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Rothschild & Co | Annual Report 2017
71
1. Overview
4. Financial statements
3.
Management report
2. Business review
4.4 Liquidity risk
Liquidity risk is defined as the risk that the Group is not able to maintain or
generate sufficient cash resources to meet its payment obligations as they
fall due. Managing liquidity risk is therefore a crucial element in ensuring
the future viability and prosperity of the Group.
4.4.1 Governance of liquidity risk
The Group adopts a conservative approach to liquidity risk and its
management and has designed its approach in the overall context of the
Banking and Wealth Management strategy.
The Group Risk Appetite Statement establishes limits to ensure that the
Group will maintain sufficient liquid resources to meet cash flow obligations
and maintain a buffer over regulatory and internal assessment of liquidity
requirements. The Group Liquidity Risk Policy is reviewed annually. Each
banking entity must have in place a liquidity risk policy approved by the
Group ALCO and which defines its liquidity risk limits and how liquidity risk
is measured, monitored and controlled.
In line with the directions given by the Managing Partner, the Group ALCO
is responsible for the development and oversight of the implementation
of liquidity strategy, the approval of local Liquidity Risk Policies and limits,
and the implementation of reasonable steps to ensure these are consistent
with the Group’s risk appetite. The Group ALCO establishes and maintains
a structure for the management of liquidity risk including allocations
of authority and responsibility to senior managers and ensures that all
reasonable steps are taken to measure, monitor and control liquidity risk
and identify material changes to the liquidity profile. The Group ALCO
evaluates the results of stress testing on the liquidity profile and is
responsible for the invocation of any Contingency Funding Plan (“CFP”)
measures if necessary. The Group ALCO ensures that the appropriate
liquidity impact and liquidity cost of transactions is taken into account in the
credit processes and approves the benchmark rate for the cost of liquidity
used by banking teams as a key element of their pricing and risk-reward
assessment in respect of existing and new business.
The Risk Committee has responsibility for reviewing the Group’s liquidity risk
identification, measurement, monitoring and control policies and procedures.
4.4.2 System for monitoring liquidity risk
The liquidity positions for Rothschild Bank International Limited, Rothschild
Bank AG and Rothschild Martin Maurel are reviewed and reported in depth
to the Group ALCO and summarised for the Risk Committee in accordance
with the Risk Committee’s terms of reference. In addition, the Group is
required to have a contingency funding plan in place which requires a
periodic review of the relevance and degree of severity of the assumptions
used, the level and sustainability of the funding commitments received and
the amount and quality of the liquid assets held. The Group also requires
a Recovery Plan for liquidity, which sets out adequate strategies and
measures to address any possible shortfalls. These complement the
existing plans for individual Group entities.
The Heads of Treasury are responsible for day-to-day management of
liquidity, operating the business within liquidity limits set under their local
policy and as approved by the Group ALCO, and for reporting to its meetings.
Group Finance is responsible for monitoring adherence to the liquidity risk
limits and for reporting any limits or target breaches as soon as practicable.
Additionally the team is responsible for preparing and submitting regulatory
liquidity returns, performing stress tests on the liquidity profile, verifying the
appropriateness of such stress tests in consultation with Group Risk and
reporting stress test results to Group ALCO.
Group Risk is responsible for monitoring the Group’s liquidity risk and
preparing periodic reports on it for the Risk Committee, and verifying the
appropriateness of stress testing in consultation with Finance.
5 Organisation of the Group accounting
arrangements
Group Finance has the necessary people to produce the financial,
accounting and regulatory information of the Group on a consolidated
and regulatory basis. The Finance Department consists of three sections:
management accounting, financial accounting (including consolidations)
and regulatory reporting.
5.1 Overview of statutory accounting
arrangements
The local accounting departments are responsible for local statutory
accounts. Group Finance produces the consolidated Rothschild & Co
accounts, although it does review Rothschild & Co’s solo statutory accounts
to ensure consistency where appropriate.
5.2 Process for establishing consolidated
accounts
The consolidation department of Rothschild & Co manages the chart of
accounts at Group level and the associated databases, performs the Group
consolidation, controls the consistency and completeness of data and
draws up the consolidated accounts and related notes.
In SAP FC, the consolidation tool of Group Finance, all subsidiaries report
their individual accounting information using a chart of accounts and a
format that are common to the whole Group.
Accounting data is reported directly under IFRS in SAP FC. The Group
defines in its data dictionary how to record specific transactions and defines
how the notes to the accounts should be prepared. The data dictionary, as
well as other accounting guidance, is available for all offices on Rothschild &
Co’s intranet. There are also quarterly reporting instructions and a quarterly
Group Finance newsletter/circular.