ANNUAL REPORT AND FINANCIAL STATEMENTS 2011 | 13


Managing risk


The Directors are committed to a strong control environment throughout the Group. F&C has a culture that emphasises the importance of rigorous disciplines and procedures to safeguard the interests of our clients and other key stakeholders.


Investment management


Key Risk The success of the Group depends upon the effective management of client portfolios against targets, benchmarks and/or peer groups. Failure to do so could lead to client outflows and the loss of key mandates, may prevent the Group from winning new business and could potentially expose the Group to greater risk of mandate or regulatory breach.


Mitigation Fund Managers are responsible for interpreting and effectively managing the risks associated with investment ideas/strategies. Independent of Fund Managers, the Group operates an Investment Risk Oversight team with responsibility for monitoring and challenging risks within client portfolios.


Effective strategy formulation and execution


Key Risk The success of the Group depends upon the effective formulation, articulation and execution of its strategy. During the year there were changes in key elements of strategy formulation and execution.


Mitigation Following the appointment of a new Chairman in February 2011 the strategic review of the Group’s corporate position and its Institutional Business was announced in October 2011, highlighting the objective of achieving competitive scale in areas of strategic focus through consistent investment in products, channels and human resources. This will increase institutional focus on the Group’s fixed income offerings. The strategic review of the Retail and Wholesale Business is expected to be announced in May 2012.


Loss of strategic partners


Key Risk The success of the Group depends on the relationships it has with its clients. The retention of clients and the winning of new mandates may be driven by historical performance and the quality of client service. A number of contracts with our key strategic partners are approaching expiry of exclusivity.


Mitigation Dedicated relationship management teams ensure continued quality of service. Investment performance is closely monitored by Investment Function management. Furthermore, the strategic review explicitly addressed uncertainties relating to strategic partners. Combined with an increasing reliance on outsourced providers, additional cost cutting measures were announced that will deliver cost flexibility and ensure that the Group should remain financially viable under a scenario where strategic partners assets are withdrawn.


Outsourced activities


Key Risk In pursuing a strategy with a focus on competitive scale, the use of outsourced service providers benefits the Group by providing cost effective access to an industry competitive operating platform. In support of this strategic objective, the Group has


increased its concentration and reliance on third parties through the execution of a service agreement with State Street Corporation.


Mitigation The selection of a key supplier to the Group was undertaken following a robust due diligence and selection process. As part of the implementation of these outsourcing arrangements the Group has established a dedicated team to oversee all aspects of service delivery. The implementation project is being managed by a Steering Group comprised of senior business managers.


Euro currency


Key Risk In addition to the potential operational implications arising from the collapse of the Euro or withdrawal of individual countries, the Group has exposure to a large number of clients whose assets under management have the potential to be impacted. In Q4 2011 strategic partner assets were withdrawn as a result of the decision by the Portuguese government to nationalise past pension obligations of the country’s largest banks.


Mitigation The Group’s operating platform is positioned to cope with potential changes to Eurozone membership arising from the Euro crisis and the Group proactively considers a range of potential scenarios with key service providers. The Group also provides tailored assistance to its clients in considering scenario implications for their own planning.


Loss of key employees


Key Risk The success of the Group depends on the support of its employees. The departure of key employees could lead to client outflows and the loss of key mandates, may prevent the Group from winning new business and could potentially expose the Group to greater risk of regulatory, financial or operational failure.


Mitigation The Group benchmarks total compensation to market data. All employees receive an annual appraisal which reviews their performance against clearly defined objectives with the aim of encouraging strong performance. Reliance on key individuals is mitigated by the Group’s team-based approach to investment management. Moreover, we seek to reduce our dependence on key staff through ongoing learning and development initiatives, and the recruitment of suitably skilled individuals.


Regulatory compliance


Key Risk Significant changes in regulatory frameworks and the increased trend in regulatory scrutiny across the financial services industry present both opportunities and challenges for the Group.


Mitigation The Group Compliance team ensures that key regulatory changes are identified at the earliest opportunity. Their impact is then assessed to allow practical guidance on the proper application and interpretation of any changes to be provided to all relevant business areas.


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