Tesco plc Annual Report and Financial Statements 2012

Principal risks and uncertainties
Tesco Bank/Financial Services Risks
Tesco Bank (‘the Bank’) primarily operates in the UK retail financial services market offering savings products, unsecured consumer lending
products and general insurance products as well as travel money and ATM services. The section below sets out principal risks relating specifically
to the Bank.
The Bank’s Enterprise Wide Risk Management Framework identifies the main controls and actions. There are a number of key components
of the framework common to all of the major risk categories, including the following:
Component Description of the component
Independent Risk function Reporting to the Chief Risk Officer (‘CRO’) and responsible for designing and
implementing risk management frameworks and for independently monitoring
the risk profile, providing oversight and challenge to the business
Three lines of defence Line managers are responsible for establishing an effective control framework within
their area of operations and for identifying and controlling all risks within risk appetite
and policy limits (first line of defence). The second line of defence is the independent
Risk function. Internal Audit is the third line of defence and is responsible for the
independent assessment of the effectiveness of the implementation of the overall
risk and control measures
Policy framework Risk is responsible for the policy framework, with the Bank’s policy documents
providing the rules and guiding principles that define the approach to specific
subjects and covering all aspects of risk
Integrated risk reporting Reporting is provided monthly to senior governance committees. Exposures are
monitored against triggers and limits on a daily, weekly or monthly frequency as
required. Exceptions are reported monthly to the Bank’s Asset & Liability Management
Committee (‘ALCO’), the Risk Management Committee (‘RMC’) and to each meeting
of Board Risk Committee (‘BRC’)
Stress testing Stress testing is the process under which the Bank’s business plans, capital and
liquidity are subjected to severe adverse impacts. Stress testing is a mandatory
requirement of the FSA who require that banks implement their own stress testing
processes. Stress testing is essential to effective risk management and is a key
component of the Bank’s Internal Capital Adequacy Assessment Process (‘ICAAP’)
and Internal Liquidity Adequacy Assessment (‘ILAA’) processes
The table below sets out the principal risks currently faced by the Bank, their movement during the year and provides examples of relevant key
controls and mitigating factors. The Bank’s Board considers these to be the most significant risks but has not set them out in any order of priority.
They do not comprise all risks associated with the Bank. Additional risks not presently known to management, or currently deemed to be less
material, may also have an adverse effect on the business.
Principal risks
Transformation risk
The Transformation Programme
is a significant change programme
designed to develop platforms
and processes to enable the
Bank to conduct banking and
insurance business independently
of The Royal Bank of Scotland
Group (‘RBS’). The key remaining
component of the Transformation
Programme is the migration of
the credit card portfolio
In addition, the Bank has
well-developed plans for
launching mortgages, subject
to FSA approval
44 Tesco PLC Annual Report and Financial Statements 2012
Change from
2010/11 Key controls and mitigating factors
�� There is strong programme governance in place with a tiered committee structure
headed by the Bank’s Executive-level Project Assessment Committee (‘PAC’)
�� The Bank operates standard project management disciplines which are employed
to deliver effective programme and risk and issue management