing uncertainty regarding the effects and extent of the UK’s post Brexit
divergence from EU laws and regulation, and NatWest Group’s
post Brexit EU operating model may continue to adversely affect
NatWest Group and its operating environment.
The UK
ceased to be a member of the EU and the European Economic Area
(‘EEA’) on 31 January 2020 (‘Brexit’) and
the 2020 EU-UK Trade and Cooperation Agreement (‘TCA’)
ended the transition period on 31 December 2020. The TCA provides
for free trade between the UK and EU with zero tariffs and quotas
on all goods that comply with the appropriate rules of origin, with
minimal coverage. However, for financial services, UK-incorporated
financial services providers no longer have EU passporting rights
and there is no mutual recognition regime. Financial services may
largely be subject to individual equivalence decisions by relevant
regulators. A number of temporary equivalence decisions have been
made that cover certain services offered by NatWest Group. The
EU’s equivalence regime does not cover most lending and
deposit taking, and determinations in respect of third countries
have not, to date, covered the provision of most investment
services. In addition, equivalence determinations do not guarantee
permanent access rights and can be withdrawn with short notice. The
TCA is accompanied by a Joint Declaration on financial services
which sets out an intention for the EU and UK to cooperate on
matters of financial regulation and to agree a Memorandum of
Understanding, which has yet to be signed. In late 2021 the
European Commission proposed legislation that would require non-EU
firms to establish a branch or subsidiary in the EU before
providing “banking services” in the EU. If these
proposals become law all “banking services” will be
licensable activities in each EU member state and member states
will not be permitted to offer bilateral permissions to financial
institutions outside the EU allowing them to provide “banking
services” in the EU. Uncertainty remains as to whether
“banking services” will also include investment
products.
NatWest
Group continues to evaluate its post Brexit EU operating model,
making adaptations as necessary. NatWest Group also continues to
assess where NatWest Group companies can obtain bilateral
regulatory permissions to facilitate intragroup transactions and/or
to permit business to continue from its UK entities, transferring
what cannot be continued to be rendered from the UK to an EEA
subsidiary or branch where permitted. Where these regulatory
permissions are temporary or are withdrawn, a different approach
may need to be taken or may result in a change in operating model
or some business being ceased. Not all NatWest Group entities have
applied for bilateral regulatory permissions and instead intend to
move EEA business to an EEA licensed subsidiary or branch. There is
a risk that these EEA licenses may not be granted, or may be
withdrawn, and where these permissions are not obtained, further
changes to NatWest Group’s operating model may be required or
some business may need to be ceased. In addition, failure to obtain
required regulatory permissions or licences in one part of NatWest
Group may impact other parts of NatWest Group adversely. Certain
permissions are required in order to maintain the ability to clear
euro payments. Other permissions, including the ability to have two
intermediate EU parent undertakings, would allow NatWest Group to
continue to serve EEA customers from both the ring-fenced and
non-ring-fenced banking entities. Furthermore, transferring
business to an EEA based subsidiary is a complex exercise and
involves legal, regulatory and execution risks, and could result in
a loss of business and/or customers or greater than expected costs.
The changes to NatWest Group’s operating model have been
costly and further changes to its business operations, product
offering and customer engagement could result in further
costs.
The
long-term effects of Brexit and the uncertainty regarding NatWest
Group’s EU operating model may have a negative impact on
NatWest Group’s business. These may be exacerbated by wider
global macro-economic trends and events, particularly COVID-19
pandemic related uncertainties, which may significantly impact
NatWest Group and its customers and counterparties who are
themselves dependent on trading with the EU or personnel from the
EU. They may exacerbate the economic impacts of the COVID-19
pandemic on the UK, the Republic of Ireland (‘ROI’) and
the rest of the EU/EEA.
Significant
uncertainties remain as to the extent to which EU/EEA laws will
diverge from UK law (including bank regulation), whether and what
equivalence determinations will be made by the various regulators,
whether the proposed EEA licensed subsidiary is granted a banking
licence, whether banking services will be harmonised across the EEA
and, therefore, what the respective legal and regulatory
arrangements will be, under which NatWest Group and its
subsidiaries will operate. This divergence could lead to further
market fragmentation. These risks and uncertainties may require
costly changes to NatWest Group’s EU operating model. The
legal and political uncertainty, and any actions taken as a result
of this uncertainty, as well as the approach taken by regulators
and new or amended rules, could have a significant adverse impact
on NatWest Group’s businesses, non-UK operations and/or legal
entity structure, including attendant operating, compliance and
restructuring costs, level of impairments, capital requirements,
changes to intragroup arrangements, increased complexity,
regulatory environment and tax implications and as a result may
adversely impact NatWest Group’s profitability, competitive
position, business model and product offering.
Changes in interest rates have significantly affected and will
continue to affect NatWest Group’s business and
results.
Interest
rate risk is significant for NatWest Group. Monetary policy has
been accommodative in recent years including initiatives
implemented by the Bank of England and HM Treasury, such as the
Term Funding Scheme with additional incentives for SMEs
(‘TFSME’), which have helped to support demand at a
time of pronounced fiscal tightening and balance sheet repair.
However, market expectations are currently that benchmark interest
rates such as UK base rate, could begin to rise further and faster
than had been anticipated previously and that this could be
accompanied by other measures to reverse accommodative policy, such
as quantitative tightening.
While
increases in interest rates may support NatWest Group’s
interest income, sharp rises could have macroeconomic effects that
lead to adverse outcomes for the business. For example, they could
lead to generally weaker than expected growth, or even contracting
GDP, reduced business confidence, higher default rates on customer
loans, higher levels of unemployment or underemployment, and
falling property prices in the markets in which NatWest Group
operates, all of which could adversely affect the business and
performance of NatWest Group. Conversely, decreases in interest
rates and/or continued sustained low or negative interest rates
would be expected to continue to put further pressure on NatWest
Group’s interest income and profitability.
Unexpected
moves in interest rates will also affect valuations of assets and
liabilities that are recognised at fair value on the balance sheet.
Changes in these valuations may be adverse. Unexpected movements in
spreads between key benchmark rates could have adverse impacts and
also adversely affect NatWest Group’s financial
position.
Changes in foreign currency exchange rates may affect NatWest
Group’s results and financial position.
Decisions
of major central banks (including the Bank of England, the European
Central Bank and the US Federal Reserve) and political or market
events, which are outside NatWest Group’s control, may lead
to sharp and sudden variations in foreign exchange
rates.
Although
NatWest Group is principally a UK focused banking group, it is
subject to foreign exchange risk from capital deployed in NatWest
Group’s foreign subsidiaries, branches and joint arrangements
and customer transactions denominated in a currency other than the
functional currency of NatWest Group. NatWest Group also relies on
issuing securities in foreign currencies that assist in meeting
NatWest Group’s minimum requirements for own funds and
eligible liabilities (‘MREL’) and NWM Plc deals foreign
exchange instruments. NatWest Group maintains policies and
procedures designed to manage the impact of exposures to
fluctuations in currency rates. Nevertheless, changes in currency
rates, particularly in the sterling-US dollar and euro-sterling
rates, can adversely affect the value of assets, liabilities
(including the total amount MREL-eligible instruments), foreign
exchange dealing activity, income and expenses, RWAs and hence the
reported earnings and financial condition of NatWest
Group.
HM Treasury (or UKGI on its behalf) could exercise a significant
degree of influence over NatWest Group and further offers or sales
of NatWest Group’s shares held by HM Treasury may affect the
price of NatWest Group securities.
In its
March 2021 Budget, the UK Government announced its intention to
continue the process of privatisation of NatWest Group plc and to
carry out a programme of sales of NatWest Group plc ordinary shares
with the objective of selling all of its remaining shares in
NatWest Group plc by 2025-2026. As a result of a directed buyback
of NatWest Group plc shares by NatWest Group plc from UK Government
Investments Limited (‘UKGI’) in March 2021, sales of
NatWest Group plc shares by UKGI by accelerated bookbuild in May
2021 and purchases made under NatWest Group plc’s on-market
buyback programme announced in July 2021, as at 11 February 2022,
the UK Government held 50.94% of the issued share capital with
voting rights of NatWest Group plc. In addition to the £750
million on-market buyback announced on 18 February 2022, NatWest
Group may participate in further directed or on-market buybacks in
the future. The timing,
extent and continuation of UKGI’s sell-downs is uncertain,
which could result in a prolonged period of increased price
volatility on NatWest Group plc’s ordinary
shares.
Any
offers or sales of a substantial number of ordinary shares by UKGI,
market expectations about these sales and any associated directed,
on or off market buyback activity by NatWest Group, could affect
the prevailing market price for the outstanding ordinary shares of
NatWest Group plc.
HM
Treasury has indicated that it intends to respect the commercial
decisions of NatWest Group and that NatWest Group will continue to
have its own independent board of directors and management team
determining its own strategy. However, for as long as HM Treasury
remains the NatWest Group plc’s largest single shareholder,
HM Treasury and UKGI (as manager of HM Treasury’s
shareholding) could exercise a significant degree of influence over
the election of directors and appointment of senior management,
NatWest Group’s capital strategy, dividend policy,
remuneration policy or the conduct of NatWest Group’s
operations, amongst others. HM Treasury or UKGI’s approach
depends on government policy, which could change. The manner in
which HM Treasury or UKGI exercises HM Treasury’s rights as
the largest single shareholder could give rise to conflicts between
the interests of HM Treasury and the interests of other
shareholders, including as a result of a change in government
policy.
Strategic risk
NatWest Group continues to implement its purpose-led strategy,
which carries significant execution and operational risks and may
not achieve its stated aims and targeted outcomes.
In
February 2020, NatWest Group announced a new strategy, focused on
becoming a purpose-led business, designed to champion potential and
to help individuals, families and businesses to thrive. This
strategy is intended to reflect the rapidly shifting environment
and backdrop of unprecedented disruption in society driven by
technology and changing customer expectations, as accelerated by
the COVID-19 pandemic. The purpose-led strategy has required an
internal cultural shift across NatWest Group as to how performance
is perceived and how NatWest Group conducts its business. These
changes are substantial and will take many years to fully embed.
These changes may not result in the expected outcome within the
timeline and in the manner currently contemplated.
As part
of its purpose-led strategy, NatWest Group has set a number of
financial, capital and operational targets and expectations, both
for the short term and throughout the implementation period.
Meeting these targets and expectations requires further significant
reductions to NatWest Group’s cost base. Realising these cost
reductions may result in material strategic costs, which may be
more than currently expected. The continued focus on meeting cost
reduction targets may also mean limited investment in other areas,
which could affect NatWest Group’s long-term prospects,
product offering or competitive position, its ability to meet its
other targets and commitments (including those related to customer
satisfaction) and its capacity to respond to climate-related
risks.
NatWest
Group’s ability to meet its planned reductions in its annual
underlying costs may vary considerably from year to year. Any of
the factors above could jeopardise NatWest Group’s ability to
achieve its associated financial targets and generate sustainable
returns.
The
financial services industry is currently experiencing a trend
towards consolidation and technological advancement and disruption.
In pursuing its purpose-led strategy, NatWest Group may decide to
undertake divestments, restructurings or reorganisations of certain
of its customer segments. Conversely, it may decide to grow its
business through acquisitions, joint ventures, investments and/or
strategic partnerships as well as other transactions and
initiatives, in certain customer segments and including to: (i)
enhance capabilities that may lead to better productivity or cost
efficiencies; (ii) acquire talent; (iii) pursue new products or
expand existing products; or (iv) enter new markets or enhance its
presence in existing markets. There are risks that NatWest Group
may not fully realise the expected benefits and value from these
transactions and initiatives. In particular, NatWest Group may: (i)
fail to realise the business rationale for the transaction or
initiative, or assumptions underlying the business plans supporting
the valuation of a target business may prove inaccurate, for
example, synergies and expected commercial demand; (ii) fail to
successfully integrate any acquired businesses (including in
respect of technologies, existing strategies, products and human
capital); (iii) fail to retain key employees, customers and
suppliers of any acquired business; (iv) be required or wish to
terminate pre-existing contractual relationships, which could prove
costly and/or be executed at unfavourable terms and conditions; (v)
fail to discover certain contingent or undisclosed liabilities in
businesses that it acquires, or its due diligence to discover any
such liabilities may be inadequate; and (vi) not obtain necessary
regulatory and other approvals or onerous conditions may be
attached to such approvals. Accordingly, NatWest Group may not be
successful in growing its business through these types of
transactions and initiatives and any particular transaction may not
succeed, may be limited in scope or scale (including due to NatWest
Group’s current ownership structure) and may not conclude on
the terms contemplated, or at all. Any of the above may materially
and adversely affect NatWest Group’s results of operations,
financial condition or prospects.
NatWest
Group’s phased withdrawal from ROI continues to present
significant commercial, operational, legal and execution risks. In
particular, the phased withdrawal from ROI involves transfers of
business, assets and liabilities to third parties, and entails many
risks, the most significant of which include: (i) anticipated
reductions in net income, total lending and RWAs; (ii) potential
trapped or stranded capital; (iii) the diversion of management
resources and attention away from day-to-day management; (iv) the
recognition of disposal losses as part of the orderly run-down of
certain loan portfolios which may be higher than anticipated; (v)
execution risks arising from the significant uncertainties of a
phased withdrawal, including the additional IT and operational
expense and resource required to mitigate manual and limited
customer switching and handling processes of Ulster Bank Ireland
DAC, potential counterparties and other banks; (vi) customer action
or inaction, or the inability to obtain necessary approvals and/or
support from governmental authorities, regulators, trade unions
and/or other stakeholders resulting in additional cost, resource
and delays; (vii) potential loss of customers, resulting in retail
and commercial deposit outflows (or a failure to attract deposit
inflows) and reduced revenues and liquidity; (viii) increased
people risk through the potential loss of key colleagues and
institutional knowledge and increased challenges of attracting and
retaining colleagues; (ix) regulatory risk, including in relation
to prudential, conduct and other regulatory requirements; (x) no or
limited access to Euro system funding arrangements; and (xi) brand
and reputational risks due to press speculation and stakeholder
scrutiny about the phased withdrawal from ROI. Any of these risks
and uncertainties may cost more, be more complex or harder to
mitigate than currently estimated and may adversely affect NatWest
Group’s ability to execute a phased withdrawal from ROI, or
may affect the financial performance of NatWest Group.
On 27
January 2022, NatWest Group announced that, in order to further
support its customers’ growth ambitions and deliver on the
next phase of its strategy, it is evolving its Commercial, NatWest
Markets and RBS International businesses to form a single franchise
to best support its customers across the full non-personal customer
lifecycle. The transition is expected to begin over the coming
months and be effective from July 2022.
In
pursuing its strategy, NatWest Group may not be able to
successfully: (i) implement all aspects of its strategy; (ii) reach
any or all of the related targets or expectations of its strategy;
or (iii) realise the intended strategic objectives of any other
future strategic or growth initiative. The scale and scope of its
strategy and the intended changes continue to present material
business, operational (including compliance with the UK
ring-fencing regime), legal, execution, IT system, internal
culture, conduct and people risks to NatWest Group. Implementing
many changes and strategic actions concurrently, including in
respect of any growth initiatives, will require application of
robust governance and controls frameworks and robust IT systems;
there is a risk that NatWest Group may not be successful in these
respects. The implementation of the purpose-led strategy and any
other strategic initiatives could result in materially higher costs
than initially contemplated (including due to material
uncertainties and factors outside of NatWest Group’s control)
and may not be completed as planned, or at all, or could be phased
or could progress in a manner other than currently expected. This
could lead to additional management actions by NatWest
Group.
Changes
in the economic, political and regulatory environment in which
NatWest Group operates, or regulatory uncertainty and changes,
strong market competition and industry disruption or economic
volatility may require NatWest Group to adjust aspects of its
strategy or the timeframe for its implementation including in
relation to its financial, capital and operational targets and
expectations. As certain initiatives depend on achieving growth in
new ventures and opportunities for NatWest Group, its strategy is
vulnerable to an economic downturn. NatWest Group’s strategy
also requires ongoing confidence from customers and the wider
market, without which customer activity and related income levels
may fall or NatWest Group’s reputation may be adversely
affected.
Each of
these risks, and others identified in these Risk Factors,
individually or collectively could jeopardise the implementation
and delivery of the purpose-led strategy and other strategic
initiatives, result in higher than expected costs, impact NatWest
Group’s products and services offering, its reputation with
customers or business model and adversely impact NatWest
Group’s ability to deliver its strategy and meet its targets
and guidance, each of which could have a negative impact on NatWest
Group.
NatWest Group continues to refocus its NWM franchise, which entails
material execution, commercial and operational risks and the
intended benefits for NatWest Group may not be realised within the
timeline and in the manner currently contemplated.
Over
the past few years, as part of its purpose-led strategy, NatWest
Group has sought to implement a more strategically congruent and
economically sustainable model for its NWM franchise. As part of
this, NatWest Group has been refocusing the NWM franchise to
principally serve NatWest Group’s corporate and institutional
customer base. This requires NWM Group to simplify its operating
model and technology platform, as well as reduce its cost base and
capital requirements. NWM Group has also directed resources to
emphasising and growing product capability in the areas of
importance to NatWest Group’s corporate and institutional
customers, including the Fixed Income and Capital Markets
businesses, and has refocused its Rates business to best serve its
core customers.
In
addition, to improve efficiencies and best serve customers
following Brexit, NatWest Group expects that certain assets,
liabilities, transactions and activities of its Western European
corporate portfolio (principally including term funding and
revolving credit facilities), will be transferred from the
ring-fenced subgroup of NatWest Group to NWM Group on a rolling
basis, subject to certain regulatory and customer requirements. The
timing and quantum of these transfers remain uncertain as is the
impact of these transactions on its go-forward results of
operations. As a result, NatWest Group’s business, results of
operations, financial position and prospects could be adversely
affected.
NatWest
Group’s ability to serve its customers may be diminished by
the changed business strategy, as a result of the NWM Refocusing.
In addition, customer reactions to the changed nature of NWM
Group’s business model may be more adverse than expected and
previously anticipated revenue and profitability levels may not be
achieved in the timescale envisaged or at all. An adverse
macroeconomic environment (including due to the COVID-19 pandemic,
heightened inflation and rising interest rates), continued
political and regulatory uncertainty, market volatility and/or
strong market competition may also pose significant challenges to
the achievement of the anticipated targets and goals of the NWM
Refocusing.
The
implementation of the NWM Refocusing has been a complex process and
although substantial progress has been made, the risk remains that
this strategy may not result in the contemplated business outcome
and there continue to be material execution, commercial and
operational risks in connection with the NWM Refocusing. There may
continue to be material execution, commercial and operational risks
for NWM Group and NWM Group may continue to be subject to
significant structural and other change. There can be no certainty
that the NWM Refocusing will be successful or that NWM Group will
be a viable, competitive or profitable business. The intended
benefits for NatWest Group may not be realised within the timeline
and in the manner currently contemplated.
Trends relating to the COVID-19 pandemic may adversely affect
NatWest Group’s strategy and impair its ability to meet its
targets and strategic objectives.
The
trajectory of the COVID-19 pandemic’s impact on the UK and
global economy and NatWest Group remains uncertain. If trends
relating to the COVID-19 pandemic negatively impact the UK and
global economy, NatWest Group’s may be unable to meet its
financial, capital and operational targets and expectations. In
addition, the COVID-19 pandemic has, at times, caused significant
market volatility, which could cause RWA inflation for NatWest
Group. This could impair NatWest Group’s ability to timely
deliver on certain aspects of its purpose-led strategy, which may
have an adverse effect on NatWest Group’s business, results
of operations and outlook. See also, ‘NatWest Group continues to implement its
purpose-led strategy, which carries significant execution and
operational risks and may not achieve its stated aims and targeted
outcomes’.
It is
uncertain as to how the broader macroeconomic business environment
and societal norms may be impacted by the COVID-19 pandemic,
causing significant wider societal changes. For example, one of the
most notable effects of the COVID-19 pandemic has been its
disproportionate impact on the most vulnerable groups of society
and concerns about systemic racial biases and social
inequalities.
In
addition, the COVID-19 pandemic has accelerated existing economic
trends that may radically change the way businesses are run and
people live their lives. These trends include digitalisation,
decarbonisation, automation, e-commerce and agile working, each of
which has resulted in significant market volatility in asset
prices. There is also increased investor, regulatory and customer
scrutiny regarding how businesses address these changes and related
climate, environmental, social, governance and other sustainability
issues, including tackling inequality, working conditions,
workplace health, safety and wellbeing, diversity and inclusion,
data protection and management, workforce management, human rights
and supply chain management. Any failure or delay by NatWest Group
to successfully adapt its business strategy and to establish and
maintain effective governance, procedures, systems and controls in
response to these changes, and to manage emerging climate,
environmental, social, governance and other sustainability-related
risks and opportunities, may have a material adverse impact on
NatWest Group’s reputation, business, results of operations,
outlook and the value of NatWest Group’s securities. See
also, ‘Any failure by
NatWest Group to implement effective and compliant climate change
resilient systems, controls and procedures could adversely affect
NatWest Group’s ability to manage climate-related
risks’ and ‘A
failure to adapt NatWest Group’s business strategy,
governance, procedures, systems and controls to manage emerging
sustainability-related risks and opportunities may have a material
adverse effect on NatWest Group, its reputation, business, results
of operations and outlook’.
The
COVID-19 pandemic may also result in unexpected developments or
changes in financial markets, the fiscal, tax and regulatory
frameworks and consumer customer and corporate client behaviour,
which could intensify competition in the financial services
industry. This could negatively impact NatWest Group if it is not
able to adapt or compete effectively.
Financial resilience risk
NatWest Group may not meet the targets it communicates or be in a
position to continue to make discretionary capital distributions
(including dividends to shareholders).
As part
of NatWest Group’s strategy, NatWest Group has set a number
of financial, capital and operational targets for NatWest Group
including in respect of: CET1 ratio targets, MREL targets, return
on tangible equity (‘ROTE’), funding plans and
requirements, employee engagement, diversity and inclusion as well
as ESG (including climate and sustainable funding and financing
targets) and customer satisfaction targets and discretionary
capital distributions (including dividends to
shareholders).
See
also, ‘NatWest Group
continues to implement its purpose-led strategy, which carries
significant execution and operational risks and may not achieve its
stated aims and targeted outcomes’.
NatWest
Group’s ability to meet its targets and to successfully meet
its strategy is subject to various internal and external factors
and risks. These include but are not limited to: the impact of the
COVID-19 pandemic, market, regulatory, macroeconomic and political
uncertainties, operational risks and risks relating to NatWest
Group’s business model and strategy (including risks
associated with climate, environmental, social, governance and
other sustainability-related issues) and litigation, governmental
actions, investigations and regulatory matters.
A
number of factors, including the economic and other effects of the
COVID-19 pandemic, may impact NatWest Group’s ability to
maintain its CET1 ratio target and make discretionary capital
distributions. See also, ‘NatWest Group may not meet the prudential
regulatory requirements for capital and MREL, or manage its capital
effectively, which could trigger the execution of certain
management actions or recovery options’.
There
is a risk that NatWest Group may not meet its targets and
expectations or be in a position to continue to distribute capital,
or that NatWest Group will be a viable, competitive or profitable
banking business.
NatWest Group operates in markets that are highly competitive, with
increasing competitive pressures and technology
disruption.
The
markets within which NatWest Group operates are highly competitive.
NatWest Group expects such competition to continue and intensify in
response to various changes. These include: evolving customer
behaviour, technological changes (including digital currencies,
stablecoins and the growth of digital banking, such as from fintech
entrants), competitor behaviour, new entrants to the market
(including non-traditional financial services providers such as
large retail or technology conglomerates, who may have competitive
advantages in scale, technology and customer engagement),
competitive foreign-exchange offerings, industry trends resulting
in increased disaggregation or unbundling of financial services or
conversely the re-intermediation of traditional banking services,
and the impact of regulatory actions and other factors. In
particular, developments in the financial sector resulting from new
banking, lending and payment solutions offered by rapidly evolving
incumbents, challengers and new entrants, notably with respect to
payment services and products, and the introduction of disruptive
technology may impede NatWest Group’s ability to grow or
retain its share and impact its revenues and profitability,
particularly in its key UK retail and commercial banking segments.
Moreover, innovations such as biometrics, artificial intelligence,
the cloud, blockchain, cryptocurrencies and quantum computing may
rapidly facilitate industry transformation.
These
trends have accelerated during the COVID-19 pandemic and may be
catalysed by various regulatory and competition policy
interventions, including the UK initiative on Open Banking (PSD2),
Open Finance and other remedies imposed by the Competition and
Markets Authority (CMA) which are designed to further promote
competition within retail banking. The competition enhancing
measures under NatWest Group’s independently administered
Alternative Remedies Package (‘ARP’) benefits grant
recipients and eligible competitors. The ARP may be more costly
than anticipated and may adversely impact customer service for
NatWest Group’s own customers, its competitive position and
reputation. Failure to comply with the terms of the scheme could
result in the imposition of additional measures or limitations on
NatWest Group’s operations, additional supervision by NatWest
Group’s regulators, and loss of investor
confidence.
Increasingly
many of the products and services offered by NatWest Group are, and
will become, more technology intensive. For example, NatWest Group
recently invested in a number of fintech ventures, including
Mettle, FreeAgent, Tyl, Rapid Cash and Rooster Money. See also,
‘NatWest Group continues to
implement its purpose-led strategy, which carries significant
execution and operational risks and may not achieve its stated aims
and targeted outcomes’. NatWest Group’s ability
to develop such digital solutions (which also need to comply with
applicable and evolving regulations) has become increasingly
important to retaining and growing NatWest Group’s customer
business in the UK. There can be no certainty that NatWest
Group’s innovation strategy (which includes investment in its
IT capability intended to address the material increase in customer
use of online and mobile technology for banking as well as
selective acquisitions, which carry associated risks) will be
successful or that it will allow NatWest Group to continue to grow
such services in the future. Certain of NatWest Group’s
current or future competitors may be more successful in
implementing innovative technologies for delivering products or
services to their customers. NatWest Group may also fail to
identify future opportunities or derive benefits from disruptive
technologies in the context of rapid technological innovation,
changing customer behaviour and growing regulatory demands,
resulting in increased competition from traditional banking
businesses as well as new providers of financial services,
including technology companies with strong brand recognition, that
may be able to develop financial services at a lower cost
base.
NatWest
Group’s competitors may also be better able to attract and
retain customers and key employees, may have better IT systems, and
may have access to lower cost funding and/or be able to attract
deposits on more favourable terms than NatWest Group. Although
NatWest Group invests in new technologies and participates in
industry and research led initiatives aimed at developing new
technologies, such investments may be insufficient or ineffective,
especially given NatWest Group’s focus on its cost savings
targets. This may limit additional investment in areas such as
financial innovation and could therefore affect NatWest
Group’s offering of innovative products or technologies for
delivering products or services to customers and its competitive
position. Furthermore, the development of innovative products
depends on NatWest Group’s ability to produce underlying
high-quality data, failing which its ability to offer innovative
products may be compromised.
If
NatWest Group is unable to offer competitive, attractive and
innovative products that are also profitable and timely, it will
lose share, incur losses on some or all of its activities and lose
opportunities for growth. In this context, NatWest Group is
investing in the automation of certain solutions and interactions
within its customer-facing businesses, including through artificial
intelligence. Such initiatives may result in operational,
reputational and conduct risks if the technology used is defective,
inadequate or is not fully integrated into NatWest Group’s
current solutions. There can be no certainty that such initiatives
will deliver the expected cost savings and investment in automated
processes will likely also result in increased short-term costs for
NatWest Group.
In
addition, the implementation of its purpose-led strategy (including
in relation to acquisitions, reorganisations and/or partnerships),
delivery on its climate ambition, cost-reduction measures, as well
as employee remuneration constraints, may also have an impact on
its ability to compete effectively and intensified competition from
incumbents, challengers and new entrants could affect NatWest
Group’s ability to maintain satisfactory returns. Moreover,
activist investors have increasingly become engaged and
interventionist in recent years, which may pose a threat to NatWest
Group’s strategic initiatives. Furthermore, continued
consolidation or technological or other developments in certain
sectors of the financial services industry could result in NatWest
Group’s remaining competitors gaining greater capital and
other resources, including the ability to offer a broader range of
products and services and geographic diversity, or the emergence of
new competitors.
The impact of the COVID-19 pandemic on the credit quality of
NatWest Group’s counterparties may negatively impact NatWest
Group.
The
effects of the COVID-19 pandemic have adversely affected the credit
quality of some of NatWest Group’s borrowers and other
counterparties, and government support schemes may delay the
effects of defaults by such counterparties. As government support
schemes reduce, defaults are expected to rise with more customers
moving from IFRS 9 Stage 2 to Stage 3. As a result, NatWest Group
continues to experience elevated exposure to credit risk and
demands on its funding, and the long-term effects remain uncertain.
If borrowers or other counterparties face increasing levels of debt
and default or suffer deterioration in credit, this would increase
impairment charges, write-downs, regulatory expected loss and
impact credit reserves. See also, ‘NatWest Group has significant exposure to
counterparty and borrower risk’ and ‘NatWest Group’s financial
statements are sensitive to the underlying accounting policies,
judgments, estimates and assumptions’.
In line
with certain mandated COVID-19 pandemic support schemes, NatWest
Group has sought to assist affected customers with a number of
initiatives including NatWest Group’s participation in BBLS,
CBILS and CLBILS products. NatWest Group has sought to manage the
risks of fraud and money laundering against the need for the fast
and efficient release of funds to customers and businesses. NatWest
Group may be exposed to fraud, conduct and litigation risks arising
from inappropriate approval (or denial) of BBLS or CBILS or the
enforcing or pursuing repayment of BBLS and CBILS (or a failure to
exercise forbearance), which may have an adverse effect on NatWest
Group’s reputation and results of operations. The
implementation of the initiatives and efforts mentioned above may
result in litigation, regulatory and government actions and
proceedings. These actions may result in judgments, settlements,
penalties or fines.
Any of
the above may have a negative impact on NatWest Group.
NatWest Group has significant exposure to counterparty and borrower
risk.
NatWest
Group has exposure to many different industries, customers and
counterparties, and risks arising from actual or perceived changes
in credit quality and the recoverability of monies due from
borrowers and other counterparties are inherent in a wide range of
NatWest Group’s businesses. NatWest Group’s lending
strategy and associated processes may fail to identify or
anticipate weaknesses or risks in a particular sector, market or
borrower, or fail to adequately value physical or financial
collateral. This may result in increased default rates or a higher
loss given default for loans, which may, in turn, impact NatWest
Group’s profitability. See also, ‘Risk and capital management — Credit
Risk’.
The
credit quality of NatWest Group’s borrowers and other
counterparties may be affected by a deterioration in prevailing
economic and market conditions (including those caused by the
COVID-19 pandemic) and by the legal and regulatory landscape in the
UK and countries where NatWest Group is exposed to credit risk and
any deterioration in such conditions or changes to legal or
regulatory landscapes (including the extent of the UK’s
post-Brexit divergence from EU laws and regulation). These could
worsen borrower and counterparty credit quality or impact the
enforcement of contractual rights over security, increasing credit
risk.
An
increase in drawings upon committed credit facilities may also
increase NatWest Group’s RWAs. In addition, the level of
household indebtedness in the UK remains high. The ability of
households to service their debts could be worsened by a period of
high unemployment (including as a result of the COVID-19 pandemic),
increasing interest rates and higher inflation, particularly if
prolonged. NatWest Group may be affected by volatility in property
prices (including as a result of the general UK political or
economic climate or the COVID-19 pandemic) given that NatWest
Group’s mortgage loan and wholesale property loan portfolios
as at 31 December 2021, amounted to £226.5 billion,
representing 61% of
NatWest Group’s total customer loan exposure. If property
prices were to weaken this could lead to higher impairment charges,
particularly if default rates also increase. In addition, NatWest
Group’s credit risk may be exacerbated if the collateral that
it holds cannot be realised as a result of market conditions or
regulatory intervention or if it is liquidated at prices not
sufficient to recover the net amount after accounting for any IFRS
9 provisions already made. This is most likely to occur during
periods of illiquidity or depressed asset valuations.
Concerns
about, or a default by, a financial institution could lead to
significant liquidity problems and losses or defaults by other
financial institutions, since the commercial and financial
soundness of many financial institutions is closely related and
interdependent as a result of credit, trading, clearing and other
relationships. Any perceived lack of creditworthiness of a
counterparty may lead to market-wide liquidity problems and losses
for NatWest Group. This systemic risk may also adversely affect
financial intermediaries, such as clearing agencies, clearing
houses, banks, securities firms and exchanges with which NatWest
Group interacts on a daily basis. See also, ‘NatWest Group may not be able to adequately
access sources of liquidity and funding’.
As a
result, adverse changes in borrower and counterparty credit risk
may cause accelerated impairment charges under IFRS 9, increased
repurchase demands, higher costs, additional write-downs and losses
for NatWest Group and an inability to engage in routine funding
transactions.
NatWest
Group has applied an internal analysis of multiple economic
scenarios (MES) together with the determination of specific overlay
adjustments to inform its IFRS 9 ECL (Expected Credit Loss). The
recognition and measurement of ECL is complex and involves the use
of significant judgment and estimation. This includes the
formulation and incorporation of multiple forward-looking economic
scenarios into ECL to meet the measurement objective of IFRS 9. The
ECL provision is sensitive to the model inputs and economic
assumptions underlying the estimate. Going forward, NatWest Group
anticipates observable credit deterioration of a proportion of
assets resulting in a systematic uplift in defaults, which is
mitigated by those economic assumption scenarios being reflected in
the Stage 2 ECL across portfolios, along with a combination of post
model overlays in both wholesale and retail portfolios reflecting
the uncertainty of credit outcomes. See also, ‘Risk and capital management’. A
credit deterioration would also lead to RWA increases. Furthermore,
the assumptions and judgments used in the MES and ECL assessment at
31 December 2021 may not prove to be adequate resulting in
incremental ECL provisions for NatWest Group. As government support
schemes reduce, defaults are expected to rise with more ECLs cases
moving from Stage 2 to Stage 3.
NatWest
Group is exposed to the financial industry, including sovereign
debt securities, banks, financial intermediation providers
(including providing facilities to financial sponsors and funds,
backed by assets or investor commitments) and securitised products
(typically senior lending to special purpose vehicles backed by
pools of financial assets). Due to NatWest Group’s exposure
to the financial industry, it also has exposure to shadow banking
entities (i.e., entities which carry out banking activities outside
a regulated framework). NatWest Group is required to identify and
monitor its exposure to shadow banking entities, implement and
maintain an internal framework for the identification, management,
control and mitigation of the risks associated with exposure to
shadow banking entities, and ensure effective reporting and
governance in respect of such exposure. If NatWest Group is unable to
properly identify and monitor its shadow banking exposure, maintain
an adequate framework, or ensure effective reporting and governance
in respect of shadow banking exposure, this may adversely affect
the business, results of operations and outlook of NatWest
Group.
If
NatWest Group experiences losses and a reduction in future
profitability, this is likely to affect the recoverable value of
fixed assets, including goodwill and deferred taxes, which may lead
to further write-downs.
NatWest Group may not meet the prudential regulatory requirements
for capital and MREL, or manage its capital effectively, which
could trigger the execution of certain management actions or
recovery options.
NatWest
Group is required by regulators in the UK, the EU and other
jurisdictions in which it undertakes regulated activities to
maintain adequate financial resources. Adequate capital provides
NatWest Group with financial flexibility in the face of turbulence
and uncertainty in the global economy and specifically in its core
UK operations. It also permits NatWest Group plc to make
discretionary capital distributions (including dividends to
shareholders).
As at
31 December 2021, NatWest Group plc’s CET1 ratio was 18.2%
and NatWest Group plc currently targets a CET1 ratio of 13-14% by
the end of 2023. NatWest Group plc’s target capital ratio is
based on a combination of its expected regulatory requirements and
internal modelling, including stress scenarios and
management’s and/or the Prudential Regulatory
Authority’s (‘PRA’) views on appropriate buffers
above minimum operating levels.
NatWest
Group plc’s current capital strategy is based on the expected
accumulation of additional capital through the accrual of profits
over time, planned capital actions (including issuances,
redemptions, and discretionary capital distributions), RWA growth
in the form of regulatory uplifts and lending growth and other
capital management initiatives which focus on improving capital
efficiency and ensuring NatWest Group meets its medium to long term
targets.
A
number of factors may impact NatWest Group plc’s ability to
maintain its current CET1 ratio target and achieve its capital
strategy. These include, amongst other things:
-
a depletion of its
capital resources through increased costs or liabilities or reduced
profits;
-
an increase in the
quantum of RWAs in excess of that expected, including due to
regulatory changes, or a failure in internal controls or procedures
to accurately measure and report RWAs;
-
changes in
prudential regulatory requirements including NatWest Group
plc’s Total Capital Requirement set by the PRA, including
Pillar 2 requirements and regulatory buffers as well as any
applicable scalars;
-
reduced dividends
from NatWest Group’s subsidiaries because of changes in their
financial performance and/or the extent to which local capital
requirements exceed NatWest Group plc’s target ratio; and
limitations on the use of double leverage, i.e. NatWest Group
plc’s use of debt to invest in the equity of its
subsidiaries, as a result of the Bank of England’s and/or
NatWest Group’s evolving views on distribution of capital
within groups.
A
shortage of capital could in turn affect NatWest Group plc’s
capital ratio, and/or its ability to make capital
distributions.
A
minimum level of capital adequacy is required to be met by NatWest
Group plc for it to be entitled to make certain discretionary
payments, and institutions which fail to meet the combined buffer
requirement are subject to restricted discretionary payments. The
resulting restrictions are scaled according to the extent of the
breach of the combined buffer requirement and calculated as a
percentage of the profits of the institution since the last
distribution of profits or discretionary payment which gives rise
to a maximum distributable amount (MDA) (if any) that the financial
institution can distribute through discretionary payments. Any
breach of the combined buffer requirement, may necessitate for
NatWest Group plc reducing or ceasing discretionary payments
(including payments of dividends to shareholders) to the extent of
the breach.
NatWest
Group is required to maintain a set quantum of MREL set as the
higher of its RWAs or leverage requirement. The Bank of England has
identified single point-of-entry as the preferred resolution
strategy for NatWest Group. As a result, NatWest Group plc is the
only entity that can externally issue securities that count towards
its MREL requirements, the proceeds of which can then be
downstreamed to meet the internal MREL issuance requirements of its
operating entities and intermediate holding companies.
If
NatWest Group plc is unable to raise the requisite amount of
regulatory capital or MREL, downstream the proceeds of MREL to
subsidiaries as required, or to otherwise meet its regulatory
capital, MREL and leverage requirements, it may be exposed to
increased regulatory supervision or sanctions, loss of investor
confidence, constrained or more expensive funding and be unable to
make dividend payments on its ordinary shares or maintain
discretionary payments on capital instruments.
If,
under a stress scenario, the level of capital or MREL falls outside
of risk appetite, there are a range of recovery management actions
(focused on risk reduction and mitigation) that NatWest Group could
take to manage its capital levels, but any such actions may not be
sufficient to restore adequate capital levels. Under the EU Bank
Recovery and Resolution Directives I and II (‘BRRD’),
as implemented in the UK, NatWest Group must maintain a recovery
plan acceptable to its regulator, such that a breach of NatWest
Group’s applicable capital or leverage requirements may
trigger the application of NatWest Group’s recovery plan to
remediate a deficient capital position. NatWest Group’s
regulator may request that NatWest Group carry out certain capital
management actions or, if NatWest Group plc’s CET1 ratio
falls below 7%, certain
regulatory capital instruments issued by NatWest Group will be
written-down or converted into equity and there may be an issue of
additional equity by NatWest Group plc, which could result in the
dilution of the holdings of NatWest Group plc’s existing
shareholders. The success of such issuances will also be dependent
on favourable market conditions and NatWest Group may not be able
to raise the amount of capital required on acceptable terms or at
all. Separately, NatWest Group may address a shortage of capital by
taking action to reduce leverage exposure and/or RWAs via asset or
business disposals. These actions may, in turn, affect, among other
things, NatWest Group’s product offering, credit ratings,
ability to operate its businesses, pursue its current strategies
and pursue strategic opportunities, any of which may affect the
underlying profitability of NatWest Group and future growth
potential. See also, ‘NatWest Group may become subject to the
application of UK statutory stabilisation or resolution powers
which may result in, among other actions, the cancellation,
transfer or dilution of ordinary shares, or the write-down or
conversion of certain other of NatWest Group’s
securities’.
NatWest Group is subject to Bank of England and PRA oversight in
respect of resolution, and NatWest Group could be adversely
affected should the Bank of England deem NatWest Group’s
preparations to be inadequate.
NatWest
Group is subject to regulatory oversight by the Bank of England and
the PRA, and is required (under the PRA rulebook) to carry out an
assessment of its preparations for resolution, submit a report of
the assessment to the PRA, and disclose a summary of this report.
The initial report was submitted to the PRA on 30 September 2021
and the Bank of England’s assessment of NatWest Group’s
preparations is scheduled to be released on 10 June 2022 although
the Bank of England may provide feedback before then.
NatWest
Group has dedicated significant resources towards the preparation
of NatWest Group for a potential resolution scenario. However, if
the Bank of England assessment identifies a significant gap in
NatWest Group’s ability to achieve the resolvability
outcomes, or reveals that NatWest Group is not adequately prepared
to be resolved, or did not have adequate plans in place to meet
resolvability requirements which came into effect on 1 January
2022, NatWest Group may be required to take action to enhance its
preparations to be resolvable, resulting in additional costs and
the dedication of additional resources. Such a scenario may have an
impact on NatWest Group as, depending on the Bank of
England’s assessment, potential action may include, but is
not limited to, restrictions on NatWest Group’s maximum
individual and aggregate exposures, a requirement to dispose of
specified assets, a requirement to change legal or operational
structure, a requirement to cease carrying out certain activities
and/or maintaining a specified amount of MREL, consequently
impacting NatWest Group’s strategic plans and having an
adverse effect on the financial position and/or reputation of
NatWest Group or a loss of investor confidence.
NatWest Group may not be able to adequately access sources of
liquidity and funding.
NatWest
Group is required to access sources of liquidity and funding
through retail and wholesale deposits, as well as through the debt
capital markets. As at 31 December 2021, NatWest Group plc held
£506.1 billion in deposits. The level of deposits may
fluctuate due to factors outside NatWest Group’s control,
such as a loss of investor confidence (including in individual
NatWest Group entities), sustained low or negative interest rates,
government support, increasing competitive pressures for retail and
corporate customer deposits or the reduction or cessation of
deposits by wholesale depositors, which could result in a
significant outflow of deposits within a short period of time. An
inability to grow or any material decrease in NatWest Group’s
deposits could, particularly if accompanied by one of the other
factors described above, materially affect NatWest Group’s
ability to satisfy its liquidity or funding needs. In turn, this
could require NatWest Group to adapt its funding
plans.
The
effects of the COVID-19 pandemic, current economic uncertainties
and any significant market volatility could affect NatWest
Group’s ability to access sources of liquidity and funding,
which may result in higher funding costs and failure to comply with
regulatory capital, funding and leverage requirements. As a result, NatWest
Group and its subsidiaries could be required to adapt their funding
plans. This
could exacerbate funding and liquidity risk, which could have a
negative effect on NatWest Group.
As at
31 December 2021, NatWest Group plc’s liquidity coverage
ratio was 172%. If its liquidity position were to come under
stress, and if NatWest Group plc were unable to raise funds through
deposits or in the debt capital markets on acceptable terms or at
all, its liquidity position could be adversely affected and it
might be unable to meet deposit withdrawals on demand or at their
contractual maturity, to repay borrowings as they mature, to meet
its obligations under committed financing facilities, to comply
with regulatory funding requirements, to undertake certain capital
and/or debt management activities, or to fund new loans,
investments and businesses. NatWest Group may need to liquidate
unencumbered assets to meet its liabilities, including disposals of
assets not previously identified for disposal to reduce its funding
commitments or trigger the execution of certain management actions
or recovery options. In a time of reduced liquidity, NatWest Group
may be unable to sell some of its assets, or may need to sell
assets at depressed prices, which in either case could negatively
affect NatWest Group’s results.
Any reduction in the credit rating and/or outlooks assigned to
NatWest Group plc, any of its subsidiaries or any of their
respective debt securities could adversely affect the availability
of funding for NatWest Group, reduce NatWest Group’s
liquidity position and increase the cost of funding.
Rating
agencies regularly review NatWest Group plc and other NatWest Group
entity credit ratings and outlooks, which could be negatively
affected by a number of factors that can change over time,
including: the credit rating agency’s assessment of NatWest
Group’s strategy and management’s capability; its
financial condition including in respect of profitability, asset
quality, capital, funding and liquidity; the level of political
support for the industries in which NatWest Group operates; the
implementation of structural reform; the legal and regulatory
frameworks applicable to NatWest Group’s legal structure;
business activities and the rights of its creditors; changes in
rating methodologies; changes in the relative size of the
loss-absorbing buffers protecting bondholders and depositors; the
competitive environment, political and economic conditions in
NatWest Group’s key markets (including the impact of the
COVID-19 pandemic and any further Scottish independence
referendum); any reduction of the UK’s sovereign credit
rating and market uncertainty.
In
addition, credit ratings agencies are increasingly taking into
account sustainability-related factors, including climate,
environmental, social and governance related risk, as part of the
credit ratings analysis, as are investors in their investment
decisions.
Any
reductions in the credit ratings of NatWest Group plc or of certain
other NatWest Group entities, including, in particular, downgrades
below investment grade, or a deterioration in the capital
markets’ perception of NatWest Group’s financial
resilience could significantly affect NatWest Group’s access
to money markets, reduce the size of its deposit base and trigger
additional collateral or other requirements in derivatives
contracts and other secured funding arrangements or the need to
amend such arrangements, which could adversely affect NatWest
Group’s (and, in particular, NatWest Group plc’s) cost
of funding and its access to capital markets and could limit the
range of counterparties willing to enter into transactions with
NatWest Group (and, in particular, with NatWest Group plc). This
could in turn adversely impact NatWest Group’s competitive
position and threaten its prospects in the short to
medium-term.
NatWest Group may be adversely affected if it fails to meet the
requirements of regulatory stress tests.
NatWest
Group is subject to annual stress tests by its regulator in the UK
and is also subject to stress tests by European regulators with
respect to NWM N.V. and Ulster Bank Ireland DAC. Stress tests are
designed to assess the resilience of banks to potential adverse
economic or financial developments and ensure that they have
robust, forward-looking capital planning processes that account for
the risks associated with their business profile. If the stress
tests reveal that a bank’s existing regulatory capital
buffers are not sufficient to absorb the impact of the stress, then
it is possible that the bank will need to take action to strengthen
its capital position.
Failure
by NatWest Group to meet the quantitative and qualitative
requirements of the stress tests as set forth by its UK regulator
or those elsewhere may result in: NatWest Group’s regulators
requiring NatWest Group to generate additional capital,
reputational damage, increased supervision and/or regulatory
sanctions, restrictions on capital distributions and loss of
investor confidence.
NatWest Group’s results could be adversely affected if an
event triggers the recognition of a goodwill
impairment. NatWest Group capitalises goodwill, which is
calculated as the excess of the cost of an acquisition over the net
fair value of the identifiable assets, liabilities and contingent
liabilities acquired. Acquired goodwill is recognised at cost less
any accumulated impairment losses. As required by IFRS, NatWest
Group tests goodwill for impairment at least annually, or more
frequently when events or circumstances indicate that it might be
impaired.
An
impairment test compares the recoverable amount (the higher of the
value in use and fair value less cost to sell) of an individual
cash generating unit with its carrying value. At 31 December 2021,
NatWest Group plc carried goodwill of £5.5 billion on its
balance sheet. The value in use and fair value of NatWest
Group’s cash-generating units are affected by market
conditions, the economies in which NatWest Group operates and may
also be affected by the COVID-19 pandemic.
The
goodwill held by NatWest Group plc relies on management’s
assumptions on future profitability. Goodwill is particularly
sensitive to changes in assumed future profitability. If actual
performance were to fall below management’s forecasts, then
there is a risk that an impairment of goodwill would become
necessary.
Where
NatWest Group is required to recognise a goodwill impairment, it is
recorded in NatWest Group’s income statement, but it has no
effect on NatWest Group’s regulatory capital position.
Changes in such assumptions may result in the carrying balance
being impaired, which could have a negative impact on NatWest
Group.
NatWest Group could incur losses or be required to maintain higher
levels of capital as a result of limitations or failure of various
models.
Given
the complexity of NatWest Group’s business, strategy and
capital requirements, NatWest Group relies on analytical and other
models for a wide range of purposes, including to manage its
business, assess the value of its assets and its risk exposure, as
well as to anticipate capital and funding requirements (including
to facilitate NatWest Group’s mandated stress testing). In
addition, NatWest Group utilises models for valuations, credit
approvals, calculation of loan impairment charges on an IFRS 9
basis, financial reporting and for financial crime (criminal
activities in the form of money laundering, terrorist financing,
bribery and corruption, tax evasion and sanctions as well as fraud risk
management (collectively, ‘financial
crime’)). NatWest Group’s models, and the parameters
and assumptions on which they are based, are periodically reviewed
and updated to maximise their accuracy.
As
models analyse scenarios based on assumed inputs and a conceptual
approach, model outputs therefore remain uncertain. Failure of
models (including due to errors in model design) or new data inputs
(including non-representative data sets), for example, to
accurately reflect changes in the micro and macroeconomic
environment in which NatWest Group operates (for example to account
for the impact of the COVID-19 pandemic), to capture risks and
exposures at the subsidiary level and to update for changes to
NatWest Group’s current business model or operations, or for
findings of deficiencies by NatWest Group’s regulators
(including as part of NatWest Group’s mandated stress
testing), may render some business lines uneconomic, result in
increased capital requirements, may require management action or
may subject NatWest Group to regulatory sanction. NatWest Group may
also face adverse consequences as a result of actions based on
models that are poorly developed, implemented or used, models that
are based on inaccurate or compromised data or as a result of the
modelled outcome being misunderstood, or by such information being
used for purposes for which it was not designed.
NatWest Group’s financial statements are sensitive to the
underlying accounting policies, judgments, estimates and
assumptions.
The
preparation of financial statements requires management to make
judgments, estimates and assumptions that affect the reported
amounts of assets, liabilities, income, expenses, exposures and
RWAs. While estimates, judgments and assumptions take into account
historical experience and other factors, (including market practice
and expectations of future events that are believed to be
reasonable under the circumstances), actual results may differ due
to the inherent uncertainty in making estimates, judgments and
assumptions (particularly those involving the use of complex
models).
The
accounting policies deemed critical to NatWest Group’s
results and financial position, based upon materiality and
significant judgments and estimates, which include loan impairment
provisions, are set out in ‘Critical accounting policies and key
sources of estimation uncertainty’. New accounting
standards and interpretations that have been issued by the
International
Accounting
Standards Board but which have not yet been adopted by NatWest
Group are discussed in ‘Future accounting
developments’.
Changes in accounting standards may materially impact NatWest
Group’s financial results.
Changes
in accounting standards or guidance by accounting bodies or in the
timing of their implementation, whether immediate or foreseeable,
could result in NatWest Group having to recognise additional
liabilities on its balance sheet, or in further write-downs or
impairments to its assets and could also significantly impact the
financial results, condition and prospects of NatWest
Group.
The
valuation of financial instruments, including derivatives, measured
at fair value can be subjective, in particular where models are
used which include unobservable inputs. Generally, to establish the
fair value of these instruments, NatWest Group relies on quoted
market prices or, where the market for a financial instrument is
not sufficiently credible, internal valuation models that utilise
observable market data. In certain circumstances, the data for
individual financial instruments or classes of financial
instruments utilised by such valuation models may not be available
or may become unavailable due to prevailing market conditions. In
these circumstances, NatWest Group’s internal valuation
models require NatWest Group to make assumptions, judgments and
estimates to establish fair value, which are complex and often
relate to matters that are inherently uncertain.
The value or effectiveness of any credit protection that NatWest
Group has purchased depends on the value of the underlying assets
and the financial condition of the insurers and
counterparties.
NatWest
Group has some remaining credit exposure arising from
over-the-counter derivative contracts, mainly credit default swaps
(CDSs), and other credit derivatives, each of which are carried at
fair value. The fair value of these CDSs, as well as NatWest
Group’s exposure to the risk of default by the underlying
counterparties, depends on the valuation and the perceived credit
risk of the instrument against which protection has been bought.
Many market counterparties have been adversely affected by their
exposure to residential mortgage-linked and corporate credit
products, whether synthetic or otherwise, and their actual and
perceived creditworthiness may deteriorate rapidly. If the
financial condition of these counterparties or their actual or
perceived creditworthiness deteriorates, NatWest Group may record
further credit valuation adjustments on the credit protection
bought from these counterparties under the CDSs. NatWest Group also
recognises any fluctuations in the fair value of other credit
derivatives. Any such adjustments or fair value changes may have a
negative impact on NatWest Group’s results.
NatWest Group may become subject to the application of UK statutory
stabilisation or resolution powers which may result in, among other
actions, the cancellation, transfer or dilution of ordinary shares,
or the write-down or conversion of certain other of NatWest
Group’s securities.
HM
Treasury, the Bank of England and the PRA and FCA (together, the
‘Authorities’) are granted substantial powers to
resolve and stabilise UK-incorporated financial institutions. Five
stabilisation options exist: (i) transfer of all of the business of
a relevant entity or the shares of the relevant entity to a private
sector purchaser; (ii) transfer of all or part of the business of
the relevant entity to a ‘bridge bank’ wholly-owned by
the Bank of England; (iii) transfer of part of the assets, rights
or liabilities of the relevant entity to one or more asset
management vehicles for management of the transferor’s
assets, rights or liabilities; (iv) the write-down, conversion,
transfer, modification, or suspension of the relevant
entity’s equity, capital instruments and liabilities; and (v)
temporary public ownership of the relevant entity. These tools may
be applied to NatWest Group plc as the parent company or an
affiliate where certain conditions are met (such as, whether the
firm is failing or likely to fail, or whether it is reasonably
likely that action will be taken (outside of resolution) that will
result in the firm no longer failing or being likely to fail).
Moreover, there are modified insolvency and administration
procedures for relevant entities, and the Authorities have the
power to modify or override certain contractual arrangements in
certain circumstances and amend the law for the purpose of enabling
their powers to be used effectively and may promulgate provisions
with retrospective applicability.
Under
the UK Banking Act, the Authorities are generally required to have
regard to specified objectives in exercising the powers provided
for by the Banking Act. One of the objectives (which is required to
be balanced as appropriate with the other specified objectives)
refers to the protection and enhancement of the stability of the
financial system of the UK. Moreover, the ‘no creditor worse
off’ safeguard contained in the Banking Act may not apply in
relation to an application of the separate write-down and
conversion power relating to capital instruments under the Banking
Act, in circumstances where a stabilisation power is not also used.
Holders of debt instruments which are subject to the power may,
however, have ordinary shares transferred to or issued to them by
way of compensation.
Uncertainty
exists as to how the Authorities may exercise their powers
including the determination of actions undertaken in relation to
the ordinary shares and other securities of NatWest Group, which
may depend on factors outside of NatWest Group’s control.
Moreover, the Banking Act provisions remain untested in
practice.
If
NatWest Group is at or is approaching the point of non-viability
such that regulatory intervention is required, any exercise of the
resolution regime powers by the Authorities may adversely affect
holders of NatWest Group plc’s ordinary shares or other
NatWest Group securities. This may result in various actions being
undertaken in relation to NatWest Group and any securities of
NatWest Group, including cancellation, transfer, dilution,
write-down or conversion (as applicable). There may also be a
corresponding adverse effect on the market price of such
securities.
Climate and sustainability-related risks
NatWest Group and its customers face significant climate-related
risks, including in transitioning to a net zero economy, which may
adversely impact NatWest Group.
Climate-related
risks and uncertainties are continuing to receive increasing
regulatory, judicial, political and societal scrutiny.
Financial
and non-financial risks from climate change arise through physical
and transition risks. Furthermore, NatWest Group may also face a
variety of climate-related legal risks, both physical and
transition, from potential litigation and conduct liability. See
also, ‘NatWest Group may be
subject to potential climate, environmental and other
sustainability-related litigation, enforcement proceedings,
investigations and conduct risk’.
There
are significant uncertainties as to the extent and timing of the
manifestation of the physical risks of climate change, such as more
severe and frequent extreme weather events (flooding, subsidence,
heat waves and long-lasting wildfires), rising sea levels,
biodiversity loss and resource scarcity. Damage to NatWest Group
customers’ properties and operations could disrupt business,
impair asset values and negatively impact the creditworthiness of
customers leading to increased default rates, delinquencies,
write-offs and impairment charges in NatWest Group’s
portfolios. In addition, NatWest Group premises and operations, or
those of its critical outsourced functions may experience damage or
disruption leading to increased costs and negatively affecting
NatWest Group’s business continuity and
reputation.
In
October 2021, the UK Government published its Net Zero Strategy
which sets out how the UK will deliver on its commitment to reach
net zero emissions by 2050. The timing, content and implementation
of the specific policies and proposals remain uncertain. Widespread
transition to a net zero economy across all sectors of the economy
and markets in which NatWest Group operates will be required to
meet the goals of the 2015 Paris Agreement, the UK’s Net Zero
Strategy and the Glasgow Climate Pact of 2021. The impact of the
extensive commercial, technological, policy and regulatory changes
required to achieve transition remains uncertain, but it is
expected to be significant and may be disruptive across the global
economy and markets, especially if these changes do not occur in an
orderly or timely manner or are not effective in reducing emissions
sufficiently. Some sectors such as property, energy (including oil
and gas), mining, infrastructure, transport (including automotive
and aviation) and agriculture are expected to be particularly
impacted. The timing and pace of the transition to a net zero
economy is also uncertain and may be near term, gradual and orderly
or delayed, rapid and disorderly, or the combination of
these.
Climate-related
risks may be drivers of several different risk categories
simultaneously and may exacerbate existing risks, including credit
risk, operational risk (business continuity), market risk (both
traded and non-traded), liquidity and funding risk (for example,
net cash outflows or depletion of liquidity buffers).
If
NatWest Group fails to adapt its business and operating model in a
timely manner to the climate-related risks and opportunities and
changing regulatory and market expectations, or to appropriately
identify, measure, manage and mitigate climate change related
physical, transition and legal risks and opportunities that NatWest
Group, its customers and value chain face, NatWest Group’s
reputation, business, operations or value chain and results of
operations and outlook may be impacted adversely.
NatWest Group’s purpose-led strategy includes climate change
as one of its three areas of focus. This is likely to require
material changes to the business and operating model of NatWest
Group which entails significant execution risk.
In
February 2020, NatWest Group announced its ambition to become a
leading bank on climate in the UK, helping to address the climate
challenge by setting itself the challenge to at least halve the
climate impact of its financing activity by 2030 and intending to
do what is necessary to achieve alignment with the 2015 Paris
Agreement. In addition, in April 2021, NatWest Group by joining the
Net Zero Banking Alliance 'Business Ambition to 1.5C', stated its
ambition to reach net zero by 2050. Furthermore,
as part of its efforts to support the transition to a net
zero economy, NatWest Group has also announced its ambitions to
phase out of coal for UK and non UK customers who have UK coal
production, coal fired generation and coal related
infrastructure by 1 October 2024, with
a full global phase out by 1 January 2030; to plan to stop
financing new customer relationships with corporate customers who
explore for, extract or produce coal or operate unabated coal
powered plants; and that it would not provide services to existing
customers who are increasing coal mining activity by exploring for
new coal, developing new coal mines or increasing thermal coal
production.
To
achieve its 2030 and 2050 ambitions, NatWest Group has also
announced other climate ambitions, targets and commitments, and
going-forward it may also announce other climate ambitions, targets
and commitments, including science-based targets to be validated by
the Science Based Target Initiative.
Making
the changes necessary to achieving these ambitions may materially
affect NatWest Group’s business and operations and will
require significant reductions to its financed emissions and to its
exposure to customers that do not align with a transition to a net
zero economy or do not have a credible transition plan. Increases
in lending and financing activities may wholly or partially offset
some or all of these reductions, which may increase the extent of
changes and reductions necessary. It is anticipated that achieving
these reductions, together with the active management of
climate-related risks and other regulatory, policy and market
changes, are likely to necessitate material and accelerated changes
to NatWest Group’s business, operating model and existing
exposures (potentially on accelerated timescales and outside of
risk appetite) which may have a material adverse effect on NatWest
Group’s ability to achieve its financial targets and generate
sustainable returns.
NatWest
Group’s ability to achieve theses ambitions, targets and
commitments will depend to a large extent on many factors and
uncertainties beyond NatWest Group’s control. These include
the macroeconomic environment, the extent and pace of climate
change, including the timing and manifestation of physical and
transition risks, the effectiveness of actions of governments,
legislators, regulators, businesses, investors, customers and other
stakeholders to adapt and/or mitigate the impact of climate-related
risks, changes in customer behaviour and demand, the challenges
related with the implementation and integration of adoption policy
tools, changes in the available technology for mitigation and
adaptation, the availability of accurate, verifiable, reliable,
consistent and comparable data. See also,
‘NatWest Group continues to implement its purpose-led
strategy, which carries significant execution and operational risks
and may not achieve its stated aims and targeted
outcomes’ and
‘There are significant
challenges in relation to climate-related data due to quality and
other limitations, lack of standardisation, consistency and
incompleteness which amongst other factors contribute to the
significant uncertainties inherent in accurately modelling the
impact of climate-related risks’.
These
internal and external factors and uncertainties will make it
challenging for NatWest Group to meet its climate ambitions,
targets and commitments and there is a significant risk that all or
some of them will not be achieved.
Any
delay or failure in setting, making progress against or meeting
NatWest Group’s climate-related ambitions, targets and
commitments may have a material adverse impact on NatWest Group,
its reputation, business, results of operations, outlook, market
and competitive position and may increase the climate-related risks
NatWest Group faces.
Any failure by NatWest Group to implement effective and compliant
climate change resilient systems, controls and procedures could
adversely affect NatWest Group’s ability to manage
climate-related risks.
The
prudential regulation of climate-related risks is an important
driver in how NatWest Group develops its risk appetite for
financing activities or engaging with counterparties that do not
align with a transition to a net zero economy or do not have a
credible transition plan.
Legislative
and regulatory authorities are publishing expectations as to how
banks should prudently manage and transparently disclose
climate-related and environmental risks under prudential
rules.
In
April 2019, the PRA published a supervisory statement (the
‘SS 3/19’) with particular focus on the management of
financial risks from climate change with respect to governance,
risk management, scenario analysis and disclosures.
Following
the submission of initial plans by UK banks in October 2019, in
July 2020 the PRA issued a ‘Dear CEO’ letter requiring
firms to embed fully their approaches to managing climate-related
financial risks by the end of 2021. In response, on 8 October 2020,
NatWest Group provided the PRA with an update to its original plan
noting that the COVID-19 pandemic had disrupted some elements of
NatWest Group’s original plan and, as a result, the updated
plan would require additional operating cycles reaching into 2022
and beyond to prove embedding. Subsequently the PRA issued its
‘Climate Change Adaptation Report’ in October 2021
advising firms of the need to continue to refine and innovate ways
to further integrate the financial risks from climate change within
risk management practices and it restated that by the end of 2021,
firms should be able to demonstrate that the expectations set out
in SS3/19 have been implemented and embedded throughout the
firms’ organisation as fully as possible. In January 2022,
NatWest Group provided the PRA with an update on how it has
addressed the commitments made in its October 2020 plan, noting the
delivery of a 1st generation, largely qualitative in nature,
approach to supervisory requirements.
In June
2021, the Bank of England launched its 2021 Biennial Exploratory
Scenario (‘CBES’) to stress test the resilience of the
current business models of the largest banks, insurers and the
financial system to the physical and transition risks from climate
change under three climate scenarios. NatWest Group delivered its
CBES submission to the PRA in October 2021. The Bank of England has
since announced that the CBES is likely to include a second round
over February and March 2022, which is likely to be largely
qualitative in nature.
The
Bank of England guidance for the CBES confirmed that it is
exploratory in nature and not intended to be used to set capital
requirements. In the aforementioned ‘Climate Change
Adaptation Report 2021’, the Bank of England confirmed that
over the coming year it will undertake further analysis to explore
enhancements to the regulatory capital frameworks as they relate to
climate related financial risk. To support this work, the Bank of
England will put out a ‘Call for Papers’ and host a
Research Conference on the interaction between climate change and
capital in Q4 2022. Informed by these steps and internal analysis,
the Bank of England is expected to publish a follow-up report on
the use of capital including on the role of any future scenario
exercises by the end of 2022. It is therefore likely that in the
coming years financial institutions, including NatWest Group, may
be required to hold additional capital to enhance their resilience
against systemic and/or institution specific vulnerabilities to
climate-related financial risks, which could, in turn, negatively
impact NatWest Group.
Any
failure of NatWest Group to fully and timely embed climate-related
risks into its risk management practices and framework to
appropriately identify, measure, manage and mitigate the various
climate-related physical and transition risks and apply the
appropriate product governance in line with applicable legal and
regulatory requirements and expectations, may have a material and
adverse impact on NatWest Group’s regulatory compliance,
prudential capital requirements, liquidity position, reputation,
business, results of operations and outlook.
There are significant
challenges in relation to climate-related data due to quality and
other limitations, lack of standardisation, consistency and
incompleteness which amongst other factors contribute to the
significant uncertainties inherent in accurately modelling the
impact of climate-related risks.
Meaningful
reporting of climate-related risks and opportunities and their
potential impacts and related metrics depend on access to accurate,
reliable, consistent and comparable climate-related data from
counterparties or customers. These may not be generally available
or, if available, may not be accurate, verifiable, reliable,
consistent, or comparable. Any failure of NatWest Group to
incorporate climate-related factors into its counterparty and
customer data sourcing and accompanying analytics, or to develop
accurate, reliable, consistent and comparable counterparty and
customer data, may have a material adverse impact on NatWest
Group’s ability to prepare meaningful reporting of
climate-related risks and opportunities, its regulatory compliance,
reputation, business and its competitive position.
In the
absence of other sources, reporting of financed emissions by
financial institutions, including NatWest Group, is necessarily
based therefore on aggregated information developed by third
parties that may be prepared in an inconsistent way using different
methodologies, interpretations, or assumptions. Accordingly, our
climate-related disclosures use a greater number and level of
assumptions and estimates than many of our financial disclosures.
These assumptions and estimates are highly likely to change over
time, and, when coupled with the longer time frames used in these
climate related disclosures, make any assessment of materiality
inherently uncertain. In particular, in the absence of actual
emissions monitoring and measurement, emissions estimates are based
on industry and other assumptions that may not be accurate for a
given counterparty or customer. There may also be data gaps,
particularly for private companies, that are filled using proxy
data, such as sectoral averages, again developed in different ways.
As a result, our climate related disclosures may be amended,
updated or restated in the future as the quality and completeness
of our data and methodologies continue to improve. These data
quality challenges, gaps and limitations could have a material
impact on NatWest Group’s ability to make effective business
decisions about climate risks and opportunities, including risk
management decisions, comply with disclosure requirements and our
ability to monitor and report our progress in meeting our
ambitions, targets and commitments.
Significant
risks, uncertainties and variables are inherent in the assessment,
measurement and mitigation of climate-related risks. These include
data quality gaps and limitations mentioned above, the pace at
which climate science, greenhouse gas accounting standards and
various emissions reduction solutions develop. In addition, there
is a significant uncertainty about how climate change and the
transition to a net zero economy will unfold over the coming
decades and affect how and when climate-related risks will
manifest. These timeframes are considerably longer than NatWest
Group’s historical strategic, financial, resilience and
investment planning horizons.
As a
result, it is very difficult to predict and model the impact of
climate-related risks into precise financial and economic outcomes
and impacts. Climate-related risks present significant
methodological challenges due to their forward-looking nature, the
lack and/or quality of historical testing capabilities, lack of
standardisation and incompleteness of emissions and other climate
and sub-sector related data and the immature nature of risk
measurement and modelling methodologies. The evaluation of
climate-related risk exposure and the development of associated
potential risk mitigation techniques largely depend on the choice
of climate scenario modelling methodology and the assumptions made
which involves a number of risks and uncertainties, for
example
-
climate scenarios
are not predictions of what is likely to happen or what NatWest
Group would like to happen, they rather explore the possible
implications of different judgments and assumptions by considering
a series of scenarios;
-
climate scenarios
do not provide a comprehensive description of all possible future
outcomes;
-
it requires a
special skill set that banks traditionally do not have and
therefore NatWest Group needs to rely on third party advice,
modelling, and data which is also subject to many limitations and
uncertainties;
-
modelling
approaches and data on climate-related risks on financial assets is
immature in nature and it is expected that techniques and
understanding will evolve rapidly in the coming years;
-
it is challenging
to benchmark or back test the climate scenarios given their
forward-looking nature and the multiple possible
outcomes;
-
there is a
significant uncertainty as to how the climate will evolve over
time, how and when governments, regulators, businesses, investors
and customers respond and how those responses impact the economy,
asset valuations, land systems, energy systems, technology, policy
and wider society;
-
the assumptions
will be continually evolving with more data/information which may
affect the baselines for comparability across reporting periods and
impact internal and external verification processes;
and
-
the pace of the
development of the methodologies across different sectors may be
different and therefore it may be challenging to report on the
whole balance sheet with regard to emissions.
Accordingly,
these risks and uncertainties coupled with significantly longer
timeframes make the outputs of climate-related risk modelling,
including emissions reductions targets and pathways, inherently
more uncertain than outputs modelled for traditional financial
planning cycles based on historical financial
information.
Capabilities
within NatWest Group to appropriately assess, model and manage
climate-related risks and the suitability of the assumptions
required to model and manage climate-related risks appropriately
are developing. Even when those capabilities are developed, the
high level of uncertainty regarding any assumptions modelled, the
highly subjective nature of risk measurement and mitigation
techniques, incorrect or inadequate assumptions and judgments and
data quality gaps and limitations may lead to inadequate risk
management information and frameworks, or ineffective business
adaptation or mitigation strategies, which may have a material
adverse impact on NatWest Group’s regulatory compliance,
reputation, business, results of operations and
outlook.
A failure to adapt NatWest Group’s business strategy,
governance, procedures, systems and controls to manage emerging
sustainability-related risks and opportunities may have a material
adverse effect on NatWest Group, its reputation, business, results
of operations and outlook.
Investors,
customers, international organisations, regulators and other
stakeholders are increasingly focusing on identification,
measurement, management and mitigation of
‘sustainability-related’ risks and opportunities such
as environmental (including biodiversity and loss of natural
capital); social (including diversity and inclusion, the living
wage, fair taxation and value chains); and governance (including
board diversity, ethics, executive compensation and management
structure) related risks and opportunities and on long term
sustainable value creation.
Financial
institutions, including NatWest Group, are directly and indirectly
exposed to multiple types of environmental and biodiversity-related
risk through their activities, including risk of default by
clients. Additionally, there is a growing need to move from
safeguards and interventions that focus on reducing negative
impacts on environment and biodiversity towards those that focus on
increasing positive impact on environment and biodiversity and
nature-based solutions. In 2021, NatWest Group accordingly
classified ‘Biodiversity and Nature Loss’ as an
emerging risk for NatWest Group within its Risk Management
Framework. This is an evolving and complex area which requires
collaborative approaches with partners, stakeholders and peers to
help measure and mitigate negative impacts of financing activities
on the environment, biodiversity and nature as well as supporting
the growing sector of nature-based solutions, habitat restoration
and biodiversity markets. NatWest Group is in the early stages of
developing its approach and NatWest Group recognises the need for
more progress.
There
is also increased investor, regulatory and customer scrutiny
regarding how businesses address social issues, including tackling
inequality, working conditions, workplace health, safety and
wellbeing, diversity and inclusion, data protection and management,
workforce management, human rights and supply chain management
which may impact NatWest Group’s employees, customers, and
their business activities or the communities in which they operate.
There is also growing attention on the need for a 'just transition'
and “energy justice” – in recognition that the
transition to a net zero economy should not disproportionally
affect the most disadvantaged members of society. The increased focus on
these issues may create reputational and other risks for financial
institutions, including NatWest Group.
In
addition to climate-related risks, sustainability-related risks (i)
may also adversely affect economic activity, asset pricing and
valuations of issuers’ securities and, in turn, the wider
financial system; (ii) may impact economic activities directly (for
example through lower corporate profitability or the devaluation of
assets) or indirectly (for example through macro-financial
changes); (iii) may also affect the viability or resilience of
business models over the medium to longer term, particularly those
business models most vulnerable to sustainability-related risks;
(iv) can trigger further losses stemming directly or indirectly
from legal claims (liability risks) and reputational damage as a
result of the public, customers, counterparties and/or investors
associating NatWest Group or its customers with adverse
sustainability-related issues; and (v) intersect with and further
complexity and challenge to achieving our purpose-led strategy
including climate ambitions, targets and commitments.
Together
with climate-related risks, these risks may combine to generate
even greater adverse effects on our business.
Furthermore,
sustainability-related risks may be drivers of several different
risk categories simultaneously and may exacerbate the risks
described herein, including credit risk, operational risk (business
continuity), market risk (both traded and non-traded), liquidity
and funding risk (for example, net cash outflows or depletion of
liquidity buffers).
Accordingly,
any failure or delay by NatWest Group to successfully adapt its
business strategy and to establish and maintain effective
governance, procedures, systems and controls in response to these
issues, and to manage these emerging sustainability-related risks
and opportunities may have a material adverse impact NatWest
Group’s reputation, liquidity position, business, results of
operations, outlook and the value of NatWest Group’s
securities.
Any reduction in the ESG ratings of NatWest Group could have a
negative impact on NatWest Group’s reputation and on
investors’ risk appetite and customers’ willingness to
deal with NatWest Group.
ESG
ratings from agencies and data providers which rate how NatWest
Group manages environmental, social and governance risks are
increasingly influencing investment decisions or being used as a
basis to label financial products and services as green or
sustainable. ESG ratings are (i) unsolicited; (ii) subject to the
assessment and interpretation by the ESG rating agencies; (iii)
provided without warranty; (iv) not a sponsorship, endorsement, or
promotion of NatWest Group by the relevant rating agency; and (v)
may depend on many factors some of which are beyond NatWest
Group’s control (e.g. any change in rating methodology). Any
reduction in the ESG ratings of NatWest Group could have a negative
impact on NatWest Group’s reputation and could influence
investors’ risk appetite for NatWest Group’s and/or its
subsidiaries’ securities, particularly ESG securities and
could affect a customer’s willingness to deal with NatWest
Group.
Increasing levels of climate, environmental and
sustainability-related laws, regulation and oversight may adversely
affect NatWest Group’s business and expose NatWest Group to
increased costs of compliance, regulatory sanction and reputational
damage.
There
are an increasing number of EU, UK and other regulatory and
legislative initiatives to address issues around climate,
environmental and sustainability risks and opportunities and to
promote the transition to a net zero economy. As a result, an
increasing number of laws, regulations, legislative actions are
likely to affect the financial sector and the real economy,
including proposals, guidance, policy and regulatory initiatives
many of which have been introduced or amended recently and are
subject to further changes.
Many of
these initiatives are focused on developing standardized
definitions for green and sustainable criteria of assets and
liabilities, integrating climate change and sustainability into
decision-making and customers access to green and sustainable
financial products and services which may have a significant impact
on the services provided by NatWest Group and its subsidiaries,
especially mortgage lending, and its associated credit, market and
financial risk profile. They could also impact NatWest
Group’s recognition of its climate and sustainable funding
and financing activity and may adversely affect NatWest
Group’s ability to achieve its climate strategy and climate
and sustainable funding and financing ambitions.
In
addition, NatWest Group and its subsidiaries are and will be
subject to increasing entity wide climate-related and other
non-financial disclosure requirements pursuant to the
recommendations of the Task Force on Climate-related Financial
Disclosure (‘TCFD’) and under other regimes. From
February 2022, NatWest Group will be required to provide enhanced
climate-related disclosures consistent with the TCFD
recommendations to comply with the FCA Policy Statement on the new
Listing Rules (PS 20/17) that require commercial companies with a
UK premium listing – such as NatWest Group - to make climate
related disclosures, consistent with TCFD, on a ‘comply or
explain’ basis. The FCA is proposing to expand this
requirement to a wider scope of listed issuers which would include
NatWest Group’ subsidiaries as it moves towards mandatory
TCFD reporting across the UK economy by 2025. See also,
‘There are significant
challenges in relation to climate-related data due to quality and
other limitations, lack of standardisation, consistency and
incompleteness which amongst other factors contribute to the
significant uncertainties inherent in accurately modelling the
impact of climate-related risks’.
In
addition, NatWest Group’s EU subsidiaries and branches are
and will continue to be subject to an increasing array of the
EU/EEA climate and sustainability-related legal and regulatory
requirements. These requirements may be used as the basis for UK
laws and regulations (such as the UK Green Taxonomy) or regarded by
investors and regulators as best practice standards whether or not
they apply to UK businesses. Any divergence between UK, EU/EEA and
US climate and sustainability-related legal and regulatory
requirements may result in NatWest Group not meeting
investors’ expectations, may increase the cost of doing
business and may restrict access of NatWest Group’s UK
business to the EU/EEA market.
NatWest
Group is also participating in various voluntary carbon reporting
and other standard setting initiatives for disclosing climate and
sustainability-related information, many of which have differing
objectives and methodologies and are at different stages of
development in terms of how they apply to financial
institutions.
Compliance
with these developing and evolving climate and
sustainability-related requirements is likely to require NatWest
Group to implement significant changes to its business models,
product and other governance, internal controls over financial
reporting, disclosure controls and procedures, modelling capability
and risk management systems, which may increase the cost of doing
business, entail additional change risk and compliance
costs.
Failure
to implement and comply with these legal and regulatory
requirements or emerging best practice expectations may have a
material adverse effect on NatWest Group’s regulatory
compliance and may result in regulatory sanction, reputational
damage and investor disapproval each of which could have an adverse
effect on NatWest Group’s business, results of operations and
outlook.
NatWest Group may be subject to potential climate, environmental
and other sustainability-related litigation, enforcement
proceedings, investigations and conduct risk.
Due to
increasing new climate and sustainability-related jurisprudence,
laws and regulations in the UK and other jurisdictions, growing
demand from investors and customers for environmentally sustainable
products and services, and regulatory scrutiny, financial
institutions, including NatWest Group, may through their business
activities face increasing litigation, conduct, enforcement and
contract liability risks related to climate change, environmental
degradation and other social, governance and sustainability-related
issues.
These
risks may arise, for example, from claims pertaining to : (i)
failures to meet obligations, targets or commitments relating to,
or to disclose accurately, or provide updates on material climate
and/or sustainability related risks, or otherwise provide
appropriate disclosure to investors, customers, counterparties and
other stakeholders; (ii) conduct, mis-selling and other customer
protection type claims; (iii) marketing that portrays products,
securities, activities or policies as producing positive climate,
environmental or sustainable outcomes to an extent that may not the
case; (iv) damages claims under various tort theories, including
common law public nuisance claims, or negligent mismanagement of
physical and/or transition risks; (v) alleged violations of
officers’, directors’ and other fiduciaries’
fiduciary duties, for example by financing various
carbon-intensive, environmentally harmful or otherwise highly
exposed assets, companies, and industries; (vi) changes in
understanding of what constitutes positive climate, environmental
or sustainable outcomes as a result of developing climate science,
leading to discrepancy between current product offerings and
investor and/or market and/or broader stakeholder expectations;
(vi) any weaknesses or failures in specific systems or processes
associated particularly with climate, environmental or
sustainability linked products, including any failure in timely
implementation, onboarding and/or updating of such systems or
processes; or (vii) counterparties, collaborators and third parties
in NatWest Group’s value chain action who act, or fail to
act, or undertake due diligence, or apply appropriate risk
management and product governance in a manner that impacts Natwest
Group’s reputation or sustainability
credentials.
Furthermore,
there is a risk that shareholders, campaign groups, customers and
special interest groups could seek to take legal action against
NatWest Group for financing or contributing to climate change and
environmental degradation and for not supporting the principles of
“just transition” (i.e. maximising the social benefits
of the transition, mitigating the social risks of the transition,
empowering those affected by the change, anticipating future shifts
to address issues up front and mobilising investments from the
public and private sectors).
There
is a risk that as climate science develops and societal
understanding of climate science increases and deepens, courts,
regulators and enforcement authorities may apply the then current
understandings of climate related matters retrospectively when
assessing claims about historic conduct or dealings of financial
institutions, including NatWest Group.
These
potential litigation, conduct, enforcement and contract liability
risks may have a material adverse effect on NatWest Group’s
ability to achieve its strategy, including its climate ambition,
and they could have an adverse effect on NatWest Group’s
reputation, business, financial results, position and prospects,
results of operations and outlook.
Operational and IT resilience risk
Operational risks (including reliance on third party suppliers and
outsourcing of certain activities) are inherent in NatWest
Group’s businesses.
Operational
risk is the risk of loss resulting from inadequate or failed
internal processes, procedures, people or systems, or from external
events, including legal risks. NatWest Group operates in a number
of countries, offering a diverse range of products and services
supported directly or indirectly by third party suppliers. As a
result, operational risks or losses can arise from a number of
internal or external factors (including financial crime and fraud),
for which there may now be a risk of greater scrutiny by third
parties on NatWest Group’s compliance with financial crime
requirements; see ‘NatWest
Group is exposed to the risks of various litigation matters,
regulatory and governmental actions and investigations as well as
remedial undertakings, including conduct-related reviews,
anti-money laundering and redress projects, the outcomes of which
are inherently difficult to predict, and which could have an
adverse effect on NatWest Group’). These risks are
also present when NatWest Group relies on third-party suppliers or
vendors to provide services to it or its customers, as is
increasingly the case as NatWest Group outsources certain
activities, including with respect to the implementation of new
technologies, innovation and responding to regulatory and market
changes.
Operational
risks continue to be heightened as a result of the implementation
of NatWest Group’s purpose-led strategy, including NatWest
Group’s phased withdrawal from ROI, NatWest Group’s
current cost-reduction measures and conditions affecting the
financial services industry generally (including the COVID-19
pandemic and other geo-political developments) as well as the legal
and regulatory uncertainty resulting therefrom. It is unclear as to
how the future ways of working may evolve, including in respect of
how working practices may develop, or how NatWest Group will evolve
to best serve its customers. Any of the above may place significant
pressure on NatWest Group’s ability to maintain effective
internal controls and governance frameworks.
The
effective management of operational risks is critical to meeting
customer service expectations and retaining and attracting customer
business. Although NatWest Group has implemented risk controls and
mitigation actions, with resources and planning having been devoted
to mitigate operational risk, such measures may not be effective in
controlling each of the operational risks faced by NatWest Group.
Ineffective management of such risks could adversely affect NatWest
Group.
NatWest Group is subject to increasingly sophisticated and frequent
cyberattacks.
NatWest
Group experiences a constant threat from cyberattacks across the
entire NatWest Group and against NatWest Group’s supply
chain, reinforcing the importance of due diligence of and close
working relationship with the third parties on which NatWest Group
relies. NatWest Group is reliant on technology, against which there
is a constantly evolving series of attacks that are increasing in
terms of frequency, sophistication, impact and severity. As
cyberattacks evolve and become more sophisticated, NatWest Group is
required to continue to invest in additional capability designed to
defend against the emerging threats. In 2021, NatWest Group and its
supply chain were subjected to a small number of Distributed Denial
of Service (‘DDOS’) and ransomware attacks, which are a
pervasive and significant threat to the global financial services
industry. The focus is to
manage the impact of the attacks and sustain availability of
services for NatWest Group’s customers. NatWest Group
continues to invest significant resources in the development and
evolution of cyber security controls that are designed to minimise
the potential effect of such attacks.
Hostile
attempts are made by third parties to gain access to, introduce
malware (including ransomware) into and exploit vulnerabilities of,
NatWest Group’s IT systems. NatWest Group has information and
cyber security controls in place to minimise the impact of any
attack, which are subject to review on a continuing basis but given
the nature of the threat, there can be no assurance that such
measures will prevent all attacks in the future. See also,
‘NatWest Group’s
operations are highly dependent on its complex IT systems
(including those that enable remote working) and any IT failure
could adversely affect NatWest Group’.
Any
failure in NatWest Group’s cybersecurity policies, procedures
or controls, may result in significant financial losses, major
business disruption, inability to deliver customer services, or
loss of data or other sensitive information (including as a result
of an outage) and may cause associated reputational damage. Any of
these factors could increase costs (including costs relating to
notification of, or compensation for customers, credit monitoring
or card reissuance), result in regulatory investigations or
sanctions being imposed or may affect NatWest Group’s ability
to retain and attract customers. Regulators in the UK, US, Europe
and Asia continue to recognise cybersecurity as an important
systemic risk to the financial sector and have highlighted the need
for financial institutions to improve their monitoring and control
of, and resilience (particularly of critical services) to
cyberattacks, and to provide timely notification of them, as
appropriate.
Additionally,
third parties may also fraudulently attempt to induce employees,
customers, third-party providers or other users who have access to
NatWest Group’s systems to disclose sensitive information in
order to gain access to NatWest Group’s data or that of
NatWest Group’s customers or employees. Cybersecurity and
information security events can derive from groups or factors such
as: internal or external threat actors, human error, fraud or
malice on the part of NatWest Group’s employees or third
parties, including third party providers, or may result from
accidental technological failure.
NatWest
Group expects greater regulatory engagement, supervision and
enforcement to continue at a high level in relation to its overall
resilience to withstand IT and related disruption, either through a
cyberattack or some other disruptive event. Such increased
regulatory engagement, supervision and enforcement is uncertain in
relation to the scope, cost, consequence and the pace of change,
which could negatively impact NatWest Group. Due to NatWest
Group’s reliance on technology and the increasing
sophistication, frequency and impact of cyberattacks, such attacks
may have a material adverse impact on NatWest Group.
In
accordance with the Data Protection Act 2018 and the European Union
Withdrawal Act 2018, the Data Protection, Privacy and Electronic
Communications (Amendments Etc.) (EU Exit) Regulations 2019, as
amended by the Data Protection, Privacy and Electronic
Communications (Amendments Etc.) (EU Exit) Regulations 2020
(‘UK Data Protection Framework’) and European Banking
Authority (‘EBA’) Guidelines on ICT and Security Risk
Management, NatWest Group is required to ensure it implements
timely, appropriate and effective organisational and technological
safeguards against unauthorised or unlawful access to the data of
NatWest Group, its customers and its employees. In order to meet
this requirement, NatWest Group relies on the effectiveness of its
internal policies, controls and procedures to protect the
confidentiality, integrity and availability of information held on
its IT systems, networks and devices as well as with third parties
with whom NatWest Group interacts. A failure to monitor and manage
data in accordance with the UK Data Protection Framework and EBA
requirements of the applicable legislation may result in financial
losses, regulatory fines and investigations and associated
reputational damage.
NatWest Group operations and strategy are highly dependent on the
accuracy and effective use of data.
NatWest
Group relies on the effective use of accurate data to support,
monitor, evaluate, manage and enhance its operations and deliver
its strategy. The availability of current, complete, detailed,
accurate and, wherever possible, machine-readable customer segment
and sub-sector data, together with appropriate governance and
accountability for data, is fast becoming a critical strategic
asset, which is subject to increased regulatory focus. Failure to
have that data or the ineffective use or governance of that data
could result in a failure to manage and report important risks and
opportunities or satisfy customers’ expectations including
the inability to deliver innovative products and services. This
could also result in a failure to deliver NatWest Group’s
strategy and could place NatWest Group at a competitive
disadvantage by increasing its costs, inhibiting its efforts to
reduce costs or its ability to improve its systems, controls and
processes, which could result in a failure to deliver NatWest
Group’s strategy. These data limitations, or the unethical or
inappropriate use of data, and/or non-compliance with customer data
protection laws could give rise to conduct and litigation risks and
may increase the risk of operational events, losses or other
adverse consequences due to inappropriate models, systems,
processes, decisions or other actions.
NatWest Group’s operations are highly dependent on its
complex IT systems (including those that enable remote working) and
any IT failure could adversely affect NatWest Group.
NatWest
Group’s operations are highly dependent on the ability to
process a very large number of transactions efficiently and
accurately while complying with applicable laws and regulations.
The proper functioning of NatWest Group’s payment systems,
financial crime, fraud systems and controls, risk management,
credit analysis and reporting, accounting, customer service and
other IT systems, as well as the communication networks between its
branches and main data processing centres, is critical to NatWest
Group’s operations.
Individually
or collectively, any critical system failure, material loss of
service availability or material breach of data security could
cause serious damage to NatWest Group’s ability to provide
services to its customers, which could result in reputational
damage, significant compensation costs or regulatory sanctions
(including fines resulting from regulatory investigations) or a
breach of applicable regulations and could affect its regulatory
approvals, competitive position, business and brands, which could
undermine its ability to attract and retain customers. This risk is
heightened as most of NatWest Group’s employees continue to
work remotely, as it outsources certain functions and as it
continues to innovate and offer new digital solutions to its
customers as a result of the trend towards online and mobile
banking.
In
2021, NatWest Group continued to make considerable investments to
further simplify, upgrade and improve its IT and technology
capabilities (including migration of certain services to cloud
platforms). NatWest Group also continues to develop and enhance
digital services for its customers and seeks to improve its
competitive position through enhancing controls and procedures and
strengthening the resilience of services including cyber security.
Any failure of these investment and rationalisation initiatives to
achieve the expected results, due to cost challenges or otherwise,
could negatively affect NatWest Group’s operations, its
reputation and ability to retain or grow its customer business or
adversely impact its competitive position, thereby negatively
impacting NatWest Group.
Remote working may adversely affect NatWest Group’s ability
to maintain effective internal controls.
From
March 2020 to September 2021, many of NatWest Group’s
employees worked exclusively on a remote basis. Following the
lifting of government restrictions, NatWest Group will implement a
new hybrid working policy whereby many employees may work remotely
the majority of the time in the ordinary course of their
roles.
Remote
working arrangements for NatWest Group employees continues to place
heavy reliance on the IT systems that enable remote working and
increased exposure to fraud, conduct, operational and other risks
and may place additional pressure on NatWest Group’s ability
to maintain effective internal controls and governance frameworks.
Remote working arrangements are also subject to regulatory scrutiny
to ensure adequate recording, surveillance and supervision of
regulated activities, and compliance with regulatory requirements
and expectations, including requirements to: meet threshold
conditions for regulated activities; ensure the ability to oversee
functions (including any outsourced functions); ensure no detriment
is caused to customers; and ensure no increased risk of financial
crime. See also, ‘A failure
in NatWest Group’s risk management framework could adversely
affect NatWest Group, including its ability to achieve its
strategic objectives.’ Moreover, the IT systems that
enable remote working interface with third-party systems, and
NatWest Group could experience service denials or disruptions if
such systems exceed capacity or if a third-party system fails or
experiences any interruptions, all of which could result in
business and customer interruption and related reputational damage,
significant compensation costs, regulatory sanctions and/or a
breach of applicable regulations. See also, ‘NatWest Group’s operations are highly
dependent on its complex IT systems (including those that enable
remote working) and any IT failure could adversely affect NatWest
Group’.
Sustained
periods of remote working may negatively affect workforce morale.
Whilst NatWest Group has taken measures seeking to maintain the
health, wellbeing and safety of its employees, these measures may
be ineffective. Any of the above could impair NatWest Group’s
ability to hire, retain and engage well-qualified employees,
especially at a senior level, which in turn may adversely impact
NatWest Group’s ability to serve its customers efficiently
and impact productivity across NatWest Group. This could also
adversely affect NatWest Group’s reputation and competitive
position and its ability to grow its business.
NatWest Group relies on attracting, retaining and developing
diverse senior management and skilled personnel, and is required to
maintain good employee relations.
NatWest
Group’s success depends on its ability to attract, retain
through creating an inclusive environment, and develop highly
skilled and qualified diverse personnel, including senior
management, directors and key employees especially for technology
and data focused roles, in a highly competitive market and under
internal cost reduction pressures.
NatWest
Group’s ability to do this may be more difficult due to the
cost reduction pressures, heightened regulatory oversight of
banks and the increasing scrutiny of, and (in some cases)
restrictions placed upon, employee compensation arrangements (in
particular those of banks in receipt of government support such as
NatWest Group). This increases the cost of hiring, training and
retaining diverse skilled personnel. In addition, certain economic,
market and regulatory conditions and political developments may
reduce the pool of diverse candidates for key management and
non-executive roles, including non-executive directors with the
right skills, knowledge and experience, or increase the number of
departures of existing employees. Moreover, a failure to foster a
diverse and inclusive workforce may have an adverse impact on
NatWest Group’s employee engagement and the formulation and
execution of its strategy, and could also have a negative effect on
its reputation with customers, investors and
regulators.
The
inability to compensate employees competitively and/or any
reduction of compensation, as a result of negative economic
developments or otherwise, could have an adverse effect on NatWest
Group’s ability to hire, retain and engage well qualified
employees, especially at a senior level, which may have a negative
impact on the financial position and prospects of NatWest
Group.
Many of
NatWest Group’s employees in the UK, the ROI and continental
Europe are represented by employee representative bodies, including
trade unions and works councils. Engagement with its employees and
such bodies is important to NatWest Group in maintaining good
employee relations. Any failure to do so could impact NatWest
Group’s ability to operate its business
effectively.
A failure in NatWest Group’s risk management framework could
adversely affect NatWest Group, including its ability to achieve
its strategic objectives.
Risk
management is an integral part of all of NatWest Group’s
activities and includes the definition and monitoring of NatWest
Group’s risk appetite and reporting on NatWest Group’s
risk exposure and the potential impact thereof on NatWest
Group’s financial condition. Financial risk management is highly dependent
on the use and effectiveness of internal stress tests and
models.
In
addition, financial crime risk management is dependent on the use
and effectiveness of financial crime assessment, systems and
controls. Weak or ineffective financial crime processes and
controls may risk NatWest Group inadvertently facilitating
financial crime which may result in regulatory investigation,
sanction, litigation and reputational damage. Financial crime
continues to evolve, whether through fraud, scams, cyber-attacks or
other criminal activity. NatWest Group has made and continues to
make significant, multi-year investments to strengthen and improve
its overall financial crime control framework with prevention
systems and capabilities. As part of its ongoing programme of
investment, there is current and future investment planned to
further strengthen financial crime controls over the coming years,
including investment in new technologies and capabilities to
further enhance customer due diligence, transaction monitoring,
sanctions and anti-bribery and corruption systems.
Ineffective
risk management may arise from a wide variety of factors, including
lack of transparency or incomplete risk reporting, unidentified
conflicts or misaligned incentives, lack of accountability control
and governance, incomplete risk monitoring and management or
insufficient challenges or assurance processes. Failure to manage
risks effectively could adversely impact NatWest Group’s
reputation or its relationship with its regulators, customers,
shareholders or other stakeholders.
NatWest
Group’s operations are inherently exposed to conduct risks,
which include business decisions, actions or reward mechanisms that
are not responsive to or aligned with NatWest Group’s
regulatory obligations, customers’ needs or do not reflect
NatWest Group’s customer-focused strategy, ineffective
product management, unethical or inappropriate use of data,
information asymmetry, implementation and utilisation of new
technologies, outsourcing of customer service and product delivery,
the possibility of mis-selling of financial products and
mishandling of customer complaints. Some of these risks have
materialised in the past and ineffective management and oversight
of conduct risks may lead to further remediation and regulatory
intervention or enforcement.
NatWest
Group’s businesses are also exposed to risks from employee
misconduct including non-compliance with policies and regulations,
negligence or fraud (including financial crimes and fraud), any of
which could result in regulatory fines or sanctions and serious
reputational or financial harm to NatWest Group. These risks may be
exacerbated as most of NatWest Group’s employees continue to
work remotely, which places additional pressure on NatWest
Group’s ability to maintain effective internal controls and
governance frameworks.
NatWest
Group has been seeking to embed a strong risk culture across the
organisation and has implemented policies and allocated new
resources across all levels of the organisation to manage and
mitigate conduct risk and expects to continue to invest in its risk
management framework. However, such efforts may not insulate
NatWest Group from future instances of misconduct and no assurance
can be given that NatWest Group’s strategy and control
framework will be effective. Any failure in NatWest Group’s
risk management framework could negatively affect NatWest Group and
its financial condition through reputational and financial harm and
may result in the inability to achieve its strategic objectives for
its customers, employees and wider stakeholders.
NatWest Group’s operations are subject to inherent
reputational risk.
Reputational
risk relates to stakeholder and public perceptions of NatWest Group
arising from an actual or perceived failure to meet stakeholder
expectations, including with respect to NatWest Group’s
purpose-led strategy and related targets, due to any events,
behaviour, action or inaction by NatWest Group, its employees or
those with whom NatWest Group is associated. See also
‘NatWest Group’s
businesses are subject to substantial regulation and oversight,
which are constantly evolving and may adversely affect NatWest
Group’. This includes brand damage, which may be
detrimental to NatWest Group’s business, including its
ability to build or sustain business relationships with customers,
and may cause low employee morale, regulatory censure or reduced
access to, or an increase in the cost of, funding. Reputational
risk may arise whenever there is a material lapse in standards of
integrity, compliance, customer or operating efficiency and may
adversely affect NatWest Group’s ability to attract and
retain customers. In particular, NatWest Group’s ability to
attract and retain customers (particularly, corporate and retail
depositors) may be adversely affected by, amongst others: negative
public opinion resulting from the actual or perceived manner in
which NatWest Group conducts or modifies its business activities
and operations, media coverage (whether accurate or otherwise),
employee misconduct, NatWest Group’s financial performance,
IT systems failures or cyberattacks, data breaches, financial crime
and fraud, the level of direct and indirect government support, or
the actual or perceived practices in the banking and financial
industry in general, or a wide variety of other
factors.
Modern
technologies, in particular online social networks and other
broadcast tools that facilitate communication with large audiences
in short timeframes and with minimal costs, may also significantly
increase and accelerate the impact of damaging information and
allegations.
Although
NatWest Group has implemented a Reputational Risk Policy to improve
the identification, assessment and management of customers,
transactions, products and issues, which represent a reputational
risk, NatWest Group cannot be certain that it will be successful in
avoiding damage to its business from reputational
risk.
Legal, regulatory and conduct risk
NatWest Group’s businesses are subject to substantial
regulation and oversight, which are constantly evolving and may
adversely affect NatWest Group.
NatWest
Group is subject to extensive laws, regulations, corporate
governance practice and disclosure requirements, administrative
actions and policies in each jurisdiction in which it operates.
Many of these have been introduced or amended recently and are
subject to further material changes, which may increase compliance
and conduct risks, particularly if EU/EEA and UK laws diverge as a
result of Brexit. NatWest Group expects government and regulatory
intervention in the financial services industry to remain high for
the foreseeable future.
In
recent years, regulators and governments have focused on reforming
the prudential regulation of the financial services industry and
the manner in which the business of financial services is
conducted. Amongst others, measures have included: enhanced
capital, liquidity and funding requirements, implementation of the
UK ring-fencing regime, implementation and strengthening of the
recovery and resolution framework applicable to financial
institutions in the UK, the EU and the US, financial industry
reforms (including in respect of MiFID II), corporate governance
requirements, restrictions on the compensation of senior management
and other employees, enhanced data protection and IT resilience
requirements, financial market infrastructure reforms (including
enhanced data protection and IT resilience requirements, enhanced
regulations in respect of the provision of ‘investment
services and activities’), and increased regulatory focus in
certain areas, including conduct, consumer protection, competition,
disputes regimes, payment systems, financial crime and fraud laws
and regulations.
Other
areas in which, and examples of where, governmental policies,
regulatory and accounting changes, and increased public and
regulatory scrutiny could have an adverse impact (some of which
could be material) on NatWest Group include, but are not limited
to, the following:
-
general changes in
government, central bank, regulatory or competition policy, or
changes in regulatory regimes that may influence investor decisions
in the jurisdictions in which NatWest Group operates;
-
rules relating to
foreign ownership, expropriation, nationalisation and confiscation
of assets;
-
increased scrutiny
from the CMA, FCA and Payment Systems Regulator (‘PSR’)
for the protection and resilience of, and competition and
innovation in, UK payment systems and retail banking developments
relating to the UK initiative on Open Banking, Open Finance and the
European directive on payment services;
-
the ongoing
compliance by NatWest Group with CMA’s Retail Banking Market
Order 2017 (the ‘Order’) as well as the ongoing
consultation by the UK Government to introduce penalties for
breaches of the Order (in addition to the current customer
remediation requirements);
-
ongoing competition
litigation in the English courts around payment card interchange
fees, combined with increased regulatory scrutiny (from the PSR) of
the Visa and Mastercard card schemes;
-
new or increased
regulations relating to customer data protection as well as IT
controls and resilience, including the UK Data Protection Framework
and the impact of the Court of Justice of the EU (CJEU) decision
(known as Schrems II), in which the CJEU ruled that the Privacy
Shield (an EU/US data transfer mechanism) is now invalid, leading
to more onerous due diligence requirements for the Group prior to
sending personal data of its EU customers and employees to non-EEA
countries, including the UK and the US;
-
the introduction
of, and changes to, taxes, levies or fees applicable to NatWest
Group’s operations, such as the imposition of a financial
transaction tax, introduction of global minimum tax rules, changes
in tax rates, changes in the scope and administration of the Bank
Levy, increases in the bank corporation tax surcharge in the UK,
restrictions on the tax deductibility of interest payments or
further restrictions imposed on the treatment of carry-forward tax
losses that reduce the value of deferred tax assets and require
increased payments of tax;
-
increased
regulatory focus on customer protection (such as the FCA’s
consumer duty consultation paper (CP21/13)) in retail or other
financial markets;
-
the potential
introduction by the Bank of England of a Central Bank Digital
Currency which could result in deposit outflows, higher funding
costs, and/or other implications for UK banks including NatWest
Group; and
-
regulatory
enforcement in the form of PRA imposed financial penalties for
failings in banks’ regulatory reporting governance and
controls, and regulatory scrutiny following the 2019 PRA
“Dear CEO letter” letter regarding PRA’s ongoing
focus on: the integrity of regulatory reporting, which the PRA
considers has equal standing with financial reporting; the
PRA’s thematic reviews of the governance, controls and
processes for preparing regulatory returns of selected UK banks,
including NatWest Group; the publication of the PRA’s common
findings from those reviews in September 2021; and NatWest
Group’s programme of improvements to meet PRA
expectations.
These
and other recent regulatory changes, proposed or future
developments and heightened levels of public and regulatory
scrutiny in the UK, the EU and the US have resulted in increased
capital, funding and liquidity requirements, changes in the
competitive landscape, changes in other regulatory requirements and
increased operating costs, and have impacted, and will continue to
impact, competitive position, product offerings and business
models. Future competition investigations, market reviews, or the
regulation of mergers may lead to the imposition of financial
penalties or market remedies that may adversely impact NatWest
Group’s competitive or financial position. Any of these
developments (including any failure to comply with new rules and
regulations) could also have a significant impact on NatWest
Group’s authorisations and licences, the products and
services that NatWest Group may offer, its reputation and the value
of its assets, NatWest Group’s operations or legal entity
structure, and the manner in which NatWest Group conducts its
business. Material consequences could arise should NatWest Group be
found to be non-compliant with these regulatory requirements.
Regulatory developments may also result in an increased number of
regulatory investigations and proceedings and have increased the
risks relating to NatWest Group’s ability to comply with the
applicable body of rules and regulations in the manner and within
the time frames required.
Changes
in laws, rules or regulations, or in their interpretation or
enforcement, or the implementation of new laws, rules or
regulations, including contradictory or conflicting laws, rules or
regulations by key regulators or policymakers in different
jurisdictions, or failure by NatWest Group to comply with such
laws, rules and regulations, may adversely affect NatWest
Group’s business, results of operations and outlook. In
addition, uncertainty and insufficient international regulatory
coordination as enhanced supervisory standards are developed and
implemented may adversely affect NatWest Group’s ability to
engage in effective business, risk and capital management
planning.
NatWest Group is exposed to the risks of various litigation
matters, regulatory and governmental actions and investigations as
well as remedial undertakings, including conduct-related reviews,
anti-money laundering and redress projects, the outcomes of which
are inherently difficult to predict, and which could have an
adverse effect on NatWest Group.
NatWest
Group’s operations are diverse and complex and it operates in
legal and regulatory environments that expose it to potentially
significant legal proceedings, and civil and criminal regulatory
and governmental actions. NatWest Group has resolved a number of
legal and regulatory actions over the past several years but
continues to be, and may in the future be, involved in such actions
in the US, the UK, Europe and other jurisdictions.
NatWest
Group is currently, has recently been and will likely be involved
in a number of significant legal and regulatory actions, including
investigations, proceedings and ongoing reviews (both formal and
informal) by governmental law enforcement and other agencies and
litigation proceedings, relating to, among other matters, the
offering of securities, conduct in the foreign exchange market, the
setting of benchmark rates such as LIBOR and related derivatives
trading, the issuance, underwriting, and sales and trading of
fixed-income securities (including government securities), product
mis-selling, customer mistreatment, anti-money laundering,
antitrust, VAT recovery and various other compliance issues. Legal
and regulatory actions are subject to many uncertainties, and their
outcomes, including the timing, amount of fines, damages or
settlements or the form of any settlements, which may be material
and in excess of any related provisions, are often difficult to
predict, particularly in the early stages of a case or
investigation. NatWest Group’s expectation for resolution may
change and substantial additional provisions and costs may be
recognised in respect of any matter.
The
resolution of significant investigations include: (a) NWM
Plc’s December 2021 spoofing-related guilty plea in the
United States, which involves a three-year period of probation, an
independent corporate monitor, and commitments to compliance
programme reviews and improvements and reporting obligations, as
well as approximately US$35 million in fines and restitution, and
(b) National Westminster Bank Plc’s October 2021 guilty plea
for breaches of the UK Money Laundering Regulations 2007, which
resulted in a fine of approximately £265 million. For
additional information relating to these and other legal and
regulatory proceedings and matters to which NatWest Group is
currently exposed, see ‘Litigation and regulatory
matters’ at Note 27 to the consolidated
accounts.
The
recent guilty pleas, other recently resolved matters or adverse
outcomes or resolution of current or future legal or regulatory
actions could increase the risk of greater regulatory and third
party scrutiny and could have material collateral consequences for
NatWest Group’s business and result in restrictions or
limitations on NatWest Group’s operations.
These
may include the effective or actual disqualification from carrying
on certain regulated activities and consequences resulting from the
need to reapply for various important licences or obtain waivers to
conduct certain existing activities of NatWest Group, particularly
but not solely in the US, which may take a significant period of
time and the results of which are uncertain. Disqualification from
carrying on any activities, whether automatically as a result of
the resolution of a particular matter or as a result of the failure
to obtain such licences or waivers could adversely impact NatWest
Group’s business, in particular in the US. This in turn
and/or any fines, settlement payments or penalties could adversely
impact NatWest Group’s reported financial results and
condition, capital position or reputation.
Failure
to comply with undertakings made by NatWest Group to its
regulators, or the conditions of probation resulting from the
spoofing-related guilty plea, may result in additional measures or
penalties being taken against NatWest Group. In addition, any
failure to administer conduct redress processes adequately, or to
handle individual complaints fairly or appropriately, could result
in further claims as well as the imposition of additional measures
or limitations on NatWest Group’s operations, additional
supervision by NatWest Group’s regulators, and loss of
investor confidence.
NatWest Group may not effectively manage the transition of LIBOR
and other IBOR rates to alternative risk-free rates.
UK and
international regulators are driving the transition from the use of
interbank offer rates (‘IBORs’), including LIBOR, to
alternative rates, primarily risk free rates (‘RFRs’).
As of 31 December 2021, LIBOR, as currently determined, has ceased
for all tenors of GBP, JPY, CHF, EUR, and for the 1 week and 2
month tenors for USD. The remaining USD LIBOR tenors, as currently
determined, are due to cease after 30 June 2023. The FCA has used
its powers under the UK Benchmarks Regulation (‘UK
BMR’) to require, for a limited period of time after 31
December 2021, the ongoing publication of the 1, 3, and 6 month GBP
and JPY LIBOR tenors using a changed methodology (i.e.,
‘Art23A LIBOR’ on a synthetic basis). The UK has passed
the Critical Benchmarks (References and Administrators’
Liability) Act 2021 (‘Critical Benchmarks Act’) which
establishes a framework that allows the ongoing use of Art23A LIBOR
under certain circumstances where contracts have pro-actively
transitioned onto alternative rates. However, the FCA has been
clear that the solutions provided under UK BMR and the Critical
Benchmarks Act are not permanent and cannot be guaranteed after the
end of 2022 (and for JPY the FCA has confirmed that Art23A LIBOR
will no longer be available after the end of 2022). This framework
and its lack of permanence may expose NatWest Group, its customers
and the financial services industry more widely to various risks,
including: (i) the FCA further restricting use of Art23A LIBOR
resulting in proactive transition of contracts; and (ii)
mis-matches between positions in cleared derivatives and the
exposures they are hedging where those exposures are permitted to
make use of Art23A LIBOR, as the FCA has chosen not to permit the
use of Art23A LIBOR for cleared derivatives. Although the formal
cessation date for the remaining USD LIBOR tenors (as currently
determined) is not until the end of June 2023, US and UK regulators
have been clear that this is only to support the rundown of back
book USD LIBOR exposures, and that no new contracts should
reference these USD LIBOR tenors after 31 December 2021, other than
in a very limited range of circumstances. Natwest Group will
continue to have ongoing exposure to the remaining USD LIBOR tenors
until they cease at the end of June 2023.
Natwest
Group had significant exposures to IBORs and has actively sought to
transition away from these during 2021 in accordance with
regulatory expectations and milestones. Transition measures have
included the pro-active development of new products on using
alternative rates, primarily but not exclusively RFRs rather than
LIBOR, pro-actively restructuring existing LIBOR exposures so that
they cease to reference LIBOR and instead reference alternative
rates, and embedding language into contracts that allows for the
automatic conversion to alternative rates when LIBOR ceases to be
available. The main Central Counterparty Clearing houses (CCPs)
conducted mass conversion exercises in December 2021 covering GBP,
JPY, CHF and EUR LIBOR cleared derivatives to fully transition all
outstanding LIBOR exposure to the relevant RFR. Natwest Group
entities, along with many of their major counterparties, have
already adhered to the ISDA IBOR fall-backs supplement and protocol
which establishes a clear, industry accepted, contractual process
to manage the transition from IBORs to RFRs for non-cleared
derivative products.
These
transition efforts have involved extensive engagement with
customers, industry working groups and regulators to seek to
deliver transition in a transparent and economically appropriate
manner. Any economic impacts will be dependent on, amongst other
things, the establishment of deep and liquid RFR markets, the
establishment of clear and consistent market conventions for all
replacement products, as well as counterparties’ willingness
to accept, and transition to, these conventions. Furthermore,
certain IBOR obligations may not be able to be pro-actively changed
which could, depending on any over-arching legislative transition
frameworks, potentially result in fundamentally different economic
outcomes than originally intended. The uncertainties around the
manner of transition to RFRs, and the ongoing broader acceptance
and use of RFRs across the market, expose NatWest Group, its
clients and the financial services industry more widely to
risks.
Examples
of these risks may include (i) legal (including litigation) risks
relating to documentation for new and the majority of existing
transactions (including, but not limited to, changes, lack of
changes, unclear contractual provisions, and disputes in respect of
these); (ii) financial risks from any changes in valuation of
financial instruments linked to impacted IBORs that may impact
NatWest Group’s performance, including its cost of funds, and
its risk management related financial models; (iii) pricing,
interest rate or settlement risks such as changes to benchmark
rates that could impact pricing, interest rate or settlement
mechanisms in or on certain instruments; (iv) operational risks due
to the requirement to adapt IT systems, trade reporting
infrastructure and operational processes, as well as ensuring
compliance with restrictions on new USD LIBOR usage after December
2021; (v) conduct and litigation risks arising from communication
regarding the potential impact on customers, and engagement with
customers during and after the transition period, or non-acceptance
by customers of replacement rates; and (vi) different legislative
provisions in different jurisdictions, for example, unlike certain
US states and the EU, the UK has not provided a clear and robust
safe harbour to protect against litigation and potential liability
arising out of the switch to ‘synthetic
LIBOR’.
Notwithstanding
all efforts to date, until the transition away from LIBOR onto
alternative rates has been fully completed and there is greater
experience of how RFRs are adopted across different products and
customer groups, it remains difficult to determine to what extent
the changes will affect NatWest Group, or the costs of implementing
any relevant remedial action. Uncertainty as to the nature and
extent of such potential changes, the take up of alternative
reference rates, or other reforms may adversely affect financial
instruments originally referencing LIBOR as the benchmark. The
implementation of any alternative RFRs may be impossible or
impracticable under the existing terms of certain financial
instruments and could have an adverse effect on the value of,
return on, and trading market for, certain financial instruments
and on NatWest Group’s profitability.
Changes in tax legislation or failure to generate future taxable
profits may impact the recoverability of certain deferred tax
assets recognised by NatWest Group.
In
accordance with the accounting policies set out in ‘Critical accounting policies and key
sources of estimation uncertainty’, NatWest Group has
recognised deferred tax assets on losses available to relieve
future profits from tax only to the extent it is probable that they
will be recovered. The deferred tax assets are quantified on the
basis of current tax legislation and accounting standards and are
subject to change in respect of the future rates of tax or the
rules for computing taxable profits and offsetting allowable
losses.
Failure
to generate sufficient future taxable profits or further changes in
tax legislation (including with respect to rates of tax) or
accounting standards may reduce the recoverable amount of the
recognised tax loss deferred tax assets, amounting to £899
million as at 31 December 2021. Changes to the treatment of certain
deferred tax assets may impact NatWest Group’s capital
position. In addition, NatWest Group’s interpretation or
application of relevant tax laws may differ from those of the
relevant tax authorities and provisions are made for potential tax
liabilities that may arise on the basis of the amounts expected to
be paid to tax authorities. The amounts ultimately paid may differ
materially from the amounts provided depending on the ultimate
resolution of such matters.
Legal
Entity Identifier: 2138005O9XJIJN4JPN90
Date: 18
February 2022
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NATWEST
GROUP plc (Registrant)
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By: /s/
Jan Cargill
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Name:
Jan Cargill
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Title:
Chief Governance Officer and Company Secretary
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