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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Standard Life Aberdeen Plc | LSE:SLA | London | Ordinary Share | GB00BF8Q6K64 | ORD 13 61/63P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 274.10 | 273.20 | 273.40 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMSLA
RNS Number : 7244F
Standard Life Aberdeen plc
23 February 2018
Standard Life Aberdeen plc
Full Year Results 2017
Part 3 of 8
2. Board of Directors
Our business is managed by our Board of Directors. Biographical details (and shareholdings) of the Directors as at
23 February 2018 are listed below.
Sir Gerry Grimstone Chairman
Nomination and governance committee chair
Sir Gerry was appointed Chairman in May 2007, having been Deputy Chairman since March 2006. He is also deputy chairman and senior independent director of Barclays PLC, an independent non-executive board member of Deloitte North West Europe and the lead non-executive at the Ministry of Defence. Previously, he held senior positions within the Department of Health and Social Security and HM Treasury until 1986. He then spent 13 years with Schroders in London, Hong Kong and New York, and was vice chairman of Schroders' worldwide investment banking activities from 1998 to 1999. He is British, aged 68 and holds 206,626 shares.
Simon Troughton Deputy Chairman
Nomination and governance committee member
Simon was appointed Deputy Chairman on 14 August 2017, having been a non-executive director of Aberdeen Asset Management PLC since July 2009 and chairman since July 2016. Simon is also chairman of Redburn (Europe) Limited. Previously, he was a partner at Cazenove and Company Limited before moving to Fauchier Partners in 2003 where he became chief operating officer. He is British, aged 64 and holds 52,990 shares.
Martin Gilbert Co-Chief Executive
Martin was appointed Director and Co-Chief Executive on 14 August 2017. He is co-founder (and former chief executive) of Aberdeen Asset Management PLC and has been a director since 1983. He is deputy chairman of Sky plc, a non-executive director of Glencore plc, chairman of the Prudential Regulation Authority's Practitioner Panel and a board member of the Institute of International Finance, as well as a member of the International Advisory Panel of the Monetary Authority of Singapore and the International Advisory Board of British American Business. He is British, aged 62 and holds 139,185 shares.
Keith Skeoch Co-Chief Executive
Keith was appointed Co-Chief Executive on 14 August 2017. He was formerly Chief Executive of Standard Life plc, having been a Director since 2006 and Chief Executive of Standard Life Investments since 2004. He joined Standard Life Investments Limited in 1999 as Chief Investment Officer after nearly 20 years' investment experience at James Capel & Company Limited in a number of roles, including chief economist and managing director international equities. He is also a non-executive director of the Financial Reporting Council and a member of the Asset Management Taskforce led by HM Treasury. He is British, aged 61 and holds 2,347,507 shares.
Bill Rattray Chief Financial Officer
Bill was appointed Director and Chief Financial Officer on 14 August 2017, having been finance director of Aberdeen Asset Management PLC from January 1991. He is also a non-executive director of Curtis Banks Group Plc. Prior to joining the Aberdeen Group, Bill trained as a chartered accountant with Ernst & Whinney, qualifying in 1982. He is British, aged 59 and holds 1,743,549 shares.
Rod Paris Chief Investment Officer
Appointed Director on 14 August 2017, Rod joined Standard Life Investments in 2002 as Head of Global Fixed Income and was appointed as Head of Investments in 2007 and latterly as Chief Investment Officer in 2013. Previously, he was a managing director at Merrill Lynch Investment Managers, and before that a director at Mercury Asset Management which he joined in 1984. He is British, aged 58 and holds 602,303 shares.
Kevin Parry Senior Independent Director
Investment performance committee member
Nomination and governance committee member
Remuneration committee member
Appointed Director in October 2014, Kevin is the Company's Senior Independent Director. He is also chairman of Intermediate Capital Group plc and non-executive director of Daily Mail and General Trust plc and Nationwide Building Society. Kevin was previously with Schroders plc, firstly as a non-executive director between 2002 and 2008 and, latterly, as CFO between 2009 and 2013. Prior to this, Kevin served as CEO of Management Consulting Group between 2000 and 2008. He was awarded an OBE for charitable services in the New Year's Honours List. He is British, aged 56 and holds 60,754 shares.
Julie Chakraverty Non-executive Director
Audit Committee member
Nomination and governance committee member
Remuneration committee member
Julie was appointed Director on 14 August 2017, having been a non-executive director of Aberdeen Asset Management PLC since May 2011 and senior independent director since October 2016. Julie is also a director of Rungway Limited. Previously, she served on the boards of MS Amlin plc, Spirit Pubs and Paternoster Insurance, and as a board member of UBS Investment Bank where she held a number of global leadership positions. She is British, aged 46 and holds 2,302 shares.
John Devine Non-executive Director
Audit Committee chair
Remuneration committee member
Risk and capital committee member
Appointed Director in July 2016, John is also a non-executive director of Credit Suisse International, Credit Suisse Securities (Europe) Limited, Citco Custody Limited and Citco Custody (UK) Limited. From 2008-2010, John was chief operating officer of Threadneedle Asset Management Limited. Prior to joining Threadneedle, John held a number of senior positions at Merrill Lynch in London and New York. He is British, aged 59 and holds 1,321 shares.
Gerhard Fusenig Non-executive Director
Investment performance committee chair
Remuneration committee member
Risk and capital committee member
Gerhard was appointed Director on 14 August 2017, having been a non-executive director of Aberdeen Asset Management PLC since April 2016. Gerhard is also director of Credit Suisse Insurance Linked Strategies Limited. Over the last 25 years he has held a number of senior management roles in asset management at Credit Suisse Group AG and UBS AG. He is German and Swiss, aged 54 and holds 26,495 shares.
Melanie Gee Non-executive Director
Audit Committee member
Investment performance committee member
Nomination and governance committee member
Risk and capital committee member
Appointed Director in November 2015, Melanie is also a senior adviser at Lazard and Co. Limited, having been a managing director between 2008 and 2012. Previously, she held various roles with UBS, and was appointed a managing director in 1999. Melanie was a non-executive director of The Weir Group PLC between 2011 and 2017 and the Drax Group plc between 2013 and 2016. She is also a non-executive director of Ridgeway Partners Holdings Limited. She is British, aged 56 and holds 20,000 shares.
Richard Mully Non-executive Director
Investment performance committee member
Nomination and governance committee member
Remuneration committee chair
Richard was appointed Director on 14 August 2017, having been a non-executive director of Aberdeen Asset Management PLC since April 2012. Richard is also deputy chairman of alstria office REIT-AG, senior independent director of St Modwen Properties PLC, a non-executive director of Great Portland Estates plc and senior adviser to TPG Real Estate (Europe). Previously, Richard spent much of his career in financial services as an investment banker and was the co-founder and managing partner of Grove International Partners LLP. He is British, aged 56 and holds 52,990 shares.
Lynne Peacock Non-executive Director
Nomination and governance committee member
Appointed Director in April 2012, Lynne is also Chairman of Standard Life Assurance Limited. She is senior independent director of Nationwide Building Society and a non-executive director of Serco Group plc. She joined National Australia Bank Limited in 2003 and, from 2004 to 2011, she was chief executive officer, UK (Clydesdale Bank plc and Yorkshire Bank). Prior to that, Lynne was with Woolwich plc from 1983 to 2003, finishing her career there as chief executive officer. She is British, aged 64 and holds 12,554 shares.
Martin Pike Non-executive Director
Audit Committee member
Risk and capital committee chair
Martin was appointed Director in September 2013. He is also a non-executive director of esure Group plc and Faraday Underwriting Limited and a non-executive advisor to Travers Smith LLP. He joined R Watson & Sons in 1983, and progressed his career with the firm to partner level. His senior roles included head of european insurance and financial services practice, Watson Wyatt from 2006 to 2009, vice-president and global practice director, insurance and financial services, Watson Wyatt during 2009 and, latterly, managing director, risk consulting & software, EMEA, Towers Watson from 2010 to 2013. He is British, aged 56 and holds 32,727 shares.
Jutta af Rosenborg Non-executive Director
Audit Committee member
Remuneration committee member
Jutta was appointed Director on 14 August 2017, having been a non-executive director of Aberdeen Asset Management PLC since January 2013. She is also chairman of Det Danske Klasselotteri A/S and a non-executive director of JPMorgan European Investment Trust plc, NKT A/S and Nilfisk Holding A/S. Previously, she was the executive vice president, CFO of ALK-Abell A/S. She is Danish and aged 59. Nil shareholding.
Akira Suzuki Non-executive Director
Akira was appointed Director on 14 August 2017, having been a non-executive director of Aberdeen Asset Management PLC since August 2013 through their business and capital alliance with Mitsubishi UFJ Trust and Banking Corporation . Akira has undertaken a wide variety of roles, primarily in asset management, in Mitsubishi UFJ Trust and Banking Corporation and is currently a managing executive officer. He is Japanese and aged 58. Nil shareholding.
3. Directors' report
The Directors present their annual report on the affairs of the Standard Life Aberdeen group of companies (the Group), together with the audited International Financial Reporting Standards (IFRS) consolidated financial statements for the Group, financial information for the Group and financial statements for Standard Life Aberdeen plc (the Company) for the year ended 31 December 2017.
Reporting for the year ended 31 December 2017
The Company is the holding company of the Group. You can find out about the relevant activities of the Company's principal subsidiary undertakings and their overseas branches in the Strategic report. During 2017, the Company's principal undertakings operated branches in Europe, together with Hong Kong and India.
The main trends and factors likely to affect the future development, performance and position of the Group are outlined in the Co-Chief Executive's overview section of the Strategic report. Reviews of the operating and financial performance of the Group for the year ended
31 December 2017 are given in the Strategic report.
The Chairman's statement, the Directors' responsibility statement and the Corporate governance statement form part of the Directors' report. The Corporate governance statement is submitted by the Board.
Using the IFRS basis, the results of the Group are presented in the Group financial statements. A detailed description of the basis of preparation of the IFRS results (including adjusted profit) is set out in the Group financial statements section. More information about the Group's use of financial instruments and related financial risk management matters can be found in Note 21 and Note 39 to the Group financial statements.
This report was prepared by the executive team together with the Board and forms part of the management report.
Dividends
The Board recommends paying a final dividend for 2017 of 14.30p per ordinary share. This will be paid on 30 May 2018 to shareholders whose names are on the Register of members (the Register) at the close of business on 20 April 2018.
The total payment is estimated at GBP421m for the final dividend and together with the interim dividend of 7.00p per share totalling GBP206m paid on 18 October 2017, the total dividend for 2017 will be 21.30p per share (2016: 19.82p) totalling GBP627m (2016: GBP389m).
Share capital
You can find full details of the Company's share capital, including movements in the Company's issued ordinary share capital during the year, in Note 26 to the Group financial statements. You can also find an analysis of registered shareholdings by size, as at 31 December 2017, in the Shareholder information section.
Standard Life plc and Aberdeen Asset Management PLC made an announcement on 6 March 2017 relating to the recommended all-share acquisition by Standard Life plc of Aberdeen Asset Management PLC. This was implemented by way of a court-sanctioned scheme of arrangement under Part 26 of the Companies Act 2006 (the Scheme). The Scheme became effective in accordance with its terms, following the sanction of the Scheme by the Court of Session in Scotland on 11 August 2017 and the delivery of the court order to the Registrar of Companies. Standard Life plc was renamed Standard Life Aberdeen plc immediately following the Scheme becoming effective.
The entire issued ordinary share capital of Aberdeen Asset Management PLC is now owned by Standard Life Aberdeen plc.
Holders of ordinary shares of 10 pence each in the capital of Aberdeen Asset Management PLC (Aberdeen Shares) on the register at the Scheme record time, being 6.00 p.m. on 11 August 2017, received 0.757 of an ordinary share of 12 2/9 pence each in the capital of Standard Life Aberdeen plc (New Shares) in exchange for each Aberdeen Share. As a result, 997,661,231 New Shares were listed on the Premium Listing segment of the Official List of the UK Listing Authority and were admitted to trading on the London Stock Exchange's main market at 8.00 a.m. on Monday 14 August 2017.
As at 31 December 2017, there were 2,978,936,877 ordinary shares in issue held by 102,763 registered members. The Standard Life Aberdeen Share Account (the Company-sponsored nominee) held 736,555,571 of those shares on behalf of 1,039,617 participants. No person has any special rights of control over the Company's share capital and all issued shares are fully paid.
During the year, and until the date this report was signed, the Company received the following notifications in respect of major shareholdings and major proportions of voting rights in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority (FCA). The companies detailed below notified their positions following the merger.
Hot Features
Premium
Number Percentage
of voting of voting
rights rights
Date Type following following
Shareholder of transaction of transaction the transaction the transaction
------------- ---------------- ---------------- ---------------- ----------------
Mitsubishi
UFJ Trust
and Banking
Corporation 14.08.2017 Acquisition 175,200,098 5.9%
------------- ---------------- ---------------- ---------------- ----------------
Event
Lloyds changing
Banking the breakdown
Group of voting
plc 14.08.2017 rights 97,714,624 3.282%
------------- ---------------- ---------------- ---------------- ----------------
In 2016, in accordance with the terms of the Standard Life Employee Trust Deed, the trustees of the Standard Life Employee Trust waived all entitlements to current or future dividend payments for shares they hold under option on behalf of participants in the Company's discretionary share plans between the grant and vest dates. Details of ordinary shares under option in respect of the Company's discretionary share plans are shown in Note 45 to the Group financial statements.
The trustees of the Standard Life (Employee) Share Plan voted the appropriate shares in accordance with any instructions received from participants in the plan. Details of the Company's employee share plan can be found in Note 45 to the Group financial statements.
Restrictions on the transfer of shares and securities
Except where listed below, there are no specific restrictions on the size of a holding or on the transfer of shares. Both are governed by the general provisions of the Company's articles of association (the Articles) and current legislation and regulation.
You can also obtain a copy from Companies House or by writing to the Company Secretary at our registered address (details of which can be found in the Contact us section). The Articles may only be amended by a special resolution passed by the shareholders.
You can read the Articles on our website www.standardlifeaberdeen.com/annualreport
The Board may decline to register the transfer of:
-- A share that is not fully paid
-- A certificated share, unless the instrument of transfer is duly stamped or duly certified and accompanied by the relevant share certificate or other evidence of the right to transfer, is in respect of only one class of share and is in favour of a sole transferee or no more than four joint transferees
-- An uncertificated share, in the circumstances set out in the uncertificated securities rules (as defined in the Articles) and, in the case of a transfer to joint holders, where the number of joint holders to whom the share is to be transferred does not exceed four
-- A certificated share by a person with a 0.25 per cent interest (as defined in the Articles) in the Company, if that person has been served with a restriction notice under the Articles, after failing to provide the Company with information about interests in those shares as set out in the Companies Act 2006 (unless the transfer is shown to the Board to be pursuant to an arm's length sale under the Articles)
These restrictions are in line with the standards set out in the FCA's Listing Rules and are considered to be standard for a listed company.
The Directors are not aware of any other agreements between holders of the Company's shares that may result in restrictions on the transfer of securities or on voting rights.
Rights attached to shares
Subject to applicable statutes, any resolution passed by the Company under the Companies Act 2006 and other shareholders' rights, shares may be issued with such rights and restrictions as the Company may decide by ordinary resolution, or (if there is no such resolution or if it does not make specific provision) as the Board may decide. Subject to the Articles, the Companies Act 2006 and other shareholders' rights, unissued shares are at the disposal of the Board.
Every member and duly appointed proxy present at a general meeting or class meeting has one vote on a show of hands, provided, that where a proxy is appointed by more than one shareholder entitled to vote on a resolution and is instructed by one shareholder to vote 'for' the resolution and by another shareholder to vote 'against' the resolution, then the proxy will be allowed two votes on a show of hands - one vote 'for' and one vote 'against'. On a poll, every member present in person or by proxy has one vote for every share they hold. For joint shareholders, the vote of the senior joint shareholder who tenders a vote, in person or by proxy, will be accepted and will exclude the votes of the other joint shareholders. For this purpose, seniority is determined by the order that the names appear on the Register for joint shareholders.
A member will not be entitled to vote at any general meeting or class meeting in respect of any share they hold if any call or other sum then payable by them for that share remains unpaid or if they have been served with a restriction notice (as defined in the Articles) after failing to provide the Company with information about interests in those shares required to be provided under the Companies Act 2006.
The Company may, by ordinary resolution, declare dividends up to the amount recommended by the Board. Subject to the Companies Act 2006, the Board may also pay an interim dividend, and any fixed rate dividend, whenever the financial position of the Company, in the opinion of the Board, justifies its payment. If the Board acts in good faith, it is not liable to holders of shares with preferred or 'pari passu' rights for losses that arise from paying interim or fixed dividends on other shares.
The Board may withhold payment of all or part of any dividends or other monies payable in respect of the Company's shares from a person with a 0.25 per cent interest (as defined in the Articles) if that person has been served with a restriction notice (as defined in the Articles) after failure to provide the Company with information about interests in those shares, which is required under the Companies Act 2006.
Subject to the Companies Act 2006, rights attached to any class of shares may be varied with the written consent of the holders of not less than three-quarters in nominal value of the issued shares of that class (excluding any shares held as treasury shares). These rights can also be varied with the sanction of a special resolution passed at a separate general meeting of the holders of those shares. At every separate general meeting (except an adjourned meeting) the quorum shall be two persons holding, or representing by proxy, not less than one-third in nominal value of the issued shares of the class (calculated excluding any shares held as treasury shares).
A shareholder's rights will not change if additional shares ranking 'pari passu' with their shares are created or issued - unless this is expressly provided in the rights attaching to their shares.
Power to purchase the Company's own shares
At the 2017 Annual General Meeting (AGM), shareholders granted the Directors limited powers to:
-- Allot ordinary shares in the Company up to a maximum aggregate amount of GBP80,628,369
-- Disapply, up to a maximum total nominal amount of GBP12,094,255 of its issued ordinary share capital, shareholders' pre-emption rights in respect of new ordinary shares issued for cash
-- Make market purchases of the Company's ordinary shares up to a maximum of 197,905,999 of its issued ordinary shares
The Company did not make any market purchases of its ordinary shares during the year ended 31 December 2017, and has not done so since then and up to the date of this report.
Significant agreements
There are a number of agreements to which the Company, or one of its subsidiaries, is party that entitle the counterparties to exercise termination or other rights in the event of a change of control of the Company. These agreements are noted in the paragraphs below.
Credit Facility - under a GBP400m revolving credit facility between the Company and the banks and financial institutions named therein as lenders (Lender) dated 22 May 2015 (the Facility), in the event that (i) any persons or group of persons acting in concert, gain control of the Company or (ii) Standard Life Assurance Limited ceases to be a member of the Group, then any Lender may elect within a prescribed time frame to cancel its outstanding commitment under the Facility and declare its participation in all outstanding loans, together with accrued interest and all amounts accrued immediately due and payable, whereupon the commitment of that Lender under the Facility will be cancelled and all such outstanding amounts will become immediately due and payable.
Aberdeen Asset Management PLC has two GBP60m revolving credit facilities, one with HSBC Bank plc and one with Abbey National Treasury Services plc,( each the Lender). Both are dated 27 July 2016 and run to 27 July 2019. In the event of a change of control of Aberdeen Asset Management PLC the Lender may by not less than 15 business days' notice to Aberdeen Asset Management PLC cancel the commitment and require immediate repayment of all loans together with accrued interest and all other amounts accrued under the finance documents whereupon the commitment shall be cancelled and all such outstanding Loans and amounts will become immediately due and payable. Prior to the merger, written waivers were obtained from each of the Lenders, agreeing to the change of control.
India - under a shareholders' agreement dated 10 June 2003 (as amended) between Standard Life Investments Limited and Housing Development Finance Corporation Limited (HDFC), pursuant to which the relevant Group company holds its interest in HDFC Asset Management Company Limited (HDFC AMC), upon a change in the ownership structure of Standard Life Investments Limited that results in the acquisition by a third party, either directly or indirectly, of more than 20% of the issued, subscribed and paid-up capital of Standard Life Investments Limited, HDFC will have 90 days from the date upon which Standard Life Investments Limited notifies it in writing of the occurrence of such a change to purchase the relevant Group company's shares in HDFC AMC for a price determined in accordance with an agreed pricing formula.
China - under a joint venture agreement dated 12 October 2009 (as amended) between the Company and Tianjin TEDA International Holding (Group) Co. Limited (TEDA), pursuant to which the Company holds its interest in Heng An Standard Life Insurance Company Limited (Heng An Standard Life), upon a change of control of the Company, TEDA has the right to terminate the venture and to purchase, or nominate a third party to purchase, the Company's shares in Heng An Standard Life for a price determined in accordance with the agreement.
Asset Management - under various agreements dated 31 March 2014 (as amended) between members of the Group (Managers) and subsidiaries of Lloyds Banking Group plc (Customers), pursuant to which the Managers provide investment management and services to the Customers, upon a change of control of the relevant Manager where the new controller's group either is in material competition in the UK with the Lloyds Banking Group or does not have investment capabilities comparable to the group it was in on 31 March 2014, then the relevant Customer has the right to terminate the relevant agreement. A description of events since the balance sheet date relevant to this agreement can be found on page 71 and for further information, please see Note 14 of the Group financial statements.
A number of other agreements contain provisions that entitle the counterparties to exercise termination or other rights in the event of a change of control of the Company. However, these agreements are not considered to be significant in terms of their likely impact on the business of the Group as a whole.
The Directors are not aware of any agreements with any employee that would provide compensation for loss of office or employment resulting from a takeover bid. The Company also has no agreement with any Director to provide compensation for loss of office or employment resulting from a takeover.
Appointment and retirement of Directors
The appointment and retirement of Directors is governed by the Articles, the Companies Act 2006, the UK Corporate Governance Code and related legislation.
The UK Corporate Governance Code recommends that directors of FTSE 350 companies should stand for election every year. During the year, Paul Matthews resigned as Director on 1 March 2017 and Colin Clark, Pierre Danon, Noel Harwerth, Barry O'Dwyer and Luke Savage resigned as Directors on 14 August 2017.
Following the Merger, Martin Gilbert, Bill Rattray, Rod Paris, Simon Troughton, Julie Chakraverty, Gerhard Fusenig, Richard Mully, Jutta af Rosenborg and Akira Suzuki were appointed to the Board on 14 August 2017. Having been appointed since the last AGM, these Directors, apart from Julie Chakraverty and Akira Suzuki, will stand for election at the 2018 AGM. Julie Chakraverty and Akira Suzuki will stand down as Directors at the conclusion of the 2018 AGM.
All remaining Directors as at the date of the AGM will retire at the 2018 AGM and, if they wish to continue in office, will stand for re-election. Lynne Peacock will stand down as Director at the conclusion of the 2018 AGM.
The powers of the Directors can also be found in the Articles.
Directors and their interests
The Directors who served during the year were:
Sir Gerry Grimstone (Chairman) Lynne Peacock
Keith Skeoch Martin Pike
Jutta af
Martin Gilbert(3) Rosenborg(3)
Bill Rattray(3) Akira Suzuki(3)
Rod Paris(3) Simon Troughton(3)
Kevin Parry Colin Clark(4)
Julie Chakraverty(3) Pierre Danon(4)
John Devine Noel Harwerth(4)
Gerhard Fusenig (3) Paul Matthews(2)
Melanie Gee Barry O'Dwyer(1,4)
Richard Mully(3) Luke Savage(4)
------------------------------ ------------------
(1.) Appointed 1 March 2017
(2.) Resigned 1 March 2017
(3.) Appointed 14 August 2017
(4.) Resigned 14 August 2017
Details of the Directors' interests in the Company's ordinary shares, the Standard Life (Employee) Share Plan, the Standard Life Sharesave Plan and the share-based discretionary plans are set out in the Directors' remuneration report together with details of the executive Directors' service contracts and non-executive Directors' appointment letters.
No Director has any interest in the Company's listed debt securities or in any shares, debentures or loan stock of the Company's subsidiaries. No Director has any material interest in any contract with the Company or a subsidiary undertaking which was significant in relation to the Company's business, except for the following:
-- The benefit of a continuing third party indemnity provided by the Company (in accordance with company law and the Articles)
-- Service contracts between each executive Director and subsidiary undertakings (Standard Life Employee Services Limited and Aberdeen Asset Management PLC)
Copies of the following documents can be viewed at the Company's registered office (details of which can be found in the Contact us section) during normal business hours (9am to 5pm Monday to Friday) and will be available for inspection at the Company's AGM:
-- The Directors' service contracts or letters of appointment
-- The Directors' deeds of indemnity, entered into in connection with the indemnification of Directors provisions in the Articles
-- The rules of the Standard Life plc Executive Long-Term Incentive Plan
-- The rules of the Standard Life Aberdeen plc Deferred Share Plan
-- The Company's Articles
Directors' liability insurance
During 2017, the Company maintained directors' and officers' liability insurance on behalf of its directors and officers to provide cover should any legal action be brought against them. The Company also maintained pension trustee liability indemnity policies (which includes third party indemnity) for the boards of trustees of the UK and Irish staff pension schemes where required to do so.
Our people
Our people have always been central to delivering our strategy, and we remain focused on bringing out the best in them.
You can read more on our people strategy, including diversity and inclusion, in the Strategic report section of this report.
Diversity and Inclusion
At Standard Life Aberdeen our aim is that all our people are able to reach their potential and build long term-careers in a workplace which values everything they bring. We do this by building and sustaining a diverse pipeline of talent in an inclusive workplace. And we believe this provides our customers and clients with the diversity of thought and creativity necessary to build long-term value and develop products and services to best support their needs.
This year, we published our inclusion strategy, which was created by our business leaders, and which defines our priorities over the next three to five years. It aims to embed inclusion in everything we do, and improve transparency in how we talk about and report on diversity in our business. We know this will take time, but we have made it a priority.
We all have a role in creating an inclusive environment, and empower our people to take an active and collaborative approach. Our seven employee network groups, for example, support members of the diverse groups and communities they represent, and raise awareness of issues that affect them. With over 1,900 members, our networks continue to expand their global reach, and focus on gender, LGBT+, ethnicity, disability (including a mental health group), young people, carers and armed forces.
We consider diversity in the broadest sense - in our backgrounds, experiences, strengths and thinking. We treat those with disabilities fairly in relation to job applications, training, promotion and career development. Adjustments are made to train and enable employees who become disabled while working at Standard Life Aberdeen to allow them to continue and progress in their career.
Achieving a better gender balance at all levels is a priority for us. We have published our gender pay gap this year and know we have more to do to improve the number of women in our senior roles and certain parts of our business (which will therefore improve our gender pay gap). For example, our senior female representation is currently 27%. For this reason, we have a gender diversity action plan which is owned by our CEOs, and our Nomination and Governance Committee formally oversee progress against this every six months. We have had targets in place to increase the representation of women at different levels since 2016, however our CEOs have now recommitted to new targets for Standard Life Aberdeen to accelerate our progress and focus.
Our actions are making a difference. Our strong gender balanced pipeline continues to grow; 44% of those in our talent pool who are considered capable of operating at Executive Committee level in the next three to five years are female and our 2017 graduate intake is 54% female and from a broad range of universities.
Talent
The recruitment and development of early careers talent is a critical and integral part of our talent management agenda. Over the past
12 months, we have recruited a total of 185 individuals on early careers programmes into a variety of programmes across Standard Life Aberdeen. These include our Graduate and Intern programme, Investment 2020 and the Edinburgh Guarantee Scheme. Since 2010, we have increased the number of employees aged 25 and under in the UK and Ireland from 0.5% to 8.5%. This illustrates our direct commitment to youth employment and the strategic development of young people to meet our business demands. This commitment extends to young people who are currently in education through our strategic partnership with Career Ready. In 2017, we aligned 40 individuals with mentors and paid internships in Edinburgh and London.
Looking forward, our newly combined business is starting from a strong foundation to continue to attract talent into our organisation. Both businesses have historically been recognised as employers of choice within the UK early careers market. For example, Standard Life Aberdeen currently holds the 19th position in the Top 100 UK Undergraduate Employers for 2017-2018. We have a unique opportunity to bring together and create one powerful market offering which illustrates our ongoing commitment to attracting and retaining the best talent to grow our organisation.
Engagement
There are several separate employee representation arrangements across the organisation aimed at providing insights from our people to help the Company understand the employee perspective. In the UK, most employees are represented through partnership agreements with the Group's staff associations, Vivo and Bridge. In Ireland, there is an established agreement with Unite, and a works council was established in Germany in 2008.
Measuring employee engagement remains key to understanding how our people feel about working at Standard Life Aberdeen. The merger on 14 August 2017 between Standard Life plc and Aberdeen Asset Management PLC meant that surveying employees in 2017 focused on sentiment towards the merger, mood, and providing employees with an opportunity to describe the current culture and define the culture in the new company. This type of survey was new to both heritage organisations and provided an expanded baseline measure of additional employee insights that go beyond engagement and enablement. The survey was carried out between 17 August and
6 September.
Results:
-- Participation: 60% (5,486 colleagues) had their say
-- Merger sentiment: 87% feel the merger represents an opportunity and 13% do not or are yet to be convinced
-- Mood: 52% describe feeling positive about coming to work and the remaining 48% feel neutral or not positive
-- Current culture: 70% chose positive words to describe the current culture, 7% chose neutral words and 23% selected negative words
Our employee insights partner Karian and Box believes that our results show high levels of positivity towards the opportunity that the merger presents. In comparison to others in a merger/acquisition situation this presents a very strong baseline to build on. There is a sense of momentum and excitement around the merger, particularly towards the potential for global reach, world-class investment and diverse talent. The results come with their own challenge however; colleagues are looking to leaders for a clear future that will make the most of the opportunity. As the impact of the merger unfolds over the coming months, colleagues will need to see evidence that the right action is being taken to make the most of the opportunity.
Previous Heritage Business Survey Results:
-- Aberdeen Asset Management PLC - December 2016: 73% Engagement
-- Standard Life plc - October/November 2016: 65% Engagement and 62% Enablement
In 2018 we will continue to measure mood, sentiment and culture whilst reviewing our approach to engagement and enablement for the newly formed Standard Life Aberdeen plc.
Developing our People
We've continued to invest in our people with a focus on development across Standard Life Aberdeen. To help our leaders manage through change, the 'Engaging Leader' workshop was held between April and September for 852 leaders and achieved an overall course rating of 8.4 out of 10.
In addition, we've recently launched a digital learning campaign for all employees, 'The Leading Edge - Challenge Series.' Focusing on the key themes identified in the employee engagement survey, this series showcases a variety of employees across Standard Life Aberdeen sharing their personal views on topics such as well-being and mentoring with related online learning materials. Within the first four weeks, more than 3,000 colleagues across the globe accessed the videos and resources provided through the campaign.
We've trialled a new approach in 2017 to focus on 'Developing Leadership' in bite-sized learning format to all employees. These courses have focused on a broad range of topics including coaching, non-executive Director skills and deeper leadership. To date, 575 employees have participated, with plans for further roll out in 2018.
Eighty four per cent. of our employees told us financial education in the workplace is important. Consequently we embarked on a financial wellness programme that tackled subjects such as tax planning, retirement planning, advice on wills and estate planning. During 2017 we have held financial wellness sessions with over 1,200 employees and received very positive feedback. Sixty per cent. felt more confident about their company pension and 87% said they would recommend the programme to a colleague.
In 2017 we have continued to develop our intranet to ensure it retains its employee focus, making significant changes to content structure in response to employee feedback. In addition colleagues in Germany and Austria, as well as former Elevate employees based in Bristol, now have access. Planning has commenced for the next major iteration of the intranet to ensure that it continues to support the business fully during the merger integration period and beyond.
Reward
We believe that when our employees own shares in the Company they understand better the interests of the Company's shareholders.
In September 2017, the Standard Life Sharesave Plan, launched by Standard Life Group in 2011, was extended to the UK based employees of Aberdeen and invitations were made to employees of Standard Life Aberdeen in UK and Ireland. The invitation was accepted by 2,999 employees who will have the opportunity to acquire Standard Life Aberdeen plc shares for GBP3.449 (UK) and EUR3.749 (Ireland) with their accumulated savings when their savings contracts end in three or five years' time.
On 1 November 2017, the 2014 three-year UK and Ireland Standard Life Sharesave invitations matured. Participating employees have the opportunity, until 1 May 2018, to buy Standard Life Aberdeen plc shares at a price of GBP2.961 per share (UK) and EUR3.70 per share (Ireland) with their accumulated savings. On 1 November 2017 the 2012 five-year Sharesave invitation also matured. Participating employees have the opportunity, until 1 May 2018, to buy Standard Life Aberdeen plc shares at a per share price of GBP2.208 (UK) and EUR2.8112 (Ireland) with their accumulated savings.
As a result, there are now over 4,298 employees in the UK and Ireland participating in Sharesave plans.
As at 31 December 2017, 4,814 of the Group's employees were shareholders through participation in the Standard Life (Employee) Share Plan (the Plan). This Plan, currently offered to most employees of Standard Life Group in the UK, Ireland, Germany and Austria, allows employees to buy ordinary shares in the Company directly from their earnings up to a market value of GBP150 per month, or an equivalent sum in the relevant currency. These are called partnership shares. For each partnership share that an employee buys under the Plan in the UK, the Company matches the purchase by allocating them ordinary shares up to a maximum total value of GBP50 per month. As at 31 December 2017, 63% of eligible employees in the UK were making a monthly average contribution of GBP59. A similar tax approved plan is used in Ireland, where the maximum monthly matched amount is EUR70, and has a 53% take-up. Even though the Plan cannot be structured on a tax favourable basis in Germany or Austria, at the end of the year, 102 employees were buying shares on a monthly basis.
Standard Life Aberdeen now has employees in a number of countries and we will take account of this in shaping our employee share ownership offering.
Sustainability
The commercial aims of our business are linked to our environmental, social and governance responsibilities. You can find out more about how we run our business sustainably throughout the Strategic report. For details of our greenhouse gas emissions, please see page 60.
Political donations
We have a long-standing policy of not making political donations and we have no plans to do so. The Company has limited authorisation from shareholders to make political donations and incur political expenditure (Resolution 8, 2017 AGM). We request this as a precaution against any inadvertent breach of political donations legislation. While Standard Life Aberdeen has regular interaction with government and elected politicians in the UK and other jurisdictions in which we operate, we are strictly apolitical.
Auditors
The Audit Committee is responsible for considering the Group's external audit arrangements. Resolutions proposing the re-appointment of KPMG LLP as auditors of the Company and giving authority to the Audit Committee to determine their remuneration will be submitted at the 2018 AGM.
Disclosure of information to the auditors
Each Director confirms that he or she has taken all reasonable steps necessary, in his or her role as a Director, to be made aware of any relevant audit information and to establish that KPMG LLP is made aware of that information.
As far as each Director is aware, there is no relevant audit information that KPMG LLP is not aware of as at the date this report was approved.
Annual General Meeting
Details of the meeting content can be found in our AGM guide 2018. AGMs are held in Edinburgh and London in alternate years. The AGM will be held in London in 2018. The AGM guide and other materials will be published online at www.standardlifeaberdeen.com in advance of this year's AGM.
Post balance sheet events
Following the year end, Lloyds Banking Group and Scottish Widows have informed the Company that Scottish Widows and Lloyds Banking Group's Wealth business intend to review their long term asset management arrangements including those services that are currently undertaken by certain legacy Aberdeen Asset Management PLC entities under arrangements covering in aggregate cGBP109 billion of assets under management. For further information, please see Note 14 of the Group financial statements.
The Company announced on 23 February 2018 that it intended to sell the majority of its UK and Europe Pensions and Savings business to Phoenix Group Holdings ('Phoenix') (the 'Sale'). The Sale involves the disposal of Standard Life Assurance Limited with the Company retaining its UK retail platforms and advice business. The businesses transferring to Phoenix as part of the Sale include the UK Mature Retail and Spread/risk books and the European, UK Retail and Workplace businesses. The Sale constitutes a Class 1 transaction for the purpose of the Listing Rules and is conditional upon the approval of shareholders at a General Meeting. Shareholders will receive further information in due course.
Other information
Under Listing Rule 9.8.4.CR, a listed company must include all information required by LR 9.8.4R in a single identifiable location or cross-reference table. For the purposes of LR 9.8.4CR, the information required to be disclosed can be found in the following locations. All the relevant information cross-referenced below is hereby incorporated by reference into this Directors' report.
Location
------------------------------------------
Directors'
Directors' remuneration None/
Topic report report Not applicable
---------------------------------------- ---------- ------------- ---------------
Interest capitalised x
Publication of unaudited financial
information in a class 1 circular
or in a prospectus, other than
in accordance with Annexes 1 and
2 of the FCA's Prospectus Rules x
Details of long-term incentive
schemes x
Waiver of emoluments by a director x
Waiver of future emoluments by
a director x
Non pre-emptive issues of equity
for cash x
Non pre-emptive issues of equity
for cash in relation to major
subsidiary undertakings x
Parent participation in a placing
by a listed subsidiary x
Contracts of significance x
Provision of services by a controlling
shareholder x
Shareholder waivers of dividends x
Shareholder waivers of future
dividends x
Agreements with controlling shareholders x
---------------------------------------- ---------- ------------- ---------------
The Directors' report was approved by the Board and signed on its behalf by
Kenneth A Gilmour
Company Secretary
23 February 2018
4. Corporate governance statement
4.1 Nomination and Governance Committee report
The Nomination and Governance Committee oversees the governance framework so the report on its activities is presented both in summary and integrated in more detail into the relevant parts of the corporate governance statement.
Dear Shareholder
It is my pleasure to introduce the 2017 Corporate governance statement and Nomination and Governance Committee report, in line with my responsibility to ensure effective corporate governance throughout the Group. During 2017, our main focus was to ensure that our leadership and governance processes remained robust in the run up to the completion of the Merger with Aberdeen Asset Management PLC, and that the post Merger leadership and governance structures and processes we put in place were the right ones for the new Board and the new Group. Throughout these significant changes, the members of your Board, both pre and post the Merger, continued to adhere to the highest standards of corporate governance and ethical behaviour in directing the Group's affairs and in their accountability to you as shareholders. As Directors, we believe these commitments are key to understanding and managing our business effectively, providing engaged leadership, and delivering shareholder value over the longer term. Your Board takes the quality of its performance seriously and strives to improve performance through annual reviews and continuing self-assessment as well as learning from the best elements of both the predecessor boards. Our key governance activities during the year related to the Merger and included:
-- Establishing the highest quality membership of the Board and Committees post-Merger
-- Reviewing the governance content of the Prospectus and Circular
-- Reviewing the executive governance structures, including the individual roles and responsibilities of the Co-Chief Executives and the key management committees
-- Establishing the Investment Performance Committee to provide insight into investment performance
Sir Gerry Grimstone
Chairman, Nomination and Governance Committee
Membership
The members of the Committee are the Chairman and a number of the independent non-executive Directors. The table below reflects the composition of the Committee and the members' attendance both pre and post the Merger:
Member Attendance --------------------- ---------- Sir Gerry Grimstone, Chairman 8/8 Julie Chakraverty 3/3 Melanie Gee 3/3 Richard Mully 3/3 Kevin Parry 8/8 Lynne Peacock 2/3 Simon Troughton 3/3 Former member Pierre Danon 5/5 Noel Harwerth 4/5 --------------------- ----------
Keith Skeoch and, post the Merger, Martin Gilbert, in their Co-Chief Executive roles, were invited to Committee meetings to discuss relevant topics, such as the role and members of key executive management committees, talent development and management succession.
The Committee supports the composition and effectiveness of the Board, and oversees the Group's activities to strengthen its talent pipeline at all levels. It also oversees the development and implementation of the Group's governance framework.
In this statement you can read about the Committee's role, both in the context of business as usual activities and in the Merger discussions in relation to:
-- Identifying and recommending Directors to be appointed to the Board
-- Reviewing Board diversity, skills and experience
-- Supporting the review of the Board's effectiveness
-- Overseeing succession planning, leadership and talent development and diversity levels throughout the Group
Ultimate responsibility for these important topics rests with the Board and the Committee reports regularly to the Board so that all Directors can be involved as appropriate.
The Committee's work in 2017
An indicative breakdown as to how the Committee spent its time is shown below:
Jan - Mar
* Reviewed compliance with the Corporate Governance
Code
* Reviewed the corporate governance statement
* Reviewed the Board Charter
* Committee Effectiveness review
* Following the announcement of the potential Merger
* Reviewed proposed post-Merger executive committee
membership
* Appointed Independent Board Evaluation (IBE) to
support the post-Merger Board composition review
* Appointment of subsidiary board members
--------- -----------------------------------------------------------------
Apr - Jun
* Board and Committee composition post-Merger
* Merger governance oversight
* Board effectiveness review proposal for 2017/2018
* Merger preparation and extension of regulatory duties
- controlled functions
* Appointment of subsidiary board members
--------- ---------------------------------------------------------------
Jul - Sep
* Talent and diversity in executive succession planning
* Appointment of subsidiary board members
--------- ---------------------------------------------------------------
Oct - Dec
* Appointment of subsidiary board members
* Reviewed results of Board Effectiveness review
* Recommended establishment of Innovation Panel and
Investment Performance Committee
* Consideration of Colleague Mood and Sentiment survey
* Discussed talent development in early stage careers
* Reviewed subsidiary committees' terms of reference
--------- ---------------------------------------------------------------
The Committee's work in 2017
An indicative breakdown as to how the Committee spent its time is shown below:
Chart removed for the purposes of this announcement. However it can be viewed in full in the pdf document.
Committee effectiveness
The Committee reviews its remit and effectiveness each year. The 2017 review was carried out via an internal self-assessment questionnaire which took account of the Committee's membership and role. The review concluded that the Committee remained effective and fulfilled its remit, and going forward, would focus on succession and contingency planning and engagement with talent.
Roles and responsibilities
The roles and responsibilities of the Board, Chairman and Co-Chief Executives are outlined below. The role of the Deputy Chairman is to stand in for the Chairman in his absence.
The Board
The Board's role is to organise and direct the affairs of the Company and the Group in accordance with the Company's constitution, all relevant laws, regulations, corporate governance and stewardship standards. The Board's role and responsibilities, collectively and for individual Directors, are set out in the Board Charter. The Board Charter also identifies matters that are specifically reserved for decision by the Board. These include approving, overseeing and challenging:
-- The development and implementation of strategy, objectives and business plans
-- Capital and management structures including capital allocation strategy and how it supports the Group's long-term sustainable growth
-- Dividend policy
-- Appointment of the External auditor
-- Financial reporting which, during 2017 included the impact of the merger and the agreement of the level of provision in respect of past annuity sales practices
-- How risks are managed, including the Enterprise Risk Management (ERM) framework, risk strategy, risk appetite limits and internal controls
-- Significant corporate and other transactions during 2017 which, as well as the Merger, included the initial public offering (IPO) process for our Indian life insurance associate HDFC Standard Life Insurance Company Limited, approval to progress the IPO of our Indian asset management associate HDFC Asset Management Company Limited, and the proposed sale of our Hong Kong subsidiary, Standard Life (Asia) Limited to our Chinese Joint Venture business, Heng An Standard Life Insurance Company Limited
-- Remuneration policy
-- Succession planning
-- The sustainability of the Group's business and our own sustainability responsibilities
-- Significant external communications
-- Terms of reference of Board Committees
-- Appointments to the Board and to Board Committees
-- Matters escalated from subsidiary boards to the Board for approval
-- Oversight of culture, our standards and ethical behaviours
The Board regularly reviews reports from the Co-Chief Executives and from the Chief Financial Officer on progress against approved strategies, plans and budgets, as well as updates on stock market and global economic conditions. There are also regular presentations from key business units and corporate centre functions including from the Chief Risk Officer. The Chairman reports at each Board meeting on the activities he has undertaken on behalf of the Board and the Group since the previous meeting.
The Chairman
-- Leads the Board and ensures that its principles and processes are maintained
-- Promotes high standards of corporate governance
-- Together with the Co-Chief Executives and the Company Secretary, sets agendas for meetings of the Board
-- Ensures Board members receive accurate, timely and clear information on the Group and its activities
-- Encourages open debate and constructive discussion and decision making
-- Leads the Board and individual Director performance assessments and training needs
-- Speaks on behalf of the Board and represents the Board to shareholders and other stakeholders
The Co-Chief Executives:
The Co-Chief Executives, within authorities delegated by the Board:
-- Develop strategic plans and structures for presentation to the Board
-- Make and implement operational decisions
-- Lead the other executive Directors and the executive team in the day-to-day running of the Group
-- Report to the Board with relevant and timely information
-- Develop appropriate capital, corporate, management and succession structures to support the Group's objectives
-- Together with the Chairman, represent the Group to external stakeholders, including shareholders, customers, suppliers, regulatory and governmental authorities, and the local and wider communities
-- Keith Skeoch has individual accountability for the day to day running of the fabric of the combined business including responsibility for Investments, Pensions and Savings, the Indian associates and the China Insurance Joint Venture, Operations, Finance, HR, Risk and Regulatory Culture, as well as the Legal and Secretariat functions
-- Martin Gilbert has individual accountability for external matters including responsibility for International Activities, Distribution including client engagement and business development, Marketing and Corporate Development
As identified above, the Co-Chief Executives have clear accountabilities in the combined business. At the time of the Merger both boards thought about the key responsibilities and believed that the division of responsibilities would play well to Keith's and Martin's respective leadership strengths. We believe that this blend of complementary skills and experience serves the Company well. A Chairman's committee has been established to continually review the effectiveness the Co-Chief Executive arrangement. It is chaired by Sir Gerry Grimstone, with Simon Troughton, Keith Skeoch and Martin Gilbert as its other members.
Code compliance
As well as covering the formal disclosure requirements of the UK Corporate Governance Code (the Code) issued by the Financial Reporting Council (FRC), this statement describes how the Board meets its governance responsibilities.
Throughout 2017, the Company complied with all of the provisions set out in the Code issued by the FRC in April 2016 other than the following:
Provision B.3.3 states that 'The board should not agree to a full time executive director taking on more than one non-executive directorship in a FTSE 100 company nor the chairmanship of such a company'. As of the Merger, Martin Gilbert has continued to hold non-executive directorships with Sky plc and Glencore plc. He has given a commitment to the Board that by the time of the Company's AGM, he will hold only one non-executive director position.
Provision B.6.2 requires that 'Evaluation of the board of FTSE 350 companies should be externally facilitated at least every three years. The external facilitator should be identified in the annual report and a statement should be made available of whether they have any other connection with the company.' This external evaluation was last carried out in 2014 and was anticipated for 2017. However, due to the activities related to the Merger and the consequential significant changes to the composition and activities of the Standard Life Aberdeen plc Board which took place in August 2017, the Board determined that it would be more appropriate to carry out an external Board evaluation in 2018. An external evaluation, performed by IBE is currently taking place (see the Board Effectiveness section below).
The Code is available at www.frc.org.uk
Together with the Directors' remuneration report, this statement explains how our governance framework supports the way we apply the Code's principles of good governance.
During 2018, the Committee will follow closely the development of the revised Code to ensure that the Group is well placed to implement and comply with its requirements for 2019.
Governance framework
The Group's governance framework is approved by the Board and documented in the Board Charter.
You can read the Board Charter on our website at www.standardlifeaberdeen.com/annualreport
The Group's Code of Conduct guides our people to do the right thing and complements the Board Charter. It sets out our standards of conduct and governing principles for operational excellence, compliance responsibilities, customer service, our people, and other stakeholders.
The Board expects the Group to be a leader in corporate governance activities through its own actions and through its stewardship activities. The Nomination and Governance Committee regularly reviews the Group's corporate governance framework against relevant directors' duties, generally accepted standards, guidance and best practice, and, as appropriate, recommends to the Board changes to the Board Charter.
During 2016, the Committee oversaw the implementation of the governance map and processes to support the Senior Insurance Managers Regime (SIMR). During 2017, we began the process to implement the Senior Managers and Certification Regime (SMCR) across the rest of the combined business.
The governance framework sets out the Board's relationship with the boards of the principal subsidiaries in the Group. In particular, it specifies the matters which these subsidiaries are required to refer to the Board or to a Committee of the Board for approval. It also ensures that all decisions which require or would benefit from it, receive the independent input of the non-executive Directors.
The roles of the Chairman and the Co-Chief Executives are separate. Each has clearly defined responsibilities, which are described in the Board Charter.
The heads of each business unit and the corporate centre functions manage their teams within authorities set out in the Board Charter and within an approved scheme of delegation. This includes reporting to the Co-Chief Executives on how they are complying with Group policies and performing against approved plans and budgets.
The Company Secretary is responsible for advising the Board on governance matters.
Board composition, balance and diversity
This was a particular focus for the Committee in 2017. The Board's policy is to appoint and retain non-executive Directors who bring relevant expertise as well as a wide perspective to the Group and its decision-making framework. The Directors believe that at least half of the Board should be made up of independent non-executive Directors. As at 23 February 2018, the Board comprises the Chairman, 10 independent non-executive Directors, 1 non-independent non-executive Director and 4 executive Directors. The membership of the Board has undergone significant change following the Merger with a breadth of new talent and experience joining an already strong Board. On completion of the Merger, the Board comprised of the Chairman, 11 non-executive Directors and four executive Directors. This size of Board was appropriate to support the merging of the two companies and to ensure there is sufficient knowledge of and challenge of the merged Group's business and client activities, but will be reduced in size and its composition evolved going forward. The Board is made up of 12 men (75%) and 4 women (25%) (2016: men 75%, women 25%). The Board continues to support its Board Diversity statement which states that the Board:
-- Believes in equal opportunities and supports the principle that due regard should be had for the benefits of diversity, including gender, when undertaking a search for candidates, both executive and non-executive
-- Recognises that diversity can bring insights and behaviours that may make a valuable contribution to its effectiveness
-- Believes that it should have a blend of skills, experience, independence, knowledge and gender amongst its individual members that is appropriate to its needs
-- Believes that it should be able to demonstrate with conviction that any new appointee can make a meaningful contribution to its deliberations
-- Is committed to maintaining its diverse composition
-- Supports the Co-Chief Executives' commitment to achieve and maintain a diverse workforce, both throughout the Group, and within the executive team
You can read more about our Directors in their biographies in Section 2
The Nomination and Governance Committee supports the Group's commitment to diversity and inclusion in the broadest sense and receives updates on progress towards achieving and maintaining diversity targets throughout the Group. This includes reviewing statistics on gender representation and approving gender diversity targets, including our reset targets for the Group following the Merger and will formally oversee progress against these on a bi-annual basis. The Group also promotes initiatives and programmes to raise awareness of why diversity and inclusion matter. You can read more about our diversity activities and current targets in the People and Culture section of the Strategic report and in our stand alone Corporate Sustainability and Stewardship report. We are committed to working to make the Group as inclusive a place to work as possible. Our activities and targets are in achievement of 'our vision for an inclusive future' which was published following the Merger on our website www.standardlifeaberdeen.com. In 2017, the Gender Pay Gap Regulations were published and you can find our gender pay gap disclosure statement on page 31. The Committee continues to follow the development of and the Group's participation in significant diversity reviews, including the Hampton Alexander review, and as reported last year, supported our move to be one of the initial signatories to the Women in Finance Charter. The Committee supports our commitments under this charter and continues to oversee our progress against these, which we report publically on an annual basis.
Board changes during the period
Many of the changes during 2017 were related directly to the Merger.
Appointments
Barry O'Dwyer, Chief Executive of Standard Life Assurance Limited was appointed to the Board on 1 March 2017. He replaced Paul Matthews as executive Director and Chief Executive of the Pensions and Savings business. On completion of the Merger on 14 August 2017, Martin Gilbert, Co-Chief Executive; Bill Rattray, Chief Financial Officer and Rod Paris, Chief Investment Officer were appointed as executive Directors. Simon Troughton, Deputy Chairman; Julie Chakraverty; Gerhard Fusenig; Akira Suzuki; Jutta af Rosenborg and Richard Mully were appointed as non-executive Directors.
Retirements
Paul Matthews stood down from the Board on 1 March 2017, prior to his retirement, having served as a Director for 16 months. On completion of the Merger on 14 August 2017, Colin Clark stepped down from the Board after 21 months along with Barry O'Dwyer who remains in post as Chief Executive of Standard Life Pensions and Savings. Luke Savage also stepped down from the Board on 14 August 2017 after serving for three years along with Pierre Danon and Noel Harwerth who each served for over five years.
Board appointment process, terms of service and role
During 2017, all Board appointments were internal or in relation to the Merger. In order to assist with determining the right balance of skills, diversity, knowledge and expertise for the post Merger Board, IBE were engaged. The Board is not aware of any other connection between the Group and IBE.
When seeking to make appointments from outside the Group, and having already identified the capabilities needed for Board roles and the succession timeframe, the Committee considers the related role profile submitted to external search consultants along with the request to prepare a list of suitable candidates. The Committee then considers the potential suitable candidates and agrees a shortlist. Following interviews with potential candidates, the Committee then makes recommendations to the Board on any proposed appointment, subject always to the satisfactory completion of all background checks and regulatory approvals. The other Board members are also offered the opportunity to meet the recommended candidates. The Committee considers the external commitments of candidates to assess their ability to meet the necessary time commitment and whether there are any conflict of interest matters to address.
Each non-executive Director is appointed for a three-year fixed term and shareholders vote on whether to elect/re-elect him or her at every AGM. Once a three-year term has ended, a non-executive Director can continue for further terms if the Board is satisfied with the non-executive Director's performance, independence and ongoing time commitment. There is no specified limit to the number of terms that a non-executive Director can serve, although two terms are generally considered appropriate. The Board recognises the Code provisions regarding length of service when considering whether or not their appointment should be continued. Taking account of their appointment dates to the predecessor boards, the current average length of service of the non-executive Directors (excluding the Chairman) is 4.5 years. The Nomination and Governance Committee oversees the process to recommend continued appointments, but members of the Committee do not take part in discussions when their own performance - or continued appointment - is being considered.
The role of our non-executive Directors is to participate fully in the Board's decision-making work - advising, supporting and challenging management as appropriate.
The letter of appointment confirms that the amount of time we expect each non-executive Director to commit to each year which, once they have met all of the approval and induction requirements, is around 35 days. The service agreements/letters of appointment for Directors are available to shareholders to view on request from the Company Secretary at the Company's registered address (which can be found in the Shareholder information section) and at the 2018 AGM. Non-executive Directors are required to confirm that they can allocate sufficient time to carry out their duties and responsibilities effectively. You can read more about the induction and development programme later in this section.
Director election and re-election
One of the Committee's duties is to make recommendations regarding the election or re-election by members of any Director. In making its recommendations, the Committee reviews, as applicable, the appropriateness of continued service beyond a term of six years. Recognising this timeframe and the need for the Board to continue to oversee a successful integration, the Committee agreed to recommend the continuing appointments of Simon Troughton and Richard Mully.
Therefore, at the 2018 AGM, all of the current Directors will retire. Martin Gilbert, Bill Rattray, Rod Paris, Simon Troughton, Gerhard Fusenig, Jutta af Rosenborg and Richard Mully, having been appointed since the previous AGM, will retire and stand for election. Julie Chakraverty, Lynne Peacock and Akira Suzuki will retire at the conclusion of the 2018 AGM and will not stand for election or re-election. All the others will stand for re-election.
You can read more background information about the Directors, including the reasons why the Chairman believes you should support their election or re-election, in our AGM guide 2018, which will be published online at www.standardlifeaberdeen.com in advance of this year's AGM, and in Section 2.
Director independence, external activities and conflicts of interest
The Board carries out a formal review of the independence of non-executive Directors annually. The review considers relevant issues including the number and nature of their other appointments, any other positions they hold within the Group, any potential conflicts of interest they have identified and their length of service. Their individual circumstances are also assessed against independence criteria, including those in the Code. Following this review, the Board has concluded that all the non-executive Directors other than Akira Suzuki, as the representative of a shareholder, are independent. Akira will be stepping down from the Board at this year's AGM. The Board continues to comprise a majority of independent non-executive Directors.
Sir Gerry Grimstone was Chairman of the Board throughout the year. He has retained his non-executive positions with Barclays PLC, where he serves as deputy chairman and senior independent director, Deloitte North West Europe and the UK Government's Ministry of Defence where he is the lead non-executive. He is also an adviser to the board of the Abu Dhabi Commercial Bank.
Kevin Parry was appointed as Senior Independent Director (SID) on 17 May 2016. In this role, Kevin supports the Chairman, and often meets with him one-to-one. Since his appointment he has met with all the Directors on an individual basis. He is also available to talk with our shareholders about any concerns that they may not have been able to resolve through the channels of Chairman, the Co-Chief Executives or Chief Financial Officer, or where a shareholder considers these channels are inappropriate. Some shareholders have discussed the Company's corporate governance procedures with him, including those that were being put in place in connection with the Merger. On his appointment institutional shareholders were offered the opportunity to meet with him, and one chose to do so. The Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) also have periodic meetings with the SID.
The Directors continued to review and authorise Board members' actual and potential conflicts of interest on a regular and ad hoc basis in line with the authority granted to them in the Company's Articles. As part of the process to approve the appointment of a new Director, the Board considers and, where appropriate, authorises his or her potential or actual conflicts. The Board also considers whether any new outside appointment of any current Director creates a potential or actual conflict before, where appropriate, authorising it. All appointments are approved in accordance with the Group's Outside Appointments and Conflicts of Interest policies.
In January 2018, the Board reviewed all previously authorised potential and actual conflicts of interest of the Directors and their connected persons, and concluded that the authorisations should remain in place until January 2020. Under the terms of the approval, conflicted Directors can be excluded from receiving information, taking part in discussions and making decisions that relate to the potential or actual conflict. The Board and relevant Committees follow this process when appropriate.
The Board's policy encourages executive Directors to take up one external non-executive director role. Keith Skeoch continued as a non-executive director of the Financial Reporting Council. Martin Gilbert is a non-executive director of Glencore plc and Sky plc (as noted above, he has given a commitment to the Board that by the time of the Company's AGM, he will hold only one non-executive director position). Bill Rattray is a non-executive director at Curtis Banks Group Plc.
You can read more about the Directors' outside appointments in their biographies in Section 2
Advice
Directors may sometimes need external professional advice to carry out their responsibilities. The Board's policy is to allow them to seek this where appropriate and at the Group's expense. Directors also have access to the advice and services of the Company Secretary, whose appointment and removal is a matter for the Board. No Directors sought external advice in 2017.
Appointments to subsidiary boards
Following the Merger in 2017, the Committee considered and strengthened the oversight of the key investment management subsidiaries Standard Life Investments (Holdings) Limited (SLIH) and Aberdeen Asset Management PLC (Aberdeen). Specifically, the Committee supported changes to make the boards of these two entities mirror the Board of Standard Life Aberdeen plc.
Board effectiveness
Review process
The Board has, with the help of the Nomination and Governance Committee, developed a formal review process to assess how well the Board, its Committees, the Chairman and the Directors are performing collectively and individually and how performance could be improved.
The Company was due to have the 2017 review facilitated by an external provider, as per Provision B.6.2 of the Code which states that 'evaluation of the board of FTSE 350 companies should be externally facilitated at least every three years'. However, given that the Board was going to change significantly with effect from completion of the Merger and its role would adjust and develop further, it was agreed that the value of the externally facilitated review would be enhanced if it was a review of the post-Merger Board and took place some months after the members of the post-Merger Board had time to come together. It was therefore recommended that an internally-facilitated review be carried out, consistent with previous years but adjusted to reflect the Board's circumstances at the time. IBE has been appointed as the external facilitator and is currently carrying out the 2018 review.
The 2017 review comprised an online self-assessment questionnaire, followed up by individual meetings between the Chairman and each Director. Directors completed questionnaires about the Board, each Committee they sit on, the Chairman's performance and their own individual performance. They were encouraged to provide open and honest feedback, explain the ratings they gave and suggest how the Board or Committee could improve.
Outcome
Following the review process, the Secretariat analysed the self-assessment responses and prepared a summary report. The report was discussed with the Chairman and then considered in detail by the Nomination and Governance Committee before being formally presented to the Board at its meeting in October.
The key outputs from the review included:
-- Strategy: Progress has been made in defining and understanding the strategic direction but there is still opportunity to learn from the outcomes of previous decisions
-- Risks: Risk appetite reporting could be stronger, as well as reporting on specific risks
-- Leadership: Continuing desire to interact with top leaders across the Company
-- Succession Planning: Further work on the structure of the approach required
-- Board Information: Continuing need for Board papers to be more concise
Progress to implement the recommendations is monitored by the Company Secretary and reported to the Nomination and Governance Committee. Each Board Committee followed a similar questionnaire, reporting and discussion process and reviewed its own results and recommendations in detail.
Chairman
The review of the Chairman's performance was led by the SID, Kevin Parry. It was based on feedback given in the confidential online questionnaires and followed up by individual interviews between the SID and each Director. The questions covered:
-- The Chairman's role to lead the Board and encourage effective participation and consensus decision-making
-- How he informs the Board of stakeholders' views
-- His relationship with both executive and non-executive Directors
The feedback was summarised into a report which was reviewed by the SID and distributed to all Board members, except the Chairman. The report also contained the reflections from the SID's individual meetings. The Directors, led by the SID and without the Chairman being present, met to consider the report. They concluded that the Chairman had performed his role effectively, showed strong leadership of the Board, continued to devote significant time to the Group and continues to have sufficient time to carry out his duties. The SID met with the Chairman to pass feedback from the review directly to him.
Directors
The Chairman led the performance review of the Directors. He holds one-to-one meetings to assess their individual performance and contribution against duties set out in the Board Charter and in their appointment letters.
Before these meetings, the Directors assessed their own performance by completing a confidential online questionnaire. Individual development and engagement schedules were prepared to support each meeting. These built on the responses to particular questions and areas of interest and training needs identified by each Director. The meetings were designed to review whether each Director was contributing effectively to the Board and to the Board Committees, meeting all of their statutory and regulatory duties, and continued to have sufficient time to commit to the role. The meetings also considered individual training, development and engagement opportunities for each Director. The schedules summarised the internal and external continuing development the non-executive Directors had undertaken during the year and considered the extent to which each non-executive Director had implemented the points raised in the previous year's review. Each Director takes forward the resulting actions, supported by the Chairman and the Company, using either internal or external resources.
Director induction and development
The Chairman, supported by the Company Secretary, is responsible for arranging a comprehensive preparation and induction programme for all new Directors. The programme is tailored to their individual requirements and takes their background knowledge and experience into account. All Directors are required to complete the FCA's approval process and, if relevant, the PRA's SIMR notification or approval process before they are appointed and to self-certify annually that they remain competent to carry out this aspect of their role. These processes continue to adapt to meet evolving best practice in respect of SIMR.
The formal preparation and induction programme includes:
-- Meetings with the executive Directors, key members of senior management, the heads of the operating businesses and our corporate centre functions
-- Focused technical meetings with internal and external experts on specific areas including investments, Solvency II, conduct risk, risk and capital management, and financial reporting
-- Visits to business units to meet our people and gain a better insight into the operation of the business and its culture
-- Meetings with the External auditors and the FCA/PRA supervisory teams
-- Meetings with the Company Secretary on the Group's corporate governance framework and the role of the Board and its Committees, with the Chief Risk Officer on the risk management framework as well as meetings on their individual responsibilities both as Directors and as holders of a Controlled Function/SIMR role
Background information is also provided including:
-- Key Board materials and information, shareholder communications and financial reports
-- The Group's organisational structure, strategy, business activities and operational plans
-- The Group's key performance indicators, financial and operational measures and industry terminology
The induction programme provides the background knowledge new Directors need to perform to a high level as soon as possible after joining the Board and to support them as they build their knowledge and strengthen their performance further.
When a non-executive Director is appointed to one of the Board's Committees, they receive relevant induction training on the Committee's role and duties.
When Directors are appointed to the Board, they make a commitment to broaden their understanding of the Group's business. Our corporate centre monitors relevant external governance and financial and regulatory developments and keeps the ongoing Board training and information programme up to date. During 2017, while the Board spent a significant amount of its time discussing the Merger and integration activities, specific Board awareness sessions took place on cyber risks and security, the UK withdrawal from the EU, the Group's strategy regarding joint venture operations, staff interaction surveys and corporate culture. Similarly, the relevant Board Committees received updates on developments in financial reporting, remuneration and corporate governance. Non-executive Directors are actively invited to all parts of the Group's business in order to familiarise themselves with how our business is conducted and to meet with our people.
As the composition of the Board changed significantly post the Merger, specific training and awareness sessions were held in August and September 2017 to introduce the Aberdeen Directors to Standard Life's life and pensions business and to strengthen the knowledge of the Standard Life Group Directors of the culture, distribution strategy and risks of the Aberdeen business. The Board was also kept up-to-date on integration activities.
Succession and talent management activities
The Nomination and Governance Committee regularly reviews the results of succession planning activities, including key person and retention risk, and talent development programmes at all levels across the Group. This was particularly relevant during 2017 as the Group sought to bring together the best of the talent in both Standard Life Group and Aberdeen and to plan for the future needs of the Standard Life Aberdeen Group.
At its meetings, the Committee discussed the future leadership and talent needs of the Group and how the current programmes would be revised to take account of the skills and expertise required by the Board and senior management. The programmes recognise the changing shape of the Group, and also identify both the talent available within the Group and the need for external recruitment. The programmes are led by the Chief People Officer, with input from the Co-Chief Executives and supported by the Group Talent and Organisation Development team.
During the year, the Nomination and Governance Committee also received updates on how the 'early careers' programmes were being amended to reflect the opportunities arising from the merged Group.
During 2017, the Board received regular updates on the results of the Committee's discussions related to the Merger. Also during 2017, the non-executive Directors held specific discussions on Board and executive succession, the results of which fed into the overall plan.
The Board members are keen to interact with the members of the development schemes and have met with, and had presentations from, key talent across the Group.
Chairman's Succession
As set out in his Statement, the Chairman has indicated his intention to step down from his role by the end of 2019. In February 2018, the Nomination and Governance Committee considered and agreed the appropriate arrangements to oversee the governance of the succession process. An Appointments Committee will be established, chaired jointly by Simon Troughton and Melanie Gee and comprising all of the non-executive Directors other than any who indicate they wish to be considered as internal candidates. The Appointments Committee will begin its work in Q2 2018. The Chairman will not be a member and the process is subject to his annual election by shareholders at the AGM and continued high performance.
The Committee recognised that Simon Troughton's term of service as a Director will reach nine years in July 2018 and after consideration, agreed that given his knowledge and experience, it would be appropriate for him to remain in position beyond this time to co-chair the Chairman's succession process.
Annual review of internal control
The Directors have overall responsibility for the System of Governance (SoG), stemming from the Solvency II Directive, which includes the Enterprise Risk Management (ERM) framework and System of Internal Control, and for the ongoing review of their compliance. The SoG is designed to manage, rather than eliminate, risk and can only provide reasonable, not absolute, assurance against material misstatement or loss. The SoG covers all of the risks as set out in the risk management section in the Strategic report. Internal audit regularly audits the effectiveness of internal controls, which will include elements of the SoG. Internal audit reports its findings to the Audit Committee and the Risk and Capital Committee.
In line with the relevant elements of the Code and the FRC guidance on Risk Management, Internal Control and Related Financial and Business Reporting, pre and post-Merger, ongoing monitoring, review and reporting of the SoG was conducted through the risk committees, Enterprise Risk Management Committees (ERMCs) and relevant boards. On behalf of the Board, the Risk function has also carried out an annual review of compliance with the SoG. The SoG was in place throughout 2017 and up to the date of approval of the Annual report and accounts 2017.
With regard to regular financial reporting and preparing consolidated accounts, the Group Finance function participates in the control self-assessment and policy compliance elements of the ERM framework. The Group Finance function sets formal requirements for financial reporting, defines the process and detailed controls for the IFRS consolidation, reviews and challenges business unit submissions and receives formal sign-off on financial reporting from business unit finance directors. In addition, the Group Finance function runs the technical review committee and the financial reporting executive review group which review external technical developments and detailed reporting disclosure and accounting policy issues.
In 2017, there were separate processes in place to review the SoG for Aberdeen Asset Management Life and Pensions and Standard Life Pensions and Savings.
The review included all elements of the SoG as follows:
-- General requirements - governance structure, board decision making documentation, allocation of responsibilities, policy framework, contingency plans, internal review of system of governance, organisational and operational structure
-- Remuneration
-- Fit and proper requirements
-- Risk management including Own Risk and Solvency Assessment (ORSA)
-- Compliance function
-- Prudent person principle
-- Own fund requirements
-- Internal controls (covering strategic, financial, operational and compliance)
-- Internal audit function
-- Actuarial function plus opinion on technical provisions
-- Valuation of assets and liabilities other than technical provisions
-- Outsourcing
-- Group governance specific requirements
-- Solvency needs
-- Premiums for new business
-- Restriction of business
In carrying out the annual compliance review of the SoG, all Solvency II SoG requirements are allocated to senior business owners on a line by line basis to ensure clear ownership and accountability for compliance. The Solvency II SoG requirements only apply to the insurance entities and the business owners in these entities were required to:
-- Review the arrangements and self-certify compliance (or otherwise) with the rules throughout 2017 and clarify the reasons for any non-compliance
-- Ensure action plans were in place to close any identified gaps and agree a timeline for implementation
Following completion of the above, the Risk function performed a review and check on the quality of the commentary provided and challenged business owners where the evidence provided required further investigation. Results of the self-certification were verified against relevant Risk reports and Compliance Assurance or Internal audit findings.
Summaries of the evidence of the compliance review for the insurance entities plus the output from a review of the relevant sections of the Code and guidance for Standard Life Aberdeen were then presented to the business unit ERMC and, where appropriate, the relevant business unit board.
In addition, the Risk function carried out ongoing assurance activity during 2017 to provide assurance on Standard Life Aberdeen's ability to meet regulatory requirements. The Risk function has also produced summaries of the key risk items discussed at business unit ERMCs on an ongoing basis throughout the year. Steps have also been taken to identify any relevant audit information that the External auditors should be made aware of.
The Risk function then prepared a report combining the output from the business units. The results, which concluded that there had been no significant failings or weaknesses, were presented to the Audit Committee which subsequently reported this conclusion to the Board.
For Aberdeen Asset Management Life and Pensions, the compliance Key Function Holder (KFH) co-ordinated an exercise which required detailing all the Solvency II requirements in relation to the SoG and documenting how Aberdeen Asset Management Life and Pensions complies. In addition, a range of individuals holding Senior Insurance Management Functions (SIMFs) or KFHs were allocated ownership for each individual requirement. The governance map has a responsibility formalised for each relevant individual. The governance map was presented to the Aberdeen Asset Management Life and Pensions Limited board quarterly. The European Insurance and Occupational Pensions Authority gap analysis and governance map were sent to SIMFs and KFHs annually and individuals were requested to confirm compliance.
Due to the simple risk profile of Aberdeen Asset Management Life and Pensions, the compliance KFH and Aberdeen Asset Management Life and Pensions chief executive reviewed this gap analysis in detail prior to circulation to other individuals and the exercise concluded with the chief risk officer signing it off prior to it being presented to the Aberdeen Asset Management Life and Pensions Limited board for noting.
Communicating with investors
The Company continues to maintain and further develop a dialogue with its shareholders. As part of this, our investor relations and Group secretariat teams support communication with investors. During 2017, the Group continued its programme of domestic and international presentations and meetings between Directors and institutional investors, fund managers and analysts. As well as the Merger, the wide range of relevant issues discussed, in compliance with regulations, at investor presentations and meetings, included business strategy, financial performance, operational activities and corporate governance. The Chairman has his own investor contact programme and brings relevant issues to the attention of the Board. The Remuneration Committee also consulted with major institutional investors regarding executive remuneration plans during the year. More information on this consultation can be found in the Directors' remuneration report.
The Board is equally committed to the interests of the Company's 1.2 million individual shareholders who hold approximately one third of the Company's issued shares. Given this large shareholder base, it is impractical to communicate with all shareholders using the same direct engagement model we follow for our institutional investors. The Company has continued to gather and respond to shareholders' views on the services and means of communication available to them, mainly via the Shareholder Questions mailbox and surveys conducted with shareholders contacting the shareholder helpline. Around 430,000 shareholders receive all communications electronically helping to reduce our environmental impact. We encourage shareholders to use our share portal to access information relating to their personal shareholding and dividend history and around 400,000 have signed up to this service. Share portal participants can also change their details and dividend mandates online and receive tax information electronically. We also encourage our individual shareholders to hold their shares in the Standard Life Aberdeen Share Account where shares are held electronically in a secure environment and 90% of individual shareholders hold their shares in this way.
To give all shareholders access to the Company's announcements, all material information reported via the London Stock Exchange's regulatory news service is published on the Company's website. We have continued to host formal presentations to support the release of both the full year and half year financial results. These results-related events are also made available live on the Group's website and have a permanent replay facility. We also undertook a comprehensive programme of investor engagement following the announcement of the Merger including investor presentations and meetings.
We publish company profiles to provide a high level introduction to the Group and its divisions. We also distribute a quarterly newsletter featuring articles designed to give investors deeper insight into particular areas of our business including our sustainability strategy. Copies of our Company profiles and newsletters are available on the Investors section of the Group's website.
The Chairman's statement and the Strategic report in the Annual report and accounts aim to provide a balanced overall assessment of the Group's activities, performance and prospects. This information will be supported by a presentation at the 2018 AGM. Shareholders will be invited to ask questions during the meeting and have an opportunity to talk with the Directors after the formal part of the meeting. The voting results will be published on our website at www.standardlifeaberdeen.com after the meeting. These will include the number of votes withheld.
The 2017 AGM was held at the Edinburgh International Conference Centre on 16 May 2017 when Directors were available to answer shareholders' questions. In accordance with best practice, all resolutions were considered on a poll which was conducted by our registrars and monitored by independent scrutineers. The results, including proxy votes lodged prior to the meeting, were made available on our website the same day. 40% of the shares in issue were voted and all resolutions were passed.
In addition, a General Meeting was held on 19 June 2017 at which shareholders were asked to consider the resolutions recommended by the Board, to approve the Merger, the issue and allotment of new shares and an amended remuneration policy. 42% of the shares in issue were voted and the resolutions were passed.
Our 2018 AGM will be held in London in line with our plan to hold the AGM in Edinburgh and London in alternate years in order to give more shareholders the opportunity to attend.
Our role as an institutional investor
Standard Life Investments and Aberdeen Asset Management were signatories to and supporters of 23 stewardship codes around the globe including the UK Stewardship Code and the United Nations Principles for Responsible Investment. Both companies promoted the importance of good governance and stewardship including the management of broader aspects of risk relating to the environment, society and governance (ESG). The Merger of Standard Life Group and Aberdeen Asset Management and the creation of Aberdeen Standard Investments benefits from the heritage of both companies. The progress of integrating the operations of the companies is well underway and the result will be an approach which will embed the consideration of ESG risks into our investment decisions, building on the global reach and expertise available to the newly merged entity.
In addition to holding to account the boards of the companies in which we invest, through our ongoing engagement and voting at general meetings, we will work to encourage the high levels of governance and management of environmental and societal risks in the markets around the world in which we invest on behalf of our clients. We believe that it is important for us to transparently report on our activities so that our clients can, in turn, hold us to account for the delivery of the very highest standards.
Aberdeen Standard Investments' role, as an institutional investor that invests its clients' savings in a responsible manner, is key to Standard Life Aberdeen behaving as a responsible business. Its influence over the companies in which it invests, provides the Group with the ability to encourage others to act similarly.
When assessing the Company's compliance with the principles and provisions of the Code, the Nomination and Governance Committee also reviewed the Company's compliance with the Standard Life Investments ESG investment principles and policy guidelines, and with the Aberdeen Asset Management holistic risk and assessment criteria. The Committee concluded that the Company complied with the guidelines and fulfilled the criteria during the year.
You can read more about this at www.aberdeenstandard.com
Other information
You can find details of the following, as required by Disclosure and Transparency Rule 7.2.6, in the Directors' report and in the Directors' remuneration report:
Share capital
-- Significant direct or indirect holdings of the Company's securities
-- Confirmation that there are no securities carrying special rights with regard to control of the Company
-- Confirmation that there are no restrictions on voting rights in normal circumstances
-- How the Articles can be amended
-- The powers of the Directors, including when they can issue or buy back shares
Directors
-- How the Company appoints and replaces Directors
-- Directors' interests in shares
Board meetings and meeting attendance
The Board and its Committees meet regularly, operating to an agreed timetable. Meetings are usually held in Edinburgh or London and, on occasion, at the offices of one of our international businesses. During the year, the Board held specific sessions to consider the Group's strategy and business planning. The Chairman and the non-executive Directors also met during the year, formally and informally, without the executive Directors present. At these meetings, matters including executive performance and succession and Board effectiveness were discussed. During 2017, these meetings also covered discussions in relation to the Merger.
Directors are required to attend all meetings of the Board and the Committees they serve on, and to devote enough time to the Company to perform their duties. Board and Committee papers are distributed before meetings other than, by exception, urgent papers which may need to be tabled at the meeting. The Board sometimes needs to call or rearrange meetings at short notice and it may be difficult for all Directors to attend these meetings. If Directors are not able to attend a meeting because of conflicts in their schedules, they receive all the relevant papers and have the opportunity to submit their comments in advance to the Chairman or to the Company Secretary. If necessary, they can follow up with the Chairman of the meeting. The Board has established the Standing Committee as a formal procedure for holding unscheduled meetings. The Standing Committee meets when, exceptionally, decisions on matters specifically reserved for the Board need to be taken urgently. During 2017, the Standing Committee met three times to consider matters relating to the Merger. All Directors are invited to attend Standing Committee meetings.
The Chairman is not a member of the Audit, Risk and Capital, Remuneration or Investment Performance Committees. He does, however, attend meetings of all Committees, by invitation, in order to keep abreast of their discussions. The table below reflects the composition of the Board during 2017 and the members' attendance both pre and post the Merger. The Board met nine times during the year.
Number of meetings Board ------------------------ ----- Chairman Sir Gerry Grimstone 9/9 Executive Directors Keith Skeoch 9/9 Martin Gilbert 3/3 Bill Rattray 3/3 Rod Paris 3/3 Non-executive Directors Julie Chakraverty 3/3 John Devine 9/9 Gerhard Fusenig 3/3 Melanie Gee 9/9 Richard Mully 3/3 Kevin Parry 9/9 Lynne Peacock 9/9 Martin Pike 9/9 Jutta af Rosenborg 3/3 Akira Suzuki 3/3 Simon Troughton 3/3 Former members Colin Clark 6/6 Pierre Danon 6/6 Noel Harwerth 6/6 Paul Matthews 2/2 Barry O'Dwyer 4/4 Luke Savage 6/6 ------------------------ -----
Board Committees
Chart removed for the purposes of this announcement. However it can be viewed in full in the pdf document.
The Board has established Committees that oversee, consider and make recommendations to the Board on important issues of policy and governance. At each Board meeting, the Committee Chairmen provide reports of the key issues considered at recent Committee meetings, and minutes of Committee meetings are circulated to the appropriate Board members. The Committees operate within specific terms of reference approved by the Board and kept under review by the Nomination and Governance Committee.
These terms of reference are published within the Board Charter on our website at www.standardlifeaberdeen.com/annualreport
All Board Committees are authorised to engage the services of external advisers at the Company's expense, whenever they consider this necessary.
The Chairman of each Committee and of the Nomination and Governance Committee review Committee membership at regular intervals. The Nomination and Governance Committee considers all proposed appointments before they are recommended to the Board.
Investment Performance Committee (formerly the Investment Committee)
During 2017, the Board reviewed the activities of the Investment Committee. Following the Merger, the investment management arm of the wider business has expanded considerably. The Merger also brought a number of changes at the Board of Standard Life Aberdeen plc and the decision was taken to appoint all of the Directors of Standard Life Aberdeen plc to the boards of Standard Life Investment (Holdings) Limited and Aberdeen Asset Management PLC, the two holding companies of the various investment management firms within the Group. As a result of this, there is a large degree of non-executive Director oversight of the investment business and consequently the Investment Committee of Standard Life Group in its previous form was deemed to be no longer appropriate. It was disbanded on completion of the Merger. The Committee was chaired by Pierre Danon and met twice in 2017 prior to the completion of the Merger. At its meetings, it received market outlook updates and reviewed investment performance and governance and stewardship activities.
In October 2017, following further consideration of its oversight responsibilities, the Board established the Investment Performance Committee. This Committee provides insight into investment performance results by asset class, the market and economic environment influencing investment results, supports the review and oversight of performance issues and supports the ongoing innovation and evolution of the investment process and capabilities of the Group. Gerhard Fusenig is the Chairman of this committee and Melanie Gee, Richard Mully and Kevin Parry are currently members. The Committee will have its first meeting in Q1 2018.
Committee reports
This statement includes reports from each Committee Chairman other than the report on the responsibilities and activities of the Remuneration Committee which can be found in the Directors' remuneration report following this statement.
The Committee Chairmen are happy to engage with you on their reports. Please contact them via questions@standardlifeaberdeenshares.com
4.2 Audit Committee report
The Audit Committee assists the Board in discharging its responsibilities for financial reporting, internal control and the relationship with the External auditors.
Dear Shareholder
I'm delighted to have been asked to take on the role as Chair of the Audit Committee in August and would like to thank Kevin Parry for his excellent work as Chair before me.
A major role of the Audit Committee in 2017 was related to the Merger with Aberdeen Asset Management PLC. In advance of this, the Audit Committee's specific focus was on the work to support the relevant financial disclosures in the Merger Circular and Prospectus and in particular the Working Capital Report, the Financial Position and Prospects report and the Quantified Financial Benefits Statement. Post-Merger, this focus switched to the impact on the group financial reporting of the Merger, along with the integration costs and synergies. During the year the Committee also:
-- Oversaw the external audit transition from PricewaterhouseCoopers LLP (PwC) to KPMG LLP, who were appointed at the 2017 AGM
-- Assessed the provision relating to the FCA's enhanced annuity thematic review
-- Reviewed the Solvency and Financial Condition Report as part of the Company's first annual Solvency II reporting
-- Received reports on compliance with the Financial Conduct Authority Client Assets Sourcebook (CASS) rules in the Company's CASS permissioned regulated legal entities
Our report to you is structured in four parts:
-- Governance
-- Report on the year
-- Internal audit
-- External audit
I look forward to engaging with you on the work of the Committee.
John Devine
Chairman, Audit Committee
Governance
Membership
All members of the Audit Committee are independent non-executive Directors. The table below reflects the composition of the Committee and the members' attendance both pre and post the Merger:
Member Attendance ---------------------- ---------- John Devine, Chairman 2/2 Julie Chakraverty 2/2 Melanie Gee 2/2 Martin Pike 7/7 Jutta af Rosenborg 2/2 Former member Noel Harwerth 5/5 Kevin Parry 5/5 Lynne Peacock 5/5 ---------------------- ----------
The Board believes members have the necessary range of financial, risk, control and commercial expertise required to provide effective challenge to management. John Devine is a member of the Chartered Institute of Public Finance and Accounting. For the business of the Committee, he is considered by the Board to have competence in accounting and auditing as well as recent and relevant financial experience.
The Committee schedules six meetings per annum, four of which are co-ordinated with external reporting timetables. In 2017, there was one additional meeting, which was focused solely on the Merger
Invitations to attend Committee meetings are extended on a regular basis to the Chairman, the Co-Chief Executives, the Chief Financial Officer, the Chief Executive Standard Life Pensions and Savings, the Group Financial Controller, the Chief Internal Auditor and the Group Chief Risk Officer.
The Audit Committee meets privately for part of its meetings and also has regular private meetings separately with the External auditors, Chief Internal Auditor and Chief Financial Officer. These meetings address the level of co-operation and information exchange and provide an opportunity for participants to raise any concerns directly with the Committee.
Key responsibilities
The Audit Committee's responsibilities are to oversee and report to the Board on:
-- The appropriateness of the Group's accounting and accounting policies, including the going concern presumption and viability
-- The findings of its reviews of the financial information in the Group's annual and half year financial reports
-- The clarity of the disclosures relating to accounting judgements and estimates
-- Its view of the 'fair, balanced and understandable' reporting obligation
-- The findings of its review of key Group prudential returns and disclosures
-- Internal controls over financial reporting and procedures to prevent money laundering, financial crime, bribery and corruption
-- Outcomes of investigations resulting from whistleblowing
-- The appointment or dismissal of the Chief Internal Auditor, the approved internal audit work programme, key audit findings and the quality of internal audit work
-- The independence of the External auditors, the appropriateness of the skills of the audit team, the approved audit plan, the quality of the firm's execution of the audit, and the agreed audit and non-audit fees
In carrying out its duties, the Committee is authorised by the Board to obtain any information it needs from any Director or employee of the Group. It is also authorised to seek, at the expense of the Group, appropriate external professional advice whenever it considers this necessary. The Committee did not need to take any independent advice during the year.
In accordance with the Senior Insurance Manager's Regime, the Audit Committee Chairman is responsible for the oversight of the independence, autonomy and effectiveness of our policies and procedures on whistleblowing including the procedures for the protection of staff that raise concerns from detrimental treatment. Throughout the year the Audit Committee Chairman met regularly with the Chief Internal Auditor and the Head of Financial Crime to discuss their work, findings and current developments.
Committee effectiveness
The Committee reviews its remit and effectiveness annually. The 2017 review was carried out using an internal self-assessment questionnaire. The review concluded that the Committee had:
-- Performed effectively during the year and overseen a robust process to deliver Solvency II reporting
-- Fulfilled its duties under its terms of reference, and kept its terms of reference up-to-date
-- Received sufficient, reliable and timely information from management and the Internal and External auditors to enable it to fulfil its responsibilities
Going forward, the review highlighted the Committee's wish to consider further where the reporting of financial performance in the investment business could be strengthened.
The Board's review similarly confirmed its satisfaction with the performance of the Committee.
Report on the year
Audit agenda
The Audit Committee has a rolling agenda comprising recurring business, seasonal business and other business.
As recurring business, at every meeting the Committee reviews and discusses:
-- Updates from the Group Finance function on significant financial accounting, reporting and disclosure matters
-- Findings from Internal audit reports and how high priority findings are being followed up by management
-- Regular refreshes and updates to the Internal audit plan
-- Results of the monitoring of financial crime, fraud risk assessments and whistleblowing including calls to our dedicated Speak Up helpline
-- Reports from the chairmen of the subsidiary audit committees
-- Updates on work completed by the External auditors
-- Details of non-audit services requested of the External auditors by business units
-- Other agenda items
Other agenda items were aligned to the annual financial cycle as set out below.
Jan - Mar
* Annual report and accounts 2016
* Strategic report and financial highlights 2016
* Solvency II reporting
* Provision for the FCA's enhanced annuity thematic
review
* External audit transition
--------- ------------------------------------------------------------
Apr - Jun
* Completion of the 2016 external audit for all audited
entities
* 2016 external audit fee and the proposed 2017 fee for
all audited entities
* Solvency II Solvency and Financial Condition Report
* Special meeting on the Merger
--------- ------------------------------------------------------------
Jul - Sep
* Half year results 2017
* External auditors' review of half year results
* Impact on reporting of the Merger
* CASS update
* Internal Control Environment assessment
--------- ------------------------------------------------------------
Oct - Dec
* Initial findings from the 2017 year end work
* The Internal audit plan
* Effectiveness of the External auditors
* Group non-audit services provided by External
auditors
* Effectiveness of the Committee
* Solvency II reporting
* Liaison with the Remuneration Committee on targets
and measures
* Integration cost and synergies update
--------- ------------------------------------------------------------
The indicative proportion of time spent on the business of the Committee is illustrated below:
Chart removed for the purposes of this announcement. However it can be viewed in full in the pdf document.
Detail of work
The focus of work in respect of 2017 is described below.
Financial reporting
Our accounts are prepared in accordance with International Financial Reporting Standards (IFRS). The Committee believes that some Alternative Performance Measures (APMs) which are also called non-GAAP measures can add insight to the IFRS reporting and help to give shareholders a fuller understanding of the performance of the business. The Committee considered the presentation of APMs and related guidance as discussed further in the 'Fair, balanced and understandable' section below.
The Committee reviewed the Group accounting policies and confirmed they were appropriate to be used for the 2017 Group financial statements. During the year the Committee considered the presentation and accounting policy for when funds are classified as associates. Following discussions with the External auditors it was decided to change the treatment as disclosed in Note 16 of the Group financial statements. This did not have an impact on our reported profits but did impact the balance sheet presentation and disclosures.
The Committee also considered future changes to accounting standards (in particular, IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments) and ensured that the impact of these future changes was appropriately disclosed in the financial statements. The Committee also spent time discussing the new insurance contracts standard (IFRS 17) which was issued in 2017 and will be effective in 2021.
The Committee reviewed the basis of accounting and in particular the appropriateness of adopting the going concern basis of preparation of the financial statements. In doing so, it considered the Group's cash flows resulting from its business activities and factors likely to affect its future development, performance and position together with related risks, as set out in more detail in the Strategic report. The Committee recommended the going concern statement to the Board.
In addition, the Committee considered the form of the viability statement and in particular whether the three-year period remained appropriate and concluded that it did. This reflects both our internal planning cycle and the timescale over which changes to major regulations and the external landscape affecting our business typically take place. In formulating the statement, the Committee used the same information it uses when considering the risks that are taken into account to determine regulatory capital. The Committee recommended the viability statement to the Board.
The Committee reviewed the Annual report and accounts 2016 and the half year results 2017. For the half year it received written and/or oral reports from the Chief Financial Officer, subsidiary audit committee chairmen or boards, the Company Secretary, the Chief Internal Auditor and the External auditors. In addition, for the year end it received a report from the Head of Group Actuarial. The Committee uses these reports to aid its understanding of the composition of the financial statements, to confirm verification and compliance with reporting standards and to justify accounting judgements and estimates. Following its reviews, the Committee was able to recommend the approval of each of the reports to the Board, being satisfied that the annual and half year financial statements complied with laws and regulations and had been appropriately compiled.
Accounting estimates and judgements
The Audit Committee considered all estimates and judgements that Directors understood could be material to the financial statements. The Committee also focused on disclosure of these key accounting estimates and judgements.
In compiling a set of Group financial statements, it is necessary to make judgements and estimates about outcomes that are typically dependent on future events. This is particularly relevant to annuity business where profitability is inherently dependent on how long people live and future economic outcomes. Further, we have a substantial defined benefit pension plan with liabilities that are also dependent on economic and health related outcomes. Estimates are not however limited to liabilities; our business and pension funds invest in some hard to value investments, such as over-the-counter derivatives, private equity, real estate and commercial mortgages.
Annuitant mortality assumptions were considered in the context of our experience over the short and medium term against base assumptions and future assessed improvements. We compared our actuaries' views with estimates made by other companies drawing on available benchmark data and looked at the changes in outcomes attributable to a change in estimates (see Note 31 of the Group financial statements for more detail).
We considered key assumptions determining the pension fund surplus: inflation (including the gap between the retail price index and the consumer price index), mortality and the discount rate. The assumptions were compared with market data and expert opinions. As with last year we also noted possible new accounting guidance on recognising a pension surplus on the consolidated statement of financial position. Interpretation remains uncertain and so the Committee supported continuing with additional disclosures. Further details are set out in Note 35 of the Group financial statements.
The Merger is accounted for under IFRS as an acquisition by Standard Life plc of Aberdeen Asset Management PLC. This acquisition accounting requires significant judgement and was a major area of focus for the Committee in the second half of 2017 and early 2018. The key judgements related to the recognition and valuation of intangibles on the acquisition. The major intangibles recognised related to customer relationships and brand. The Committee reviewed and challenged the assumptions underlying the valuation of these intangibles, including useful lives, and reviewed reporting from third party valuation experts. The Committee also considered the appropriate amortisation method for each intangible and the allocation of the goodwill arising on the acquisition to groups of cash generating units. See Note 14 of the Group financial statements.
In relation to the Lloyds Banking Group customer relationship intangible asset, the Committee considered that an impairment of GBP40m was appropriate. The Committee also considered intangible assets relating to internally developed software and agreed with management that an impairment of GBP31m was appropriate in relation to a discontinuation of part of an IT transformation project.
In 2016 the Company recognised a provision of GBP175m in respect of past sales practices of annuities. In 2017, following further analysis work and an update to assumptions based on sample testing following the receipt of the FCA redress calculator, management concluded that an additional provision of GBP100m should be recognised. The Committee reviewed the estimate of the provision and considered sensitivities on its calculation. We were satisfied that the provision level is an appropriate estimate at this time. In addition to the provision, there remain a number of uncertainties in respect of annuities sales practices, in particular in relation to the regulatory investigation, so we continue to provide disclosures in the contingent liability note. See Note 38 of the Group financial statements.
We carried out a review of the processes and controls for valuing hard to value assets and were satisfied that we could rely on the procedures for determining valuations. See Note 41 of the Group financial statements.
Principal risks are disclosed in the Strategic report and recommended to the Board by the Risk and Capital Committee. The Committee was satisfied that the estimates and quantified risk disclosures in the financial statements were consistent with the Strategic report. The Committee concluded that appropriate judgements had been applied in determining the estimates and that sufficient disclosure had been made to allow readers to understand the uncertainties surrounding outcomes.
Fair, balanced and understandable
The Committee supported the financial reporting team's continued review of the Annual report and accounts. A focus in 2017 was ensuring that the Strategic report appropriately explained the rationale and implications of the Merger.
Standard Life Aberdeen's principles
To create clarity around what Standard Life Aberdeen means when it talks of being fair, balanced and understandable, a set of principles were developed, which can also act as an organisational definition for each aspect:
Fair "We are being * The narrative contained in the report is honest and open and accurate honest in the way we present our * The key messages in the narrative in the 'front half' discussions of the report reflect the financial reporting and analysis, contained in the financial statements and are providing what we believe to be an * The Key Performance Indicators (KPIs) results for the accurate period are consistent with the key messages outlined assessment in the Strategic report of business and economic realities" ---------------------- ------------------------------------------------------------ Balanced "We are fully * The report presents the 'whole' story where both disclosing successes and challenges experienced during the year our successes, and expected in the future are covered the challenges we have faced in the period, * The level of prominence we give to successes in the and the challenges year versus challenges faced is appropriate and opportunities we anticipate in the future * The narrative and analysis contained in the report - all with effectively balances the information needs and equal importance interests of each of our key stakeholder groups and at a level of detail that's appropriate for our stakeholders" ---------------------- ------------------------------------------------------------ Understandable "The language * There is a clear and easy to understand framework to we use and the report which is effective in addressing Standard the way we Life Aberdeen's objectives, vision, mission and structure values our report is helping us present * The layout is clear and consistent and the language our business used is simple and easy to understand (industry and its performance specific terms are defined where appropriate) clearly - in a way that someone * There is a consistent tone across and good linkage with a reasonably between all sections in a manner that reflects a informed complete story and clear signposting to where knowledge additional information can be found of financial statements and our industry would understand" ---------------------- ------------------------------------------------------------
Prepare, Review and Challenge
The above principles and supporting statements are considered in each stage of the Annual report and accounts production process.
Chart removed for the purposes of this announcement. However it can be viewed in full in the pdf document.
Activities
-- An Internal Review Group (IRG) is in place which reviews the Annual report and accounts specifically from a fair, balanced and understandable perspective and provides feedback to our financial reporting team on whether it conforms to our standards. The members of the IRG are independent of the financial reporting team.
-- We provided fair, balanced and understandable training and guidance to all key stakeholders involved in the Annual report and accounts production process
-- We, as an Audit Committee, reviewed the messaging in the Annual report and accounts, taking into account material received and discussion taken place during the year
-- Three drafts of the Annual report and accounts 2016 were reviewed by the Audit Committee at three meetings. The Committee complemented its knowledge with that of executive management and the Internal and External auditors. An interactive process allowed each draft to embrace contributions.
-- Our Annual report and accounts goes through an extensive internal verification process of all content to verify accuracy
The Committee also reviewed the use and presentation of APMs which complement the statutory IFRS results in order to give a more complete view of the performance of the business. This review considered guidelines issued by the European Securities and Markets Authority in 2016 and the thematic review by the Financial Reporting Council (FRC) during 2017. A Supplementary information section is included in the Annual report and accounts to explain why we use these metrics and to provide reconciliations of these metrics to IFRS measures where relevant. This section also provides increased transparency over the calculation of reported financial ratios. The Committee noted that management continued to develop and enhance the detail in this Supplementary information section in 2017 in response to emerging practice.
Following the Merger, management reconsidered the appropriate KPIs for the Group, taking into account the shift towards asset management business. The Supplementary information section sets out the changes in financial KPIs and the reasons for these changes.
Adjusted profit before tax is a key profit APM. The Standard Life Group key profit APM was 'operating profit before tax', but this was renamed to 'Adjusted profit before tax' following the Merger. The Committee agreed with management that 'operating profit' could be a confusing name and that 'adjusted profit' was therefore more appropriate. The Committee also spent time considering the definition of 'adjusted profit' taking into account the previous Standard Life Group 'operating profit' metric and Aberdeen 'underlying profit' metric. Details of changes relative to these previous definitions are included in the Supplementary Information section. The Committee also considered whether the allocation of items to adjusted profit were in line with the defined accounting policies, were consistent with previous practice and were appropriately disclosed.
We agreed to recommend to the Board that the Annual report and accounts 2017, taken as a whole, is fair, balanced and can be understood by someone with a reasonably informed knowledge of financial statements and our industry.
We are interested in feedback from stakeholders and will carefully consider any feedback received.
Prudential reporting
During 2017 the Group published its first Solvency and Financial Condition Report (for the year ended 31 December 2016), and submitted full annual Solvency II reporting to the PRA for the first time. In general, the Committee continued to adopt a compliance approach to Solvency II reporting drawing on work undertaken by management, Group Risk, Internal audit and the External auditors. The procedures are designed to give the Audit Committee a high degree of comfort that returns have been properly prepared. The Committee also reviewed both a draft and a final version of the Solvency and financial condition report, and following due consideration agreed to recommend the Solvency and financial condition report to the Board for approval.
In relation to actuarial assumptions used for year end 2017 Solvency II reporting, including mortality, persistency and expenses assumptions, the Committee received a report from the Chair of the Standard Life Assurance Limited (SLAL) Audit Committee which noted the consideration of these assumptions by the SLAL Audit Committee and External auditors. After due consideration of this reporting the Committee were satisfied that these assumptions were appropriate for year end Solvency II reporting. The Committee also reviewed disclosures relating to Solvency II results included in the Strategic report section of this Annual report and accounts, and related assurance reports and was satisfied with the disclosures.
Internal controls
As noted earlier, the Directors have overall responsibility for the Group's internal controls and for ensuring their ongoing effectiveness. Together with the Risk and Capital Committee, the Committee provides comfort to the Board of their ongoing effectiveness.
Internal audit regularly reviews the effectiveness of internal controls and reports to the Committee and the Risk and Capital Committee.
The Group Finance function sets formal requirements for financial reporting which apply to the Group as a whole, defines the processes and detailed controls for the consolidation process and reviews and challenges reporting segment submissions. Further, the Group Finance function runs a technical review committee and is responsible for monitoring external technical developments.
The control environment around financial reporting will continue to be monitored closely.
Financial crime and whistleblowing
Staff are trained to detect the signs of possible fraudulent or improper activity and how to report concerns either directly or via our independent whistleblowing hotline. The Committee receives regular updates from the Head of Financial Crime who reports on compliance with the Group's Anti-Financial Crime and Anti-Bribery policy, and any other activities associated with financial crime, including fraud risk.
The Committee Chairman is the designated whistleblower's champion and the Committee receives regular updates on the operation of the whistleblowing procedures from the Global Head of Conduct and Compliance. The anonymised reports include a summary of the incidents raised as whistleblowing, and information on developments of the arrangements in place, to ensure concerns can be raised in confidence, about possible malpractice, wrongdoing and other matters.
The Committee oversees the findings of investigations and required follow-up action. If there is any allegation against the Risk or Internal audit functions, the Committee directs the investigation. The Committee is satisfied that the Group's procedures are currently operating effectively.
Internal audit
The Group now has an Internal audit function comprising of approximately 70 people post-Merger. Internal audit is supported by a co-source provider which recently transitioned from legacy arrangements to PwC from 1 January 2018. The process involved the Chairman of the Committee and PwC's appointment was approved by the Committee. The Chief Internal Auditor reports to the Committee Chairman.
Internal audit operates in accordance with a global charter which is reviewed by the Committee every year. Their work plan covers all businesses in the Group after holding risk based discussions with management, regulators, the External auditors and the Committee. Identified areas of focus are mapped to the key risks within the Own Risk and Solvency Assessment (ORSA), which is a dynamic forward looking tool for decision making and strategic analysis at the heart of the Solvency II prudential regime and Internal Capital Adequacy Assessment Process (ICAAP) for the asset management business. Consistent with that methodology, our regulators request specific reviews as part of the Risk Mitigation Plan. The Committee approves the scope and content of the annual internal audit plan, which is updated on a rolling basis to allow Internal audit to address any emerging issues and reflect changes in the Group's organisation.
The Committee receives regular reports from the Chief Internal Auditor on:
-- The implementation of the approved plan and proposed changes to it
-- Key findings from completed reviews, including the impact on financial reporting processes and related applications
-- The status of management's implementation of agreed improvement actions, where dates have been rescheduled
-- The assessment of the internal control environment at each business unit
During 2017, approximately 100 internal audits were completed. The Committee considered the reports below to be particularly insightful and contributed to the strengthening of the control environment:
-- Conduct risk
-- IT security
-- Key regulatory change projects such as the Markets in Financial Instruments Directive (MiFID II) and the General Data Protection Regulation (GDPR)
-- Property fund suspension - lessons learned
-- Brexit preparations
The Committee considers Internal audit's effectiveness annually, monitoring its independence, objectivity and resourcing in the context of the Chartered Institute of Internal Auditors' professional standards. During the year, Internal audit carried out its own internal effectiveness review as well as quality assurance processes and reported the satisfactory results back to the Committee.
During the year, regular dialogue takes place, at least monthly, between the Committee Chairman and the Chief Internal Auditor. The newly appointed Committee Chairman also engaged with the combined function at their post-Merger conference in October.
The Chief Internal Auditor was an external appointment to broaden the experience of the senior team and commenced his role in May 2016. The Chief Internal Auditor is now focused on aligning his team to meet the requirements of the merged Group.
Based on its review, the Committee concluded that the function continued to be highly effective.
In accordance with the relevant independence standards, the External auditors do not place reliance on the work of Internal audit.
External auditors
The appointment
The Committee has responsibility for making recommendations to the Board on the reappointment of the External auditors, determining their independence from the Group and its management and agreeing the scope and fee for the audit. Following its review of KPMG's performance, the Committee concluded that there should be a resolution to shareholders to recommend the reappointment of KPMG at the 2018 AGM.
As discussed in the 2016 Audit Committee report, the Committee tendered the audit for the year ended 31 December 2017 and recommended to the Board that KPMG should be recommended to shareholders as the auditors for 2017. The shareholders voted in favour of the appointment at the 2017 AGM.
The Committee complies with the UK Corporate Governance Code, the FRC Guidance on Audit Committees with regard to the external audit tendering timetable and the provisions of the EU Regulation on Audit Reform and the Competition and Markets Authority Statutory Audit Services Order with regard to mandatory auditor rotation and tendering. The Committee will continue to follow the annual appointment process but does not currently anticipate re-tendering the audit before 2026.
Auditor independence
Following the Merger, the Committee sought assurance that KPMG's independence would not be compromised as a result of their previous position as External auditor of Aberdeen Asset Management PLC until 30 September 2015. A paper outlining the matters which had been considered was brought to the Committee and, following the review, the Committee was satisfied that there were no impacting issues.
The Board has an established policy setting out what non-audit services can be purchased from the firm appointed as External auditors. The Committee monitors the implementation of the Policy on behalf of the Board. The aim of the Policy, which is reviewed annually, is to support and safeguard the objectivity and independence of the External auditors and to comply with the FRC Ethical standards for auditors (Ethical Standards). It does this by prohibiting the auditors from carrying out certain types of non-audit services to ensure that the audit services provided are not impaired. It also ensures that where fees for approved non-audit services are significant, they are subject to the Committee's prior approval.
The services prohibited by the Policy are in line with the Ethical Standards and include:
-- Tax services, other than in exceptional circumstances and subject to specific audit committee approval in line with ethical standards
-- Services that involve playing any part in the management of decision-making of the audited entity
-- Book-keeping and preparing accounting records and financial statements
-- Payroll services
-- Designing and implementing internal control or risk management procedures related to the preparation and/or control of financial information or designing and implementing financial information technology systems
-- Valuation services, including valuations performed in connection with actuarial services or litigation support services
-- The majority of legal services
-- Services related to the audited entity's internal audit function
-- Services linked to the financing, capital structure and allocation and investment strategy of the audited entity, except providing assurance services in relation to the financial statements, such as the issuing of comfort letters in connection with prospectuses
-- Promoting, dealing in, or underwriting shares in the audited entity
-- The majority of human resources services
The Policy permits non-audit services to be purchased, following approval, when they are closely aligned to the external audit function and when the external audit firm's skills and experience make it the most suitable supplier.
These include:
-- Audit related services, such as regulatory reporting
-- Accounting consultations and audits in connection with proposed transactions
-- Investment circular reporting accountant engagements
-- Due diligence related to mergers and acquisitions
-- Employee benefit plan audits
-- Attesting to services not required by statute or regulation (e.g. controls reports)
-- Consultations concerning financial accounting and reporting standards not relating to the audit of the Group's financial statements
-- Other reports required by a regulator or assurance services relating to regulatory developments
-- Sustainability audits/reviews
-- Auditing IT security where this does not extend to designing and implementing internal control or risk management procedures
KPMG has reviewed its own independence in line with these criteria and its own ethical guideline standards. KPMG has confirmed to the Committee that following its review it is satisfied that it has acted in accordance with relevant regulatory and professional requirements and that its objectivity is not impaired.
Having considered compliance with our policy and the fees paid to KPMG, the Committee is satisfied that KPMG has remained independent.
Audit and non-audit fees
The Group audit fee payable to KPMG in respect of 2017 was GBP5.7m (2016: PwC GBP4.1m). In addition GBP1.9m (2016: GBP0.8m) was incurred on audit related assurance services. Fees for audit related assurance services are primarily in respect of Solvency II regulatory reporting, client money reporting and the half year review. The increase in both audit and audit related assurance fees primarily reflects the larger scale of the Group following the merger. The Committee is satisfied that the audit fee is commensurate with permitting KPMG to provide a quality audit and monitors regularly the level of audit and non-audit fees. Non-audit work can only be undertaken if the fees have been approved in advance in accordance with the Board's policy for non-audit fees. Unless fees are clearly trivial (which we have defined as less than GBP75,000), the approval of the whole Committee is now required.
Non-audit fees amounted to GBP0.4m (2016: GBP1.4m) of which GBP0.3m (2016: GBP0.5m) related to other assurance services. Other assurance services in 2017 primarily relate to control assurance reports, in particular those provided to Aberdeen Standard Investments' clients, which are closely associated with audit work. The External auditors were considered the most suitable supplier for these services taking into account the alignment of these services to the work undertaken by external audit and the firm's skill sets. The Committee also monitors audit and non-audit services provided to non-consolidated funds and were satisfied fees for those services did not impact auditor independence.
Further details of the fees paid to the External auditors for audit and non-audit work carried out during the year are set out in Note 8 of the Group financial statements.
The ratio of non-audit fees to audit and audit related assurance fees is 5% (2016: 29%). The total of audit related assurance fees (GBP1.9m) and non-audit fees (GBP0.4m) is GBP2.3m, and the ratio of these audit related assurance fees and non-audit fees to audit fees is 40% (2016: 54%). As noted above the audit related assurance fees are primarily fees in relation to required regulatory reporting, where it is normal practice for the work to be performed by the external auditor.
The Committee is satisfied that the non-audit fees do not impair KPMG's independence.
Audit quality and materiality
The Committee places great importance on the quality and effectiveness of the External audit. The Senior Statutory Auditor is Jonathan Mills. The Committee looks to the audit team's objectivity, professional scepticism, continuing professional education and its relationship with management, all in the context of regulatory requirements and professional standards. Specifically:
-- The Committee discussed the scope of the audit prior to its commencement
-- The Committee reviewed the annual findings of the Audit Quality Review team of the FRC in respect of KPMG's audits. We requested a formal report from KPMG of the applicability of the findings to Standard Life Aberdeen both in respect of generally identified failings and failings specific to individual audits. We were satisfied insofar as the issues might be applicable to Standard Life Aberdeen's audit, that KPMG had proper and adequate procedures in place for our audit.
-- The Committee approved a formal engagement with the auditor and agreed its audit fee
-- The Committee Chairman had at least monthly meetings with the lead audit partner to discuss Group developments
-- The Committee received at nearly every meeting an update of KPMG's work, compliance with independence and its findings
-- There was a detailed interview by the Committee Chairman with the audit partners on the subject of the work undertaken to support their opinion on the financial statements and the consistency of the remainder of the Annual report and accounts with their work
-- The Committee reviewed and discussed the audit findings including audit differences prior to the approval of the financial statements. See the discussion on materiality in the paragraph below for more detail
-- Additional work was again undertaken on Solvency II reporting and the Committee also reviewed separate papers from KPMG covering this specific work
We have discussed the accuracy of financial reporting (known as materiality) with KPMG both as regards accounting errors that will be brought to the Committee's attention and as regards amounts that would need to be adjusted so that the financial statements give a true and fair view. Differences can arise for many reasons ranging from deliberate errors (fraud etc.) to good estimates that were made at a point in time that, with the benefit of more time, could have been more accurately measured. Overall audit materiality has been set at GBP38m (2016: GBP34m). This equates to approximately 4.5% of normalised profit before tax. This is within the range in which audit opinions are conventionally thought to be reliable. To manage the risk that aggregate uncorrected differences become material, we supported that audit testing would be performed to a lower materiality threshold for individual reporting units. Further, KPMG agreed to draw the Committee's attention to all identified uncorrected misstatements greater than GBP2 million (2016: GBP2m). The aggregated net difference between the reported pre-tax profit and the auditor's judgment of pre-tax profit was less than GBP21m which was significantly less than audit materiality. The gross differences were attributable to various individual components of the consolidated income statement and balance sheet. No audit difference was material to any line item in either the income statement or the balance sheet. Accordingly, the Committee did not require any adjustment to be made to the financial statements as a result of the audit differences reported by the External auditors. Work that KPMG perform on Solvency II reporting uses a higher level of materiality.
KPMG has confirmed to us that the audit complies with their independent review procedures.
4.3 Risk and Capital Committee report
The Risk and Capital Committee supports the Board in the effective oversight and challenge of risk management and the use of capital across the Group.
Dear Shareholder
During 2017 the Risk and Capital Committee has continued to focus on ensuring the effective oversight and independent challenge of the use of capital and the management of risks, in particular the management of conduct risk, across the Group.
In performing these tasks the Committee is supported by the activity of risk and capital committees in subsidiary companies where these exist. This has included receiving support from the Standard Life Assurance Limited Risk and Capital Committee which was established in 2017.
A large part of the Committee's work this year has been focused on the merger of Standard Life plc and Aberdeen Asset Management PLC. Key activities undertaken prior to completion of the Merger included reviewing and challenging:
-- The assessment of risks posed by the Merger and their mitigants
-- The appropriateness of risk related disclosures included in the Prospectus and Circular documents issued in connection with the Merger
-- The anticipated structure of the Risk and Compliance function and operation of risk processes on Day One
-- Plans for managing the integration programme following Day One
Since the Merger the Committee has monitored the evolution of risk management across the merged Group and received progress updates from the integration programme.
Further details on this and other activities carried out by the Committee during the year can be found in the report that follows.
Martin Pike
Chairman, Risk and Capital Committee
Membership
All members of the Risk and Capital Committee are independent non-executive Directors. The table below reflects the composition of the Committee and the members' attendance both pre and post the Merger:
Member Attendance ---------------------- ---------- Martin Pike, Chairman 9/9 Julie Chakraverty 2/2 John Devine 9/9 Gerhard Fusenig 2/2 Melanie Gee 9/9 ---------------------- ---------- Former member Noel Harwerth 7/7 Kevin Parry 7/7 ---------------------- ----------
The Committee meetings are attended by the Chief Risk Officer, the Aberdeen Standard Investments (ASI) Chief Risk Officer and the Standard Life Pensions and Savings Chief Risk Officer. Others invited to attend on a regular basis include the Chairman, the Co-Chief Executives, the Chief Financial Officer, the Chief Executive Standard Life Pensions and Savings, the Chief Investment Officer and the Chief Internal Auditor as well as the External auditors.
Regular private meetings of the Committee's members have been held during the year providing an opportunity to raise any issues or concerns with the Chairman of the Committee. The Committee's members have also been given access to management and subject matter experts outside of the Committee meetings in order to support them in gaining an in-depth understanding of specific topics.
Key responsibilities
Our ambition of being a world-class investment company results in exposure to a range of risks and uncertainties. Understanding and actively managing the sources and scale of these risks and uncertainties are key to fulfilling this ambition.
The Risk and Capital Committee is responsible for overseeing, challenging and advising the Board on:
-- The Group's risk appetite, material risk exposures and the impact of these on the levels and allocation of capital
-- The structure and implementation of the Group's Enterprise Risk Management (ERM) framework and its suitability to react to forward-looking issues and the changing nature of risks
-- Changes to the risk appetite framework and quantitative risk limits
-- Risk aspects of major investments, major product developments and other corporate transactions
-- Regulatory compliance across the Group
Further detail on the work performed in each of these areas is set out in the report below.
In carrying out its duties, the Committee is authorised by the Board to obtain any information it needs from any Director or employee of the Group. It is also authorised to seek, at the expense of the Group, appropriate external professional advice whenever it considers this necessary. The Committee did not need to take any independent advice during the year.
The Committee's work in 2017
An indicative breakdown as to how the Committee spent its time is shown below:
Chart removed for the purposes of this announcement. However it can be viewed in full in the pdf document.
The Committee operates a rolling agenda which comprises both recurring items and items that are more ad hoc in nature.
One of the recurring items that is reviewed and discussed at each meeting is the Views on Risk report which provides a holistic view of the Group Chief Risk Officer's assessment of the key risks and uncertainties faced by the Group's businesses and the actions being taken to manage these.
Other recurring items that are reviewed by the Committee include:
-- Matters arising at the Standard Life Aberdeen Enterprise Risk Management Committee
-- Matters arising at the Standard Life Assurance Limited Risk and Capital Committee
-- Customer proposition developments
-- Ongoing developments relating to the management of conduct risk
-- The management of cyber risk across the Group
-- Items supporting the ongoing assessment of the Group's own risk and solvency assessment (ORSA)
The Committee has also continued to receive periodic reports from the Business Risk Review team. The Business Risk Review team operates within the Risk and Compliance function and is tasked with reviewing specific business activities and issues of a strategic significance. The output from the Business Risk Review team comprises independent assessments and reports that assist management in anticipating, managing and mitigating risk. The items subject to Business Risk Reviews are proposed by members of the executive team with the Committee providing further input into this process.
During the year the Committee's work covered a range of risks faced by the business and included consideration of:
Jan
- Mar * Advice to be provided to the Remuneration Committee
regarding the delivery of performance in 2016
relative to risk appetites
* Findings included in the Standard Life Investments
Internal Controls Report
* Standard Life Investment's Conflicts of Interest
Register
* Plans for testing, assurance reviews, business risk
reviews and validation activity to be performed in
2017
------ ------------------------------------------------------------
Apr
- Jun * The approach to be followed by the Standard Life plc
Risk and Capital Committee in reviewing documentation
relating to the proposed merger
* Documentation produced in connection with the
proposed merger
* Data privacy and data management practices
* The management of cyber risk including an update on
cyber insurance cover in the UK market
* Lessons learned from the acquisition of Elevate
Portfolio Services Limited
------ ------------------------------------------------------------
Jul
- Sep * The proposed structure of the Risk and Compliance
function following the merger
* The views of the risk function on the state of
preparedness for the first day of operation following
the merger
* Information security considerations relating to the
merger
* Update on the management of IT obsolescence
------ ------------------------------------------------------------
Oct
- Dec * Initial assessment of the risks and risk management
approach within the integration programme
* Plans for developing investment risk oversight
capability within the Risk and Compliance function
* Due diligence on the proposed acquisition of certain
assets related to the investment management business
of Alpine Woods Capital Investors, LLC
* Update on the management of risks relating to the
delivery of IT change
* Update on progress towards delivering compliance with
the EU General Data Protection Regulation
* Findings from an independent review of the conduct
risk framework
* Update on the assessment of risk culture within the
organisation
* Risk oversight arrangements in respect of investment
risk in Standard Life Wealth Limited
* Proposed enhancements to the investment risk
management systems architecture
* Progress on preparations for the implementation of
the second Markets in Financial Instruments Directive
(MiFID II)
------ ------------------------------------------------------------
After each meeting, the Committee Chairman reports to the Board, summarising the key points from the Committee's discussions and any specific recommendations.
Risk appetites, exposures and capital
As previously noted, prior to the merger the Committee was actively engaged in assessing the likely changes to the risk and capital profile of the merged business. In particular this included considering the extent to which the business combination would result in risk exposures that were not simply the sum of the risks of the underlying businesses. In this context the Committee noted that the increased diversity of funds and talent were expected to result in relative reductions in risks such as investment performance, customer and client preferences and market risk. By contrast, the increased scale and global presence of the business was expected to lead to relative increases in risks relating to regulatory scrutiny, IT risks due to possible targeting by cyber criminals and change risk as a result of merger integration activity. The output of this exercise was noted as helpful in focusing the deployment of resources following the merger.
Prior to the merger both Standard Life plc and Aberdeen Asset Management PLC operated their own risk appetite frameworks. These frameworks supported the respective businesses in managing their risks and capital requirements by providing a mechanism for stakeholders to communicate, understand and control risks. A detailed review of these frameworks following the merger indicated a high degree of commonality between the respective frameworks and provided the Committee with comfort that risks and capital were being well-managed across both businesses.
Since the merger a single risk appetite framework has been developed drawing on the best aspects of the two existing frameworks and reflecting the shape of the merged business and the risks it faces. This revised risk appetite framework now provides a common framework to enable stakeholders to communicate, understand and control the risks that Standard Life Aberdeen is willing to accept in pursuing its business plan objectives and the associated capital required. The Committee reviewed this revised risk appetite framework at its December meeting and agreed to recommend to the Board that it be implemented across the Group.
Regular reporting on financial exposures, conduct and operational risks, and the capital position are reported to the Committee through the Views on Risk report which is presented at each meeting of the Committee. Through reviewing the relevant dashboards, commentaries and associated management information, the Committee has monitored risks relative to applicable quantitative and qualitative appetites and views on the resilience of the capital position under current and stressed conditions.
The Views on Risk report also includes dashboards covering financial crime and regulatory risk. These provide the Committee with status updates on the financial crime framework, addressing risks related to money laundering, terrorist financing, market abuse, fraud and bribery and corruption, and the regulatory outlook. Environmental, social and governance risks are actively managed within the business and updates on this are also included within the report. Using this material, the Committee is able to oversee, challenge and advise the Board on the Group's risk appetite, material risk exposures and the impact of these on the levels and allocation of capital.
Specific items that the Committee discussed during the year in this context included:
-- Risks relating to the significant volume of regulatory projects that were progressing simultaneously throughout 2017
-- The impact of outflows in the asset management business on both profits and capital resources
-- The extent to which there was a systemic cause for losses incurred as a result of operational errors
-- Enhancements to the conduct risk framework and associated management information that would further support the effective management of conduct risk
-- The balance between the focus on risks related to the integration process and BAU activities
As highlighted in the table on page 90, we received a number of one-off reports during the year which directly supported the Committee in our oversight of risk appetites, exposures and capital.
One example of this was the report on work performed in assessing the nature of cyber insurance available in the market and the extent to which this could help mitigate the impact of any successful cyber attack. In particular the Committee noted the protection provided through existing insurance policies and management plans to further assess options as part of the annual insurance policy renewal exercise.
Another example is the report from the Business Risk Review team on the fair treatment of longstanding customers which supported the Committee in its oversight of conduct risk. This highlighted planned changes in governance arrangements to ensure the fair treatment of long standing customers and recommended enhancing reviews of customer activity to minimise the risk of customer inertia adversely impacting on customer outcomes. The report also recommended enhancements to the reviews performed in respect of the direct retail offering within Aberdeen Standard Investments.
The Committee also received a report from the Chief Investment Officer on an internal review commissioned to consider governance of investment risk within Standard Life Wealth Limited and the extent to which dispersion between performance in the asset management and wealth management businesses could potentially lead to branding or reputational risks. The Committee noted the conclusions of the review were that Standard Life Wealth Limited's governance arrangements were considered fit for purpose and there was no evidence of systemic issues in portfolio construction that were likely to adversely impact on dispersion and hence brand or reputational damage.
Stress and scenario testing performed across the Group has also supported the Committee in understanding, monitoring and managing the risk and capital profile of the business under stressed conditions. In addition to the stress and scenario testing performed across the Group in support of Internal Capital Adequacy Assessment Process (ICAAP) and Solvency II reporting, assurance has been taken from the results of the Standard Life plc stress and scenario testing performed in 2017 prior to the merger. This provided a forward-looking assessment of resilience to significant adverse events affecting key risk exposures and comprised:
-- Univariate stresses - looking at stresses to financial and demographic risks in isolation
-- Combined stresses - looking at simultaneous stresses to a combination of financial and demographic risks
-- Reverse stress testing - considering circumstances or severe events, including as a result of operational, conduct and reputational risks, that have the potential to cause the business plan to become unviable
-- Tail risk analysis - exploring the possible sequential development of a low likelihood but high impact scenario
Four scenarios were explored as part of the reverse stress testing exercise. The scenarios considered were: an effective cyber attack; a major financial shock which triggered high remediation costs in cases of customer detriment; pressure on fund charges, performance and flows; and the failure of key services performed by outsourced investment administration providers.
Three scenarios were explored as part of the tail risk analysis and were designed to focus on scenarios which could have a potentially significant adverse impact on liquid resources. In particular this recognised the potential for liquidity strains to arise as a result of the uncertain geo-political environment. The scenarios considered were: a sophisticated and collusive payment fraud committed in a derivative collateral transaction resulting in a significant loss for Standard Life Investments; a corporate bond shock including large corporations defaulting on payments; and a large number of advisers requesting rebalances on and withdrawals from Standard Life Pensions and Savings platform business at the same time as a pricing error occurred.
Based on the above analysis, the Committee concluded there was no requirement for the business to reduce its risk exposures and that the business was resilient to extreme events as a result of the robust controls, monitoring and triggers in place to identify events quickly and to help mitigate their escalation. Under some circumstances the Committee noted that contingency funding may need to be relied on to support cash outflows, and dividends from Standard Life Investments and Standard Life Assurance Limited may be reduced.
Enterprise Risk Management (ERM) framework
The ERM framework is used to identify, assess, control and model the Group's risks and consists of five elements:
-- Risk control processes
-- Strategic risk management
-- Risk and capital models
-- Emerging risks
-- Risk culture
During the year, the Committee continued to monitor the structure and implementation of the Group's ERM framework to ensure the framework remained suitable for identifying, assessing and managing current and new risk types and for reacting to forward-looking risk issues and the changing nature of risks.
The Committee continues to receive assurance regarding the operation of the ERM framework through its review of regular content within the Views on Risk report. In particular we have used our review of the various risk and capital dashboards, including the consolidated dashboard on key conduct risk indicators and conduct risk outcomes, to understand the Group's risk profile and the effectiveness of the framework in supporting the management of these risks.
The Committee also receives semi-annual reporting from the Chief Internal Auditor providing an independent assessment of the internal control environment relating to the management of risk and capital. This also supports the Committee in performing its oversight and challenge.
The Committee specifically monitors risk control processes through reviewing the results of quarterly policy compliance reporting and updates regarding action plans raised in response to risk events which is included within the Views on Risk report. Following the completion of the merger, Aberdeen Asset Management PLC and its subsidiaries adopted the policies previously operated by Standard Life plc and group-wide policy compliance reporting was completed for Q3 2017 with no significant issues noted.
Strategic risk management within the context of the ERM framework refers to the process of optimising risk-adjusted returns and for evaluating and prioritising strategic options. This takes place as part of the business planning process whereby forecast profits are considered alongside a forward-looking assessment of the Group's risk and capital position. The December meeting of the Committee reviewed an annual report on the Group's ORSA which reported on these two elements.
A Risk Modelling policy has been rolled out across the Group in 2017 aimed at providing a consistent benchmark for the development and use of risk and capital models. The policy covers a range of models and includes the Group Internal Model introduced in response to the requirements of Solvency II. The extent of compliance with the Risk Modelling policy is reported to the Committee within the Views on Risk report alongside other policy compliance reporting. During 2017 the Committee has continued to keep under review the methodology of the Solvency II Group Internal Model which, in line with the Committee's terms of reference, has included reviewing the key elements of design, the use of significant assumptions and expert judgements, key sensitivities, significant limitations and uncertainty in the model.
Emerging risks have been actively monitored and assessed during the year with regular reporting provided to the Committee through the Views on Risk report. This reporting focuses on the key geo-political, economic, societal, legal, regulatory, technological and economic risks that are emerging and provides an assessment of the relative likelihood and significance of these.
In 2017 risk and capital committees were established within Standard Life Assurance Limited, Standard Life Savings Limited and Elevate Portfolio Services Limited. These actions recognise the importance of risk culture and good risk governance within the ERM framework. During the year the Committee received a report setting out the results of a risk culture awareness questionnaire carried out across key individuals in the merged business. Based on the responses to the questionnaire, the Committee concluded that the business was generally well-placed relative to its peers and noted that activity was planned to drive best-in-class risk culture awareness.
Regulatory compliance and reporting
The Committee reviews and assesses regulatory compliance plans detailing the planned assurance activities to be performed across the Group on an ongoing basis. In particular, the Committee scrutinised the scope of activities planned by Risk and Compliance and Internal Audit to ensure there was appropriate coverage at an aggregate level. In reviewing these plans the Committee challenged the extent of testing planned in respect of the overseas operations of the investment business. The Committee was advised that increased emphasis was being placed on regulatory considerations where the business was investing in overseas markets and in ensuring the relevant conduct of business rules were understood in overseas jurisdictions where products were being sold. Regular updates on key findings from regulatory compliance activity were reported to the Committee through the Views on Risk report.
Prior to the merger, the Committee carried out its duties through reviewing the key assumptions and bases underlying the calculation of the Group Solvency II Internal Model results for Standard Life plc and the ICAAP for Standard Life Investments (Holdings) Limited.
In reviewing the Group Solvency II Internal Model results the Committee paid particular attention to the assumptions relating to the longevity stress and the treatment of the provision to address the finding that a portion of non-advised annuity sales in previous years did not adequately explain to customers that they may have been eligible for an enhanced annuity. The Committee noted the validation work that had been performed by the Risk and Compliance function in respect of the Internal Model and satisfied itself that it was appropriate to recommend that the Standard Life plc Board approve the proposed methodology and judgements for use in the calculation of the December 2016 Solvency Capital Requirements.
The regulatory agenda for the financial services sector in 2017 has continued to be a busy one, prompted by a number of data requests and industry thematic reviews from regulators. One such item highlighted to the Committee in this regard was the UK Financial Conduct Authority's (FCA) Final Report on Asset Management. Based on the findings of this report we anticipate continued margin pressure for the asset management business.
As a Committee we have closely monitored regulatory developments to understand and seek to anticipate potential implications for the Group and the wider financial services sector. In this context the Committee has noted the proactive engagement with the Prudential Regulation Authority and the FCA during the year, as well as responding to particular requests including the submission of details of our Brexit contingency plans.
As part of discussions on regulatory activity, the Committee noted that the business had been invited to join one of the FCA's Cyber Coordination Groups. These groups are intended to promote increased sharing of information regarding learnings and cyber threats. The Committee acknowledged this development and the expectation that it would provide the business with the opportunity to share experiences, to learn from others in the industry and to identify best practice.
Business Risk Reviews and other reporting
The Committee has continued to receive a number of reports from the Business Risk Review team in 2017. These reports provide the Committee with an independent assessment from the Risk and Compliance function of aspects of the business that could have a material impact on long-term profitability or delivery of strategy, or that introduce a material new risk. Further details on some of the Business Risk Reviews presented in 2017 are set out below.
A cross-business client and asset retention Business Risk Review was performed prior to the merger looking at activity across the Standard Life Investments and Pensions and Savings distribution channels.
The Committee noted the activity undertaken across the various channels to retain business and client assets and the recommendations from the review team about possible ways of strengthening this.
The Committee also received a Business Risk Review report on the Fair Treatment of Longstanding Customers. This focused on considering the extent to which there was a clear and consistent approach within the Standard Life Pensions and Savings and Standard Life Investments UK businesses to ensure the fair treatment of longstanding customers and clients, and the processes in place to support this. Key considerations of the Committee in this context were ensuring:
-- The proposition management governance process was effective
-- There was adequate visibility of longstanding customer fairness risks
-- The robustness of the reviews performed in respect of the direct retail offering within Aberdeen Standard Investments
The presentation of Business Risk Reviews reports to the Committee in 2017 has supported the Committee in allowing informed discussion regarding the progress of key business activities. Having considered the material presented, the Committee endorsed the recommendations contained in the Business Risk Reviews reports.
In addition to reviewing reporting relating to the merger, the Committee has reviewed and challenged due diligence risk assessments relating to proposed material strategic transactions. This included assessments relating to the proposed acquisition of certain assets related to the investment management business of Alpine Woods Capital Investors, LLC.
Governance changes
As already highlighted in this report, risk and capital committees have been established within Standard Life Assurance Limited (SLAL), Standard Life Savings Limited and Elevate Portfolio Services Limited during 2017.
Governance arrangements have been put in place to ensure that the Committee retains appropriate oversight of material risk and capital matters following the introduction of these new committees. This includes the Committee being responsible for approving the terms of reference for the risk and capital committee of Standard Life Assurance Limited (being a direct subsidiary of the Company) and any subsequent material changes to those terms of reference.
The Committee receives and reviews minutes from the Standard Life Assurance Limited risk and capital committee and any other reports escalated by the Chairman of that committee. Arrangements also exist for the Committee Chairman to attend the Standard Life Assurance Limited risk and capital committee. Corresponding arrangements have been put in place between the Standard Life Assurance Limited risk and capital committee and equivalent committees in place in its subsidiaries.
In 2018 a similar risk committee will be established for Standard Life Asia Limited. This will allow similar governance arrangements to be implemented to those introduced for Standard Life Assurance Limited in 2017.
Chief Risk Officer
Raj Singh stood down as Chief Risk Officer at the beginning of 2018 to take up a new position as Executive Financial Institutions and Senior Risk Advisor, working with the ASI Global Head of Insurance and Head of EMEA Distribution to leverage his global insurance experience as well as to provide an ambassadorial role for our office and operations in Switzerland. Following due consideration by the Committee and the approval of the Board and the Regulators, Gareth Murphy, previously Deputy Chief Risk Officer, succeeded Raj as Chief Risk Officer.
Committee effectiveness
The Committee reviews its remit and effectiveness annually. In August 2017 the members of the Standard Life plc Risk and Capital Committee completed this review via an internal self-assessment questionnaire.
The overall conclusion of the review was that the Committee had operated effectively. In particular, comments from the Committee recognised the additional time spent on conduct risk and cyber risk and, in respect of pre-merger considerations, the strength of oversight provided by the Committee.
For 2018, the review highlighted an expectation that to continue to operate effectively the Committee would need to remain focused on evolving in response to a range of external and internal factors including the changing risk profile of the Group, the continued regulatory focus on matters such as conduct risk and the evolving governance arrangements within subsidiary companies.
This information is provided by RNS
The company news service from the London Stock Exchange
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February 23, 2018 02:01 ET (07:01 GMT)
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