ANNUAL REPORT AND FINANCIAL STATEMENTS 2012 | 11


asset managers increasingly focus on core activities of investment management, client servicing and distribution.


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. Related business change is supervised through the Group’s change management process and oversight provided through the Group Management Committee and Audit and Compliance Committee.


Loss of key clients Key Risk The Group’s revenues are derived from the assets it manages and the relationships it has with its clients. Historically, the Group derived a significant portion of its revenues from a small group of strategic partner clients, with whom it had long-term contractual relationships. These long-term relationships have either reached, or are shortly due to reach, maturity and there is a risk that these clients will either withdraw significant AUM or terminate their relationship.


Mitigation The Group acknowledges the revenue contribution made by its strategic partner clients, and will seek to retain these relationships where it is viable and economically appropriate to do so; our focus is on investment performance, strong relationship management and understanding the evolving needs and expectations of these clients to maximise asset retention. However, the Group’s strategy recognises the concentration risk to these clients and seeks to mitigate it through the growth of third-party consumer and institutional revenues and the identification of further cost reductions which may be implemented in the event of strategic partner revenue loss.


Reliance on third parties 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. The Group’s key outsource partner is State Street Corporation, which provides a range of back and middle office, fund accounting and transfer agency services. Any weakness in service delivery by an outsourced provider may impact the Group’s ability to meet its contractual obligations to its clients. Further, the Group’s ability to meet client demands, launch new products or meet changing regulatory or market expectations may be dependent on appropriate support from its outsourcing partner.


Mitigation The Group conducted an extensive selection and due diligence exercise prior to selecting State Street Corporation as an outsourcing provider and entering the related contractual arrangements. The Group led this process using an internal project team, supported by external legal and consultancy advisors. Since the implementation of the contract, the Group has established a supplier and change management team to oversee and monitor third-party service delivery and ensure there is appropriate oversight and effective resolution of issues. Arrangements are in place to ensure that State Street Corporation is incentivised to provide the level of service that is required. The Supplier and Change Management team holds regular service review meetings with State Street Corporation as part of the ongoing governance arrangements.


Business continuity and information technology Key Risk The Group’s success is dependent on access to a robust IT infrastructure and appropriate IT systems. The Group is exposed to the risk that its infrastructure and systems are unable to meet the demands of client, regulatory and/or technology change.


Mitigation The Group has a short and medium-term IT plan with clear objectives to meet mandatory change requirements, deliver further integration of systems and enhance the agility of the Group. The Group maintains and periodically tests its business continuity arrangements. As part of its plans to enhance business continuity, the Group migrated its data centres to a new, more robust model, during 2012.


Counterparty credit exposure Key Risk The Group is exposed to credit risk and the risk of failure in respect of counterparties used to hold corporate cash on deposit.


Mitigation The Group adopts a low-risk approach to treasury management in respect of its capital. The treasury policy permits placement of Group capital only with approved counterparties and sets out quantum and duration limits. The Group Credit and Counterparty Approval Committee meets on a regular basis (normally monthly) to ensure an appropriate level of oversight is applied to counterparty credit risk and to set and review appropriate counterparties and exposure limits.


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