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 16, 2024
Commission
File Number: 001-10306
NatWest
Group plc
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 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 16 February 2024
Annual Report and Accounts 2023
Pillar 3 Report 2023
A copy of the Annual Report and Accounts 2023
for 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 2023 Pillar 3 report, available on our
website. For further information, please contact:
Media Relations
+44 (0) 131 523 4205
NatWest
Group Investor Relations:
Claire
Kane
Director,
Investor Relations
+44 (0)
20 7672 1758
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 2023 in full unedited text. Page references in
the text refer to page numbers in the Annual Report and Accounts
2023.
Principal Risks and Uncertainties
Set out below are certain risk factors that could have a material
adverse effect on NatWest Group's future results, its financial
condition and/or prospects and cause them to be materially
different from what is forecast or expected, and directly or
indirectly impact the value of its securities. These risk factors
are broadly categorised and should be read in conjunction with
other risk factors in this section and other parts 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.
Economic and political risk
NatWest Group, its customers and its counterparties face continued
economic and political risks and uncertainties in the UK and global
markets, including as a result of inflation and interest rates,
supply chain disruption, and geopolitical
developments.
As a
principally UK-focused banking group, NatWest Group is affected by
global economic and market conditions and is, particularly exposed
to those conditions in the UK. Uncertain and volatile economic
conditions can create a challenging operating environment for
financial services companies such as NatWest Group. The outlook for
the UK and the global economy is affected by many factors
including: GDP growth, inflation and changing interest rates,
changing asset prices (including residential and commercial
property), energy prices, supply chain disruption, and changes to
monetary and fiscal policy.
These
conditions could be exacerbated by a number of factors including:
instability in the UK and/or global financial systems, market
volatility and change, fluctuations in the value of the pound
sterling, new or extended economic sanctions, economic volatility
in the UK or globally, volatility in commodity prices, political
uncertainty or instability (for example the upcoming US
presidential election and the UK general election to take place
before February 2025), or concerns regarding sovereign debt or
sovereign credit ratings, changing demographics in the markets that
NatWest Group and its customers serve, increasing social and other
inequalities, rapid changes to the economic environment due to the
adoption of technology, automation, artificial intelligence, or due
to climate change and/or other sustainability-related risks. Refer
to 'Changes in interest rates will
continue to affect NatWest Group's business and results' and
'Fluctuations in currency exchange
rates may adversely affect NatWest Group's results and financial
condition'.
NatWest
Group is also exposed to risks arising out of geopolitical events
or political developments that may hinder economic or financial
activity levels. Political, military or diplomatic events,
geopolitical tensions, armed conflict (for example the
Russia-Ukraine and Israel-Hamas conflicts), terrorist acts or
threats, protectionist policies or trade barriers, widespread
public health crises, related potential adverse effects on supply
chains and the responses to any of the above scenarios by various
governments and markets, could negatively affect the business and
performance of NatWest Group, including as a result of the direct
or indirect impact on UK, regional or global trade and/or NatWest
Group's customers and counterparties.
In
recent years, the UK has experienced significant political
uncertainty and a general election will take place before February
2025. Heightened political uncertainty could lead to a loss of
confidence in the UK that could, in turn, negatively impact the
economy and companies operating in the UK. NatWest Group also faces
political uncertainty in Scotland as a result of a possible
Scottish independence referendum. Scottish independence may
adversely affect NatWest Group plc both in relation to its entities
incorporated in Scotland and in other jurisdictions. Any changes to
Scotland's relationship with the UK or the EU may adversely affect
the environment in which NatWest Group plc and its subsidiaries
operate and may require further changes to NatWest Group,
independently or in conjunction with other mandatory or strategic
structural and organisational changes, any of which could adversely
affect NatWest Group. Refer to '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
adversely affect NatWest Group and its operating
environment'.
The
value of NatWest Group's own and other securities may be materially
affected by economic and market conditions. Market volatility,
illiquid market conditions and disruptions in the financial markets
may make it very difficult to value certain of NatWest Group's own
and other securities, particularly during periods of market
displacement. This could cause a decline in the value of NatWest
Group's own and other securities, or inaccurate carrying values for
certain financial instruments.
In
addition, financial markets are susceptible to severe events
evidenced by, or resulting in, 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 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 often
automatically) 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
extreme market moves.
However,
market events have historically been difficult to predict, and
NatWest Group, its customers and its counterparties could realise
significant losses if extreme market events were to
occur.
Any of
the above may have a material adverse effect on NatWest Group's
future results, financial condition, prospects, and/or
reputation.
Changes in interest rates will continue to affect NatWest Group's
business and results.
NatWest Group's performance is affected by changes in interest
rates. Benchmark overnight interest
rates, such as the UK base rate, increased in 2023, although
forward rates at 31 December 2023 suggested interest rates may
begin to fall in 2024.
Stable interest rates support predictable income flow and less
volatility in asset and liability valuations, although persistently
low and negative interest rates may adversely affect NatWest Group.
Further, volatility in interest rates may result in unexpected
outcomes both for interest income and asset and liability
valuations which may adversely affect NatWest Group. For example,
unexpected movements in spreads between key benchmark rates such as
sovereign and swap rates may in turn affect liquidity portfolio
valuations. In addition, unexpected sharp rises in rates may also
have negative impacts on some asset and derivative
valuations.
Furthermore, customer and investor responses to rapid changes in
interest rates can have an adverse effect on NatWest Group. For
example, customers may make deposit choices that provide them with
higher returns than those then being offered by NatWest Group, and
NatWest Group may not respond with competitive products as rapidly,
for example following an interest rate change, which may in turn
decrease NatWest Group's net interest income.
Movements in interest rates also influence and reflect the
macroeconomic situation more broadly, affecting factors such as
business and consumer confidence, property prices, default rates on
loans, customer behaviour (which may adversely impact the
effectiveness of NatWest Group's hedging strategy) and other
indicators that may indirectly affect NatWest Group.
Any of the above may have a material adverse effect on NatWest
Group's future results, financial condition, prospects, and/or
reputation.
Fluctuations in currency exchange rates may adversely affect
NatWest Group's results and financial condition.
Decisions of central banks (including the Bank of England, the
European Central Bank (ECB) and the US Federal Reserve) and
political or market events, which are outside NatWest Group's
control, may lead to sharp and sudden fluctuations in currency
exchange rates.
Although
NatWest Group is principally a UK-focused banking group, it is
subject to structural foreign exchange risk from capital deployed
in NatWest Group's foreign subsidiaries, branches and other
strategic equity shareholdings. NatWest Group also relies on
issuing securities in non-sterling currencies, such as US dollars
and euros, that assist in meeting NatWest Group's MREL
requirements. In addition, NatWest Group conducts banking
activities in non-sterling currencies (for example, loans, deposits
and dealing activity) which affect its revenue. NatWest Group also
uses service providers based outside of the United Kingdom for
certain services and as a result certain operating results are
subject to fluctuations in currency exchange rates.
NatWest
Group maintains policies and procedures designed to manage the
impact of its exposure to fluctuations in currency exchange
rates.
Nevertheless,
changes in currency exchange rates, particularly in the sterling-US
dollar and sterling-euro rates, may adversely affect various
accounting and financial metrics including, the value of assets,
liabilities (including the total amount of MREL-eligible
instruments), foreign exchange dealing activity, income and
expenses, RWAs and hence the reported earnings and financial
condition of NatWest Group.
Any of
the above may have a material adverse effect on NatWest Group's
future results, financial condition, prospects, reputation, and/or
its ability to meet regulatory capital adequacy
requirements.
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 adversely affect NatWest
Group and its operating environment.
As a result of the UK's withdrawal from the EU, certain aspects of
the services provided by NatWest Group require local licences or
individual equivalence decisions (temporary or otherwise) by
relevant regulators. 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. When these proposals become law all 'banking
services' provided by NatWest Group in the EU may be licensable
activities in each EU member state in which it provides such
services and member states may not be permitted to offer bilateral
permissions to financial institutions outside the EU allowing them
to provide such 'banking services', except in limited
circumstances.
NatWest
Group continues to evaluate its EU operating model, making
adaptations as necessary. Changes to NatWest Group's EU operating
model have been, and may continue to be, costly and failure to
receive regulatory permissions and/or further changes to its
business operations, product offering, customer engagement, and
regulatory requirements could result in further costs and/or
regulatory sanction.
The
long-term effects of Brexit and the uncertainty regarding NatWest
Group's EU operating model may adversely affect NatWest Group and
its customers and counterparties who are themselves dependent on
trading with the EU or personnel from the EU. The long-term effects
of Brexit may also be exacerbated by wider UK and global
macroeconomic trends and events.
Uncertainties
remain as to the extent to which EU/EEA laws will diverge from UK
law. For example, bank regulation in the UK may diverge from
European bank regulation following the enactment of the Financial
Services and Markets Act 2023 ('FSMA 2023') and the Retained EU Law
(Revocation and Reform) Act 2023. In particular, FSMA 2023 provides
for the revocation of Retained EU Law relating to financial
services regulation but sets out that this process will likely take
a number of years and that the intention is that specific retained
EU laws will not be revoked until such time as replacement
regulatory rules are in place. The actions taken by regulators in
response to any new or revised bank regulation and other rules
affecting financial services, may adversely affect NatWest Group,
including its business, non-UK operations, group structure,
compliance costs, intragroup arrangements and capital
requirements.
Any of
the above may have a material adverse effect on NatWest Group's
future results, financial condition, prospects, and/or
reputation.
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
Autumn Statement 2023 (presented on 22 November 2023), the UK
Government confirmed its commitment to exiting its shareholding in
NatWest Group plc, subject to market conditions. It also stated
that it "intends to fully exit by 2025-26 utilising a range of
disposal methods" and "will explore options to launch a share sale
to retail investors in the next twelve months, subject to
supportive market conditions".
NatWest
Group plc has most recently: (i) carried out a directed buyback of
NatWest Group plc ordinary shares from HM Treasury in May 2023, and
(ii) made purchases under NatWest Group plc's on-market buyback
programmes announced in July 2023
and February 2024. NatWest Group plc may participate in
similar directed or on-market buybacks in the near- and medium-term
future. As at 8 January 2024, HM Treasury held 36.94% of the
ordinary share capital with voting rights of NatWest Group plc.
Achievement of the UK Government's Autumn Statement 2023 objective
is likely to entail it selling a significant number of NatWest
Group plc's shares. The precise timing, method and extent of
further HM Treasury's disposal of NatWest Group plc's shares may be
driven by economic as well as other considerations and is
uncertain, which could result in a prolonged period of price
volatility for NatWest Group plc's ordinary shares and its (and
NatWest Group's) other securities.
Any
offers or sales of a substantial number of ordinary shares in
NatWest Group plc by HM Treasury (including at a discount or with
other incentives), market expectations about these offers or sales,
or perceptions about the success or failure of any offers or sales
(including for example, media or public attention on any such
offering or post-offer share price performance), and any directed,
on- or off-market buyback activity by NatWest Group plc, could
affect the prevailing market price for the outstanding ordinary
shares of NatWest Group plc and, in the case of a directed, on- or
off-market buyback, could reduce NatWest Group plc's capital and
liquidity, which may have an adverse effect on NatWest
Group.
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 NatWest Group plc's largest single shareholder, HM Treasury
and UK Government Investments Limited ('UKGI') (as manager of HM
Treasury's shareholding) could exercise a significant degree of
influence over NatWest Group including: the election or removal of
directors, the appointment or removal of senior management, NatWest
Group's capital strategy, dividend policy, remuneration policy or
the conduct of NatWest Group's operations. HM Treasury or UKGI's
approach largely depends on government policy, which could
change.
The
manner in which HM Treasury or UKGI exercises HM Treasury's rights
as NatWest Group's 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, which may in turn adversely affect NatWest
Group.
Any of
the above may have a material adverse effect on NatWest Group's
future results, financial condition, prospects, and/or
reputation.
Strategic risk
NatWest Group continues to implement its strategy, which carries
significant execution and operational risks and it may not achieve
its stated aims and targeted outcomes.
NatWest
Group continues to implement its strategy, which is intended to
reflect the rapidly shifting environment and backdrop of
significant disruption in society driven by technology and changing
customer expectations. Further, shifting trends include
digitalisation, decarbonisation, automation, artificial
intelligence, e-commerce and hybrid working, each of which has
resulted in significant market volatility and change. There is also
increasing investor, employee, stakeholder, regulatory and customer
scrutiny regarding how businesses address these changes and related
environmental challenges, including climate change, biodiversity
and other sustainability issues, including how NatWest Group
supports its customers' transition to net zero, is tackling
inequality, working conditions, workplace health, safety and
wellbeing, diversity and inclusion, data protection and management,
workforce management, human rights and supply chain
management.
In
recent years, as part of its strategy, NatWest Group has refocused
its NatWest Markets business, and has also created the Commercial
& Institutional business segment. This business segment
combines the previously separately reporting Commercial, NatWest
Markets and RBS International businesses to form a single business
segment, which focuses on serving Commercial & Institutional
customers. It was created to promote closer operational and
strategic alignment to support growth, with more integrated
services to customers across NatWest Group entities within and
outside the ring-fenced banks, with the potential increased risk of
breach of the UK ring-fencing regime requiring effective conflicts
of interest policies.
Many factors may adversely impact the successful implementation of
NatWest Group's strategy and the delivery of its intended benefits,
including:
-
macroeconomic
challenges including GDP growth, inflation, changing interest
rates, changing asset prices (including residential and commercial
property), energy prices, supply chain disruption, changes to
monetary and fiscal policy, and the impact of armed conflict, which
may adversely affect NatWest Group's customers, and which could in
turn impact adversely certain strategic initiatives and new venture
opportunities for NatWest Group;
-
changing
customer expectations and behaviour in response to macroeconomic
conditions or developments, technology and other factors which
could reduce the profitability, competitiveness, or volume of the
services NatWest Group offers; -
-
the
rapid emergence and rapid deployment of new technologies (such as
artificial intelligence, quantum computing, blockchain and digital
currencies) resulting in a potential shift across the market
towards products and services that are not part of NatWest Group's
core offering today;
-
increased
competitive threats from incumbent banks, fintech companies, large
technology conglomerates and other new market entrants (including
those that emerge from mergers and consolidations) who may have
competitive advantages in terms of scale, technology and customer
engagement;
-
uncertainties
regarding, or changes by, the senior leadership of NatWest Group;
and
-
changes to the regulatory environment and
associated requirements which could lead to shifts in operating
cost and regulatory capital requirements, that impact NatWest
Group's product offerings and business models (refer to
'NatWest
Group's businesses are subject to substantial regulation and
oversight, which are constantly evolving and may adversely affect
NatWest Group; and NatWest Group could incur
losses or be required to maintain higher levels of capital as a
result of limitations or failure of various
models.')
Delivery of NatWest Group's strategy will require:
-
maintaining
effective governance, procedures, systems and controls giving
effect to NatWest Group's strategy;
-
managing
a broad range of risks and opportunities related to changes in the
macroeconomic environment, customer expectations and behaviour,
technology, regulation and competition alongside the emerging risks
and opportunities associated with climate and other
sustainability-related areas;
-
achieving
a number of financial, capital and operational targets and
expectations within the relevant timeframe, or at all;
and
-
continued
cost-controlling measures, which may result in provisions in
connection to a lower NatWest Group's cost base, may divert
investment from other areas, and may vary considerably from year to
year.
In
pursuing its strategy, NatWest Group may not be able to
successfully: (i) implement some or all aspects of its strategy;
(ii) meet any or all of the related targets or expectations of its
strategy; and otherwise realise the anticipated benefits of its
strategy, in a timely manner, or at all; 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
and regulatory (including compliance with the UK ring-fencing
regime), conflicts, legal, execution, IT system, cybersecurity,
internal culture, conduct and people risks to NatWest Group.
Implementing changes and strategic actions, including in respect of
any growth initiatives, requires the effective application of
robust governance and controls frameworks and robust IT systems and
there is a risk that NatWest Group may not be successful in all
these respects. The ongoing implementation of NatWest Group's
strategy 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 (both in terms of substantive targets and timing), or at
all. This could lead to additional management actions by NatWest
Group.
Each of
these risks, and others identified in these Principal Risks and
Uncertainties, individually or collectively could jeopardise the
implementation and delivery of NatWest Group's strategy, impact
NatWest Group's products and services offering, its reputation with
customers or business model and adversely affect NatWest Group's
ability to deliver its strategy and meet its targets and
guidance.
Any of
the above may have a material adverse effect on NatWest Group's
future results, financial condition, prospects, and/or
reputation.
Acquisitions, divestments, other strategic transactions and/or the
withdrawal from the Republic of Ireland by NatWest Group may not be
successful, and consolidation or fragmentation of the financial
services industry may adversely affect NatWest Group.
The
financial services industry is experiencing continued competitive
pressure resulting from technological advancement that disrupts
traditional business models and from incumbent banks, fintech
companies, large technology conglomerates and other new market
entrants. To compete effectively, NatWest Group may decide, as part
of its strategy, to undertake acquisitions, investments, the
purchase of assets and liabilities, divestments, restructurings,
reorganisations, joint ventures and other strategic partnerships,
as well as other transactions and initiatives.
In
addition, NatWest Group may decide to grow its business through
these transactions and initiatives to, amongst others: (i) enhance
capabilities that may lead to better productivity or cost
efficiencies; (ii) acquire talent; (iii) pursue new products or
expand existing products; and/or (iv) enter new markets or enhance
its presence in existing markets.
In
pursuing its strategy, NatWest Group may not fully realise the
expected benefits and value from the above-mentioned transactions
and initiatives in the time, or to the degree, anticipated, or at
all. In particular, NatWest Group may: (i) fail to realise the
business rationale for the transaction or initiative, or rely on
assumptions underlying the business plans supporting the valuation
of a target transaction or initiative that may prove inaccurate,
for example, regarding synergies and expected commercial demand;
(ii) fail to successfully integrate any acquired businesses,
investment, joint-venture or assets (including in respect of
technologies, existing strategies, products, governance, systems
and controls, and human capital) or to successfully divest or
restructure a business; (iii) fail to retain key employees,
customers and suppliers of any acquired or restructured 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; (vi) not obtain necessary regulatory and other
approvals or onerous conditions may be attached to such approvals;
and (vii) compete with existing larger banks or financial
institutions (and those that emerge from mergers and
consolidations) or other larger entities offering financial
services products that may have more bargaining power in
negotiations than NatWest Group. Accordingly, NatWest Group may not
be successful in changing its business 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.
For
example, in the context of divestments, the remaining phases of
NatWest Group's phased withdrawal from ROI entails commercial,
operational, reputational, legal and execution risks, as it will
require transfers of business, assets and liabilities. These risks
include: (i) inability to return capital from Ulster Bank Ireland
DAC to its parent or additional costs for its parent; (ii) higher
than anticipated recognition of disposal losses as part of the
orderly run-down of certain loan portfolios; (iii) execution risks
and additional operational expense and resource to facilitate exit;
(iv) the inability to obtain necessary approvals and/or support
from governmental authorities, regulators and/or other
stakeholders; (v) potential loss of colleagues; (vi) regulatory
risk, including in relation to prudential, conduct and other
regulatory requirements; (vii) brand and/or reputational risks and
stakeholder scrutiny about the phased withdrawal from ROI. These
risks and uncertainties may result in the withdrawal costing more,
taking more time, being more complex or harder to mitigate than
currently estimated. These risks and other divestment risks may
have a material adverse effect on NatWest Group's future results,
financial condition, prospects, reputation, or its ability to
complete its phased withdrawal from ROI.
Continued
competitive pressure in the financial services industry from both
established and new market entrants such as technology companies,
may have a negative impact on NatWest Group's business. Existing
larger banks or financial institutions (and those that emerge from
mergers and consolidations) or other larger entities offering
financial services products may have more bargaining power in
negotiations than NatWest Group and therefore may be in a position
to extract more advantageous terms than NatWest Group. Refer to
'NatWest Group operates in markets
that are highly competitive, with competitive pressures and
technology disruption'.
Any of the above may have a material adverse effect on NatWest
Group's future results, financial condition, prospects, and/or
reputation.
The transfer of NatWest Group's Western European corporate
portfolio involves certain risks.
To
improve efficiencies and best serve customers following Brexit,
NatWest Group expects that certain of its assets, liabilities,
transactions and activities (including NatWest Group's Western
European corporate portfolio principally consisting of term funding
and revolving credit facilities), may be: (i) transferred from the
ring-fenced subgroup of NatWest Group to NWM Group and/or (ii)
transferred to the ring-fenced subgroup of NatWest Group from NWM
Group, subject to regulatory and customer requirements. The timing,
success and quantum of any of these transfers remain uncertain as
is the impact of these transactions on its results of
operations.
As a
result, this may have a material adverse effect on NatWest Group's
future results, financial condition, prospects, and/or
reputation.
Financial resilience risk
NatWest Group may not achieve its ambitions, targets, guidance 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, it has set a number of financial,
capital and operational targets including in respect of its: CET1
ratio target, MREL targets, return on tangible equity (ROTE),
funding plans and requirements, employee engagement, diversity and
inclusion as well as climate-related targets (including its climate
and sustainable funding and financing targets) and customer
satisfaction targets and discretionary capital distributions
(including dividends to shareholders). Refer to 'NatWest Group continues to implement its
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 ambitions, targets and guidance and
make discretionary capital distributions is subject to various
internal and external factors, risks and uncertainties. These
include but are not limited to: UK and global macroeconomic,
political, market and regulatory uncertainties, operational risks
and risks relating to NatWest Group's business model and strategy
(including risks associated with climate and other
sustainability-related issues), competitive pressures, and
litigation, governmental actions, investigations and regulatory
matters. If assumptions, judgements and estimates (for example
about future economic conditions) prove to be incorrect NatWest
Group may not achieve any or all or its ambitions, targets, or
guidance.
In
addition, as NatWest Group plc is a non-operating holding company,
its source of income is from its operating subsidiaries that hold
the principal assets and operations of NatWest Group and its
ability to continue to make capital distributions (including
dividends to shareholders) is therefore subject to such
subsidiaries' financial performance, and their respective ability
to make capital distributions directly or indirectly to NatWest
Group plc which, in certain cases, could also be restricted by
applicable laws, regulations and other requirements.
Refer to 'NatWest Group, its customers
and its counterparties face continued economic and political risks
and uncertainties in the UK and global markets, including as a
result of inflation and interest rates, supply chain disruption and
geopolitical developments.'
Any failure of NatWest Group to achieve ambitions, targets or
guidance, or make discretionary capital distributions may have a
material adverse effect on NatWest Group's future results,
financial condition, prospects, and/or reputation.
NatWest Group operates in markets that are highly competitive, with
competitive pressures and technology disruption.
The markets within which NatWest Group operates are highly
competitive. NatWest Group expects competition to continue and
intensify in
response to various changes including: evolving customer behaviour,
technological changes (including digital currencies and other
instruments, 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 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
(or more competitive) banking, lending and payment products and
services offered by rapidly evolving incumbents, challengers
(including shadow banks and alternative lenders, i.e. entities
which carry out activities of a similar nature to banks but without
the same regulatory oversight) and new entrants such as technology
companies (which may result in a shift in customer behaviour) and
the introduction of disruptive technology, may impede NatWest
Group's ability to grow or retain its market share and impact its
revenues and profitability, particularly in its key UK retail and
commercial and institutional banking segments. Moreover,
innovations such as biometrics, artificial intelligence (including
generative artificial intelligence), automation, the cloud,
blockchain, cryptocurrencies and quantum computing may rapidly
facilitate industry transformation.
Some of
these trends have been catalysed by various regulatory and
competition policy interventions, including the UK initiative on
Open Banking, 'Open Finance' and other remedies imposed by the
Competition and Markets Authority ('CMA'), which are designed to
further promote competition within the financial sector (including
banking). The competition enhancing measures under NatWest Group's
independently administered Alternative Remedies Package (ARP)
benefit grant recipients and eligible competitors. The ARP may be
more costly than anticipated and may adversely affect NatWest
Group's competitive position and/or reputation. Failure to comply
with the terms of the ARP 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, including through
digitalisation and the use of artificial intelligence. For example,
NatWest Group has invested in a number of fintech ventures,
including Mettle, FreeAgent, Tyl, Rapid Cash, Rooster Money, Vodeno
and Cushon. NatWest Group's ability to develop or acquire such
digital solutions (which also need to comply with applicable and
evolving regulations) and their integration in NatWest Group's
systems and controls has become increasingly important to retaining
and growing NatWest Group's competitiveness, market share and
customer-facing businesses in the UK or elsewhere. There is a risk
that NatWest Group's innovation strategy, which includes investment
in its IT capability intended to address the material increase in
customer and merchant 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
successfully offer innovative products and services in the future.
For example, NatWest Group's current or future competitors may be
more successful than NatWest Group in implementing technologies for
delivering products or services to their customers, which may
adversely affect its competitive position. NatWest Group may also
fail to identify future opportunities or fail to derive benefits
from technologies in a context of technological innovation,
changing customer behaviour and changing regulatory demands,
resulting in increased competition from traditional banking
businesses as well as new providers of financial services,
including technology conglomerates 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 more effective 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 cost efficiencies. This
could affect NatWest Group's ability to offer 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 effectively produce, acquire, or manage 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 rolled out in a
timely manner; it will lose market share, incur losses on some or
all of its initiatives 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 automated processes and artificial intelligence.
Such initiatives may result in operational, reputational and
conduct risks if the technology used is not used appropriately, is
defective, inadequate or is not fully integrated into NatWest
Group's current solutions, systems and controls. There can be no
certainty that such initiatives will deliver the expected cost
savings and investment in technology (including automated processes
and artificial intelligence) will likely also result in increased
costs for NatWest Group.
In
addition, the implementation of NatWest Group's strategy (including
in relation to acquisitions, divestments, reorganisations and/or
partnerships), delivery on its climate ambition, cost-controlling
measures, as well as employee remuneration constraints, may also
have an impact on its ability to compete effectively. Intensified
competition from incumbents, challengers and new entrants as well
as disintermediation by large technology companies 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 the financial services
industry could result in NatWest Group's competitors gaining
greater capital and other resources, including the ability to offer
a broader and more attractive or better value range of products and
services and geographic diversity, or the emergence of new
competitors.
Any of
the above may have a material adverse effect on NatWest Group's
future results, financial condition, prospects, and/or
reputation.
NatWest Group has significant exposure to counterparty and borrower
risk including credit losses, which may have an adverse effect on
NatWest Group.
NatWest
Group has exposure to many different sectors, 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 and systems may fail to identify, anticipate
or quickly react to weaknesses or risks in a particular sector,
market, borrower or counterparty, or NatWest Group's credit risk
appetite relative to competitors, or fail to appropriately 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. Refer to
'Risk and capital management -
Credit Risk'.
The
credit quality of NatWest Group's borrowers and other
counterparties may be affected by UK and global macroeconomic and
political uncertainties, prevailing economic and market conditions.
These include factors relating to interest rates and inflation,
changing asset prices (including residential and commercial
property), energy prices, supply chain disruption, changes to
monetary and fiscal policy, the impact of armed conflict, and the
legal and regulatory landscape in the UK and countries where
NatWest Group is exposed to credit risk. Any further deterioration
in these conditions or changes to legal or regulatory landscapes
could worsen borrower and counterparty credit quality or impact the
enforcement of contractual rights, increasing credit
risk.
Any
increase in drawings upon credit facilities may also increase
NatWest Group's RWAs. In addition, the level of household
indebtedness (on a per capita basis) in the UK remains high. The
ability of households and businesses to service their debts could
be worsened by a period of high unemployment, or high interest
rates or inflation, particularly if prolonged.
NatWest
Group may be affected by volatility in property prices (including
as a result of UK political or economic conditions) given that
NatWest Group's mortgage loan and wholesale property loan
portfolios as at 31 December 2023 amounted to £239.5 billion, representing 61% of
NatWest Group's total loan exposure. If property prices in the UK
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,
regulatory intervention, or other applicable laws, or if it is
liquidated at prices not sufficient to recover the net amount
outstanding to NatWest Group after accounting for any IFRS 9
provisions already made. This is most likely to occur during
periods of illiquidity or depressed asset valuations.
NatWest
Group is exposed to the financial sector, including sovereign debt
securities, financial institutions, 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). Concerns about, or a default
by, a financial institution or intermediary could lead to
significant liquidity problems and losses or defaults by other
financial institutions or intermediaries, since the commercial and
financial soundness of many financial institutions and
intermediaries is closely related and interdependent as a result of
credit, trading, clearing and other relationships. Any perceived
lack of creditworthiness of a counterparty or borrower 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 regular
basis. Refer to 'NatWest Group may
not meet the prudential regulatory requirements for liquidity and
funding or may not be able to adequately access sources of
liquidity and funding, which could trigger the execution of certain
management actions or recovery options.'
As a
result, adverse changes in borrower and counterparty credit risk
may cause additional 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. If NatWest Group experiences losses and a reduction
in profitability, this is likely to affect the recoverable value of
fixed assets, including goodwill and deferred taxes, which may lead
to write-downs.
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 judgement 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.
Refer
to 'Risk and capital
management - Credit Risk'. A credit deterioration would also
lead to RWA increases. Furthermore, the assumptions and judgements
used in the MES and ECL assessment at 31 December 2023 may not
prove to be adequate resulting in incremental ECL provisions for
NatWest Group.
Due to
NatWest Group's exposure to the financial industry, it also has
exposure to shadow banking entities. 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, and/or ensure
effective reporting and governance in respect of shadow banking
exposure, this may adversely affect NatWest Group.
In line
with certain mandated COVID-19 pandemic support schemes, NatWest
Group assisted customers with a number of initiatives including
NatWest Group's participation in BBLS, CBILS and CLBILS products.
NatWest Group 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, CBILS or CLBILS or the enforcing or
pursuing repayment of BBLS, CBILS and CLBILS (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 judgements, settlements, penalties,
fines, or removal of recourse to the government guarantee provided
under those schemes for impacted loans.
Any of
the above may have a material adverse effect on NatWest Group's
future results, financial condition, prospects, and/or
reputation.
NatWest Group may not meet the prudential regulatory requirements
for liquidity and funding or may not be able to adequately access
sources of liquidity and funding, which could trigger the execution
of certain management actions or recovery options.
Liquidity
and the ability to raise funds continues to be a key area of focus
for NatWest Group and the industry as a whole. NatWest Group is
required by regulators in the UK, the EU and other jurisdictions in
which it undertakes regulated activities to maintain adequate
liquidity and funding resources. To satisfy its liquidity and
funding requirements, NatWest Group may therefore access sources of
liquidity and funding through retail and wholesale deposits, as
well as through the debt capital markets. As at 31 December 2023,
NatWest Group plc subsidiaries held £453.6 billion in deposits
from banks and customers.
The
level of deposits may fluctuate due to factors outside NatWest
Group's control, such as a loss of customers, loss of customer
and/or investor confidence (including in individual NatWest Group
entities and as a result of volatility in the financial industry),
changes in customer behaviour, changes in 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 or more of the
other factors mentioned above, adversely affect NatWest Group's
ability to satisfy its liquidity or funding needs, or comply with
its related regulatory requirements. In turn, this could require
NatWest Group to adapt its funding plans or change its
operations.
Macroeconomic developments, political uncertainty, changes in
interest rates, and market volatility could affect NatWest Group's
ability to access sources of liquidity and funding on satisfactory
terms, or at all. This 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
change their funding plans. This
could exacerbate funding and liquidity risk, which may adversely
affect NatWest Group.
As at
31 December 2023, NatWest Group plc's liquidity coverage ratio was
144% and net stable funding ratio was 133%. If its liquidity
position and/or funding were to come under stress, and if NatWest
Group were unable to raise funds through deposits, in the debt
capital markets or through other reliable funding sources, on
acceptable terms, or at all, its liquidity position would likely 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, and/or to fund new loans, investments and businesses or
make capital distributions to its shareholders.
If,
under a stress scenario, the level of liquidity falls outside of
NatWest Group's risk appetite, there are a range of recovery
management actions that NatWest Group could take to manage its
liquidity levels, but any such actions may not be sufficient to
restore adequate liquidity levels and the related implementation
may have adverse consequences for NatWest Group's operations. 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 liquidity requirements may trigger the application of
NatWest Group's recovery plan to attempt to remediate a deficient
liquidity position.
NatWest
Group may need to liquidate 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 its assets,
at attractive prices, or at all, which may adversely affect NatWest
Group's liquidity.
Any of
the above may have a material adverse effect on NatWest Group's
future results, financial condition, prospects, and/or
reputation.
NatWest Group may not meet the prudential regulatory requirements
for regulatory 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 levels of capital
provide NatWest Group with financial flexibility specifically in
its core UK operations in the face of turbulence and uncertainty in
the UK and the global economy. Adequate levels of capital also
enable NatWest Group plc to make discretionary capital
distributions (including dividends to shareholders) and undertake
buybacks of its shares.
As at
31 December 2023, NatWest Group plc's CET1 ratio was 13.4% and is
targeting a CET1 ratio of 13-14%. NatWest Group plc's target CET1
ratio is based on a combination of its views on the appropriate
level of capital and its actual and expected regulatory
requirements and internal modelling, including stress scenarios and
management's and/or the Prudential Regulation Authority's (PRA)
views on appropriate buffers above minimum required operating
levels. NatWest Group plc's current capital strategy is based on
the expected accumulation of additional capital through the accrual
of retained earnings 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. NatWest Group intends to make capital
distributions to its equity investors of certain amounts surplus to
its publicly stated CET1 target, subject to macroeconomic
conditions, via a combination of dividends and buybacks. In making
dividends distribution and buyback decisions, consideration is
given to previously guided ordinary dividend pay-out ratios, an
intention to continue to help reduce the government's stake in the
Group, and maximising shareholder value.
A
number of factors may impact NatWest Group plc's ability to
maintain its CET1 ratio target and achieve its capital strategy.
These include:
-
a
depletion of its capital resources through increased costs or
liabilities or reduced profits (for example, due to an increase in
provisions due to a deterioration in UK economic
conditions);
-
an
increase in the quantum of RWAs/Leverage Exposure in excess of that
expected, including due to regulatory changes (including their
interpretation or application), or a failure in internal controls
or procedures to accurately measure and report RWAs/ Leverage
Exposure;
-
changes
in prudential regulatory requirements including NatWest Group plc's
Total Capital Requirement/Leverage Requirement set by the PRA,
including Pillar 2 requirements, as applicable, and regulatory
buffers as well as any applicable scalars; and
-
reduced
upstreaming of dividends from NatWest Group plc'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 or reduction of capital could in turn affect NatWest Group
plc's capital ratio, and/or its ability to make capital
distributions and in turn NatWest Group may not remain a viable,
competitive or profitable banking business.
A
minimum level of capital is required to be met by NatWest Group plc
for it to be entitled to make certain discretionary payments, and
institutions such as NatWest Group plc which fail to meet the
regulatory 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 to shareholders (including payments
of dividends) and buybacks depending on the extent of the
breach.
NatWest
Group plc is required to maintain a set quantum of MREL set as the
higher of its RWAs or the applicable leverage-based minimum capital
requirement. The Bank of England has identified single
point-of-entry at NatWest Group plc, as the preferred resolution
strategy for NatWest Group. As a result, NatWest Group plc is the
only entity within NatWest Group that can externally issue
securities that count towards its MREL, the proceeds of which can
then be downstreamed to meet the internal MREL of its operating
entities and intermediate holding companies.
If
NatWest Group plc is unable to raise or retain 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 customer
and/or investor confidence, constrained or more expensive funding
and be unable to make discretionary payments on capital
instruments.
If,
under a stress scenario, the level of regulatory capital or MREL
falls outside of NatWest Group's risk appetite, there are a range
of recovery management actions (focused on risk reduction and
mitigation) that NatWest Group could seek to take to manage its
capital levels, but any such actions may not be sufficient to
restore adequate capital levels. Under the 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 plc 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 reduction in value 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: NatWest
Group's product offering, credit ratings, ability to operate its
businesses, pursue its strategy and strategic opportunities, any of
which may adversely affect NatWest Group. Refer
to 'NatWest Group may become subject to the
application of UK statutory stabilisation or resolution powers
which may result in, for example, the cancellation, transfer or
dilution of ordinary shares, or the write-down or conversion of
certain other of NatWest Group's
securities.'; and
'NatWest Group may be adversely affected if it fails to meet the
requirements of regulatory stress tests.'
Any of
the above may have a material adverse effect on NatWest Group's
future results, financial condition, prospects, and/or
reputation.
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 and
funding position and increase the cost of funding.
Rating
agencies regularly review NatWest Group plc and other NatWest Group
entities' credit ratings and outlooks. NatWest Group entities'
credit ratings and outlooks could be negatively affected (directly
and indirectly) by a number of factors that can change over time,
including, without limitation: credit rating agencies' assessment
of NatWest Group's strategy and management's capability; its
financial condition including in respect of profitability, asset
quality, capital, funding and liquidity, and risk management
practices; the level of political support for the sectors and
regions 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,
geopolitical and economic conditions in NatWest Group's key markets
(including inflation and interest rates), supply chain disruptions
and the outcome of any further Scottish independence referendum,
any reduction of the UK's sovereign credit ratings 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. Refer to 'A
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.'
Any
reductions in the credit ratings of NatWest Group plc or of certain
other NatWest Group entities, including, in particular, any
downgrade 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 capital markets,
reduce the size of its deposit base and trigger additional
collateral or other requirements in its funding arrangements or the
need to amend such arrangements, which could adversely affect
NatWest Group's (and, in particular, NatWest Group plc's) liquidity
and funding position, cost of funding and its access to capital
markets and could limit the range of counterparties willing to
enter into transactions, on favourable terms, or at all, with
NatWest Group (and, in particular, with NatWest Group plc). This
may in turn adversely affect NatWest Group's competitive position
and threaten its prospects.
Any of
the above may have a material adverse effect on NatWest Group's
future results, financial condition, prospects, and/or
reputation.
NatWest Group may be adversely affected if it fails to meet the
requirements of regulatory stress tests.
NatWest
Group entities are subject to annual and other stress tests by
their respective regulators in the UK and EU. Stress tests are
designed to assess the resilience of banks such as NatWest Group 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 NatWest Group may 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
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, all of which may
adversely affect NatWest Group.
Any of
the above may have a material adverse effect on NatWest Group's
future results, financial condition, prospects, and/or
reputation.
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 external or
internal fraud (collectively, financial crime)). NatWest Group's
models, and the parameters and assumptions on which they are based,
are periodically reviewed.
As
model outputs are imperfect representations of real-world phenomena
or simplifications of complex real-world systems and processes, and
are based on a limited set of observations, model outputs therefore
remain uncertain. NatWest Group may face adverse consequences as a
result of actions or decisions based on models that are poorly
developed, incorrectly implemented, outdated or used
inappropriately. This includes models that are based on inaccurate
or non-representative data (for example, where there have been
changes in the micro or macroeconomic environment in which NatWest
Group operates) or as a result of the modelled outcome being
misunderstood, or by such information being used for purposes for
which it was not designed. This could result in findings of
deficiencies by NatWest Group's regulators (including as part of
NatWest Group's mandated stress testing) and increased capital
requirements, may render some business lines uneconomic, may
require management action or may subject NatWest Group to
regulatory sanction, any of which in turn may also have an adverse
effect on NatWest Group and its customers.
Any of
the above may have a material adverse effect on NatWest Group's
future results, financial condition, prospects, and/or
reputation.
NatWest Group's financial statements are sensitive to underlying
accounting policies, judgements, estimates and
assumptions.
The
preparation of financial statements requires management to make
judgements, estimates and assumptions that affect the reported
amounts of assets, liabilities, income, expenses, exposures and
RWAs. While estimates, judgements 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, judgements and
assumptions (particularly those involving the use of complex
models). Further, accounting policy and financial statement
reporting requirements increasingly require management to adjust
existing judgements, estimates and assumptions for the effects of
climate-related, sustainability and other matters that are
inherently uncertain and for which there is little historical
experience which may affect the comparability of NatWest Group's
future financial results with its historical results. Actual
results may differ due to the inherent uncertainty in making
climate-related and sustainability estimates, judgements and
assumptions.
Accounting
policies deemed critical to NatWest Group's results and financial
position, based upon materiality and significant judgements and
estimates, involve a high degree of uncertainty and may have a
material impact on its results. For 2023, these include loan
impairments, fair value, deferred tax and conduct and litigation
provisions. These are set out in 'Critical accounting policies and sources of
estimation uncertainty'.
Any of
the above may have a material adverse effect on NatWest Group's
future results, financial condition, prospects, and/or
reputation.
Changes in accounting standards may materially impact NatWest
Group's financial results.
NatWest
Group prepares its consolidated financial statements in conformity
with the requirements of the Companies Act 2006 and in accordance
with IFRS as issued by the International Accounting Standards
Board. 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 have a
material adverse effect on NatWest Group.
From
time to time, the International Accounting Standards Board may
issue new accounting standards or interpretations that could
materially impact how NatWest Group calculates, reports and
discloses its financial results and financial condition, and which
may affect NatWest Group capital ratios, including the CET1 ratio.
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'.
Any of
the above may have a material adverse effect on NatWest Group's
future results, financial condition, prospects, and/or
reputation.
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 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 material adverse
effect on NatWest Group's future results, financial condition,
prospects, and/or reputation.
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 in the future 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.
NatWest Group has dedicated significant resources towards the
preparation of NatWest Group for a potential resolution
scenario.
In June
2022 the Bank of England communicated its assessment of NatWest
Group's preparations and did not identify any shortcomings,
deficiencies or substantive impediments although two areas were
highlighted as requiring further enhancements. NatWest Group could
be adversely affected should future Bank of England assessments
deem NatWest Group's preparations to be inadequate.
If
future Bank of England assessments identify 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 does not have adequate plans in place to meet
resolvability requirements, 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 its legal or operational structure,
a requirement to cease carrying out certain activities, a
requirement not to make discretionary distributions or undertake
NatWest Group's shares buybacks, and/or a requirement to maintain a
specified amount of MREL.
This
may also impact NatWest Group's strategic plans and may have a
material adverse effect on NatWest Group's future results,
financial condition, prospects, and/or reputation, or lead to a
loss of investor confidence.
NatWest Group may become subject to the application of UK statutory
stabilisation or resolution powers which may result in, for
example, 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, the PRA and the 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 options may be applied to
NatWest Group plc as the parent company or to any subsidiary 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 within NatWest Group, 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 2009, the Authorities are generally required to
have regard to specified objectives in exercising the powers
provided for by the UK 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 provides that where resolution action
is taken, the Authorities are required to ensure that no creditor
is in a worse position than if the bank had entered into normal
insolvency proceedings. Although, this safeguard may not apply in
relation to an application of the separate write-down and
conversion power relating to capital instruments in circumstances
where a stabilisation power is not also used, the UK Banking Act
still requires the Authorities to respect the hierarchy on
insolvency when using the write-down and conversion power. Further,
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 issued by NatWest Group,
which may depend on factors outside of NatWest Group's control.
Moreover, the UK Banking Act provisions remain largely untested in
practice, particularly in respect of resolutions of large financial
institutions and groups.
If
NatWest Group is at or is approaching the point 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 ordinary shares and
other NatWest Group securities.
Each of
these actions may also have a material adverse effect on NatWest
Group's future results, financial condition, prospects, and/or
reputation.
Climate and sustainability-related risks
NatWest Group and its value chain face climate-related and
sustainability-related risk that may adversely affect NatWest
Group.
NatWest
Group and its value chain (including its investors, customers,
counterparties (including its suppliers) and employees) may face
financial and non-financial risks arising from
sustainability-related risks, including climate-related
risks.
Climate
and sustainability-related risks may:
-
adversely
affect asset pricing and valuations of NatWest Group's own and
other securities and, in turn, the wider financial
system;
-
adversely
affect economic activities directly (for example through lower
corporate profitability or the devaluation of assets) or indirectly
(for example through macro-financial changes);
-
adversely
affect the viability or resilience of business models over the
medium to longer term, particularly those business models most
vulnerable to climate and sustainability-related
risks;
-
trigger
losses stemming directly or indirectly from liability risks and/or
reputational damage, including as a result of adverse media
coverage, activists, the public, customers, counterparties
(including suppliers) and/or investors associating NatWest Group or
its customers with adverse climate and sustainability-related
issues;
-
adversely
affect NatWest Group's ability to deliver on its strategy,
including achieving its climate ambitions and targets;
-
exacerbate
other risk categories to which NatWest Group is exposed, including
credit risk, operational risk (including business continuity),
market risk (both traded and non-traded), liquidity and funding
risk (for example, net cash outflows or depletion of liquidity
buffers), reputational risk, pension risk, regulatory compliance
risk and conduct risk; and
-
may have a material
adverse effect on NatWest Group's reputation, future results,
financial condition, and/or prospects (including cash flows, access
to finance or cost of capital over the short, medium or long
term).
Climate
and sustainability matters are becoming increasingly political and
polarised. Some customers, counterparties (including suppliers) and
investors may decide not to do business with NatWest Group because,
according to their own assessment, NatWest Group's strategy,
ambitions and targets related to climate and sustainability do not
meet their expectations, whereas others may decide not to do
business with NatWest Group for failing to progress its climate and
sustainability-related strategy, ambitions and targets or if they
are of the view that they lack credibility.
If
NatWest Group fails to identify, assess, prioritise, monitor and
react appropriately to climate and sustainability-related risks, in
a timely manner or at all, climate and sustainability-related
physical, transition and liability risks and opportunities,
changing regulatory and market expectations and societal
preferences that NatWest Group, its customers, counterparties
(including suppliers) face, this may have a material adverse effect
on NatWest Group's business, future results, financial condition,
prospects, reputation or the price of its securities.
Climate-related risks may adversely affect the global financial
system, NatWest Group or its value chain.
Climate-related
risks represent a source of systemic risk in the global financial
system. The financial impacts of climate-related risks are expected
to be widespread and may disrupt the orderly functioning of
financial markets and have an adverse effect on financial
institutions, including NatWest Group.
There
are significant uncertainties as to the location, extent and timing
of the manifestation of the physical impacts of climate change,
such as more severe and frequent extreme weather events (storms,
flooding, subsidence, heat waves, droughts and wildfires), rising
average global temperatures and sea levels, nature loss, declining
food yields, destruction of critical infrastructure, supply chain
disruption and resource scarcity. Damage to NatWest Group
customers' and counterparties'(including suppliers') properties and
operations could disrupt business, result in the deterioration of
the value of collateral or insurance shortfalls, impair asset
values and negatively impact the creditworthiness of customers and
their ability and/or willingness to pay fees, afford new products
or repay their debts, leading to increased default rates,
delinquencies, write-offs and impairment charges in NatWest Group's
portfolios. In addition, NatWest Group's premises and operations,
or those of its critical outsourced functions may experience damage
or disruption leading to increased costs. Any of these may have a
material adverse effect on NatWest Group's future results,
financial condition, prospects, and/or reputation.
To meet
the goals of the UK's Net Zero Strategy will require a net-zero
transition across all sectors of the UK economy. The impacts of the
extensive social, commercial, technological, policy and regulatory
changes required to achieve this transition remain uncertain but
are expected to be significant, subject to continuous changes and
developments 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 in a timely manner, or at all. NatWest Group's
business and customers in some sectors, including but not limited
to, residential mortgages, commercial real estate, agriculture
(primary farming), automotive manufacturing, aviation, shipping,
land transport and logistics (freight road, passenger rail and
road), electricity generation and oil and gas are expected to be
particularly impacted. The timing and pace of the net-zero
transition is also uncertain, will depend on many factors and
uncertainties and may be near-term, gradual and orderly, or
delayed, rapid and disorderly, or a combination of
these.
Climate-related
risks may exacerbate the impact of financial and non-financial
risks and they may have a material adverse effect on NatWest
Group's future results, financial condition, prospects, and/or
reputation, including as a result of financial losses caused
directly or indirectly by climate-related litigation and conduct
matters (referred to as 'liability risk'). Refer to 'NatWest Group may be subject to potential
climate and other sustainability-related litigation, enforcement
proceedings, investigations and conduct risk.'
NatWest Group and its value chain may, face other
sustainability-related risks that may adversely affect NatWest
Group.
NatWest
Group and its value chain (including its investors, customers,
counterparties (including its suppliers) and employees) may face
financial and non-financial risks arising from broader (i.e.
non-climate-related) sustainability issues. These include: (i)
risks relating to nature loss (such as the loss and/or decline of
the state of nature including but not limited to, the reduction of
any aspect of biological diversity and other forms of environmental
degradation such as air, water and land pollution, soil quality
degradation and water stress); (ii) risks related to societal
(including human rights) matters, for example, climate change and
environmental degradation negatively impacting people's standard of
living and health, geopolitical tensions and conflict endangering
people's lives and security, the displacement of communities, the
violation of indigenous people's rights, unjust working conditions
and labour rights breaches (including discrimination, lack of
diversity and inclusion, inequality, gender/ethnicity pay gap and
payments under the minimum wage), modern slavery, financial crime,
data privacy breaches and lack of support for the vulnerable; and
(iii) governance-related risks (including board diversity, ethics,
executive compensation and management structure).
NatWest
Group is directly and indirectly exposed to multiple types of
nature-related risks through the breadth of its activities,
products and services offering, including through the risk of
default by customers whose businesses are exposed to nature-related
risks. In 2021, NatWest Group first classified 'Biodiversity and Nature Loss' as an
emerging risk for NatWest Group within its Risk Management
Framework. From January 2024, NatWest Group has expanded its key
risk definition from climate risk to climate and nature risk and
updated its climate risk policy to reflect emerging nature-related
risks and to capture requirements that go beyond climate
risk.
NatWest
Group supports the aims of the Task Force on Nature Related
Financial Disclosure and continues to enhance its reporting and
measurement capabilities, acknowledging challenges associated with
data availability, while continuing to review evolving disclosure
standards and framework. NatWest Group's approach is to integrate
nature its existing strategy on climate, recognising there is
still, much to do in understanding its impacts and dependencies on
nature as well as our nature-related risks and opportunities. There
is also increased scrutiny from NatWest Group's investors,
customers, counterparties (including its suppliers), employees,
communities, regulators, the media and other stakeholders on how
NatWest Group addresses societal and governance related matters,
including unjust working conditions and labour rights breaches,
resilience in the workplace, safety and wellbeing, data protection
and management, workforce management, human rights and value chain
management. For example, NatWest Group's ambition is to support
decarbonisation while promoting energy security, may lead to
continued exposure to carbon-intensive activities and sectors
regarded as posing high climate and nature-related and societal
(including human rights) risks, (such as the textiles, agriculture
and mining sectors) each of which may impact NatWest Group's
employees, customers, counterparties (including suppliers) and
stakeholders and their business activities and/or the communities
in which they operate and, in turn, result in reputational risk for
NatWest Group.
There
is also growing expectation of the need for a 'just transition' and
'energy justice' - in recognition that the transition to net zero
should happen in a way that is as fair and inclusive as possible to
everyone concerned. Although NatWest Group continues to evaluate
and assess how it integrates 'just transition' considerations into
its climate and sustainability strategy, a failure (or perception
of failure) by NatWest Group to sufficiently factor these
considerations into existing products and service offerings may
adversely affect NatWest Group, including NatWest Group's
reputation.
In
2023, NatWest Group published its initial assessment of its
'salient human rights issues'. Human rights saliency assessments
are high-level scoping exercises based on internal and external
stakeholder engagement and involve subjective materiality and other
judgements including as to severity and likelihood of human rights
impacts. Failure by NatWest Group to identify, assess, prioritise
and monitor any actual or potential adverse human rights issues
that NatWest Group, contributes to, or is directly linked to, may
adversely impact people and communities, which in turn may have a
material adverse effect on NatWest Group's future results,
financial condition, prospects and/or reputation.
Sustainability-related
risks may have the potential to cause or stress other financial and
non-financial risks, including climate-related risks, and they may
have a material adverse effect on NatWest Group's future results,
financial condition, prospects, and/or reputation, including as a
result of financial losses caused directly or indirectly by
sustainability-related litigation and conduct matters (referred to
as 'liability risk'). Refer to 'NatWest Group may be subject to potential
climate and other sustainability-related litigation, enforcement
proceedings, investigations and conduct risk'.
NatWest Group's climate change related strategy, ambitions, targets
and transition plan entail significant execution and/or
reputational risks and are unlikely to be achieved without
significant and timely government policy, technology and customer
behavioural changes.
NatWest
Group has an ambition to become a leading bank in the UK, helping
to address the climate challenge. At NatWest Group's Annual General
Meeting in April 2022, ordinary shareholders passed an advisory
'Say on Climate' resolution endorsing NatWest Group's previously
announced strategic direction on climate change, including its
ambitions to at least halve the climate impact of its financing
activity by 2030, achieve alignment with the 2015 Paris Agreement
and reach net zero across its financed emissions, assets under
management and operational value chain by 2050. Further, in
December 2022, NatWest Group published its science-based targets
validated by Science Based Target Initiative for 79% of its lending
book as at 31 December 2019 and 57% of debt securities and equity
shares, excluding sovereign debt securities.
NatWest
Group has also announced and in the future it may also announce
other climate ambitions, targets and initiatives which support its
aim to help addressing the climate challenge.
Making
the changes necessary to achieve NatWest Group's strategic
direction on climate change, including its climate ambitions and
targets and executing its transition plan, together with the active
management of climate and sustainability-related risks and other
regulatory, policy and market changes, is likely to necessitate
material changes to NatWest Group's business, operating model, its
existing exposures and the products and services NatWest Group
provides to its customers (potentially on accelerated timescales).
NatWest Group may be required to (i) significantly reduce its
financed emissions and its exposure to customers that do not align
with a transition to net zero or do not have a credible transition
plan in place, and (ii) divest or discontinue certain activities
for regulatory or legal reasons or in response to the transition to
a less carbon-dependent economy. Increases in lending and financing
activities may wholly or partially offset some or all these
reductions, which may increase the extent of changes and reductions
necessary.
Making
the necessary changes (or not making the necessary changes in a
timely manner, or at all) may have a material adverse effect on
NatWest Group's business and operations, financial condition,
prospects and competitive position and NatWest Group's ability to
achieve its climate and financial ambitions and targets, take
advantage of climate change-related opportunities and generate
sustainable returns.
NatWest Group's ability to achieve its strategy, including its
climate ambitions and targets, will significantly depend on many
factors and uncertainties beyond NatWest Group's control. These
include (i) the extent and pace of climate change, including the
timing and manifestation of physical and transition risks; (ii) the
macroeconomic environment; (iii) the effectiveness of actions of
governments, legislators, regulators and businesses; (iv) the
response of the wider society, investors, customers, suppliers and
other stakeholders to mitigate the impact of climate and
sustainability-related risks; (v) changes in customer behaviour and
demand; (vi) appetite for new markets, credit appetite,
concentration risk appetite, lending opportunities; (vii)
developments in the available technology; (viii) the roll-out of
low carbon infrastructure; and (ix) the availability of accurate,
verifiable, reliable, auditable, consistent and comparable data.
These external factors and other uncertainties will make it
challenging for NatWest Group to meet its climate ambitions and
targets and there is a significant risk that all or some of these
ambitions and targets will not be achieved or not achieved within
the intended timescales.
NatWest Group's ability to achieve its climate ambitions and
targets depends to a significant extent on the timely
implementation and integration of appropriate government policies.
The UK CCC June 2023 Progress Report to the UK Parliament states
that the rate of emissions reduction will need to significantly
increase for the UK to meet its 2030 commitments and continued
delays in policy development and implementation mean achievement is
increasingly challenging. On 20
September 2023, the UK Government announced its revised plans on
reducing emissions to reach net zero, including (i) delaying the
proposed ban on the sale of petrol and diesel cars to 2035; (ii)
not proceeding with new policies forcing landlords to upgrade the
energy efficiency of their properties; and (iii) delaying the ban
on new fossil fuel boilers for certain households. Accordingly,
NatWest Group considers achievement of the following ambitions
increasingly challenging (i) 50% of NatWest Group's mortgage
portfolio to have an EPC rating of C or above by 2030; and (ii) to
at least halve the climate impact of NatWest Group's financing
activity by 2030, against a 2019 baseline.
NatWest Group has also stated that it plans to phase-out 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. Data challenges,
particularly the lack of granular customer information, creates
challenges in identifying customers with 'coal related
infrastructure' (e.g. transportation and storage) and other
customers with 'coal- related operations' within NatWest Group's
large and diversified customer portfolios. Therefore, there is a
risk that some customers with UK-based coal activities may not have
been identified and that NatWest Group will not be able to identify
all relevant activities to achieve these coal phase-out
plans.
Any delay or failure in setting, making progress against or meeting
NatWest Group's climate-related ambitions, targets and plans may
have a material adverse effect on NatWest Group's future results,
financial condition, prospects, and/or reputation and may increase
the climate and sustainability-related risks NatWest Group
faces.
There are significant limitations related to accessing accurate,
reliable, verifiable, auditable, consistent and comparable climate
and other sustainability-related data that contribute to
substantial uncertainties in accurately modelling and reporting on
climate and sustainability information, as well as making
appropriate important internal decisions.
Meaningful
reporting of climate and sustainability-related risks and
opportunities and their potential impacts and related metrics
depends on access to accurate, reliable, verifiable, auditable,
consistent and comparable climate and sustainability-related data
from counterparties (including suppliers) or customers. Data may
not be generally available or, if available, may not be accurate,
reliable, verifiable, auditable, consistent, or comparable. Any
failure of NatWest Group to proportionately collect or
develop accurate, reliable, verifiable, auditable, consistent and
comparable counterparty (including supplier) and customer data, may
adversely affect NatWest Group's ability to prepare meaningful
reporting which is relevant, represented in an accurate,
verifiable, comparable and understandable way of the climate and
sustainability-related risks and opportunities which may adversely
affect NatWest Group's ability to meet external disclosure
obligations and its reputation, business and its competitive
position.
In the
absence of other sources, reporting of financed emissions and other
sustainability data by financial institutions, including NatWest
Group, is necessarily based on aggregated information developed by
third parties that may be prepared in an inconsistent way using
different methodologies, interpretations, or assumptions. NatWest
Group's climate and sustainability-related disclosures use a
greater number and level of assumptions, judgements and estimates
than many of its financial disclosures. These assumptions,
judgements and estimates are highly likely to change materially
over time, and, when coupled with the longer timeframes used in
these climate and sustainability-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 sector and other
assumptions that may not be accurate for a given counterparty
(including supplier) or customer. There may also be data gaps that
are filled using proxy data, such as sectoral averages or use of
emissions estimated by a third party, again developed in a variety
of ways and in some cases not in a timely manner causing data to be
potentially outdated at the time when they are used.
Significant
risks, uncertainties and variables are inherent in the assessment,
measurement and mitigation of climate and sustainability-related
risks. These include data quality gaps and limitations mentioned
above, as well as the pace at which climate science, greenhouse gas
accounting standards and various emissions reduction solutions
develop. In addition, there is significant uncertainty about how
climate change and the world's transition to a net-zero economy
will unfold over time and how and when climate and
sustainability-related risks will manifest. These timeframes are
considerably longer than NatWest Group's historical and current
strategic, financial, resilience and investment planning
horizons.
As a
result, NatWest Group's climate and sustainability-related
disclosures may be amended, updated or restated in the future as
the quality and completeness of NatWest Group's data and
methodologies continue to improve. These data quality challenges,
gaps and limitations may have a material impact on NatWest Group's
ability to make effective business decisions about climate and
sustainability-related risks and opportunities, including risk
management decisions, to comply with disclosure requirements and to
monitor and report progress in meeting ambitions, targets and
pathways.
Climate-related
risks are challenging to model due to their forward-looking nature,
the lack of and/or quality of historical testing capabilities, lack
of accuracy, standardisation and incompleteness of emissions and
other climate and sub-sector related data and the immature nature
of risk measurement and modelling methodologies. As a result, it is
very difficult to predict and model the impact of climate-related
risks into precise financial and economic outcomes.
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, rather they explore the
possible implications of different judgements and assumptions by
considering a series of scenarios;
-
climate
scenarios do not provide a comprehensive description of all
possible future outcomes;
-
lack
of specialist expertise in NatWest Group that needs to rely on
third party advice, modelling, and data which is also subject to
many limitations and uncertainties;
-
immaturity
of modelling of and data on climate-related risks on financial
assets which will presumably evolve rapidly in the coming
years;
-
the
number of variables and the forward-looking nature of climate
scenarios which makes them challenging to back test and
benchmark;
-
the
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 continue to evolve 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 financed
emissions.
Accordingly, these risks and uncertainties coupled with
significantly long timeframes make the outputs of climate-related
risk modelling, climate-related targets (including emission
reduction targets) and pathways, inherently more uncertain than
outputs modelled for traditional financial planning cycles based on
historical financial information.
Furthermore, there is a lack of scientific, industry and regulatory
consensus regarding the appropriate metrics, methodologies,
modelling and standardised reporting to enable the assessment of
the location, acuteness, and severity of climate-related risks and
the monitoring and mitigation of these risks in the economy and
financial system.
There
is increasing industry concern (acknowledged by the Network for
Greening the Financial System) that model scenarios, including
those provided by central banks and supervisory bodies and are too
benign and may not adequately capture: (i) the financial
implications of increasing frequency and severity of acute physical
risks as global temperatures increase; (ii) second and third order
impacts such as disruptions to supply chains and increased
geo-political risks; nor (iii) possible 'tipping points' that could
lead to large, irreversible changes in the climate system (for
example the melting of permafrost or the Greenland and Antarctic
ice sheets).
Capabilities
within NatWest Group to appropriately assess, model, report and
manage climate-related risks and impacts and the suitability of the
assumptions required to model and manage climate-related risks
appropriately continue to develop. But such development is still in
its early stages. Even when those capabilities are appropriately
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
judgements and data quality gaps and limitations may lead to
inadequate risk management information and frameworks, or
ineffective business adaptation or mitigation strategies or
regulatory non-compliance, all of which may have a material adverse
effect on NatWest Group's business, future results, financial
condition, prospects, reputation and the price of its
securities.
Failure to implement effective governance, procedures, systems and
controls in compliance with legal, regulatory requirements and
societal expectations to manage climate and sustainability-related
risks and opportunities could adversely affect NatWest
Group.
The
UK's prudential regulation of climate-related risk management is an
important driver in how NatWest Group develops its associated risk
framework for financing activities or engaging with counterparties
(including suppliers). Legislative and regulatory authorities are
publishing expectations as to how banks should prudently manage and
transparently disclose climate and sustainability-related risks. In
the UK this includes the Bank of England's Supervisory Statement
3/19 on the management of climate-related financial risks, covering
governance, risk management, scenario analysis and disclosure which
sets out expectations that firms, such as NatWest Group, take a
strategic approach to managing climate-related financial risks,
identifying current risks and those that can plausibly arise in the
future, and appropriate actions to mitigate those
risks.
In
March 2023 the Bank of England published a report setting out its
latest thinking on climate-related risks and regulatory capital
frameworks. It found there to be uncertainty over whether banks are
sufficiently capitalised for future climate-related losses and it
stated that it will undertake further analysis to explore whether
changes to the regulatory capital frameworks may be
required.
Any
failure of NatWest Group to fully and timely embed climate and
other sustainability-related risks into its risk management
practices and framework to appropriately identify, assess,
prioritise and monitor the various climate-related physical and
transition risks and other sustainability-related risks and apply
the appropriate product governance process in line with applicable
legal and regulatory requirements and expectations, may adversely
affect NatWest Group's regulatory compliance, prudential capital
requirements, liquidity position and this may have a material
adverse effect on NatWest Group's business, future results,
financial condition, prospects, reputation or the price of its
securities.
Increasing levels of climate and other sustainability-related laws,
regulation and oversight may adversely affect NatWest
Group.
NatWest
Group as well as its subsidiaries in the UK, EU and elsewhere are
increasingly becoming subject to more extensive climate and
sustainability-related legal and regulatory requirements. In the
UK, these include mandatory requirements by the FCA and under the
Companies Act 2006 to make climate-related disclosures consistent
with the recommendations of the Task Force on Climate-related
Financial Disclosures.
In
addition, in August 2023 the FCA set out its intention to consult
in 2024 on rules and guidance for listed companies to disclose in
line with the UK-endorsed ISSB standards and the Transition Plan
Taskforce Disclosure Framework published in October 2023 as a
complementary package. Further regulatory requirements may emerge
as part of the developing UK sustainability-related disclosure
requirements. In the EU, these climate and sustainability-related
legal and regulatory requirements include the EU Taxonomy, the EU
Corporate Sustainability Reporting Directive ('CSRD'), the EU Green
Bond Standard and proposed EU Corporate Sustainability Due
Diligence Directive ('CSDDD').
Certain non-UK subsidiaries of NatWest Group in the EU and
elsewhere may also be subject to EU, national and other climate and
sustainability laws and regulations which in some cases may differ.
For example, NatWest Group's Dutch subsidiary,
NWM N.V., is subject to the EU Taxonomy, CSRD, the proposed
CSDDD, and other legal, regulatory and supervisory
expectations relating to climate-related and environmental risk
management and disclosure. A failure of NatWest Group or any of its
subsidiaries, including NWM N.V., to comply with these regulations
(if applicable), whether through insufficient resources, expertise,
support, customer and counterparty data challenges or otherwise may
have an adverse effect on NatWest Group's reputation and the
successful implementation of NatWest Group's
strategy.
In some
jurisdictions, particularly the United States, regulatory and
enforcement activity around climate and sustainability initiatives
is becoming increasingly politicised. This has resulted in a
polarisation between promoting more extensive climate and
sustainability-related requirements, such as the proposed SEC
climate disclosure rules, and challenging climate and
sustainability-related initiatives on the basis of allegations that
they could breach applicable laws.
Divergence
between UK, EU, US and other climate and sustainability-related
legal and regulatory requirements and their interpretation may
increase the cost of doing business (including increased operating
costs), may result in contentious regulatory and litigation risk,
may require changes to NatWest Group's business and may restrict
NatWest Group's access to the EU/EEA and US capital markets.
Failure to comply with these divergent legal and regulatory
requirements which are applicable to NatWest Group may result in
NatWest Group and/or its subsidiaries not meeting applicable
regulatory requirements or investors' expectations. Compliance with
these complex and evolving climate and sustainability-related legal
and regulatory requirements and voluntary standards and initiatives
is likely to require NatWest Group to implement significant changes
to its business models, IT systems, products, governance, internal
controls over financial reporting, disclosure controls and
procedures, modelling capability and risk management systems, which
may increase the cost of doing business, result in higher capital
requirements, and entail additional change risk and increased
compliance, regulatory sanctions, conduct and litigation (including
settlements) costs.
Failure
to implement and comply with these requirements, standards and
initiatives may also result in investigations and/or regulatory
sanctions, reputational damage and investor disapproval each of
which may have a material adverse effect on NatWest Group's future
results, financial condition, prospects, and/or
reputation.
Increasing regulation of "greenwashing" is likely to increase the
risk of regulatory enforcement and investigation and
litigation.
Misrepresenting
or over-emphasising the extent to which an investment or other type
of product takes into account 'green', 'environmentally friendly',
'sustainable' or 'ethical' features and concerns, using misleading
labels and language in relation to such products and/or omitting
material information about NatWest Group's contribution to the
climate crisis (including its direct or indirect contribution to
greenhouse gas emissions), or other sustainability-related issues,
could potentially result in complaints, regulatory investigation
and/or sanction, claims and/or litigation and/or reputational
damage.
This
risk is likely to increase as the UK and other jurisdictions
implement and enforce new anti-greenwashing regulations. For
example, the FCA's Sustainability Disclosure Requirements and
investment labels policy statement (PS 23/16) published in November
2023 includes a general anti-greenwashing rule that requires
regulated firms (such as certain subsidiaries of NatWest Group) to
ensure that sustainability claims in financial promotions of their
products and services are consistent with the sustainability
characteristics of the product or service and are fair, clear and
not misleading.
The FCA
has stated that it would publish guidance as to how regulated firms
should comply with its anti-greenwashing rule including the
requirements for sustainability claims that will become effective
on 31 May 2024 (currently the subject of FCA consultation paper
(GC23/3)). In the EU the European Commission has proposed a Green
Claims Directive which will address false environmental claims and
the proliferation of environmental labels by requiring certain
claims to be substantiated with scientific evidence and
independently verified.
Natwest
Group plans to invest in voluntary carbon credits to mitigate
emissions beyond its own value chain whilst transitioning towards a
state of net zero emissions by 2050. NatWest Group may also be
involved in trading voluntary carbon credits with its clients, or
facilitating clients to trade these credits. Financial market and
platform regulators are increasingly taking an interest in the
voluntary carbon market and voluntary carbon credits retired, sold
or traded by financial institutions or used by them as part of
their own emissions reduction plans. NatWest Group could
potentially be exposed to financial, litigation, regulatory
enforcement and reputational risk where it retires, facilitates or
is otherwise associated with voluntary carbon credit transactions
or use (including use to offset own emissions). This includes where
voluntary carbon credits are not of sufficient quality, potential
issues or risks with respect to such carbon credits (or projects
through which they are generated) are not adequately disclosed or
stated benefits are exaggerated or misleading and/or such carbon
credits are used either by NatWest Group or by a third party
organisation (such as a customer) as a substitute for achieving
appropriate emissions reductions in their own
operations.
Any
failure of NatWest Group to implement robust and effective climate
and sustainability-related disclosure, communications and product
governance policies, procedures and controls to make accurate
public statements and claims about how environmentally friendly,
sustainable or ethical NatWest Group's products and services are
and to apply these in line with applicable legal and regulatory
requirements and expectations, may adversely affect NatWest Group's
regulatory compliance and/or reputation and could give rise to
increased regulatory enforcement, investigation and
litigation.
NatWest Group may be subject to potential climate 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, nature-related
degradation, human rights violations and other social, governance
and sustainability-related issues.
These
risks may arise, for example, from claims pertaining
to:
-
failure
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,
balanced, clear, complete, correct, fair, meaningful,
understandable, disclosure (which is capable of being
substantiated) to investors, customers, counterparties (including
suppliers) and other stakeholders;
-
conduct,
mis-selling and customer protection claims, including claims which
may relate to alleged insufficient product understanding,
unsuitable product offering and /or reliance upon information
provided by NatWest Group or claims alleging unfair pricing of
climate-related products, for example in relation to products where
limited liquidity or reliable market data exists for benchmarking
purposes or which may be impacted by future climate policy
uncertainty or other factors;
-
marketing
that portrays products, securities, activities or policies as
having positive climate, nature-related or sustainable outcomes to
an extent that may not be the case, or may not adequately be
qualified and/or omits material information about NatWest Group's
contribution to the climate crisis and/or its direct / indirect
contribution to greenhouse gas emissions or other
sustainability-related issues;
-
damages
claims under various tort theories, including common law public
nuisance claims, or negligent mismanagement of physical and/or
transition risks;
-
alleged
violations of officers', directors' and other fiduciaries' duties,
for example by financing various carbon-intensive, environmentally
harmful or otherwise highly exposed assets, companies, and
industries;
-
changes
in the understanding of what constitutes positive climate,
nature-related 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;
-
any
weaknesses or failures in specific systems or processes associated
particularly with climate, nature-related or sustainability linked
products, and/or human rights due diligence, including any failure
in the timely implementation, onboarding and/or updating of such
systems or processes;
-
counterparties,
collaborators, customers to whom NatWest Group provides services
and third parties in NatWest Group's value chain who act, or fail
to act, or undertake due diligence, or apply appropriate risk
management and product governance in a manner that may adversely
affect NatWest Group's reputation or sustainability credentials;
or
-
NatWest Group's or
its customers', counterparties' (including suppliers') involvement
in, or decision not to participate in, certain industries or
projects associated with causing or exacerbating climate change and
nature-related degradation.
Furthermore,
there is a risk that shareholders, campaign groups, customers and
activist groups could seek to take legal action against NatWest
Group for financing or contributing to climate change,
nature-related degradation and human rights violations, failure to
implement or follow adequate governance procedures 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 an increase in the number of legal, conduct and regulatory
claims as well as an increase in the variety of legal bases being
alleged, remedies sought and amount of damages awarded in legal,
conduct and regulatory proceedings, investigations, administrative
actions and other adversarial proceedings against financial
institutions for climate and sustainability matters. There is a
risk that as climate, nature-related and environmental science
develop and societal understanding of these issues increases and
deepens, courts, regulators and enforcement authorities may apply
the then current understandings of climate and the broader
sustainability-related matters retrospectively when assessing
claims about historical conduct or dealings of financial
institutions, including NatWest Group. There is also an increase in
enforcement and litigation focusing on challenging public and
private sector sustainability policies and initiatives intended to
address climate change and nature-related degradation. Refer to
'NatWest
Group is exposed to the risk of various litigation matters,
regulatory and governmental actions and investigations as well as
remedial undertakings, the outcomes of which are inherently
difficult to predict, and which could have an adverse effect on
NatWest Group'. In
addition, supervisors and regulators are increasing their
enforcement focus on climate and sustainability-related matters.
For example, the ECB has stated that enforcement measures in the
form of periodic penalty payments may be imposed on banks that do
not fully align with ECB supervisory expectations of sound
practices for managing climate and environmental
risks.
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 ambitions and
targets, and this may have a material adverse effect on NatWest
Group's future results, financial condition, prospects, and/or
reputation.
A 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 pertaining to NatWest
Group's and/or its subsidiaries' securities or being used as a
basis to label financial products and services as environmentally
friendly or sustainable. ESG ratings are often (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). In
addition, certain NatWest Group entities offer and sell products
and services to customers and counterparties based exclusively or
largely on a rating by an unregulated ESG rating agency or data
providers. ESG rating agencies, at this stage, are not subject to
any specific regulatory or other regime or oversight (although
there are proposals by regulators in different jurisdictions to
regulate rating agencies and data providers). Regulators have
expressed concern that harm may arise from potential conflicts of
interest within ESG rating and review or second party opinion
providers and there is a lack of transparency in methodologies and
data points, which renders ratings and reviews incomparable between
agencies or providers. Any material reduction in the ESG ratings of
NatWest Group may have a negative impact on NatWest Group's
reputation, could influence investors' risk appetite for NatWest
Group's and/or its subsidiaries' securities, particularly ESG
securities, could potentially affect the pricing of securities
issued by NatWest Group and/or its subsidiaries and could affect a
customer's willingness to deal with NatWest Group..
A
regulatory sanction or enforcement action involving an ESG rating
agency used by a NatWest Group entity could also have a negative
impact on NatWest Group's reputation.
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 or disruption resulting from inadequate or
failed internal processes, procedures, people or systems, or from
external events, including legal and regulatory risks, third party
processes, procedures, people or systems. 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 for example, payment errors
or financial crime and fraud), for which there is continued
scrutiny by third parties of NatWest Group's compliance with
financial crime requirements; refer to, 'NatWest Group is exposed to the risks of
various litigation matters, regulatory and governmental actions and
investigations as well as remedial undertakings, 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 critical service providers
(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
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 strategy, and the organisational and operational
changes involved, including: NatWest Group's phased withdrawal from
ROI; NatWest Group's current cost-controlling measures; the
progression towards working as One Bank across NatWest Group to
serve customers; the implementation of the recommendations from the
recent independent reviews by the law firm Travers Smith LLP of
customer account closures, as well as the outcome of ongoing FCA
and internal reviews with respect to certain governance processes,
policies, systems and controls of NatWest Group entities including
with respect to customer account closures; and conditions affecting
the financial services industry generally (including macroeconomic
and other geopolitical developments) as well as the legal and
regulatory uncertainty resulting from these conditions. It is
unclear as to how the future ways of working may evolve, including
in respect of how working practices may further evolve, 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 may have a material adverse effect on
NatWest Group's future results, financial condition, prospects,
and/or reputation.
NatWest Group is subject to 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 emerging threats. In 2023, 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
threat to the financial services industry. The focus is to manage
the impact of the attacks and sustain availability of services for
NatWest Group's customers. Consequently, NatWest Group continues to
invest significant resources in developing and evolving of
cybersecurity controls that are designed to minimise the potential
effect of such attacks.
Third
parties continue to make hostile attempts to gain access to,
introduce malware (including ransomware) into and exploit potential
vulnerabilities of, NatWest Group's IT systems. NatWest Group has
information and cybersecurity controls that seek to minimise the
impact of any such attacks, which are subject to review on a
regular basis but given the nature of the threat, there can be no
assurance that such measures will prevent the potential adverse
effect of an attack from occurring. Refer to 'NatWest Group's operations are highly
dependent on its complex IT systems and any IT failure could
adversely affect NatWest Group.'
Any
failure in NatWest Group's information and cybersecurity policies,
procedures or controls, may result in significant financial losses,
major business disruption, inability to deliver customer services,
or loss of, or ability to access, data or systems 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 reporting
or notification of them, as appropriate (including, for example,
the new SEC cybersecurity requirements). Furthermore, cyberattacks
on NatWest Group's counterparties and suppliers may also have an
adverse effect on NatWest Group's operations.
Additionally,
third parties may induce employees, customers, third-party
providers or other users with access to NatWest Group's systems to
wrongfully disclose sensitive information to gain access to NatWest
Group's data or systems 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 technological failure.
NatWest
Group expects greater regulatory engagement, supervision and
enforcement to continue in relation to its overall resilience to
withstand IT and IT-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 may have a material adverse effect on NatWest Group. Due to
NatWest Group's reliance on technology and the increasing
sophistication, frequency and impact of cyberattacks, such attacks
may have an adverse effect 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.
Any of the above may have a material adverse effect on NatWest
Group's future results, financial condition, prospects, and/or
reputation.
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,
innovate its products offering, meet its regulatory obligations,
and deliver its strategy. Investment is being made in data tools
and analytics, including raising awareness around ethical data
usage (for example, in relation to the use of artificial
intelligence) and privacy across NatWest Group. The availability
and accessibility 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 or be able to access 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 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 weaknesses and limitations, or the unethical or
inappropriate use of data, and/or non-compliance with data
protection laws could give rise to conduct and litigation risks and
may increase the risk of operational challenges, losses,
reputational damage or other adverse consequences due to
inappropriate models, systems, processes, decisions or other
actions.
Any of the above may have a material adverse effect on NatWest
Group's future results, financial condition, prospects, and/or
reputation.
NatWest Group's operations are highly dependent on its complex IT
systems 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 transactional and payment
systems, financial crime, fraud systems and controls, risk
management, credit analysis and reporting, accounting, customer
service and other IT systems (some of which are owned and operated
by other entities in NatWest Group or third parties), 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 system failure, loss of service
availability or breach of data security could potentially cause
significant damage to: (i) important business services
across NatWest Group and (ii) NatWest Group's ability to
provide services to its customers, which could result in
reputational damage, significant compensation costs and regulatory
sanctions (including fines resulting from regulatory
investigations) or a breach of applicable regulations and could
affect NatWest Group's regulatory approvals, competitive position,
business and brands, which could undermine its ability to attract
and retain customers and talent. NatWest Group outsources certain
functions as it innovates and offers new digital solutions to its
customers to meet the demand for online and mobile banking.
Outsourcing alongside remote working heighten the above
risks.
NatWest Group uses 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 NatWest Group or 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.
In 2023, NatWest Group made 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 cybersecurity.
Any failure of these investment and rationalisation initiatives to
achieve the expected results, due to cost challenges or otherwise,
may adversely affect NatWest Group's operations, its reputation and
ability to retain or grow its customer business or adversely affect
its competitive position.
Any of the above may have a material adverse effect on NatWest
Group's future results, financial condition, prospects, and/or
reputation.
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 (including technology and data focused roles), in
a highly competitive market and under internal cost efficiency
pressures.
NatWest
Group's ability to attract, retain and develop highly skilled and
qualified diverse senior management (this may include a new
permanent CEO in 2024) and skilled personnel may be more difficult
due to the cost-controlling measures, a failure to pay employees
competitive compensation, 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 that have been in receipt of government support such
as NatWest Group). In addition, certain economic, market and
regulatory conditions and political developments may reduce the
pool of candidates for key management and non-executive roles,
including non-executive directors with the right skills, knowledge
and experience, or may increase the number of departures of
existing employees. Moreover, a failure to foster a diverse and
inclusive workforce may adversely affect NatWest Group's employee
engagement and the formulation and execution of its strategy and
could also have an adverse effect on its reputation with employees,
customers, investors and regulators.
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 may adversely affect NatWest
Group's ability to operate its business effectively.
Any of
the above may have a material adverse effect on NatWest Group's
future results, financial condition, prospects, and/or
reputation.
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 delivery of its long-term strategy. NatWest Group's
Enterprise-Wide Risk Management Framework sets out the approach for
managing risk within NatWest Group including in relation to risk
governance and risk appetite. A failure to adhere to this
framework, or any material weaknesses or deficiencies in the
framework's controls and procedures, could adversely affect NatWest
Group's financial condition and strategic delivery including in
relation to inaccurate adherence to agreed risk appetite statements
and accurate risk reporting of risk exposures.
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, fines and/or reputational damage. Financial
crime continues to evolve, whether through fraud, scams,
cyberattacks or other criminal activity. These risks are
exacerbated as NatWest Group continues to innovate its product
offering and increasingly offers digital solutions to its
customers. 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.
Financial
risk management is highly dependent on the use and effectiveness of
internal stress tests and models and ineffective risk management
may arise from a wide variety of factors, including lack of
transparency or incomplete risk reporting, manual processes and
controls, inaccurate data, inadequate IT systems, unidentified
conflicts or misaligned incentives, lack of accountability control
and governance, incomplete risk monitoring and management or
insufficient challenges or assurance processes or a failure to
commence or timely complete risk remediation projects. Failure to
manage risks effectively, or within regulatory expectations, could
adversely affect 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
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, inappropriate behaviour towards
customers, customer outcomes, 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,
contractor or service providers 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. Hybrid working arrangements for NatWest
Group employees place heavy reliance on the IT systems that enable
remote working and may place additional pressure on NatWest Group's
ability to maintain effective internal controls and governance
frameworks and increase operational risk.
Hybrid
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.
NatWest
Group seeks to embed a risk awareness 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 risk
management, including the ongoing development of a risk management
strategy in line with regulatory expectations. However, such
efforts may not insulate NatWest Group from 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 may result in the inability to achieve
its strategic objectives for its customers, employees and wider
stakeholders.
Any of
the above may have a material adverse effect on NatWest Group's
future results, financial condition, prospects, and/or
reputation.
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 or the public's expectations, including with respect to
NatWest Group's strategy and related targets, the progression
towards working as One Bank across NatWest Group to serve customers
or due to any events, behaviour, action or inaction by NatWest
Group, its employees or those with whom NatWest Group is
associated. Refer to 'NatWest Group's businesses are
subject to substantial regulation and oversight, which are
constantly evolving and may adversely affect NatWest
Group.' This
includes harm to its brand, which may be detrimental to NatWest
Group's business, including its ability to build or sustain
business relationships with customers, stakeholders and regulators,
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, or there is perceived to be, a
material lapse in standards of integrity, compliance, customer or
operating efficiency, or regulatory or press scrutiny, and may
adversely affect NatWest Group's ability to attract and retain
customers. For example, NatWest Group's reputational risks were
elevated during 2023 as a result of the departure of its CEO in
connection with account closures and related use of customer data
that attracted significant public and media
attention.
In particular, NatWest Group's ability to attract and retain
customers (particularly, corporate/institutional and retail
depositors), and talent, and engage with counterparties may be
adversely affected by factors including: 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.
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
identify, measure and manage material reputational risk exposures,
NatWest Group cannot be certain that it will be successful in
avoiding damage to its business from reputational
risk.
Any of
the above aspects of reputational risk may have a material adverse
effect on NatWest Group's future results, financial condition,
prospects, and/or reputation.
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, guidelines,
corporate governance practice and disclosure requirements,
administrative actions and policies in each jurisdiction in which
it operates, which represents ongoing compliance and conduct risks.
Many of these have been introduced or amended recently and are
subject to further material changes, which may increase compliance
and conduct risks, particularly as 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.
Regulators
and governments continue to focus on reforming the prudential
regulation of the financial services industry and the manner in
which the business of financial services is conducted. Measures
have included: enhanced capital, liquidity and funding
requirements, through initiatives such as the Basel 3.1 standards
implementation (and any resulting effect on RWAs and models), the
UK ring-fencing regime, the 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 and the FSM Act 2023), LIBOR transition,
corporate governance requirements, rules relating to the
compensation of senior management and other employees, enhanced
data protection and IT resilience requirements, financial market
infrastructure reforms, enhanced regulations in respect of the
provision of 'investment services and activities', and increased
regulatory focus in certain areas, including conduct, consumer
protection (such as the FCA's Consumer Duty) in retail or other
financial markets, competition and disputes regimes, anti-money
laundering, anti-corruption, anti-bribery, anti-tax evasion,
payment systems, sanctions and anti-terrorism laws and
regulations.
In addition, there is significant oversight by competition
authorities of the jurisdictions in which NatWest Group operates.
The competitive landscape for banks and other financial
institutions in the UK, EU/EEA, Asia and the US is rapidly
changing. Recent regulatory and legal changes have and may continue
to result in new market participants and changed competitive
dynamics in certain key areas. Regulatory and competition
authorities, including the CMA, are also looking at and focusing
more on how they can support competition and innovation in digital
and other markets. Future
competition investigations, market reviews, or the regulation of
mergers may lead to the imposition of financial penalties or market
remedies that may adversely affect NatWest Group's competitive or
financial position.
Recent
regulatory changes 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, product offerings and business models.
Other
areas in which, and examples of where, governmental policies,
regulatory and accounting changes, and increased public and
regulatory scrutiny may have an adverse effect (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 or appropriation of assets;
-
Increased
scrutiny including from the CMA, FCA and Payment Systems Regulator
('PSR') for the protection and resilience of, and competition and
innovation in, digital and other markets, UK payment systems (with
the development of the government's National Payments Vision and
Strategy) 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 Market Orders
including the Retail Banking Market Order 2017 (the 'Order') and
SME Undertakings as well as legislation being drafted to introduce
penalties for breaches of such requirements (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;
-
Increased
risk of new class action claims being brought against NatWest Group
in the Competition Appeal Tribunal for breaches of competition
law;
-
New
or increased regulations relating to customer data protection as
well as IT controls and resilience, such as the proposed UK Data
Protection and Digital Information Bill (No 2) and in India, the
Digital Personal Data Protection Bill 2022;
-
The
introduction of, and changes to, taxes, levies or fees applicable
to NatWest Group's operations, such as the 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;
-
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;
-
Regulatory
enforcement in the form of PRA imposed financial penalties for
failings in banks' regulatory reporting governance and controls,
and ongoing regulatory scrutiny, and the PRA's thematic reviews of
the governance, controls and processes for preparing regulatory
returns of selected UK banks, including NatWest Group;
-
'Dear
CEO' letters issued by the Bank of England from time to
time;
-
Recent
or proposed US regulations around cybersecurity incidents, climate
disclosures and other climate and sustainability-related
rules;
-
New
or increased regulations relating to financial crime (including the
new criminal offence of failure to prevent fraud), and
-
Any
regulatory requirements relating to the use of artificial
intelligence and large language models across the financial
services industry (such as the European Union Artificial
Intelligence Act).
Any of
these developments (including any failure to comply with new rules
and regulations) could also have an adverse effect 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
timeframes 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, capital and risk management planning.
Any of
the above may have a material adverse effect on NatWest Group's
future results, financial condition, prospects, and/or
reputation.
NatWest Group is exposed to the risks of various litigation
matters, regulatory and governmental actions and investigations as
well as remedial undertakings, 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 civil actions (including those following on from
regulatory sanction), as well as criminal, regulatory and
governmental proceedings. 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, Asia and other
jurisdictions.
NatWest
Group is, has recently been or 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, including in relation to 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 issues. There is also an increasing risk
of new class action claims being brought against NatWest Group in
the Competition Appeal Tribunal for breaches of competition
law.
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: NWM Plc's
December 2021 spoofing-related guilty plea in the United States
that was agreed with the US Department of Justice, and involves a
three-year period of probation, an independent corporate monitor
and the ongoing implementation of recommendations made by it, and
commitments to compliance programme reviews and improvements and
reporting obligations. Ongoing matters include the implementation
of recommendations made by the law
firm Travers Smith LLP following independent reviews into issues
that had arisen from treatment of a customer in connection with an
account closure decision that
attracted significant public attention and related interactions
with the media, and certain account closures more generally.
NatWest Group plc has received reports in connection with the
Travers Smith reviews, and published summaries of the key findings
and recommendations in October and December 2023. In addition,
NatWest Group plc is conducting internal reviews with respect to
certain governance processes, policies, systems and controls of
NatWest Group entities, including with respect to customer account
closures and the FCA is conducting supervisory work into how the
governance, systems and controls of NatWest Group and Coutts &
Company are working, to identify and address any significant
shortcomings. For
additional information relating to legal, regulatory proceedings
and matters to which NatWest Group is exposed, refer to
'Litigation and regulatory
matters' at Note 26 to the
consolidated accounts.
Recently resolved matters or adverse outcomes or resolution of
current or future legal, regulatory or other matters, including
conduct-related reviews, redress projects or the subject matter and
outcomes of any of the independent or internal reviews described
above, could increase the risk of greater regulatory and
third-party scrutiny and/or
result in future legal or regulatory actions, and could have material
financial, reputational, or 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 and implications 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 affect
NatWest Group's business, in particular in the US. This in turn
and/or any fines, settlement payments or penalties may have a
material adverse effect on NatWest Group's future results,
financial condition, prospects, and/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.
Any of
the above may have a material adverse effect on NatWest Group's
future results, financial condition, prospects, capital position,
reputation or its ability to meet regulatory capital adequacy
requirements.
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 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 £1.019
billion as at 31 December 2023. 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.
Any of the above may have a material adverse effect on NatWest
Group's future results, financial condition, prospects, and/or
reputation
Legal Entity Identifier: 2138005O9XJIJN4JPN90
Date: 16
February 2024
|
NATWEST
GROUP plc (Registrant)
|
|
|
|
By: /s/
Jan Cargill
|
|
|
|
Name:
Jan Cargill
|
|
Title:
Chief Governance Officer and Company Secretary
|
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