NatWest
Markets N.V.
2021 Annual Report
and Accounts
Financial Review
NatWest Markets N.V.
Annual Report and Accounts 2021 1
Page
Financial review
Presentation of information
1
Description of business
1
Performance overview
2
Chairman's statement
3
Summary consolidated income statement
5
Consolidated balance sheet
6
Top and emerging risks
7
Climate-related disclosures
9
Risk and capital management
15
Corporate governance
51
Financial statements
Consolidated income statement
61
Consolidated statement of comprehensive income
61
Consolidated balance sheet
62
Consolidated statement of changes in equity
63
Consolidated cash flow statement
64
Accounting policies
65
Notes to the consolidated accounts
69
Parent company financial statements
100
Other information
116
Independent auditor’s report
117
Risk factors
127
Additional information
151
Presentation of information
NatWest Markets N.V. (NWM N.V.) is a wholly owned subsidiary
of RBS Holdings N.V. (‘RBSH N.V.’ or ‘the intermediate holding
company’). ‘NWM N.V. Group’ or ‘we’ refers to NWM N.V. and
its subsidiary and associated undertakings. The term ‘RBSH
Group’ refers to RBSH N.V. and its only subsidiary, NWM N.V..
RBSH N.V. is a wholly-owned subsidiary of NatWest Markets
Plc (NWM Plc). The term ‘NWM Group’ refers to NWM Plc and
its subsidiary and associated undertakings. NatWest Group plc
is ‘the ultimate holding company’. The term ‘NatWest Group’
refers to NatWest Group plc and its subsidiary and associated
undertakings. NatWest Group plc is registered at 36 St Andrew
Square, Edinburgh, Scotland.
NWM N.V. publishes its financial statements in 'euro', the
European single currency. The abbreviation ‘€’ represents the
‘euro’, and the abbreviations ‘€m’ and ‘€bn’ represent millions
and thousands of millions of euros, respectively. The
abbreviations ‘£m’ and ‘£bn’ represent millions and thousands
of millions of pounds sterling (‘GBP’), respectively, and
references to ‘pence’ where amounts are denominated in
pounds sterling. Reference to ‘dollars’ or ‘$’ are to United
States of America (‘US’) dollars. The abbreviations ‘$m’ and
‘$bn’ represent millions and thousands of millions of dollars,
respectively. The term ‘EEA’ refers to European Economic
Area.
Description of business
NWM N.V., a licensed bank, operates as an investment banking
firm serving corporates and financial institutions in the
European Economic Area (‘EEA’). NWM N.V. helps corporate
and institutional customers manage their financial risks and
achieve their short- and long-term financial goals while
navigating changing markets and regulation. NWM N.V. does
this by providing global market access, financing, risk
and services in Currencies, Rates, Financing and lending
organised through the following customer-facing businesses:
Trading & Customer Sales and Capital Markets. NWM N.V. is
committed to acting sustainably and responsibly and actively
supports customers in their transition to achieving broader
environmental and societal goals, working with issuers and
investors to develop holistic sustainability strategies. NWM N.V.
is based in Amsterdam with branches authorised in London,
Dublin, Frankfurt, Madrid, Milan, Paris and Stockholm.
On 1 January 2017, due to the balance sheet reduction, RBSH
Group’s regulation in the Netherlands, and supervision
responsibilities, transferred from the European Central Bank
(ECB), under the Single Supervisory Mechanism (a joint
Supervisory Team comprising of ECB and De Nederlandsche
Bank (DNB), which conducted the day to day prudential
supervision oversight), back to DNB. The Netherlands Authority
for the Financial Markets, Autoriteit Financiële Markten (AFM),
is responsible for the conduct supervision
.
Business developments
In view of European regulatory developments, NWM N.V.
Group has revised its trading model in 2021. This followed a
review of financial and operational feasibility. Following
continuous consultation with NWM Group Executive
Committee and DNB, four new trading desks have been
created in NWM N.V. Group. The desks are responsible for
pricing, executing and risk managing customers’ enquiries
in G10 FX Options, G10 FX Forwards, Euro Swaps and EUR
Government Bond Repo.
In 2021, NatWest Group has established a team across
Commercial Banking, NatWest Markets and RBS
International to grow our offering to the investment
management sector. This enables us to provide a more
integrated experience for our funds and sponsors customer
base including our customers in NWM N.V. Group.
In November 2021, NatWest Group proposed their optimal
legal entity model to the regulators to support customers in
Europe. Under this proposal, Western European large
corporates will continue to be covered from NatWest
Markets N.V..
In November 2021, NWM Group introduced strategic
changes to its Rates business in order to better support our
core customers and to deliver a more sustainable and
consistent income. NWM N.V. Group’s European
Government Bond (EGB) offering will be concentrated on
six Primary Dealers which support our capital markets
focus in Europe.
Financial review continued
NatWest Markets N.V.
Annual Report and Accounts 2021 2
Performance overview
NWM N.V. Group reported an attributable profit of €110 million
for 2021 compared with €6 million in 2020, primarily reflecting
the recognition of a deferred tax asset in 2021. Impairments
were a release of €13 million compared with losses of €42
million in 2020.
Income and balance sheet
Total income was €173 million compared with €151 million
in 2020, primarily reflecting higher Net fees and
commissions of €177 million (2020 - €159 million) and
Income from trading activities of €8 million (2020 - €15
million loss). Other operating income was a loss of €3
million, compared with a gain of €17 million in 2020.
Total assets decreased to €20.8 billion from €21.7 billion in
2020 and total liabilities decreased to €18.5 billion
compared with €19.6 billion in 2020. The decrease in total
assets was primarily driven by a decrease in amounts due
from holding companies and fellow subsidiaries, partially
offset by increases in derivative assets and cash and
balances at central banks. The decrease in total liabilities
was mainly due to a decrease in settlement balance
liabilities.
Capital, liquidity and funding
NWM N.V. Group RWAs increased to €5.7 billion from €5.4
billion at 31 December 2020, reflecting lower levels of credit
risk, and an offsetting increase for market risk. The market
risk increase is due to an additional credit valuation
adjustment capital charge on inter-group transactions due
to non-equivalence of the United Kingdom banking
supervision by the EU, while the market risk itself only
modestly increased due to increased business in the entity.
NWM N.V. Group remained well-capitalised, with a NWM
N.V. Group CET1 ratio of 29.7%, within guidance of above
15%.
The liquidity position also remained strong, with NWM N.V.
liquidity portfolio of €5.5 billion and LCR of 255%.
Capital, funding and liquidity remained closely monitored,
with increased tracking and scenario analysis to ensure
balance sheet strength.
Throughout 2021 NWM N.V. Group ensured a stable
funding base through various sources of funding, including
the customer deposit book, issuances of commercial paper
and capital instruments. In 2020 NWM N.V. Group
established a €2.0 billion Euro Medium Term Note
programme, therefore NWM N.V. Group may, subject to
compliance with all relevant laws, regulations and
directives, from time to time, issue unsecured and
unsubordinated notes. As at 31 December 2021 no
issuances have been executed under this programme.
Outlook
(1)
The strategic review of NatWest Group announced in February 2020 has required, and continues to require changes in the
business of NWM Group, including NWM N.V.. To date, material uncertainties around the future business of NWM N.V. have been
removed following the announcements made on strategic update in 2021.
NWM N.V. Group intends to be active on its EMTN programme in 2022 in order to diversify its sources of funding.
(1) The targets, expectations and trends discussed in this section represent management’s current expectations and are subject to change, including as a result of the factors described
in the “Risk Factors” section on pages 127 to 150. These statements constitute forward-looking statements. Refer to ‘Forward-looking statements’ in this document.
Performance key metrics and ratios
2021
2020
Liquidity coverage ratio (LCR) (%)
255
356
Liquidity portfolio (€bn)
5.5
5.7
Total wholesale funding (€bn)
2.8
3.5
Total funding including repo (€bn)
8.9
8.9
Common Equity Tier (CET1) ratio (%)
29.7
30.6
CRR leverage ratio (%)
15.5
11.6
Risk-weighted assets (RWAs) (€bn)
5.7
5.4
Total Capital ratio (%)
37.4
39.0
Chairman’s statement
NatWest Markets N.V.
Annual Report and Accounts 2021 3
Financial Performance
NatWest Markets N.V. Group reported an attributable profit of
€110 million for 2021 compared with €6 million in 2020. This
primarily reflects the recognition of a deferred tax asset in
2021. Impairments were a release of €13 million compared with
losses of €42 million in 2020.
Total assets decreased to €20.8 billion as at 31 December 2021
compared with €21.7 billion as at 31 December 2020. This was
mainly driven by a decrease in amounts due from holding
companies and fellow subsidiaries, partially offset by increases
in derivative assets and cash and balances at central banks.
NatWest Markets N.V. Group continues to be well capitalised.
Total equity as at 31 December 2021 was €2.2 billion, an
increase of €74 million compared with 31 December 2020. At
31 December 2021, NatWest Markets N.V. Group’s total capital
ratio was 37.4% with a CET1 ratio of 29.7% and Tier 1 ratio of
34.1%.
Supervisory Board and Management Board
update
On 1 February 2021, David King, Chief Financial Officer of
NWM Plc, effectively joined as a member of the NWM N.V.
Supervisory Board after receiving regulatory approval in
December 2020. On 16 November 2021, David King announced
he would be stepping down as Chief Financial Officer of NWM
Plc and as a result also as member of the NWM N.V.
Supervisory Board during 2022.
On 23 September 2021, Harm Bots stepped down as Chief
Executive Officer of NWM N.V. and as a result also stepped
down as member of the NWM N.V. Managing Board. I took on
the role and accountabilities as interim Chief Executive Officer
and Chairman of the Managing Board of NWM N.V. and a
member of NatWest Markets Executive Committee. This interim
appointment has been in addition to my existing responsibilities
as Chief Financial Officer of NWM N.V..
On 18 January 2022, Vincent Goedegebuure was nominated as
CEO of NWM N.V. He will be joining the bank in May 2022,
subject to regulatory approval.
Supporting our customers
In 2021, we continued to support customers to manage their
financial risks and achieve their short-term and long-term
financial goals. Further customer relationships were
successfully moved from NWM Plc to NWM N.V. following the
UK’s withdrawal from the EU at the end of January 2020.
We successfully implemented business design changes agreed
with the regulator and migrated the Euro Rates Trading and FX
Derivatives Trading desks to NatWest Markets N.V as well. We
have also been able to provide a more integrated experience
for our funds and sponsors customers with the establishment of
a team across Commercial Banking, NatWest Markets and RBS
International focused on the investment management sector.
Focus has also been on our growing our Capital Markets
activities and strengthening of our control environment.
With these changes and our strong partnerships with
Commercial Banking and RBS International, we will be well-
placed to deliver a winning Markets business in Europe, primed
for growth.
Simplifying our business
In February 2020, NatWest Group announced becoming a
purpose-led bank – championing potential, helping people,
families and businesses to thrive – and the refocusing of NWM
Group. Since then, NWM N.V. has taken steps to contribute to
the transformation of our business model.
Following a review of our customer base, NWM N.V. revised its
coverage team structure and location footprint in 2021. As part
of this, NWM N.V. will be closing the Madrid branch in 2022
while supporting customers in the Iberian region from other
branches in Europe.
To better support our NatWest Group customers and to deliver
a more sustainable and consistent income, NWM Group
introduced strategic changes to its Rates business in late 2021.
As a result, NWM N.V. European Government Bond offering will
be concentrated on six Primary Dealers which support our
capital markets focus in Europe.
The reshaping of the NWM Group business model is now
materially complete; this is an accomplishment in an ongoing
period of uncertainty against a backdrop of the global
pandemic.
Climate and ESG
NatWest Group believes it is vital to be a key player in the
transition towards a low-carbon economy. At NWM N.V., we
want to take a leading role in this transition and support our
customers and communities. Together with our dedicated
climate and sustainability teams, we are committed to continue
to grow our climate and ESG activities to support our
customers in Europe to achieve their climate ambitions.
During 2021, we made a significant contribution to NatWest
Group’s progress towards meeting its climate-related targets as
NWM N.V. delivered €6.9 billion of climate and sustainable
funding and financing. We are expected to play a significant
role in delivering NatWest Group’s target of £100 billion
between 1 July 2021 and the end of 2025.
Chairman’s statement continued
NatWest Markets N.V.
Annual Report and Accounts 2021 4
Colleagues and ways of working
During these challenging times, as an organisation we have
continued to build on our commitment to provide support to our
customers throughout Europe. This has been achieved through
the strong commitment and resilience that has been shown by
our colleagues who have adapted and embraced the new ways
of working that have been necessary in the ever changing
environment in which we operate.
We are making progress, though slower than planned, in our
remediation programmes relating to Financial Crime, Data
Management, Outsourcing and Capital Models. We continue
taking the necessary actions to strengthen our overall
compliance risk management and culture throughout the
organisation.
At NWM N.V., we are committed to the purpose of NatWest
Group and equip our colleagues with skills and tools to lead
with purpose as we are becoming a learning organisation.
Championing diversity and creating an inclusive workplace that
gives our people the best opportunity to thrive at work will
remain one of our top priorities in 2022.
We’ve laid the foundations for our business in Europe to move
forward with clarity and purpose and the creation of the new
Commercial and Institutional franchise will further enhance our
plans for sustainable growth. Powered by the strength of our
customer relationships and with confidence in our colleagues,
we are excited to further grow and to continue to put our
purpose into action, fostering a culture of diversity and
inclusion so we can support our customers and colleagues to
thrive.
Cornelis Visscher
Chairman and CEO, NatWest Markets N.V.
17 February 2022
Financial review
NatWest Markets N.V.
Annual Report and Accounts 2021 5
Summary consolidated income statement
2021
2020
Note
€m
€m
Interest receivable
41
54
Interest payable
(50)
(64)
Net interest income
1
(9)
(10)
Fees and commissions receivable
202
205
Fees and commissions payable
(25)
(46)
Income from trading activities
8
(15)
Other operating income
(3)
17
Non-interest income
2
182
161
Total income
173
151
Staff costs
(71)
(55)
Premises and equipment
(6)
(7)
Other administrative expenses
(55)
(27)
Depreciation and amortisation
(3)
(4)
Operating expenses
3
(135)
(93)
Profit before impairment releases/(losses)
38
58
Impairment releases/(losses)
12
13
(42)
Operating profit before tax
51
16
Tax credit/(charge)
6
59
(10)
Profit for the year
110
6
Attributable to:
Ordinary shareholders
96
(8)
AT1 capital securities
14
14
110
6
Operating profit before tax
was €51 million compared with €16
million in 2020. This increase was due to higher total income
which increased by €22 million to €173 million, and impairment
releases of €13 million compared with losses of €42 million in
2020. This was partially offset by increase in operating expenses
to €135 million compared with €93 million in 2020.
Profit for the year was €110 million compared with €6 million in
2020.
Net interest income
was a net expense of €9 million compared
with a net expense of €10 million in 2020. Interest receivable
decreased by €13 million to €41 million (2020 - €54 million).
Interest payable decreased by €14 million to €50 million (2020 -
€64 million). The increase in net interest income is mainly due to
higher interest receivable from other financial assets and lower
interest payable to customer deposits and to subordinated
liabilities. This was partially offset by lower interest receivable
from loans to customers and higher interest payable to bank
balances.
Non-interest income
increased by €21 million to €182 million
compared with €161 million in 2020. Net fees and commissions
were an income of €177 million (2020 - €159 million income).
The increase in net fees and commission was mainly due to an
increase in syndicate fee income to €86 million (2020 - €29
million). This was partially offset by a decrease in transfer
pricing income from NWM Plc to €106 million (2020 - €125
million). The decrease in transfer pricing income is primarily
driven by the new revenue share model for Primary Dealership.
Income from trading activities increased by €23 million to a gain
of €8 million, compared with loss €15 million in 2020. This was
primarily driven by legacy transactions
(1)
in 2020.
Other operating income was a loss of €3 million, compared with
a gain of €17 million in 2020. This was mainly driven by legacy
items. 2021 included a loss on disposal of loans to customers of
€12 million and Madoff related recoveries of €6 million. 2021
also included a release of €1 million in relation to Alcover claims
reserves compared with a €11 million release in 2020.
Operating expenses
increased by €42 million to €135 million
compared with €93 million in 2020. This was mainly due to
administrative expenses which were up €28 million to €55
million, mainly driven by legacy items in 2020. Staff costs
increased by €16 million to €71 million, mainly due to
restructuring expenses in 2021. This was partially offset by
premises and equipment costs which decreased by €1 million to
€6 million. Depreciation and amortisation decreased by €1
million to €3 million.
Impairments
were a release of €13 million in 2021, largely driven
by credit improvements and releases on individual IFRS 9 Stage
2 and Stage 3 exposures, compared with losses of €42 million in
2020, which were largely due to the credit deterioration of an
individual counterparty and the increased expected credit losses
recognised following the COVID-19 pandemic.
Tax credit
for 2021 was €59 million compared with a charge of
€10 million in 2020. This was mainly driven by the recognition of
a deferred tax asset in 2021. Refer to Note 6 to the consolidated
financial statements for further details.
(1) Legacy transactions pertain to NWM N.V.’s tail business from the period before the
repurposing of its banking license in 2019
Financial review continued
NatWest Markets N.V.
Annual Report and Accounts 2021 6
Consolidated balance sheet as at 31 December 2021
2021
2020
Variance
€m
€m
€m
Assets
Cash and balances at central banks
5,145
4,452
693
16%
Trading assets
4,174
4,380
(206)
(5%)
Derivatives
7,767
6,935
832
12%
Settlement balances
391
358
33
nm
Loans to banks - amortised cost
139
190
(51)
(27%)
Loans to customers - amortised cost
660
946
(286)
(30%)
Amounts due from holding companies and fellow subsidiaries
1,380
3,540
(2,160)
(61%)
Other financial assets
1,027
896
131
15%
Other assets
95
47
48
102%
Total assets
20,778
21,744
(966)
(4%)
Liabilities
Bank deposits
—
52
(52)
(100%)
Customer deposits
880
1,258
(378)
(30%)
Amounts due to holding companies and fellow subsidiaries
3,923
3,551
372
10%
Settlement balances
186
943
(757)
nm
Trading liabilities
2,080
1,512
568
38%
Derivatives
8,854
9,309
(455)
(5%)
Other financial liabilities
1,907
2,200
(293)
(13%)
Subordinated liabilities
652
655
(3)
(0%)
Other liabilities
49
91
(42)
(46%)
Total liabilities
18,531
19,571
(1,040)
(5%)
Total equity
2,247
2,173
74
3%
Total liabilities and equity
20,778
21,744
(966)
(4%)
nm = not meaningful
Total assets
were €20,778 million at 31 December 2021, a
decrease of €966 million, or 4%, compared with €21,744 million
at 31 December 2020, mainly driven by cash and balances at
central banks of €5,145 million (31 December 2020 - €4,452
million), derivatives of €7,767 million (31 December 2020 -
€6,935 million) and amounts due from holding companies and
fellow subsidiaries of €1,380 million (31 December 2020 - €3,540
million).
Cash and balances at central banks
increased by €693 million to
€5,145 million at 31 December 2021. The full balance is placed
with the Dutch Central Bank and it is the key component of the
NWM N.V. liquid asset buffer. The increase in cash in the liquid
asset buffer is counterbalanced by a reduction in liquid asset
buffer eligible debt securities, keeping the total liquid asset
buffer stable year on year.
Trading assets
decreased by €206 million, or 5%, to €4,174
million. The 2021 balance mainly pertains to cash collateral
posted to derivative counterparties amounting to €3,164 million
(2020 - €3,417 million) and loans subject to reverse repurchase
agreements amounting to €946 million (2020 - €908 million).
Loans to banks - amortised cost
decreased by €51 million, or
27%, to €139 million at 31 December 2021, mainly due to the
decrease in non-euro cash placements held for liquidity buffer
purposes.
Loans to customers - amortised cost
decreased by €286 million
to €660 million, primarily reflecting maturities, repayments and
disposals. The loan portfolio includes loans to corporates and
financial institutions. The majority has a residual maturity of
more than twelve months.
Amounts due from holding companies and fellow subsidiaries
decreased by €2,160 million to €1,380 million, mainly driven by a
decrease in trading assets of €1,489 million to €765 million and
a decrease in settlement balances of €457 million to €392
million.
Other financial assets
increased by €131 million to €1,027 million
and included debt securities up €94 million to €927 million and
equity shares up €37 million to €100 million. The increase in
debt securities is driven by the trading position and the increase
in equity shares relates to the legacy portfolio.
Other assets
increased by €48 million, or 102%, to €95 million.
This was mainly driven by the recognition of a deferred tax
asset in 2021.
Derivative assets and liabilities
were €7,767 million (2020 -
€6,935 million) and €8,854 million (2020 - €9,309 million)
respectively. The movement in mark-to-market was primarily
driven by new business as well as transfers from NWM Plc. The
derivative balances primarily pertain to exchange rate contracts
and interest rate contracts. €2,592 million of the derivative
assets and €2,141 million of the derivative liabilities are balances
with holding companies and fellow subsidiaries.
Settlement balance assets and liabilities
were €391 million (31
December 2020 - €358 million) and €186 million (31 December
2020 - €943 million) respectively, reflecting year end trading
volumes.
Bank deposits
decreased by €52 million to nil at 31 December
2021.
Customer deposits
decreased by €378 million, or 30%, to €880
million, reflecting client-led activity.
Amounts due to holding companies and fellow subsidiaries
increased by €372 million to €3,923 million, mainly driven by an
increase in settlement balances of €299 million to €456 million
and an increase in customer and bank deposits of €230 million
to 1,219 million. This was partially offset by a decrease in
trading liabilities of €179 million to €2,068 million.
Trading liabilities
increased by €568 million, or 38%, to €2,080
million. The 2021 balance mainly pertains to cash collateral
received from derivative counterparties amounting to €1,468
million (2020 - €1,067 million) and deposits subject to
repurchase agreements amounting to €586 million (2020 - €306
million).
Other financial liabilities
decreased by €293 million to €1,907
million, driven by a decrease in evergreen deposits to €586
million (2020 - €886 million) and an increase in debt securities in
issue to €1,321 million (2020 - €1,314million).
Subordinated liabilities
decreased by €3 million to €652 million
mainly due to changes in fair value, partially offset by the
impact of US dollar to Euro exchange rate movements during
the year.
Other liabilities
decreased by €42 million, or 46%, to €49 million
at 31 December 2021 mainly due to a reduction in legacy items.
Equity
increased by 3%, to €2,247 million, mainly driven by the
profit for the period of €110 million and currency translation
adjustments of €4 million. This was partially offset by a
reduction in own credit adjustments of €23 million due to the
tightening credit spreads, dividends paid on AT1 capital
securities of €14 million and fair value through other
comprehensive income movements of €3 million.
Top and emerging risks
NatWest Markets N.V.
Annual Report and Accounts 2021 7
NWM N.V. Group employs a regular process for identifying and managing its top and emerging risks. These are specific scenarios
of concern that could have a significant negative impact on NWM N.V. Group’s ability to operate or meet its strategic objectives.
Details of these risks – and actions taken to mitigate them – are set out below.
External
Climate-
related risks
Accelerating climate change may lead to heightened financial risks and faster-than-anticipated impacts on
NWM N.V. Group and the wider economy. Such impacts could include financial loss as a result of a
deterioration in credit quality, or a rise in market risk exposure or operational risk – all of which underline the
importance of NatWest Group’s climate commitments. NWM N.V. Group continues to adapt its operations and
business strategy to mitigate the risks of both climate change and the transition to a low-carbon economy. It is
also embedding climate risk into its risk management framework
.
Competitive
environment
NWM Group’s target markets are highly competitive, with changes in technology, regulation, customer
behaviour and business models continuing to accelerate competitive pressure. As these evolve, there is a risk
that NWM N.V. Group is not able to adapt or compete effectively with the appropriate product offerings and
geography. NWM N.V. Group monitors the competitive environment and adapts strategy as appropriate to
ensure its business model remains sustainable and viable. It remains focused on innovating to deliver compelling
propositions for customers. While customer demands and expectations are high and increasing, NWM N.V.
Group is focused on delivering increased customer satisfaction as well as ensuring customers are offered all of
NatWest Group’s services appropriate to their needs.
COVID-19
While the immediate crisis has subsided, the ongoing impacts of the coronavirus may still have a significant
effect on the markets in which NWM N.V. Group operates. Further waves and significant rises in case numbers
may intensify market volatility and extend the recovery period. NWM N.V. Group continues to monitor
pandemic impacts closely to ensure there is no adverse impact on its business strategy, customers, operations
or employees. Heightened monitoring remains in place. Specific consideration is given to internal and external
factors that may require plans to flex dynamically, region by region. NWM N.V. Group continues to include
COVID-19 and its associated risks into planning and thinking to ensure potential future impact is minimised.
NWM N.V. Group remains well prepared having completed a number of exercises against a range of worsening
scenarios to ensure it can respond to any significant developments.
Cyber threats
Cyber-attacks continue to increase in frequency, sophistication and severity. There is a risk that a catastrophic
cyber-attack could damage NWM Group’s ability to do business and/or compromise data security. NWM N.V. in
close cooperation with NWM Group and NatWest Group operates a multi-layered approach to its defences and
continues to invest in building its resilience and cyber-security capabilities.
Regulatory,
Legal &
Conduct Risks
NWM N.V. Group operates in a highly-regulated market and must manage compliance with current regulations
and prepare for future regulations, including the finalised Basel III framework or capital requirement for NWM
Group. The implications of proposed or potential regulatory developments are incorporated into business and
financial plans. As part of this NWM N.V. Group continues to mitigate and manage the business and operational
risks arising from LIBOR transition, and to minimise risk and disruption to customers. It has also focused on
assessing the conduct risk implications of LIBOR transition for NWM N.V. Group and its customers. NWM N.V.
Group is aligned to NatWest Group’s LIBOR programme and continues to work closely with regulators and
industry bodies to manage the impact. Conduct and supervisory risks have been heightened by both strategic
change and prolonged working from home as a result of lockdown protocols. NWM N.V. Group monitors
conduct risk through the Conduct Risk framework and continues to adapt and monitor adherence and appetite
position through NWM Group’s Conduct Committee and NWM N.V. Group’s Risk and Control Committee. This
aims to deliver strong customer and business outcomes, reducing the risk of material staff misconduct and
supporting business sustainability.
UK-Europe
divergence
NWM Group has implemented plans to operate in the EU market and NWM N.V. Group monitors the evolving
situation arising from the UK’s withdrawal from the EU for any developments that may adversely affect NWM
N.V. Group and its operating environment. NWM N.V. Group continues to monitor the emerging regulatory
environment – and likely associated scenarios – to facilitate continuity of business.
Top and emerging risks continued
NatWest Markets N.V.
Annual Report and Accounts 2021 8
Internal
Model Risk
Model risk relates to inaccurate financial assessments or decisions made as a result of incorrect or misused
model outputs and reports. Model Risk Management in NWM N.V. Group is establishing more robust
governance in order to ensure minimal risk stemming from internal models and ensures that NatWest Group’s
model policies are correctly implemented and followed. Independent model validations further strengthen the
Model Risk Management in NWM N.V. Group over the past few years, NWM N.V. Group has been undergoing
scheduled Internal Model Inspections by DNB. The model inspections are aimed at affirming the models to be fit
for purpose for the entity and accurately perform the risk calculations. During 2021 NWM N.V. Group has been
remediating findings from these inspections. This work will continue in 2022.
People risk
NWM N.V. Group’s operational risk could increase through the loss of key staff, the recalibration of roles or the
loss of institutional knowledge due to strategic change. NWM N.V. Group monitors people risk closely and has
plans in place to support retention of key roles. Wider NatWest Group programmes that support engagement
and training are in place for all employees. Given the importance of diversity – particularly the proportion of
females in senior roles, pay gaps and ethnic diversity – the risk of not supporting and promoting a diverse and
inclusive workforce could have an adverse impact on NWM N.V. Group employee engagement and strategy.
This could also lead to a reputational impact among investors and regulators. Creating an inclusive workplace
is an important part of NWM N.V. Group’s purpose and plays a powerful role in shaping the business as well as
the views of stakeholders.
Strategy
execution
NWM N.V. Group’s strategy depends on NatWest Group’s and NWM Group’s strategic decisions. NWM N.V.
Group’s Board maintains proactive engagement with NWM Group to ensure strategic alignment. In line with
NatWest Group’s and NWM Group’s decisions NWM N.V. Group is targeting to implement growth for certain
customer and product segments. There are risks around the implementation of these initiatives, such as
ensuring the resulting operating model is compliant with regulations. NWM N.V. Group is participating in project
boards and NWM N.V. Group’s staff are actively involved in executing these initiatives in order to mitigate these
risks.
Sustainable
control
environment
The internal system of controls is key to NWM N.V. Group’s management of its risks. Failure to maintain a
sustainable control environment, due to changes in NWM Group’s operating environment or business strategy,
could result in an increase in risks. To mitigate these risks, a robust operational risk management framework is
in place that supports ongoing identification, management and monitoring of our risk and control profile. NWM
N.V. Group’s control environment (including operational, conduct and financial crime controls) is formally
assessed half-yearly to ensure NWM Group’s control environment position remains within appetite.
Climate-related disclosures
NatWest Markets N.V.
Annual Report and Accounts 2021 9
Overview
Throughout 2021, NWM N.V. Group has continued to play a role in NatWest Group’s climate ambition, while working to help our
customers better understand the role they can play in addressing climate change.
Key highlights include:
NWM N.V. Group completed €6.9 billion in 2021 (2020: €3.6 billion) of Climate and Sustainable Funding and Financing (CSFF)
(1)
as its
contribution to NatWest Group’s CSFF targets. In October 2021, NatWest Group announced a new target to provide an additional £100
billion of CSFF between 1 July 2021 and the end of 2025. NWM Group, including NWM N.V. Group, is expected to play a significant role
in delivering on NatWest Group’s new £100 billion CSFF target.
In 2021, NWM Group (including NWM N.V. Group) was in the top 5 for supporting Western Europe corporate issuers with their
green, social and sustainability (GSS) bonds
(2)
and ranked number 6 for supporting European financial institutions with their
green bond issuance
(3)
.
The table below summarises the ongoing progress NWM N.V. Group has made during 2021 with regard to climate-related risks
and opportunities and the areas of focus in 2022.
Climate
disclosure
themes
Progress to date
Areas of future focus/priorities
Governance
Management have continued to input into the
NWM Climate & Sustainability Committee (CSC), to
assess and manage climate-related risks and
opportunities.
Established climate change roles and
responsibilities across the senior management
team and operationalised the NWM N.V. Climate
and ESG Working Group to support this.
Further develop climate change reporting and
monitoring operating rhythm at NWM N.V.
Managing Board and NWM N.V. Group executive
level.
Continue to increase awareness of and
education about climate change and climate-
related themes.
Continue to enhance management roles and
responsibilities framework to incorporate
management of climate-related risks and
opportunities.
Strategy
Established a Centre of Excellence for Sustainable
Finance Corporate in our Capital Markets business
to support customers across different geographies
in Europe with centralised resource and expertise
for customer facing and product teams.
Continued to build climate knowledge with all
stakeholders. Contributed to the delivery of more
than 180 publications and events throughout 2021
aimed at supporting learning journeys for
customers and colleagues.
Quantify our climate impact across the balance
sheet and consider the impact of our
underwriting business on global emissions.
Support in establishing NWM Group-specific
management actions based on insights from
scenario analysis.
Risk
management
Climate change is monitored and managed as a
principal risk. NWM Group, including NWM N.V.
Group, is aligned to NatWest Group Climate Risk
Policy.
Credit risk: NWM N.V. Group adopted the NatWest
Group approach of integrating and embedding
climate risk into wholesale credit risk
management. This included mandatory qualitative
climate commentary in credit risk assessments
and the development of the qualitative scorecard
approach to provide a standardised assessment of
customers’ exposure to physical/transition climate-
related risks and opportunities.
Operational risk: Climate change considerations
were incorporated into NWM N.V. Group’s
operational risk assessment processes.
Continue to refine and innovate ways to further
integrate climate within risk management
practices, including within the enterprise wide
risk management framework.
Credit risk: The approval and launch of five
scorecards is scheduled for Q1 2022. The
intention is to develop subsequent scorecards to
expand coverage of the NWM N.V. Group
portfolio. A more quantitative approach is to be
developed within this methodology as data
becomes available.
Market risk: Ongoing engagement with
regulators will continue to ensure NWM N.V.
Group remains in line with industry standards.
Operational risk: There will be further design,
implementation and embedding of climate
change considerations in risk and control, as
well as change impact assessments, which will
require further training of colleagues.
Ongoing assessment of the impact of European
Central Bank (ECB) guidelines on NWM N.V.
Group in particular on environmental risk.
Metrics and
targets
Established quantitative assessment for its
progress against the contribution to the NatWest
Group Climate and Sustainable Funding and
Financing target and loan exposures to high-
carbon sectors identified based on physical and
transition risk assessment.
Continue to work with NatWest Group and NWM
Group, on developing NWM N.V. Group’s key
metrics and targets to assess and manage own
climate-related risks and opportunities.
(1) Climate and Sustainable Funding and Financing (CSFF) aims to support the transition towards a net zero, climate-resilient and sustainable economy of the customers of NatWest Group (including NWM
N.V. Group). NatWest Group uses its Climate and Sustainable Funding and Finance Inclusion Criteria (CSFI Criteria) to determine the assets, activities and customers that are eligible to be counted towards
its targets for climate and sustainable funding and financing.
(2) Source: Dealogic
(3) Source: Dealogic
Climate-related disclosures continued
NatWest Markets N.V.
Annual Report and Accounts 2021 10
Governance
The NWM N.V. Board and senior management team are committed to ensuring NWM N.V. Group, as part of NatWest Group, plays
a leading role in the transition to net zero.
Governance framework
During 2021, NWM N.V. Group continued to embed its climate governance framework developed in 2020 to ensure clarity of
responsibility over climate in relation to the NWM N.V. Supervisory Board, Board Committees, and management fora across the
business.
The table below provides insight into how climate accountabilities are overseen by fora within NWM N.V. Group and the wider
NWM Group.
Board knowledge and expertise
The NWM N.V. Managing Board continues to enhance
knowledge and oversight of the opportunities and risks posed
by climate change as part of discussion of management
reporting.
In addition, the Managing Board has been included in training
delivered across NatWest Group to support ongoing oversight
and upskilling on climate matters. This has included an internal
online learning module on the impact of climate change on
financial services, as well as a more in-depth education through
enrolment in University of Cambridge and University of
Edinburgh climate modules.
Strategy
Climate is one of the three focus areas under the NatWest
Group purpose. As part of NatWest Group, our climate strategy
supports and contributes to NatWest Group’s ambition to be a
leading bank in the UK helping to address the climate
challenge.
Climate-related risks
Climate risk is classified as a principal risk and remains a
significant area of focus for risk management activities.
Climate-related risks are also considered as part of NWM
Group’s (including NWM N.V. Group) top and emerging risks
process, which also provides a focus on developing issues such
as biodiversity and nature loss.
Alongside regular reporting on the principal risks detailed
within the Risk & Capital Management section, top and
emerging risks are reported to NWM Group’s (including NWM
N.V. Group) Board on a regular basis. NatWest Group’s
enterprise wide risk management framework, which also
applies to NWM N.V. Group, sets out a consistent management
approach for all principal risks, including climate risk.
The risk events associated with NatWest Group failing to
adequately mitigate the transition and physical risks arising
from climate change are illustrated by a table within NatWest
Group 2021 Climate-related Disclosure Report section 3.2. Due
to the nature of its business, NWM N.V. Group would
additionally be affected by changes in the pricing of certain
traded financial instruments and services, affecting market risk
and model risk. NWM N.V. Group would be less affected than
NatWest Group by changes to mortgages. NWM N.V. Group
continues to leverage NatWest Group’s ongoing assessment of
the transition and physical risks arising from climate change.
Forum
Role/Responsibility
Board level
governance
NWM N.V. Supervisory
Board
The NWM N.V. Supervisory Board has ultimate oversight of delivery
against the agreed strategy and objectives of NWM N.V. Group within
the aims of the wider NatWest Group. This includes the progress
towards delivering on the NatWest Group’s strategy, including climate
ambitions.
NWM N.V. Board Risk
Committee
The NWM N.V. Board Risk Committee (BRC) is responsible for the
oversight of NWM N.V. Group’s risk profile. In 2021, the BRC has
received reports outlining the progress that NWM N.V. Group is
making towards meeting regulatory expectations over climate and
ESG matters.
NWM N.V. Audit
Committee
The NWM N.V. Audit Committee is responsible for oversight of the
bank’s material disclosures, including non-financial disclosures such as
climate-related disclosures.
Executive level
governance
NWM N.V. Managing
Board
The NWM N.V. Managing Board is responsible for managing how NWM
N.V. Group identifies, measures, manages and mitigates climate-
related risks and opportunities throughout the business. The NWM N.V.
Managing Board is supported by NWM N.V. Supervisory Board, NWM
N.V. Risk & Control Committee in setting risk appetite and monitoring
the risk management response to climate change related physical and
transition risks and opportunities within the business.
Additional executive
level governance
NWM Climate &
Sustainability Committee
The Climate & Sustainability Committee (CSC) is the senior NWM
Group forum which has the objective of assessing and managing
climate-related risks and opportunities. The CSC, which is also
attended by the executive members of NWM N.V. Group, oversees the
strategic response of NWM Group (including NWM N.V. Group) to
climate change, in line with the NatWest Group Purpose-led Strategy,
and considers both the financial and non-financial risks posed by
climate change as well as explore climate-related opportunities for our
customers.
Climate-related disclosures continued
NatWest Markets N.V.
Annual Report and Accounts 2021 11
Climate-related opportunities
Established in December 2020, the Climate Opportunities
Group (COG) brings together colleagues from NatWest Group
business segments to conceptualise and develop opportunities
that complement the NatWest Group Climate ambition. NWM
N.V. Group also connects on opportunities across NatWest
Group in the Green Finance forum – a One Bank collaboration
with NWM Group (including NWM N.V. Group), Commercial,
RBSI and Coutts which aims to support customers' ambitions
around energy efficiency and low-carbon generation to
accelerate the transition to net zero.
The table in the NatWest Group 2021 Climate-related
Disclosure Report section 3.3 illustrates the key climate-related
opportunities which underpin the achievement of NatWest
Group climate ambition, which NWM N.V. Group is aligned to,
along with the potential financial impacts and timing.
In 2021, we have further adapted our business model to help
customers navigate their own journeys to transition to net zero,
and to provide them with climate-related funding and financing,
as well as an advisory service.
Centre of Excellence for climate and ESG financing and
customer solutions
During 2021, a Centre of Excellence for Sustainable Finance
Corporate was established in the NWM N.V. Group Capital
Markets business to support customers across different
geographies in Europe with centralised resource and expertise
for customer facing and product teams. This team has become
a part of NWM Group’s Climate and ESG Capital Markets team
as from December 2021, which is expected to create a
powerful customer offering by bringing together our expertise
into a single centre of excellence. This forms part of an
ecosystem across NWM Group (including NWM N.V. Group)
that aims to provide thought leadership and support our
customers with solutions across financing and risk
management to achieve their climate ambitions.
Championing climate-related product innovation
NWM Group, including NWM N.V. Group, is a part of NatWest
Group’s One Bank approach to climate-related opportunities.
Current activities are centred on the scoping of product
development opportunities aimed at producing a
comprehensive climate and ESG product suite and broadening
market presence into new areas such as private finance, FX
and ESG-linked transactions, as well as solutions to reduce the
carbon intensity of portfolios. These enhanced product
offerings will help customers navigate their own transition to
net zero.
Overall, the performance of NWM Group (including NWM N.V.
Group) has been expansive across green, social, and
sustainability (GSS) bond transactions, as well as sustainability-
linked bonds (SLBs) and sustainability-linked loans (SLLs). In
2021, NWM Group (including NWM N.V. Group) was in the top
5 for supporting Western Europe corporate issuers with their
green, social and sustainability (GSS) bonds and ranked
number 6 for supporting European financial institutions with
their green bond issuance. NWM N.V. Group supported 33
green, sustainability-linked and pure play bond transactions as
bookrunner from Western Europe, issuing a total volume of €32
billion contributing towards the NatWest Group climate targets.
These transactions reflect a shift in customer preferences and
an opportunity for NWM N.V. Group to reach new customers.
Thought leadership and influence
NWM Group’s subject matter experts delivered 108 articles and
53 events throughout 2021 across many ESG themes aimed at
supporting our clients’ learning journeys and bi-monthly ESG
Bitesize webinars to the benefit of our colleagues, to which
NWM N.V. Group made a substantial contribution, with both
ad-hoc and recurring pieces (e.g. “Issue Your Greens” series).
A total of 533 NWM Group colleagues globally including NWM
N.V. Group colleagues signed up to the University of
Edinburgh’s Climate Change transformation programme,
helping to integrate our climate ambition across different roles
and functions.
NWM N.V. Group, being part of NWM Group, plays an active
role in industry-wide climate-related fora to develop our
thought leadership and help to shape and influence climate-
related developments externally. NWM Group is a Board
Member of the Global Financial Markets Association (GFMA),
plays a role with the International Capital Market Association
(ICMA) and is a Board Member of the Association for Financial
Markets in Europe (AFME), which are crucial to building market
momentum and developing standardised frameworks and
products. NWM Group co-sponsored a report by Boston
Consulting Group and Global Financial Markets Association,
‘Unlocking the Potential of Carbon Markets to Achieve Global
Net Zero’, which provides an overview of the developing
carbon market and describes the evolving carbon ecosystem
which contains both compliance and voluntary market
alternatives. NWM N.V. Group colleagues are involved with a
range of industry bodies that support the transition to net zero
as well as the development of the sustainable finance market to
ensure a strong and robust market for all participants.
Approach to climate-related risks
NWM Group, including NWM N.V. Group, is a part of NatWest
Group’s One Bank approach to climate-related risks. Our
climate ambition incorporates various climate-related
opportunities and, at the same time, enables us to identify,
assess and manage climate-related risks. In order to meet our
commitments to help end the most harmful activities and at
least halve the climate impact of our financing activity by 2030,
NWM Group, including NWM N.V. Group, has assessed and
acted upon a number of risks related to our financing of fossil
fuels and are taking steps to develop our stance on nature and
biodiversity loss. NWM Group intends this ambition to result in
limiting activity with companies with more than 15% of activities
related to thermal and lignite coal and major oil & gas
producers, unless they had a Credible Transition Plan in line
with the 2015 Paris Agreement in place by end of 2021; and
over time reduced investment risk in customer portfolios
associated with climate change and reduced impact of our
financing activities.
Evolving climate data and analytics
In light of the continued challenges in sourcing and evaluating
climate-related data of varied scope and quality, NWM Group
has directed resources to invest in climate data and tools to
equip our customer facing teams with the analytics to best
support business origination and delivery. NWM N.V. Group is
dependent on NWM Group to drive the data enhancement and
reporting standardisation.
Scenario analysis
The Climate Biennial Exploratory Scenario (CBES) is run by
Bank of England. In 2021, NWM Group participated in the CBES
within the overall NatWest Group submission. NWM N.V. Group,
as part of NWM Group, was covered in the submission. While
the trading book was excluded from scope under the Bank of
England guidance, NWM Group has produced stressed credit
risk results for the banking book, including both impairments
and risk-weighted assets projections, for each of the ‘Early’,
‘Late’ and ‘No Policy Action’ scenarios. NWM Group supported
the analysis of large financial counterparties. Beyond CBES,
NWM N.V. Group continues to strengthen its overall climate risk
scenario capabilities and has explicitly included climate effects
in one of the core scenarios to be used in this year’s ICAAP.
NWM N.V. Group, as part of NWM Group, remains aligned to
NatWest Group’s initiatives to develop the necessary
methodology and processes to perform climate scenario
analysis as an integral part of risk management and strategic
decision-making.
Climate-related disclosures continued
NatWest Markets N.V.
Annual Report and Accounts 2021 12
Risk management
Climate risk is the risk of financial loss or adverse non-financial
impacts associated with climate change and the political,
economic and environmental responses to it. Climate change
represents inherent risk to NWM N.V. Group, not only from its
impact on the global economy and the businesses of its
customers, but also through its potential effects on asset
values, operational costs and business models. As a result,
NWM N.V. Group has adopted a dual approach to climate risk
management in line with the wider NatWest Group. Climate risk
is recognised as a principal risk as well as a causal factor
affecting other financial and non-financial risks. Throughout
2021, NatWest Group continued to embed this dual approach,
updating existing risk policies and toolkits, where appropriate,
to incorporate climate considerations.
Climate-related risks are classified as either physical or
transition risks
(4)
. In April 2021, NatWest Group Board Risk
Committee approved a principles-based climate risk policy,
which defined the key requirements for effectively managing
climate risk: the identification and assessment of climate risk
through the incorporation of climate considerations in key risk
management processes. This is largely delivered through the
following mechanisms:
Scenario analysis to identify, assess, measure and mitigate
climate risk on NatWest Group’s balance sheet.
Long-term balance sheet transformation driven by
NatWest Group’s strategic ambition and purpose to reduce
its climate impact.
Enhanced climate risk data capabilities.
NatWest Group has adopted three first generation risk appetite
measures to embed climate risk capabilities and support the
identification, assessment and mitigation of climate risk in the
day-to-day operations of the business. These are expected to
be considered by NWM N.V. Group when designing and
embedding their risk appetite measures into their business-as-
usual risk management practices in 2022.
Integrating climate-related risks into our principal risk
management
Following inclusion of climate risk as a principal risk in the
NatWest Group risk directory in Q1 2021, an approach which
uses iterative multi-year enhancements was established to fully
integrate climate risk as a factor within NatWest Group’s risk
management, including NWM N.V. Group. The timing of this
multi-year journey reflects both the complexity of the task and
evolving nature of climate data capabilities and supporting
tooling.
A climate maturity rating scale has been developed to support
the ongoing assessment of climate risk management
throughout NatWest Group. This approach translated NatWest
Group’s climate risk policy into thematic management
outcomes. Implementation of processes, procedures and
controls against these outcomes by the first line of defence
provides a measurement of the level of maturity of climate risk
management, which is overseen by the second line of defence.
At year-end 2021, measured against this scale, NWM Group,
including NWM N.V. Group, achieved the minimum expectation
of first-generation implementation. This means a predominantly
qualitative approach to the policy outcomes, with coverage
across priority sectors or customers. For example, NWM N.V.
Group now requires mandatory qualitative climate commentary
in credit risk assessments and has developed qualitative
scorecards to assess customers’ exposure to physical/transition
risks and opportunities.
Once all outcomes have been achieved to the most advanced
maturity rating, the principal climate risk will no longer be
required as the capabilities to manage climate-related risks
effectively would be integrated to respective risk management
activity.
Within NWM N.V. Group, progress has been made in
embedding climate considerations in credit and operational risk
management, with all areas progressing and further
development plans in place for 2022. Having the right climate-
related data available is essential for further integration, and
NWM N.V. Group is working closely with NatWest Group’s data
teams to evolve capabilities.
Climate-Risk Challenges
Climate risk management is an evolving discipline. In particular
climate risk metrics are complex and require many
methodological choices, judgments and assumptions. Many
climate metrics and data are based on underlying assumptions
made about climate changes, policies, technologies and other
matters that are uncertain or not yet known. For further details
see NatWest Group 2021 Climate-related Disclosure Report
section 5.8
NWM N.V. Group and its branches continue to be subject to an
increasing array of the EU/EEA (including local) climate and
sustainability-related legal and regulatory requirements. In
particular, NWM N.V. Group may fall within the scope of the
European Central Bank (‘ECB’) ‘Guide on climate-related and
environmental risks’, the EU Taxonomy, the EU Green Bond
Standards and the EBA’s Pillar 3 disclosures on ESG risks. In
December 2021 the DNB and the ECB highlighted the
prudential view and expectations towards financial institutions
regarding managing of climate, environmental and social risks
as part of their strategy, governance, risk management and
reporting practices and will drive the supervisory dialogue in
2022 and beyond. Therefore, for NWM N.V. Group there are
challenges in ensuring that the NatWest Group’s climate
strategy and climate risk management activities are tailored to
the local regulatory environment.
Credit risk
NWM Group, including NWM N.V. Group, participates in
NatWest Group’s Wholesale Credit Risk Climate Forum which
brings together key stakeholders to integrate and embed
climate risk into wholesale credit risk management.
This activity is supported by working groups in the business
segments carrying out detailed activity to integrate climate risk
in the credit assessment process. Key climate decisions
impacting credit risk frameworks, policies and risk-
management activities are escalated to the NWM Group Credit
Risk Committee for approval.
During 2021, climate risk was further embedded in the credit
risk-management process. Climate risk was included as a
factor in determining sector classification. Transaction
Acceptance Standards (TAS) were also updated to incorporate
climate considerations.
Qualitative assessment of climate risk and the mandatory
inclusion of climate commentary was incorporated into the
existing review processes for NWM N.V. Group’s credit portfolio
from Q4 2021. This may include an assessment of physical and
transition risks as well as the quality of transition plans,
understanding of customer capabilities to manage climate-
related risks, emissions assessments and associated potential
financial impacts.
(4) Physical risks can be either acute, such as extreme weather events resulting in
business disruption to the bank’s own operations, or chronic effects such as
prolonged drought conditions adversely affecting agricultural yields. Transition risks
are those associated with shift towards a net zero economy.
Climate-related disclosures continued
NatWest Markets N.V.
Annual Report and Accounts 2021 13
Risk
factors
A methodology was also developed to assess climate-risk
exposure among NatWest Group’s wholesale customers,
including NWM Group and NWM N.V. Group, using scorecards.
These provide a consistent approach to the qualitative
assessment of customers’ exposure to physical or transition
risks and opportunities. The scorecards are aligned with
probability of default models.
Scorecards are being phased in to ensure NatWest Group’s
exposure to heightened climate risk sectors and key
counterparty types are prioritised for assessment and
monitoring. In Q4 2021, the first scorecards (mid-large and
large corporate, property, housing association, banks and
leveraged funds) were finalised for approval and launch in Q1
2022.
In Q4 2021, NatWest Group started planning a more
quantitative assessment of climate risk within the credit
assessment process. The aim is to integrate climate activities,
seeking to improve customer-level analysis, including carbon
budget reporting, credible transition plans, climate stress
testing scenario output and climate scorecards. This is
expected to help determine risk appetite, differentiate pricing
and support appropriate business opportunities and risk
management.
Building on progress made over the past year, several
enhancements are planned for 2022, including evolving TAS.
Further scorecard development is planned to include those
used to assess securitisation. Strategic integration of the
scorecards is expected with a phased migration into NatWest
Group’s ratings platform, enhancing monitoring and reporting
capabilities.
As the availability of quantitative climate data improves, the
aim is to incorporate it into the scorecard tool, which is
expected to become increasingly automated to help improve
the consistency of assessment.
For further information please refer to NatWest Group 2021
Climate-related Disclosures Report section 4.3.
Market risk
The impact of extreme climate events or an acute shift in
global climate-related regulation has the potential to affect
market risk across all products.
Increased market risk may also arise as a result of supply chain
disruption, changes in demand for products, and sharp
adjustments to market prices for affected sectors or
geographies.
The embedding of market risk climate-specific stress scenarios
will follow industry standards and regulatory guidance.
Ongoing assessment of the impact of ECB guidelines on Market
Risk Framework for NWM N.V. Group is expected in 2022.
Model risk
NWM N.V. Group leverages NatWest Group-wide models and
policy standards where applicable for climate risk. Unlike other
risk-estimation models, there are limited benchmarking options
available for climate risk. As a result, an understanding of the
underlying uncertainty and holistic view of the impact on
existing models is still developing.
Reputational risk
The correlation between reputational risk and climate change
issues remained a significant area of focus during 2021.
Enhancements were made to the Environmental, Social &
Ethical risk management framework to mitigate reputational
risk arising from exposure to carbon-intensive sectors and to
support the transition to net zero.
NWM N.V. Group applies the NatWest Group reputational risk
policy which sets out expectations around the identification and
assessment of reputational risk. The policy links to
Environmental, Social & Ethical mandatory procedures which
provide clear guidance to employees when dealing with
customers, projects and transactions that present heightened
environmental, social and ethical risks.
The NWM Group Reputational Risk Committee is the point for
escalation and review of potential issues that arise at a
transactional, business or legal entity level. The Reputational
Risk Forum in NWM N.V. Group reviews matters which may
give rise to reputational risk for NWM N.V. Group and provides
inputs to NWM N.V. Risk & Control Committee. NWM N.V.
Group representatives are included in the NWM Group
Reputational Risk Committee to review relevant issues and
discuss cases, sectors and themes that represent a material
reputational risk.
Operational risk
Climate change is a source of operational risk, including
disruption to business services, damage to physical assets and
supply chain disruption.
The NatWest Group change and risk and control assessment
frameworks that NWM N.V. Group uses have been enhanced to
incorporate climate change considerations. NWM N.V. Group
completed a risk discovery heatmap in 2021 as part of a
NatWest Group-wide exercise to ensure adequate coverage of
climate change considerations across these assessments and
scenario analysis.
During 2021, a NatWest Group-wide operational risk climate
scenario exercise was performed. For full details of the
scenario analysis see NatWest Group 2021 Climate-related
Disclosure Report section 4.3.
The scenario outcomes and learnings will be used, alongside
the risk discovery heatmap work, to support our 2022 planning.
Conduct and compliance risk
Climate change and responses to it may amplify existing
conduct risks. These include risks associated with the design
and distribution of products and NWM N.V. Group’s compliance
with the rapid pace of change in climate legislation, regulation
and best practice.
NWM N.V. Group is committed to identifying, managing and
mitigating these additional risks as part of its climate
programme. It considers conduct risk as part of its product
governance and approval processes for ESG-focused products.
Climate-related risks are escalated to the CSC and other risk
fora, as appropriate. NWM N.V. Group also considers potential
legislative and regulatory changes in the jurisdictions in which it
operates to ensure it continues to remain compliant with local
requirements and expectations.
To support NatWest Group’s purpose and climate agenda,
NWM Group, including NWM N.V. Group, is reviewing its
current product governance processes and procedures with
enhancements being delivered to ensure they remain fit for
purpose and effective in the management of conduct and
compliance risk.
Financial
review
Risk
and
capital
management
Climate-related disclosures continued
NatWest Markets N.V.
Annual Report and Accounts 2021 14
Metrics and Targets
NatWest Group has developed metrics and internal reporting
tools to assess and monitor climate-related risks and
opportunities. These metrics continue to evolve in step with the
NatWest Group’s growing climate capability and industry
guidance. This section includes the metrics used to assess
climate-related risks and opportunities as relevant to NWM N.V.
Group.
Climate and sustainable funding and financing
NatWest Group aims to play a leading role in championing
climate solutions by supporting its customers’ transition
towards a net zero, climate-resilient and sustainable economy
through Climate and Sustainable Funding and Financing
(CSFF). NatWest Group uses its ‘Climate and Sustainable
Funding and Financing Inclusion Criteria (CSFI Criteria)’ to
determine the assets, activities and customers that are eligible
to be counted towards the NatWest Group Climate and
Sustainable Funding and Financing targets.
During H1 2021 NatWest Group exceeded its 2020-21 target of
providing £20 billion Climate and Sustainable Funding and
Financing in the two years ended 2021. In October 2021,
NatWest Group announced a new target to provide an
additional £100 billion of Climate and Sustainable Funding and
Financing between 1 July 2021 and the end of 2025.
NWM N.V. Group has continued contributing to the progress of
NatWest Group’s climate ambitions in 2021. In the full year,
NatWest Group completed £17.5 billion Climate and Sustainable
Funding and Financing. This comprised €6.9 billion (£5.8 billion)
in NWM N.V. Group.
Examples of major green deals
Nederlandse Gasunie
NWM N.V. acted as structuring advisor and passive bookrunner
on Nederlandse Gasunie’s issuance of 15-year inaugural
Sustainable Linked Bond €300 million, which obtained an order
volume of over €750 million. This represented the first
regulated European gas Transmission System Operator (TSO)
to publish a Sustainability-Linked Bond Framework. The
framework aligned with the core recommendations of the ICMA
Sustainability-Linked Bond Principles (SLBP) and the ICMA
Climate Transition Finance Handbook (CTFH) includes two KPIs
(reducing methane and Scope 1 and 2 greenhouse gas
emissions) that are core and material to its business model and
sustainability profile.
EnBW
NWM N.V. acted as joint-lead manager on EnBW’s repeat
mandate of hybrid dual-tranche green and non-green notes
issuance totalling €1 billion. For the first time, both a green and
a non-green tranche were marketed simultaneously. The
transaction underlines EnBW’s strategic focus on sustainable
finance with green bonds to support its climate neutrality plan
which includes reaching net zero emissions and exiting coal-
fired generation by 2035.
Republic of Italy
NWM N.V. acted as joint-lead manager on Republic of Italy’s
inaugural green bond raising €8.5 billion, which attracted
investor demand with a ten times oversubscription making it a
huge success for the issuer’s sovereign green debut. This
highlights the strong relationship with the issuer and
recognition of the GSS credentials in the market.
Heightened climate-related risk sectors
As part of its risk management activity, NatWest Group identified 13 sectors within its wholesale portfolio as exposed to heightened
climate-related risk impacts
1
. The table below summarises NWM N.V. Group loan exposures
2,3
to these sectors; the amounts
reported include all lending to customers including climate and sustainable lending.
Total exposure to heightened climate-related risk sectors reduced by €1.1 billion during 2021. There is a decrease across the
majority of sectors with the largest decrease, €0.4 billion, in the power utilities sector.
31 December 2021
31 December 2020
Loans
Off-Balance
sheet
Total sector
exposure
Total sector
exposure as % of
Total NWM NV
Loans
Off-Balance sheet
Total sector
exposure
Total sector
exposure as % of
Total NWM NV
€m
€m
€m
%
€m
€m
€m
%
Power utilities
104
1,632
1,736
24.3%
172
1,981
2,153
26.1%
Automotive
—
647
647
9.1%
—
716
716
8.7%
Land transport and logistics
87
273
360
5.0%
96
502
598
7.2%
Oil and gas
300
—
300
4.2%
49
328
377
4.6%
Commercial real estate
20
204
224
3.1%
32
272
304
3.7%
Airlines and aerospace
—
33
33
0.5%
25
200
225
2.7%
Chemicals
—
74
74
1.0%
—
109
109
1.3%
Construction
—
69
69
1.0%
—
69
69
0.8%
Agriculture
39
—
39
0.5%
34
—
34
0.4%
Shipping
—
1
1
0.0%
—
1
1
0.0%
Building materials
3
12
15
0.2%
—
—
—
0.0%
Housing associations
—
—
—
0.0%
—
—
—
0.0%
Mining and metals
—
—
—
0.0%
—
—
—
0.0%
Total Heightened climate-related
sectors
553
2,945
3,498
48.9%
408
4,178
4,586
55.6%
Total NWM NV all sectors
821
6,327
7,148
100.0%
1,247
7,005
8,252
100.0%
(1) Refer to NatWest Group 2021 Climate-related Disclosure Report section 4.3 for further details of the identification and review process.
(2) Loans to customers and banks – amortised cost and FVOCI. This table shows gross loans only and excludes amounts that are outside the scope of the Expected Credit Loss (ECL)
framework.
(3) Off-balance sheet includes loan commitments and contingent liabilities.
Risk and capital management
NatWest Markets N.V.
Annual Report and Accounts 2021 15
Presentation of information
Where marked as audited in the section header, certain
information in the Risk and capital management section (pages
15 to 50) is within the scope of the Independent auditor’s
report.
Update on COVID-19
While the immediate disruption diminished during the year, the
ongoing impacts of the global pandemic remained a significant
focus for risk management in 2021 and uncertainty in the
operating environment continued. NWM N.V. Group remained
committed to supporting its customers while operating safely
and soundly in line with its strategic objectives.
On the back of increased vaccination programmes and the
removal of restrictions, the outlook in NWM N.V. Group’s core
geographies is improving and is also reflected in the quality of
the credit portfolio and macro-economic scenarios. NWM N.V.
Group remains cautious for any new COVID-19 strains that
may result in a setback.
While the direct impact on NWM N.V. Group’s operational risk
profile reduced, NWM N.V. Group continued to closely monitor
the second-order impacts on its transformation agenda, with a
significant focus on managing resource to protect key
regulatory deliveries. The continued evolution of NWM N.V.
Group’s ways of working – to include large-scale working from
home – also required significant operational risk focus,
particularly in terms of business resilience.
As a result of its strong balance sheet and prudent approach to
risk management, NWM N.V. Group remains well placed to
withstand these aftershocks as well as providing support to
customers when they need it most.
Risk management framework
Introduction
NWM N.V. Group operates under NatWest Group’s enterprise-
wide risk management framework, which is centred around the
embedding of a strong risk culture. The framework ensures the
governance, capabilities and methods are in place to facilitate
risk management and decision-making across the organisation.
The framework ensures that NWM N.V. Group’s principal risks
– which are detailed in this section – are appropriately
controlled and managed. It sets out the standards and
objectives for risk management as well as defining the division
of roles and responsibilities.
This seeks to ensure a consistent approach to risk management
across NWM N.V. Group. It aligns risk management with NWM
N.V. Group’s overall strategic objectives.
The framework, which is designed and maintained by NatWest
Group’s independent Risk function, is owned by the NatWest
Group Chief Risk Officer. It is reviewed and approved annually
by the NatWest Group Board. The framework incorporates risk
governance, NatWest Group’s three lines of defence operating
model and the Risk function’s mandate.
Risk appetite, supported by a robust set of principles, policies
and practices, defines the levels of tolerance for a variety of
risks and provides a structured approach to risk-taking within
agreed boundaries.
While all NWM N.V. Group colleagues are responsible for
managing risk, the Risk function provides oversight and
monitoring of risk management activities, including the
implementation of the framework and adherence to its
supporting policies, standards and operational procedures. The
Chief Risk Officer plays an integral role in providing the Board
with advice on NWM N.V. Group’s risk profile, the performance
of its controls and in providing challenge where a proposed
business strategy may exceed risk tolerance.
In addition, there is a centralised process in NWM Group to
identify and manage top risks, which are those that could have
a significant negative impact on its ability to meet its strategic
objectives. A complementary process operates to identify
emerging risks. Both top and emerging risks may incorporate
aspects of – or correlate to – a number of principal risks and
are reported alongside them to the Board on a regular basis.
Page
Presentation of information
15
Update on COVID-19
15
Risk management framework
Introduction
15
Culture
16
Governance
17
Risk appetite
21
Identification and measurement
22
Mitigation
22
Testing and monitoring
22
Regulatory oversight
22
Market risk
Traded market risk
23
Non-traded market risk
25
Capital, liquidity and funding risk
Definition
27
Key developments in 2021
27
Capital management
28
Liquidity and funding management
28
Credit risk
Key developments in 2021
30
Models, impairment provisioning and write-offs
32
Economic loss drivers and economic uncertainty
34
Banking activities
39
Trading activities
45
Compliance & conduct risk
46
Financial crime risk
46
Climate risk
47
Operational risk
48
Model risk
49
Reputational risk
50
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 16
Risk management framework continued
Culture
Risk culture is at the heart of NWM N.V. Group’s risk
management framework and its risk management practice.
The risk culture target is to make risk part of the way
employees work and think.
A focus on leaders as role models and action to build clarity,
develop capability and motivate employees to reach the
required standards of behaviour are key to achieving the risk
culture target. Colleagues are expected to:
Take personal responsibility for understanding and
proactively managing the risks associated with individual
roles.
Respect risk management and the part it plays in daily work.
Understand the risks associated with individual roles.
Align decision-making to NWM N.V. Group’s risk appetite.
Consider risk in all actions and decisions.
Escalate risks and issues early; taking action to mitigate
risks and learning from mistakes and near-misses.
Challenge others’ attitudes, ideas and actions.
Report and communicate risks transparently.
The target risk culture behaviours are embedded in NatWest
Group’s Critical People Capabilities and are clearly aligned to
the core values of “serving customers”, “working together”,
“doing the right thing” and “thinking long term”. These act as
an effective basis for a strong risk culture because the Critical
People Capabilities form the basis of all recruitment and
selection processes.
Training
Enabling employees to have the capabilities and confidence to
manage risk is core to NatWest Group’s learning strategy.
NatWest Group offers a wide range of learning, both technical
and behavioural, across the risk disciplines. This training can be
mandatory, role-specific or for personal development.
Mandatory learning for all staff is focused on keeping
employees, customers and NatWest Group safe. This is easily
accessed online and is assigned to each person according to
their role and business area. The system allows monitoring at
all levels to ensure completion.
Our Code
NatWest Group’s conduct guidance, Our Code, provides
direction on expected behaviour and sets out the standards of
conduct that support the values. The code explains the effect of
decisions that are taken and describes the principles that must
be followed.
These principles cover conduct-related issues as well as wider
business activities. They focus on desired outcomes, with
practical guidelines to align the values with commercial
strategy and actions. The embedding of these principles
facilitates sound decision-making and a clear focus on good
customer outcomes.
Where appropriate, if conduct falls short of NatWest Group’s
required standards, the accountability review process is used to
assess how this should be reflected in pay outcomes for the
individuals concerned. The NatWest Group remuneration policy
ensures that the remuneration arrangements for all employees
reflect the principles and standards prescribed by the PRA
rulebook and the FCA handbook. Any employee falling short of
the expected standards would also be subject to internal
disciplinary policies and procedures. If appropriate, the relevant
authority would be notified.
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 17
Risk management framework continued
Governance
Risk management structure
While NWM N.V. Group is part of NatWest Group – and operates within NatWest Group’s risk framework – the NWM N.V. Group
Supervisory Board is responsible for approving and overseeing the implementation of NWM N.V. Group’s business strategy (within
the parameters set by the NatWest Group Board). Policies and compliance activities may be adapted in order to comply with local
legal or regulatory requirements.
Service level agreements are in place between NWM N.V. Group and NatWest Group and also with NWM Plc to accommodate
integrated risk management oversight.
The diagram shows NWM N.V. Group's risk management structure in 2021.
(1) NWM N.V. Group is a wholly owned subsidiary of NatWest Group plc.
(2) The NWM N.V. Group Chief Risk Officer has a functional reporting line to the NWM Plc Chief Risk Officer.
(3) The NWM N.V. Group Risk function is independent and provides oversight of risk management activities to ensure risks are adequately monitored and controlled. The heads of risk
work closely with the NWM N.V. Group Chief Risk Officer, the US Head of Risk and the Chief Risk Officer Asia Pacific to ensure consistency across the international business.
(4) The NWH Risk function provides risk management services across NatWest Group, including – where agreed – to the NWM N.V. Group Chief Risk Officer. These services are
managed, as appropriate, through service level agreements.
Risk management in NWM N.V. Group focuses on all material risks including credit, market, liquidity, operational, regulatory,
financial crime, climate, model and conduct risk and business activities. The day-to-day management of capital, liquidity, funding
and non-traded market risk is the overall responsibility of the Managing Board and further delegated to the Asset & Liability
Management Committee.
NWM Plc
Chief Risk
Officer
NatWest Group
Chief Executive
Officer
Head of Financial Crime
Head of Operational Risk
NWM Plc
Chief Executive
Officer
NWM N.V.
Group Chief
Executive
Officer
NWM N.V.
Group Chief Risk
Officer
NatWest Group
Chief Risk
Officer
Head of Model Risk
Head of Credit Risk
Head of Compliance &
Conduct
Head of Market, Liquidity &
Funding Risk
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 18
Risk management framework continued
The following table details NWM N.V. Group’s key boards and committees together with an overview of their responsibilities.
Board/Committee
Responsibilities
Supervisory Board
Membership:
Consisted of five members as at 31 December 2021.
The Supervisory Board is responsible for supervising NWM N.V. Group’s
management, its general affairs, and the business connected with it, as
well as advising the Managing Board. The Supervisory Board is
responsible for the review of all matters relative to accounting policies,
internal control, financial reporting functions, internal audit, external audit,
risk management, regulatory compliance and the product approval
process. There is a separate Risk and a separate Audit Committee. Its
membership is composed of members of the Supervisory Board.
Board Risk Committee (BRC)
Membership:
Current membership consists of an independent
member as Chairman and an independent member as
a regular member.
The Board Risk Committee provides oversight and advice on current and
future risk exposures, the effectiveness of the risk management
framework, future risk strategy and (with the Audit Committee) internal
controls required to manage risk.
Board Audit Committee
Membership:
At least two Supervisory Board Members (including the
Chairman of the Committee), of which at least one
must be independent. The members must have
thorough knowledge of the financial aspects of risk
management or the necessary experience to permit a
thorough assessment of risks as well as thorough
knowledge of financial reporting, internal control
systems, audits and accounting (relating to financial
institutions or other large companies).
The Board Audit Committee:
Reviews and monitors all matters relating to accounting policies,
internal control, financial reporting functions, Internal Audit, External
Auditor risk assessment, regulatory compliance and the product
approval process.
Establishes a procedure for the selection of an external auditor.
Assesses the monitoring of the external auditor and the statutory
control of the annual accounts.
Managing Board
Membership:
Consists of four members: the Chairman and Chief
Executive Officer (CEO), the Chief Financial Officer
(CFO), the Chief Risk Officer (CRO) and the Chief
Operating Officer (COO).
The Managing Board reports to the Supervisory Board. It is the principal
decision-making corporate body for NWM N.V. Group and is responsible
for the day-to-day activities of NWM N.V. Group. The Managing Board is,
among others, responsible for setting policy framework, operating
structure and yearly plan (including objectives and budgets). In addition to
their overall corporate responsibilities, the members of the Managing
Board manage one or more units, for which they have primary
responsibility.
Risk & Control Committee (RCC)
Membership:
Chaired by the CRO. Members include the CEO, the
CFO, the COO, the Senior Legal Officer, the N.V.
Treasurer, the Head of Trading, the Head of Capital
Markets, Head of Sales and the Heads of the respective
risk disciplines.
The responsibilities of the RCC include:
Advising the Managing Board on the risk appetite of NWM N.V. Group
and receiving direction from the Managing Board on the risk appetite.
Providing input to NWM N.V. Group’s risk appetite setting process in
the context of NWM N.V. Group’s overall risk appetite.
Overseeing the risk framework within NWM N.V. Group and reporting
directly to the Managing Board on the performance of the framework
and on issues arising from it.
Monitoring the actual risk profile of NWM N.V. Group, ensuring that
this remains within the boundaries of the agreed risk appetite and
escalating excesses to the Managing Board. Prior to escalation, the
RCC can ask the appropriate owner who normally monitors and
controls the risk item, to address any excess.
The remit of the Committee also includes monitoring of capital,
liquidity, credit, market, conduct, financial crime, climate, operational,
model, and regulatory risks within NWM N.V. Group. Changes to the
Terms of Reference of the RCC must be approved by the Managing
Board.
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 19
Risk management framework continued
Board/Committee
Responsibilities
Asset & Liability Management Committee (ALCo)
Membership:
Chaired by the CFO. Members include the CEO, the
CRO, the COO, the N.V. Treasurer, the N.V. Head of
Trading, Head of Sales and the Head of Financing &
Risk Solutions.
The responsibilities of the ALCo include:
The overall governance responsibility for the strategic management of
NWM N.V. Group’s balance sheet.
To manage capital, liquidity and funding within risk appetite limits.
The liquidity, funding, foreign exchange and interest rate exposures of
NWM N.V. Group’s balance sheet.
The balance sheet structure and risk-weighted assets position of NWM
N.V. Group.
Decisions on capital repatriation and loss coverage.
The implementation and maintenance of transfer pricing policies
(although setting the liquidity spread curve remains the responsibility
of NatWest Group ALCo).
The approval and implementation within NWM N.V. Group of NatWest
Group Treasury policies and procedures.
Responsible for oversight of retained business (shared assets).
Disclosure Committee (DC)
Membership:
Chaired by the CFO. Members include the CEO, the
CRO, the CGO, the N.V. Treasurer, the N.V. Senior
Legal Officer, Head of NatWest Accounting Policy and
NWM Financial Controller.
The responsibilities of the DC include:
Monitoring, evaluation and enhancing disclosure controls and
procedures; and internal controls over financial reporting.
Overseeing, evaluating, and approving all significant disclosures made
by NWM N.V. Group including:
The Annual Report and Accounts and corresponding interim
disclosures.
Public filings to be made in connection with the
announcement of financial results, excluding filings with
regulators.
Furthermore, the responsibilities of the DC include overseeing, evaluating
and reviewing accounting issues and developments and
recommendations on key accounting judgments, including risk and capital
disclosures, prior to presentation to the NWM N.V. Group Managing and
Supervisory Board. The DC will make recommendations to the NWM N.V.
Group Managing and Supervisory Board in relation to its review of these
items.
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 20
Risk management framework continued
Committee structure
The diagram shows NWM N.V. Group’s risk committee structure in 2021 and the main purposes of each committee.
Asset & Liability
Management Committee
Risk & Control
Committee
Disclosure Committee
Board Audit Committee
Board Risk Committee
Reviews and monitors all
matters relating to
accounting policies, internal
control, financial reporting
functions, Internal Audit,
External Auditor risk
assessment, regulatory
compliance and the product
approval process.
Provides oversight and
advice on current and future
risk exposures, the
effectiveness of the risk
management framework,
future risk strategy and (with
the Audit Committee)
internal controls required
to manage risk.
Oversees management
of the Group’s current
and future balance sheet
aligned with chosen
business strategy and
approved risk appetite.
Monitors, evaluates and
enhances disclosure
controls and procedures
and financial reporting
internal controls. Reviews
all significant disclosures.
NWM N.V. Supervisory
Board
NWM N.V. Management
Board
Provides oversight
and advice on current
and potential future
risk exposures, future
risk strategy and
the effectiveness of
the risk management
framework.
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 21
Risk management framework continued
Three lines of defence
NatWest Group uses the industry-standard three lines of
defence model to articulate accountabilities and responsibilities
for managing risk. This supports the embedding of effective risk
management throughout the organisation.
First line of defence
The first line of defence incorporates most roles in NatWest
Group, including Technology and Services as well as support
functions such as Human Resources, Legal and Finance.
The first line of defence is empowered to take risks within the
constraints of the risk management framework and policies as
well as the risk appetite statements set by NatWest Group and
measures set by the Board.
The first line of defence is responsible for managing its direct
risks. With the support of specialist functions such as Legal,
Human Resources and Technology, it is also responsible for
managing its consequential risks by identifying, assessing,
mitigating, monitoring and reporting risks.
Second line of defence
The second line of defence comprises the Risk function and is
independent of the first line.
The second line of defence is empowered to design and
maintain the risk management framework and its components.
It undertakes proactive risk oversight and continuous
monitoring activities to confirm that NatWest Group engages in
permissible and sustainable risk-taking activities.
The second line of defence advises on, monitors, challenges,
approves, escalates and reports on the risk-taking activities of
the first line, ensuring that these are within the constraints of
the risk management framework and policies as well as the risk
appetite statements set by NatWest Group and measures set by
the Board.
Third line of defence
The third line of defence is the Internal Audit function and is
independent of the first and second lines.
The third line of defence is responsible for providing
independent and objective assurance to the Board, its
subsidiary legal entity boards and executive management on
the adequacy and effectiveness of key internal controls,
governance and the risk management in place to monitor,
manage and mitigate the key risks to NatWest Group and its
subsidiary companies achieving their objectives.
The third line of defence executes its duties freely and
objectively in accordance with the Chartered Institute of
Internal Auditors’ Code of Ethics and International Standards.
Risk appetite
Risk appetite defines the type and aggregate level of risk NWM
N.V. Group is willing to accept in pursuit of its strategic
objectives and business plans. Risk appetite supports sound risk
taking, the promotion of robust risk practices and risk
behaviours, and is calibrated annually.
For certain principal risks, risk capacity defines the maximum
level of risk NWM N.V. Group can assume before breaching
constraints determined by regulatory capital and liquidity
requirements, the operational environment, and from a conduct
perspective. Establishing risk capacity helps determine where
risk appetite should be set, ensuring there is a buffer between
internal risk appetite and NWM N.V. Group’s ultimate capacity
to absorb losses.
Risk appetite framework
The risk appetite framework supports effective risk
management by promoting sound risk-taking through a
structured approach, within agreed boundaries. It also ensures
emerging risks and risk-taking activities that might be out of
appetite are identified, assessed, escalated and addressed in a
timely manner.
To facilitate this, a detailed annual review of the framework is
carried out. The review includes:
Assessing the adequacy of the framework when compared
to internal and external expectations.
Ensuring the framework remains effective and acts as a
strong control environment for risk appetite.
Assessing the level of embedding of risk appetite across the
organisation.
The NWM N.V. Group Supervisory Board approves the risk
appetite framework annually.
Establishing risk appetite
In line with NatWest Group’s risk appetite framework, risk
appetite is maintained across NWM N.V. Group through risk
appetite statements. These are in place for all principal risks
and describe the extent and type of activities that can be
undertaken.
Risk appetite statements consist of qualitative statements of
appetite supported by risk limits and triggers that operate as a
defence against excessive risk-taking. Risk measures and their
associated limits are an integral part of the risk appetite
approach and a key part of embedding risk appetite in day-to-
day risk management decisions. A clear tolerance for each
principal risk is set in alignment with business activities.
NWM N.V. Group operates within risk appetite set at NatWest
Group and NWM Plc level unless specific entity level
considerations need to prevail, for example, specific capital
structure considerations.
In addition to operating within NatWest Group and NWM Plc
risk appetite, NWM N.V. Group sets additional risk appetite
limits for its own strategic and most material risks where
necessary. NWM N.V. Group’s risk profile is frequently reviewed
and monitored and management focus is concentrated on all
strategic risks, material risks and emerging risk issues. Risk
profile relative to risk appetite is reported regularly to NWM
N.V. Group Board and senior management.
The risk appetite statement is approved by the Risk & Control
Committee, the Managing Board and the Supervisory Board.
Risk controls and their associated limits are an integral part of
the risk appetite approach and a key part of embedding risk
appetite in day-to-day risk management decisions. A clear
tolerance for material risk types is set in alignment with
business activities.
NatWest Group policies directly support the qualitative aspects
of risk appetite. They define the qualitative expectations,
guidance and standards that stipulate the nature and extent of
permissible risk taking and are consistently applied across
NatWest Group and its subsidiaries.
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 22
Risk management framework continued
Identification and measurement
Identification and measurement within the risk management
process comprise:
Regular assessment of the overall risk profile, incorporating
market developments and trends, as well as external and
internal factors.
Monitoring of the risks associated with lending and credit
exposures.
Assessment of trading and non-trading portfolios.
Review of potential risks in new business activities and
processes.
Analysis of potential risks in any complex and unusual
business transactions.
The financial and non-financial risks that NWM N.V. Group
faces are detailed in its Risk Directory. This provides a common
risk language to ensure consistent terminology is used across
NWM N.V. Group. The Risk Directory is subject to annual
review to ensure it continues to fully reflect the risks that NWM
N.V. Group faces.
Mitigation
Mitigation is a critical aspect of ensuring that risk profile
remains within risk appetite. Risk mitigation strategies are
discussed and agreed within NWM N.V. Group.
When evaluating possible strategies, costs and benefits, residual
risks (risks that are retained) and secondary risks (those that
arise from risk mitigation actions themselves) are also
considered. Monitoring and review processes are in place to
evaluate results. Early identification, and effective management
of changes in legislation and regulation are critical to the
successful mitigation of compliance and conduct risk. The
effects of all changes are managed to ensure the timely
achievement of compliance. Those changes assessed as having
a high or medium-high impact are managed more closely.
Emerging risks that could affect future results and performance
are also closely monitored. Action is taken to mitigate potential
risks as and when required. Further in-depth analysis, including
the stress testing of exposures, is also carried out.
Testing and monitoring
Targeted risk processes and controls are subject to
independent testing and monitoring.
This activity is carried out to confirm to both internal and
external stakeholders – including the Board, senior
management, Internal Audit and NWM N.V. Group’s regulators
– that such processes and controls are being correctly
implemented and operate adequately and effectively. A
consistent testing and monitoring methodology is in place
across NWM N.V. Group.
Testing and monitoring activity focuses on processes and
controls relating to credit risk, financial crime risk, operational
resilience, and compliance and conduct risk. However, a range
of controls and processes relating to other risk types is also
subject to testing and monitoring activity as deemed
appropriate within the context of a robust control environment.
Regulatory oversight
NWM N.V. Group is subject to the direct supervision of De
Nederlandsche Bank (DNB).
The Autoriteit Financiële Markten (AFM), as an independent
market conduct authority, has supervision of NWM N.V. Group
in the Netherlands. Prevention of market abuse and transition
to sustainable society are among the top priorities of AFM in
2022, which are also the key focus areas for NWM N.V. Group.
During 2021, ongoing remediation programmes were underway
relating to financial crime, data management, outsourcing and
capital models. The progress is shared regularly with the
relevant supervisors. These programmes will continue in 2022.
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 23
Market risk
NWM N.V. Group is exposed to traded market risk through its
trading activities and to non-traded market risk through its
banking activities. Traded and non-traded market risk
exposures are managed and discussed separately. The traded
market risk section begins below. The non-traded market risk
section begins on page 25.
Traded market risk
Definition
(audited)
Traded market risk is the risk arising from changes in fair value
on positions, assets, liabilities or commitments in trading
portfolios as a result of fluctuations in market prices.
Sources of risk
(audited)
From a market risk perspective, activities are focused on rates,
currencies and traded credit.
NWM N.V. Group undertakes transactions in financial
instruments including debt securities, as well as securities
financing and derivatives. The key categories of traded market
risk are interest rate risk, credit spread risk and foreign
currency price risk.
Trading activities may also give rise to counterparty credit risk.
For further details, refer to the Credit risk section.
Key developments in 2021
The euro depreciated against both the US dollar and
sterling in 2021. Euro inter-bank interest rates increased
overall. The European Central Bank maintained the deposit
rate at -50 basis points and its marginal facility lending rate
at 25 basis points. Eurozone annual inflation hit a record
high level of 5% in December 2021, driven by the increase
in energy prices. Market volatility was observed as the delta
and omicron variants of COVID-19 appeared, but this was
of lesser magnitude than the fluctuations in 2020.
Traded VaR remained within defined appetite, with a slight
year-on-year increase reflecting NWM N.V. Group’s gradual
expansion of its European client base.
In Q2 2021, four new market-making desks were launched
for euro interest rate swaps, euro repos, foreign exchange
options and foreign exchange forwards. These run
moderate open risk.
Governance
(audited)
Market risk policy statements set out the governance and risk
management framework. The Market Risk function
independently identifies, measures, monitors, controls and
challenges the risk-taking activities undertaken by the trading
business, ensuring these are within the constraints of the
market risk framework, policies, and risk appetite statements
and measures.
NWM N.V. Group’s traded market risk positions are reported
monthly to the Risk and Control Committee and subsequently
to the Managing and Supervisory Boards.
Risk appetite
NWM N.V. Group’s qualitative appetite for traded market risk is
set out in the traded market risk appetite statement.
Quantitative appetite is expressed in terms of exposure limits.
The limits at NWM N.V. Group level comprise value-at-risk
(VaR) and stressed value-at-risk (SVaR). More details on these
are provided on the following pages.
In addition, for each trading business, sub-business or desk, a
dealing authority is defined. Dealing authorities comprise
qualitative limits related to the product types within the scope
of each desk, as well as quantitative metrics specific to the
desk’s market risk exposures. These additional limits and
metrics aim to control various risk dimensions such as VaR,
SVaR, exposure size measured via risk sensitivities, currency
and tenor.
The limits are reviewed to reflect changes in risk appetite,
business plans, portfolio composition and the market and
economic environments.
NWM N.V. Group’s risk appetite is aligned with that of NWM
Group. A comprehensive structure and controls are in place
aimed at ensuring that this appetite is not exceeded. NWM N.V.
Group mitigates market risk among others by hedging
transactions with NWM Group.
To ensure approved limits are not breached and that NWM N.V.
Group remains within its risk appetite, triggers have been set
such that if exposures exceed a specified level, action plans are
developed by the relevant business and the Market Risk
function and implemented.
For further information on risk appetite, refer to page 21.
Monitoring and mitigation
Traded market risk is identified and assessed by gathering,
analysing, monitoring and reporting market risk information at
desk, business and NWM N.V. Group-wide levels. Industry
expertise, continued system developments and techniques such
as stress testing are also used to enhance the effectiveness of
the identification and assessment of all material market risks.
Traded market risk exposures are monitored against limits and
analysed and signed off daily by the Market Risk function. A
daily report summarising the position of exposures against
limits at desk, business and NWM N.V. Group levels is provided
to the trading desks.
Limit reporting is supplemented with regulatory capital and
stress testing information as well as ad hoc reporting.
A risk review of trading businesses is undertaken weekly with
senior risk and front office staff. This includes a review of profit
and loss drivers, notable position concentrations and other
positions of concern.
Business profit and loss performance is monitored
automatically through loss triggers which, if breached, require
a remedial action plan to be agreed between NWM N.V.
Group’s Market Risk function and the business. The loss
triggers are set using both a fall-from-peak approach and an
absolute loss level.
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 24
Traded market risk continued
Measurement
NWM Group uses a comprehensive set of methodologies and
techniques to measure traded market risk. At NWM N.V. Group
level, these chiefly comprise VaR and SVaR. In addition, stress
testing is used to identify any vulnerabilities and potential losses
in excess of VaR and SVaR. The incremental risk charge is not
material at NWM N.V. Group level.
Value-at-risk
VaR is a statistical estimate of the potential change in the
market value of a portfolio (and, thus, the impact on the
income statement) over a specified time horizon at a given
confidence level.
For internal risk management purposes, VaR assumes a time
horizon of one trading day and a confidence level of 99%.
NWM Group’s internal VaR model is based on a historical
simulation, utilising market data from the previous 500 days on
an equally weighted basis. NWM N.V. Group uses the same
model.
The model also captures the potential impact of interest rate
risk, credit spread risk and foreign currency price risk.
The performance and adequacy of the VaR model are tested
on a regular basis through the following processes:
Back-testing – Internal and regulatory back-testing is
conducted on a daily basis. VaR model back-testing counts
the number of days when a loss exceeds the corresponding
daily VaR estimate, measured at a 99% confidence level.
Ongoing model validation – VaR model performance is
assessed both regularly, and on an ad-hoc basis, if market
conditions or portfolio profile change significantly.
Model Risk Management review – As part of the model
lifecycle, all risk models (including the VaR model) are
independently reviewed to ensure the model is still fit for
purpose given current market conditions and portfolio
profile. For further detail on the independent model
validation carried out by Model Risk Management, refer to
page 49. More information relating to pricing and market
risk models is presented in the NatWest Group Pillar 3
Report.
1–day 99% traded internal VaR
(audited)
The table below analyses the internal VaR for NWM N.V. Group’s trading portfolios segregated by type of market risk exposure.
2021
2020
Average
Maximum
Minimum
Period end
Average
Maximum
Minimum
Period end
€m
€m
€m
€m
€m
€m
€m
€m
Interest rate
0.3
0.7
0.2
0.3
0.3
0.7
0.1
0.2
Credit spread
0.8
1.2
0.6
1.0
0.6
4.7
0.4
0.6
Currency
0.2
0.3
0.1
0.2
0.2
0.7
—
0.2
Diversification
(1)
(0.4)
(0.5)
(0.4)
(0.4)
Total
0.9
1.3
0.6
1.0
0.7
4.7
0.5
0.6
(1) NWM N.V. Group benefits from diversification, which reflects the risk reduction achieved by allocating investments across various financial instrument types, industry counterparties,
currencies and regions. The extent of diversification benefit depends on the correlation between the assets and risk factors in the portfolio at a particular time.
Although COVID-19 remained within the VaR rolling window, NWM N.V. Group maintained open risk at a moderate level and
traded VaR remained within defined appetite during 2021.
Overall, average one-day VaR increased slightly year-on-year as the trading scope was expanded with four new market-
making desks. Credit spread risk remained the dominant market risk factor, with interest rate and foreign exchange risk less
significant.
SVaR
As with VaR, the SVaR methodology produces estimates of the potential change in the market value of a portfolio, over a specified
time horizon, at a given confidence level. SVaR is a VaR-based measure using historical data from a one-year period of stressed
market conditions.
A simulation of 99% VaR is run on the current portfolio for each 250-day period from 2005 to the current VaR date, moving
forward one day at a time. The SVaR is the worst VaR outcome of the simulated results.
The internal traded SVaR model captures all trading book positions.
In 2021, 10-day 99% internal SVaR for the trading portfolios of NWM N.V. Group was €5.3 million on an average basis.
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 25
Non-traded market risk
Definition
(audited)
Non-traded market risk is the risk to the value of assets or
liabilities outside the trading book, or the risk to income, that
arises from changes in market prices such as interest rates,
foreign exchange rates and equity prices, or from changes in
managed rates.
Sources of risk
(audited)
The key sources of non-traded market risk for NWM N.V. Group
are interest rate risk and foreign exchange risk.
Interest rate risk
Non-traded interest rate risk in NWM N.V. Group mainly arises
from gap risk and basis risk. These sensitivities can give rise to
volatility in net interest income as interest rates vary.
Foreign exchange risk
Non-traded foreign exchange risk arises from two main sources:
Structural foreign exchange risk
– arises from the capital
deployed in foreign subsidiaries, branches and joint
arrangements and related currency funding where it differs
from the euro.
Non-trading book foreign exchange risk
– arises from
customer transactions and profits and losses that are in a
currency other than the functional currency.
Key developments in 2021
NWM N.V. Group’s non-traded VaR remained moderate and
decreased year on year given the moderate open positions
in interest rate, foreign exchange and credit spread risks. In
2021, total one-day 99% non-traded internal VaR for NWM
N.V. was €1.1 million on an average basis (2020 - €1.3
million) and €0.7 million on a period-end basis (2020 - €1.6
million).
New clients were on-boarded during the year, with Treasury
funding the expanding client flow.
Two new non-trading businesses were set in Q4 2021:
investor deposits and leveraged loans. The former has
helped diversify the funding mix while the latter has
expanded the lending business.
Governance
(audited)
Responsibility for identifying, measuring, monitoring and
controlling the market risk arising from non-trading activities lies
with the Market Risk team.
Policy statements set out the governance and risk management
framework for non-traded market risk.
Risk appetite
NWM N.V. Group’s qualitative appetite is set out in the non-
traded market risk appetite statement.
Its quantitative appetite is expressed in terms of exposure limits.
The limits at NWM N.V. Group comprise a VaR measure
supplemented with SVaR, sensitivities, earnings-at-risk and
economic-value-of-equity. Other limits monitored at executive
governance level notably include a stress limit based on the
foreign exchange sensitivity of NWM N.V. Group’s CET1 ratio.
To ensure limits are not breached and that NWM N.V. Board
remains within its risk appetite, triggers at NWM N.V. Board and
lower levels have been set such that if exposures exceed a
specified level, action plans are developed by the business, the
Non-Traded Market Risk function and Finance for
implementation.
The limits are reviewed to reflect changes in risk appetite,
business plans, portfolio composition and the market and
economic environments.
NWM N.V. Group’s risk appetite is aligned with that of NWM
Group. A comprehensive structure and controls are in place
aimed at ensuring that this appetite is not exceeded. NWM N.V.
Group aims to mitigate market risk, to the extent possible, by
way of hedging transactions with NWM Group.
For further information on risk appetite, refer to page 21.
Monitoring and measurement
Non-traded market risk positions are reported monthly to the
NWM N.V. Risk and Control Committee (RCC) and subsequently
to the Managing and Supervisory Boards.
Interest rate risk
NWM N.V. Group policy is to manage interest rate sensitivity in
banking book portfolios within defined risk limits which are
monitored and approved by the NWM N.V. Group Risk & Control
Committee. Interest rate swaps are used to hedge some
exposures externally.
Key measures used to evaluate non-traded interest rate risk
(NTIRR) are subject to approval granted by NWM Group model
risk governance. Limits on NTIRR are set according to the Non-
Trading Interest Rate and Foreign Currency Risk Policy
Statement and are subject to NWM N.V. Group Risk & Control
Committee approval.
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 26
Non-traded market risk continued
NTIRR is measured using a version of the same VaR methodology that is used by NWM Group. VaR metrics are based on interest
rate repricing gap reports as at the reporting date. NTIRR one-day VaR at a 99% confidence level for NWM N.V. Group was as
follows:
Average
Maximum
Minimum
Period end
€m
€m
€m
€m
2021
1.1
2.0
0.7
0.7
2020
1.3
4.8
0.4
1.6
Foreign exchange risk
(
audited)
The only material non-traded open currency positions are the structural foreign exchange exposures arising from investments in
foreign subsidiaries, branches and associates and their related currency funding. These exposures are assessed and managed by
NatWest Group Treasury to predefined risk appetite levels under delegated authority from NWM N.V. Group’s ALCo.
The table below sets out NWM N.V. Group’s structural foreign currency exposures:
Net
Structural
investments
foreign
in foreign
currency
operations
exposures
2021
€m
€m
US dollar
8
8
Other non-euro
41
41
49
49
2020
US dollar
9
9
Other non-euro
48
48
57
57
Overall the foreign exchange position decreased year on
year, mostly driven by a decrease in non-euro cash as a
result of sales of legacy positions.
The most material exposure was the positive position in
sterling, which was favourable for NWM N.V. Group given
the strengthening of sterling against the euro at year-end
2021.
The pre-tax sensitivity of the foreign exchange reserves to
changes in exchange rates is proportional to the nominal
exposure. At 31 December 2021, a 1% strengthening in all
foreign currencies against the euro would result in a €0.5
million increase in foreign exchange reserves before tax,
while a 1% weakening in all foreign currencies against the
euro would result in a €0.5 million reduction.
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 27
Capital, liquidity and funding risk
Definition
Regulatory capital consists of reserves and instruments issued
that are available to NWM N.V. Group that have a degree of
permanency and are capable of absorbing losses. A number of
strict conditions set by regulators must be satisfied to be
eligible to count as capital.
Capital adequacy risk is the risk that there is or will be
insufficient capital and other loss absorbing debt instruments to
operate effectively including meeting minimum regulatory
requirements, operating within Board-approved risk appetite
and supporting strategic goals.
Liquidity consists of assets that can be readily converted to
cash within a short timeframe at a reliable value. Liquidity risk
is the risk of being unable to meet financial obligations as and
when they fall due.
Funding consists of on-balance sheet liabilities that are used to
finance assets. Funding risk is the risk of not maintaining a
diversified, stable and cost-effective funding base.
Liquidity and funding risks arise in a number of ways, including
through the maturity transformation role that banks perform.
The risks are dependent on factors such as:
Maturity profile.
Composition of sources and uses of funding.
The quality and size of the liquidity portfolio.
Wholesale market conditions.
Depositor and investor behaviour.
For a description of sources of capital, liquidity and funding as
utilised by NatWest Group, refer to the NatWest Group Annual
Report and Accounts 2021 on page 249.
Key developments in 2021
On 28 June 2021, a number of amendments to Regulation
(EU) No 575/2013 (Capital Requirements Regulation, CRR)
entered into force. These amendments, among other things,
introduce a binding pillar 1 requirement of 100% Net Stable
Funding Ratio (NSFR), define a new standardised method
for the measurement of counterparty credit risk (SA-CCR),
and change the definition of eligible capital for compliance
with limits to large exposures from Total Capital to Tier 1
Capital.
The expiration of the post-Brexit transition period has
resulted in the United Kingdom, NWM N.V. Group parents’
country of incorporation, becoming a third country for the
purposes of the CRR as of 1 January 2021. This has
introduced a number of changes, including a requirement to
hold regulatory own funds requirements for intragroup
credit valuation adjustment (CVA) risk, UK institutions being
classified as Corporates, and the need to add a regulatory
consolidation level for liquidity on consolidated basis.
Throughout 2021 NWM N.V. Group ensured a stable
funding base through various sources of funding, including
the customer deposit book, issuances of commercial paper
and capital instruments. In 2020 NWM N.V. Group
established a €2.0 billion Euro Medium Term Note
programme, therefore NWM N.V. Group may, subject to
compliance with all relevant laws, regulations and
directives, from time to time, issue unsecured and
unsubordinated notes. As at 31 December 2021 no
issuances have been executed under this programme.
Throughout 2021 NWM N.V. Group continued applying an
elevated liquidity buffer to absorb any potential negative
impact from market uncertainties, such as Brexit and
COVID-19.
Regulatory framework
Capital requirements regulation and directive
The European Union has implemented the Basel III proposals
and a number of important changes to the banking regulatory
framework through the CRR and the Capital Requirements
Directive (CRD) collectively known as the CRD IV package
(CRD IV).
CRD IV was implemented on 1 January 2014 on a phased basis
with full implementation completed on 1 January 2019. As part
of the implementation of CRD IV, the European Banking
Authority’s technical standards, which are legal acts specifying
particular aspects of CRD IV, are either in progress to be
finalised through adoption by the European Commission, or
now in force.
CRD IV continues to require a total amount of capital equal to
at least 8.0% of risk-weighted assets but the share that has to
be of the highest quality, which is CET1 capital, of at least 4.5%.
The CRD IV package also introduces more stringent criteria for
capital instruments, harmonised adjustments made to capital
recognised for regulatory purposes and establishes new capital
buffers to be phased in from 1 January 2014. In addition, full
implementation on 1 January 2019 introduced the following
minimum requirements, which must be met:
Pillar 1 requirement of: CET1 of 4.5% of RWAs; Tier 1 of
6.0%; and total capital of 8.0%.
Capital buffers: ‘capital conservation buffer’ of 2.5% of
RWAs; ‘countercyclical capital buffer’ of up to 2.5%; an
‘other systemically important institutions buffer’ for
domestically or EU important institutions and, if required by
a member state, an additional ‘systemic risk buffer’.
A liquidity coverage ratio (LCR) requirement of 100%.
On 20 May 2019, the European Union adopted amendments
to CRR and CRD, known as ‘CRR2’ and ‘CRD V’
respectively, introducing the following additional minimum
requirements that must be met from 28 June 2021:
Minimum Tier 1 leverage ratio of 3.0%.
Minimum Net Stable Funding Ratio (NSFR) of 100%.
NWM N.V. Group manages changes to capital requirements
from new regulation (including model changes) and the
resulting impact on the Common Equity Tier 1 ratio alongside
its strategy of risk reduction and de-leveraging. For further
information please refer to Capital management on the
following page.
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 28
Capital, liquidity and funding risk continued
Banking Union: Single Supervisory Mechanism
On 15 October 2013, the EU Council formally adopted the
Regulation on the Single Supervisory Mechanism (SSM) which
became operational on 4 November 2014. The SSM is a new
framework for banking supervision in Europe with the aims of
ensuring the safety and soundness of the European banking
system and increasing financial integration and stability in
Europe.
The ECB has to ensure that credit institutions not only meet the
minimum prudential capital requirements set by the CRD IV but
also have an additional buffer reflecting risks or elements of
risks not covered by the minimum requirements in CRD IV. This
is organised through the framework of the SSM.
The SSM has to ensure that credit institutions have sufficient
capital to cover unexpected losses or survive severe stressed
economic and market conditions. The capital joint decision is
the key outcome of the Supervisory Review and Evaluation
Process. In this process, the supervisor reviews the governance
and internal control arrangements used by each individual
bank to manage its risks (i.e. the Internal Capital Adequacy
Assessment Process (ICAAP)).
Overall, this framework governs relations between the ECB,
national supervisors and banks, and is an important step
towards banking union in the EU.
Capital management
NWM N.V. Group aims to maintain an appropriate level of
capital to meet its business needs (which include requirements
of its ultimate parent company, NatWest Group plc) and
regulatory requirements, whilst operating within an agreed risk
appetite. Determination of appropriate capital levels involves
regular Asset & Liability Management Committee (ALCo)
capital monitoring, planning and forecasts, and ICAAP. Capital
plans are subjected to internal governance reviews, eventually
put through Managing Board oversight and approval, as well as
review of the appropriate supervisory authority.
NWM N.V. Group operates a rigorous capital planning process
via ALCo aimed at ensuring the capital position is controlled
within the agreed parameters. This incorporates regular re-
forecasts of the capital position of NWM N.V. Group. In the
event that the projected position deteriorates below acceptable
levels, NWM N.V. Group would revise business plans
accordingly.
NWM N.V. Group manages changes to capital requirements
from new regulation as well as model changes and the
resulting impact on the Common Equity Tier 1 ratio, focusing
on risk reduction and de-leveraging.
Through the ICAAP, NWM N.V. Group determines its desired
capital levels based on three complementary perspectives: the
normative baseline, normative adverse and economic internal
perspective. The normative baseline perspective ensures NWM
N.V.’s capital is managed to comply with current and known
future changes in regulatory capital requirements. In the
normative adverse perspective, NWM N.V. Group’s capital
levels are evaluated through the application of internally
defined stress tests that quantify changes in capital ratios
under a range of scenarios.
In the economic internal perspective, NWM N.V. Group
calculates the required capital from an economic point of view.
Liquidity and funding management
Liquidity and funding management follows a similar process to
that outlined above for capital. Liquidity and funding risk
tolerance forms part of NWM N.V. Group’s risk appetite
statement, which is reviewed and approved by the NWM N.V.
Group Managing Board.
The risk appetite statement defines key metrics, risk trigger
levels and capacity for liquidity and funding management
within NWM N.V. Group. The Board also sets the appetite for
funding risk to ensure that stable sources of funding are used
to fund NWM N.V. Group’s core assets. NWM N.V. Group
monitors its liquidity position against this risk tolerance on a
daily basis. In setting risk limits the Board considers the nature
of NWM N.V. Group’s activities, overall risk appetite, market
best practice and regulatory compliance.
In implementing NWM N.V. Group’s liquidity risk management
framework, a suite of tools are used to monitor, limit and stress
test the risks within the balance sheet. Limits are established to
manage the level of liquidity risk and these include thresholds
for the amount and composition of funding sources, asset and
liability mismatches, and funding concentrations.
Liquidity portfolio management
The size of the portfolio is determined by referencing NatWest
Group’s liquidity risk appetite. NatWest Group retains a prudent
approach to setting the composition of the liquidity portfolio,
which is subject to internal policies and limits over quality of
counterparty, maturity mix and currency mix.
Within the liquidity portfolio, NWM N.V. Group holds cash at
central banks of €5.1 billion (2020 – €4.5 billion) and
government and other high quality securities of €0.4 billion
(2020 – €1.2 billion).
Funding risk management
Funding is raised through deposits from the money market and
through the issuance of a commercial paper program of €1.3
billion.
Governance
The ALCo is responsible for ensuring NWM N.V. Group
maintains adequate capital, liquidity and funding at all times.
The ALCo manages and plans NWM N.V. Group’s adequacy
levels taking into account current and projected levels and
provides input to and oversees levels established within the
framework of the ICAAP and ILAAP.
ALCo also plans and manages capital, liquidity and funding
interaction with NatWest Group. Such interaction would
include, amongst other matters, ALCo considerations around
NWM N.V. Group’s strategic asset sales/transfers to NatWest
Group which would need to be capital neutral to NatWest
Group and are required to be structured in such a way so as to
satisfy DNB, ECB and PRA regulatory requirements. The ALCo
is in turn ultimately governed by NWM N.V. Group’s Managing
Board, which approves ALCo and ICAAP and ILAAP decisions.
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 29
Capital, liquidity and funding risk continued
Capital ratios and risk-weighted assets
NWM N.V. Group aims to maintain an appropriate level of capital to meet its business needs and regulatory requirements. NWM
N.V. Group’s capital ratios and RWAs on a CRR transitional basis are set out below. Refer to Note 22 to the consolidated financial
statements for a more detailed breakdown of regulatory capital.
2021
2020
Capital ratios
%
%
Common Equity Tier 1 (CET1)
29.7
30.6
Tier 1
34.1
35.3
Total
37.4
39.0
Risk-weighted assets
€m
€m
Credit risk
3,785
4,047
Market risk
1,269
703
Operational risk
620
605
Settlement risk
2
—
5,676
5,355
RWAs increased to €5.7 billion from €5.4 billion at 31
December 2020, reflecting lower levels of credit risk, and an
offsetting increase for market risk. The market risk increase
is due to an additional credit valuation adjustment capital
charge on inter-group transactions due to non-equivalence
of the United Kingdom banking supervision by the EU, while
the market risk itself only modestly increased due to
increased business in the entity.
Reduction of €0.5 billion was seen largely within the drawn
positions as well as the undrawn facilities as corporate
clients were exited.
Within counterparty credit risk, an increase of €0.3 billion
was noted due to further onboarding of Markets clients
after the Brexit date. The risk weighting on inter-group
exposures stayed stable apart from the credit valuation
adjustment capital charge of €0.5 billion that is captured
within market risk.
Within market risk, the earlier mentioned credit valuation
charge of €0.5 billion and increased volumes within the
business due to Brexit together brought the total RWA to
€1.3 billion.
CET1 flow statement
The table below analyses the movement in Common Equity Tier 1 capital during the year.
%
€m
At 1 January 2021
30.6
1,638
Regulatory adjustment: fair value changes in own credit spreads
(23)
Foreign currency reserves
(4)
Result current year
110
Other
(1)
(34)
At 31 December 2021
29.7
1,687
(1) Other includes dividend payments on AT1 capital securities of €14 million and deferred tax asset deduction of €57 million. This was partially offset by a decrease in other regulatory
adjustments of €14 million and fair value changes of €23 million.
Funding sources
(audited)
The table below shows NWM N.V. Group’s primary funding sources.
2021
2020
€m
%
€m
%
Bank deposits
—
—
52
0.6
Customer deposits
880
9.9
1,258
14.1
Trading liabilities
(1)
2,059
23.0
1,378
15.4
Other financial liabilities
1,907
21.3
2,200
24.6
Subordinated liabilities
652
7.3
655
7.3
Amounts due to holding companies and fellow subsidiaries
(2)
3,437
38.5
3,386
38.0
Total funding
8,935
100
8,929
100
Comparatives have been re-presented to aid comparability.
(1) Trading liabilities excludes short positions of €21 million (2020 – €134 million).
(2) Amounts due to holding companies and fellow subsidiaries relating to non-financial instruments of €30 million (2020 – €8 million) and settlement balances of €456 million (2020 -
€157 million) have been excluded from the table.
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 30
Credit risk
Definition
(audited)
Credit risk is the risk that customers and counterparties fail to
meet their contractual obligation to settle outstanding amounts.
Sources of risk
(audited)
NWM N.V. Group is exposed to credit risk through lending,
derivatives and off-balance sheet products such as trade
finance and guarantees. NWM N.V. Group is also exposed to
credit risk as a result of debt securities held for liquidity
management purposes.
Key developments in 2021
(audited)
Credit risk RWAs reduced from €4.0 billion to €3.8 billion
which was in line with NWM N.V. strategy and associated
client, product reviews and exits.
The ECL charge fell from €42 million to a net release of €13
million. This decrease was partly due to a net release of
€5.2 million related to the exit of a single customer whose
loans were sold as the client was marked as non-go-
forward under the NWM Group strategy.
The residual effect of COVID-19 was limited to one
customer remaining on a covenant holiday and being
placed on forbearance.
As part of the broader NWM Group strategy to support
sponsor clients and sponsor-owned corporates, NWM N.V.
Group purchased a diversified and liquid portfolio of
leveraged loans. The size of individual loans within the
portfolio was modest and the aggregate exposure was
assessed as being well within single name concentration,
sector and geographical limits. The acquisition did not
materially affect the quality of the overall credit portfolio or
change its risk profile in any way.
NWM N.V. Group entered into risk-sharing agreements or
silent sub-participations with NatWest Group as part of
NWM Group’s strategic refocusing.
Governance
(audited)
The Credit Risk function provides oversight and challenge of
frontline credit risk management activities.
Governance activities include:
Defining credit risk appetite measures for the management
of concentration risk and credit policy to establish the key
causes of risk in the process of providing credit and the
controls that must be in place to mitigate them.
Approving and monitoring operational limits for business
segments and credit limits for customers.
Oversight of the first line of defence to ensure that credit
risk remains within the appetite set by the Board and that
controls are being operated adequately and effectively.
Assessing the adequacy of expected credit loss (ECL)
provisions including approving key IFRS 9 inputs (such as
significant increase in credit risk (SICR) thresholds) and any
necessary in-model and post model adjustments through
provisions and model committees.
Development and approval of credit grading models.
The Risk & Control Committee, which operates under the
delegated authority of the Managing Board, ensures that all
material credit risks are identified, assessed, monitored,
controlled and managed effectively (refer to page 54 for further
details). The Risk & Control Committee receives input from
various committees including the Credit Risk Committee for the
overall credit risk profile and sector/product/asset class
concentrations, as well as input from the Risk of Credit Loss
Committee, the Internal Model Review Committee and the
Stress Testing Committee.
Risk appetite
Credit risk appetite aligns to the strategic risk appetite set by
the Board and is set and monitored through a risk appetite
framework.
The framework has been designed to reflect factors that
influence the ability to operate within risk appetite. Tools such
as stress testing and economic capital are used to measure
credit risk volatility and develop links between the framework
and risk appetite limits. Four formal frameworks are used,
classifying, measuring and monitoring credit risk exposure
across single name, sector and country concentrations and
product and asset classes with heightened risk characteristics.
The framework is supported by a suite of transactional
acceptance standards that set out the risk parameters within
which businesses should operate.
Credit policy standards are in place and are expressed as a set
of mandatory controls.
Identification and measurement
Credit stewardship
(audited)
Risks are identified through relationship management and
credit stewardship of customers and portfolios. Credit risk
stewardship takes place throughout the customer relationship,
beginning with the initial approval. It includes the application of
credit assessment standards, credit risk mitigation and
collateral, ensuring that credit documentation is complete and
appropriate, carrying out regular portfolio or customer reviews
and problem debt identification and management.
Asset quality
(audited)
All credit grades map to an asset quality (AQ) scale, used for
financial reporting. This AQ scale is based on Basel probability
of defaults. Performing loans are defined as AQ1-AQ9 (where
the probability of default (PD) is less than 100%) and defaulted
non-performing loans as AQ10 or Stage 3 under IFRS 9 (where
the PD is 100%). Loans are defined as defaulted when the
payment status becomes 90 days past due, or earlier if there is
clear evidence that the borrower is unlikely to repay, for
example bankruptcy or insolvency.
Counterparty credit risk
Counterparty credit risk arises from the obligations of
customers under derivative and securities financing
transactions.
NWM N.V. Group mitigates counterparty credit risk through
collateralisation and netting agreements, which allow amounts
owed by NWM N.V. Group to a counterparty to be netted
against amounts the counterparty owes NWM N.V. Group.
Mitigation
Mitigation techniques, as set out in the appropriate credit
policies and transactional acceptance standards, are used in
the management of credit portfolios across NWM N.V. Group.
These techniques mitigate credit concentrations in relation to
an individual customer, a borrower group or a collection of
related borrowers.
Where possible, customer credit balances are netted against
obligations. Mitigation tools can include structuring a security
interest in a physical or financial asset, the use of credit
derivatives including credit default swaps, credit-linked debt
instruments and securitisation structures, and the use of
guarantees and similar instruments (for example, credit
insurance) from related and third parties.
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 31
Credit risk continued
Assessment and monitoring
Customers – including corporates, banks and other financial
institutions – are grouped by industry sectors and geography as
well as by product/asset class and are managed on an
individual basis. Customers are aggregated as a single risk
when sufficiently interconnected.
A credit assessment is carried out before credit facilities are
made available to customers. The assessment process is
dependent on the complexity of the transaction. Credit
approvals are subject to environmental, social and governance
risk policies which restrict exposure to certain highly carbon
intensive industries as well as those with potentially heightened
reputational impacts. Customer specific climate risk
commentary is now mandatory.
In response to COVID-19, a new framework was introduced to
categorise clients in a consistent manner across the portfolio,
based on the effect of COVID-19 on their financial position and
outlook in relation to the sector risk appetite. This framework
has been retained and updated to consider viability impacts
beyond those directly related to COVID-19 and classification via
the framework is now mandatory and must be refreshed
annually. The framework extends to all borrowing customers
and supplements the Risk of Credit Loss framework in
assessing whether customers exhibit a SICR, if support is
considered to be granting forbearance and the time it would
take for customers to return to operating within transactional
acceptance standards.
Credit is only granted to customers following joint approval by
an approver from the business and the credit risk function. The
joint business and credit approvers act within a delegated
approval authority under the Wholesale Credit Authorities
Framework Policy.
The level of delegated authority held by approvers is dependent
on their experience and expertise with only a small number of
senior executives holding the highest approval authority.
Both business and credit approvers are accountable for the
quality of each decision taken, although the credit risk approver
holds ultimate sanctioning authority.
Transactional acceptance standards provide detailed
transactional lending and risk acceptance metrics and
structuring guidance. As such, these standards provide a
mechanism to manage risk appetite at the
customer/transaction level and are supplementary to the
established credit risk appetite.
Credit grades and loss given default (LGD) are reviewed and, if
appropriate, reapproved annually. The review process assesses
borrower performance, including reconfirmation or adjustment
of risk parameter estimates; the adequacy of security;
compliance with terms and conditions and refinancing risk.
Problem debt management
Early problem identification
Each sector has defined early warning indicators to identify
customers experiencing financial difficulty, and to increase
monitoring if needed. Early warning indicators may be internal,
such as a customer’s bank account activity, or external, such
as a publicly-listed customer’s share price. If early warning
indicators show a customer is experiencing potential or actual
difficulty, or if relationship managers or credit officers identify
other signs of financial difficulty, they may decide to classify the
customer within the Risk of Credit Loss framework.
Risk of Credit Loss framework
The Risk of Credit Loss framework is used where the credit
profile of a customer has deteriorated materially since
origination. Experienced credit risk officers apply expert
judgment to classify cases into categories that reflect
progressively deteriorating credit risk. There are two
classifications in the framework that apply to non-defaulted
customers – Heightened Monitoring and Risk of Credit Loss. For
the purposes of provisioning, all exposures subject to the
framework are categorised as Stage 2 and subject to a lifetime
loss assessment. The framework also applies to those
customers that have met NWM N.V. Group’s default criteria
(AQ10 exposures). Defaulted exposures are categorised as
Stage 3 impaired for provisioning purposes.
Customers classified in the Heightened Monitoring category are
those who are still performing but have certain characteristics
– such as trading issues, covenant breaches, material PD
downgrades and past due facilities – that may affect the ability
to meet repayment obligations. Heightened Monitoring
customers require pre-emptive actions to return or maintain
their facilities within risk appetite prior to maturity.
Risk of Credit Loss customers are performing customers that
have met the criteria for Heightened Monitoring and also pose
a risk of credit loss to NWM N.V. Group in the next 12 months
should mitigating action not be taken or not be successful.
Once classified as either Heightened Monitoring or Risk of
Credit Loss, a number of mandatory actions are taken in
accordance with policies. Actions include a review of the
customer’s credit grade, facility and security documentation
and the valuation of security. Depending on the severity of the
financial difficulty and the size of the exposure, the customer
relationship strategy is reassessed by credit officers, by
specialist credit risk or relationship management units in the
relevant business, or by Restructuring.
Restructuring
Where customers are categorised as Risk of Credit Loss,
relationships are mainly managed by the Restructuring team in
NatWest Bank Plc as a service to NWM N.V. Group, however
ultimate credit decisions are taken by the NWM N.V. Group
Credit Team. The team protects NWM N.V. Group’s capital by
working with corporate and commercial customers to support
their turnaround and recovery strategies and enable them to
return to mainstream banking.
Forbearance
(audited)
Forbearance takes place when a concession is made on the
contractual terms of a loan/debt in response to a customer’s
financial difficulties. The aim of forbearance is to support and
restore the customer to financial health while minimising risk.
The type of forbearance offered is tailored to the customer’s
individual circumstances and may involve covenant waivers,
amendments to margins, payment concessions and loan
rescheduling (including extensions in contractual maturity),
capitalisation of arrears, and debt forgiveness or debt-for-
equity swaps.
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 32
Credit risk continued
Credit grading models
Credit grading models is the collective term used to describe all
models, frameworks and methodologies used to calculate PD,
exposure at default (EAD), LGD, maturity and the production of
credit grades.
Credit grading models are designed to provide:
An assessment of customer and transaction characteristics.
A meaningful differentiation of credit risk.
Accurate internal default rate, loss and exposure estimates
that are used in the capital calculation or wider risk
management purposes.
Impairment, provisioning and write-offs
(audited)
In the overall assessment of credit risk, impairment provisioning
and write-offs are used as key indicators of credit quality.
NWM N.V. Group’s IFRS 9 provisioning models, which use
existing Basel models as a starting point, incorporate term
structures and forward-looking information. Regulatory
conservatism within the Basel models has been removed as
appropriate to comply with the IFRS 9 requirement for
unbiased ECL estimates.
Five key areas may materially influence the measurement of
credit impairment under IFRS 9 – two of these relate to model
build and three relate to model application:
Model build:
The determination of economic indicators that have most
influence on credit loss for each portfolio and the severity of
impact (this leverages existing stress testing models which
are reviewed annually).
The build of term structures to extend the determination of
the risk of loss beyond 12 months that will influence the
impact of lifetime loss for exposures in Stage 2.
Model application:
The assessment of the SICR and the formation of a
framework capable of consistent application.
The determination of asset lifetimes that reflect behavioural
characteristics while also representing management actions
and processes (using historical data and experience).
The choice of forward-looking economic scenarios and their
respective probability weights.
Refer to Accounting policies note 9 for further details.
IFRS 9 ECL model design principles
(audited)
Modelling of ECL for IFRS 9 follows the conventional approach
to divide the estimation of credit losses into its component parts
of PD, LGD and EAD.
To meet IFRS 9 requirements, the PD, LGD and EAD
parameters differ from their Pillar 1 internal ratings based
counterparts in the following aspects:
Unbiased – material regulatory conservatism has been
removed from IFRS 9 parameters to produce unbiased
estimates.
Point-in-time – IFRS 9 parameters reflect actual economic
conditions at the reporting date instead of long-run average
or downturn conditions.
Forward-looking – IFRS 9 PD estimates and, where
appropriate, EAD and LGD estimates reflect forward-
looking economic conditions.
Lifetime measurement – IFRS 9 PD, LGD and EAD are
provided as multi-period term structures up to exposure
lifetimes instead of over a fixed one-year horizon.
IFRS 9 requires that at each reporting date, an entity shall
assess whether the credit risk on an account has increased
significantly since initial recognition. Part of this assessment
requires a comparison to be made between the current lifetime
PD (i.e. the PD over the remaining lifetime at the reporting
date) and the equivalent lifetime PD as determined at the date
of initial recognition.
For assets originated before IFRS 9 was introduced,
comparable lifetime origination PDs did not exist. These have
been retrospectively created using the relevant model inputs
applicable at initial recognition.
PD estimates
PD models use a point-in-time/through-the-cycle framework to
convert one-year regulatory PDs into point-in-time estimates
that reflect economic conditions at the reporting date. The
framework utilises credit cycle indices (CCIs) for a
comprehensive set of region/industry segments. Further detail
on CCIs is provided in the Economic loss drivers section.
One-year point-in-time PDs are extended to forward-looking
lifetime PDs using a conditional transition matrix approach and
a set of econometric forecasting models.
LGD estimates
The general approach for the IFRS 9 LGD models is to leverage
corresponding Basel LGD models with bespoke adjustments to
ensure estimates are unbiased and, where relevant, forward-
looking.
Forward-looking economic information is incorporated into
LGD estimates using the existing CCI framework. For low
default portfolios, including sovereigns and banks, loss data is
too scarce to substantiate estimates that vary with economic
conditions. Consequently, for these portfolios, LGD estimates
are assumed to be constant throughout the projection horizon.
EAD estimates
EAD values are projected using product specific credit
conversion factors (CCFs), closely following the product
segmentation and approach of the respective Basel model.
However, the CCFs are estimated over multi-year time horizons
and contain no regulatory conservatism or downturn
assumptions.
No explicit forward-looking information is incorporated, on the
basis of analysis showing the temporal variation in CCFs is
mainly attributable to changes in exposure management
practices rather than economic conditions.
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 33
Credit risk continued
Governance and post model adjustments
(audited)
The IFRS 9 PD, EAD and LGD models are subject to NWM N.V.
Group’s model risk policy that stipulates periodic model
monitoring, periodic re-validation and defines approval
procedures and authorities according to model materiality.
Various post model adjustments were applied where
management judged they were necessary to ensure an
adequate level of overall ECL provision. All post model
adjustments were subject to formal approval through
provisioning governance, and were categorised as follows:
Deferred model calibrations – ECL adjustments where PD
model monitoring indicated that actual defaults were below
estimated levels but where it was judged that an implied
ECL release was not supportable due to the influence of
government support schemes. As a consequence, any
potential ECL release was deferred and retained on the
balance sheet.
Economic uncertainty – ECL adjustments primarily arising
from uncertainties associated with multiple economic
scenarios (also for 2020) and credit outcomes as a result of
the effect of COVID-19 and the consequences of
government support schemes. In both cases, management
judged that additional ECL was required until further credit
performance data became available on the behavioural and
loss consequences of COVID-19.
Other adjustments – ECL adjustments where it was judged
that the modelled ECL required to be amended.
Post model adjustments will remain a key focus area of NWM
N.V. Group’s ongoing ECL adequacy assessment process. A
holistic framework has been established including reviewing a
range of economic data, external benchmark information and
portfolio performance trends, particularly with more observable
outcomes from the unwinding of COVID-19 support schemes. A
key part of the assessment is also understanding the current
levels of ECL coverage (portfolio by portfolio) against pre-
COVID-19 levels, recognising changes in portfolio/sector mix.
ECL post model adjustments
(audited)
The table below shows ECL post model adjustments.
2021
2020
€m
€m
Deferred model calibrations
—
—
Economic uncertainty
—
1
Other adjustments
—
—
Total
—
1
Of which:
- Stage 1
—
—
- Stage 2
—
1
- Stage 3
—
—
Significant increase in credit risk (SICR)
(audited)
Exposures that are considered significantly credit deteriorated
since initial recognition are classified in Stage 2 and assessed
for lifetime ECL measurement (exposures not considered
deteriorated carry a 12-month ECL). NWM N.V. Group has
adopted a framework to identify deterioration based primarily
on relative movements in lifetime PD supported by additional
qualitative backstops. The principles applied are consistent
across NWM N.V. Group and align to credit risk management
practices, where appropriate.
The framework comprises the following elements:
IFRS 9 lifetime PD assessment (the primary driver)
– on
modelled portfolios the assessment is based on the relative
deterioration in forward-looking lifetime PD and is assessed
monthly. To assess whether credit deterioration has
occurred, the residual lifetime PD at balance sheet date
(which PD is established at date of initial recognition is
compared to the current PD. If the current lifetime PD
exceeds the residual origination PD by more than a
threshold amount deterioration is assumed to have
occurred and the exposure transferred into Stage 2 for a
lifetime loss assessment. In broad terms, a doubling of PD
would indicate a SICR. However, the PD uplift must be at
least 0.1%.
Qualitative high-risk backstops
– the PD assessment is
complemented with the use of qualitative high-risk
backstops to further inform whether significant
deterioration in lifetime risk of default has occurred. The
qualitative high-risk backstop assessment includes the use
of the mandatory 30+ days past due backstop, as
prescribed by IFRS 9 guidance, and other features such as
forbearance support and exposures managed within the
Risk of Credit Loss framework.
The criteria are based on a significant amount of empirical
analysis and seek to meet three key objectives:
Criteria effectiveness
– the criteria should be effective in
identifying significant credit deterioration and prospective
default population.
Stage 2 stability
– the criteria should not introduce
unnecessary volatility in the Stage 2 population.
Portfolio analysis
– the criteria should produce results which
are intuitive when reported as part of the wider credit
portfolio.
Provisioning for forbearance
Provisions for forborne loans are assessed in accordance with
normal provisioning policies. The customer’s financial position
and prospects – as well as the likely effect of the forbearance,
including any concessions granted, and revised PD or LGD
gradings – are considered in order to establish whether an
impairment provision increase is required.
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 34
Credit risk continued
Loans granted forbearance are individually credit assessed in
most cases. Performing loans subject to forbearance treatment
are categorised as Stage 2 and subject to a lifetime loss
assessment.
Forbearance may result in the value of the outstanding debt
exceeding the present value of the estimated future cash flows.
This difference will lead to a customer being classified as non-
performing.
In the case of non-performing forborne loans, an individual loan
impairment provision assessment generally takes place prior to
forbearance being granted. The amount of the loan impairment
provision may change once the terms of the forbearance are
known, resulting in an additional provision charge or a release
of the provision in the period the forbearance is granted.
The transfer of loans from impaired to performing status
follows assessment by relationship managers and credit. When
no further losses are anticipated and the customer is expected
to meet the loan’s revised terms, any provision is written-off or
released and the balance of the loan returned to performing
status. This is not dependent on a specified time period and
follows the credit risk manager’s assessment.
Customers seeking COVID-19 related support, including
payment holidays, who were not subject to any wider SICR
triggers and who were assessed as having the ability in the
medium term post-COVID-19 to be viable and meet credit
appetite metrics, were not considered to have been granted
forbearance.
Asset lifetimes
(audited)
The choice of initial recognition and asset duration is another
critical judgment in determining the quantum of lifetime losses
that apply.
The date of initial recognition reflects the date that a
transaction (or account) was first recognised on the
balance sheet; the PD recorded at that time provides the
baseline used for subsequent determination of SICR as
detailed above.
For asset duration, the approach applied in line with IFRS 9
requirements is:
Term lending – the contractual maturity date, reduced
for behavioural trends where appropriate (such as,
expected prepayment and amortisation).
Revolving facilities – asset duration is based on annual
customer review schedules and will be set to the next
review date.
Economic loss drivers
(audited)
Introduction
The portfolio segmentation and selection of economic loss
drivers for IFRS 9 follow closely the approach used in stress
testing. To enable robust modelling the forecasting models for
each portfolio segment (defined by product or asset class and
where relevant, industry sector and region) are based on a
selected, small number of economic factors, (typically three to
four) that best explain the temporal variations in portfolio loss
rates. The process to select economic loss drivers involves
empirical analysis and expert judgment.
The key economic variables in NWM N.V. Group include
national gross domestic product (GDP), unemployment rate and
the central bank base rate.
Economic scenarios
At 31 December 2021, the range of anticipated future
economic conditions was defined by a set of four internally
developed scenarios and their respective probabilities. In
addition to the base case, they comprised upside, downside
and extreme downside scenarios. The scenarios previously
reflected a range of outcomes for the path of COVID-19 as well
as recovery, and the associated effects on labour and asset
markets. The four scenarios were deemed appropriate in
capturing the uncertainty in economic forecasts and the non-
linearity in outcomes under different scenarios. The scenarios
were developed to provide sufficient coverage across potential
changes in unemployment, asset price and the degree of
permanent damage to the economy, around which there are
pronounced levels of uncertainty at this stage.
Upside
– This scenario assumes a very strong recovery through
2022 as consumers dip into excess savings built up over the
last two years. The labour market remains resilient, with the
unemployment rate falling below pre-COVID-19 levels. Inflation
is higher than the base case but eventually comes back close to
the target. The strong economic recovery enables tightening to
be quicker than the base case. The housing market continues
its recent strong performance.
Base case
– COVID-19 related risks remain contained. After a
strong recovery in 2021, the growth moderates in 2022. Most
workers can go back to their existing job or find a new job very
quickly, with the unemployment rate reaching 8.1% by the end
of 2022. Inflation initially increases but retreats over 2022.
Interest rates are raised, starting in early 2022. There is a
gradual cool down in the housing market but activity is still at
healthy levels.
Downside
– This scenario assumes a reversal in recovery as
inflation build up leads to a lessening of expectations. Interest
rates are raised aggressively to counter the inflation risks.
However, starting in 2023, the interest hikes are reversed to
assist the recovery. Unemployment is higher than the base
case and there is a modest decline in house prices.
Extreme downside
– This scenario assumes a resurgence of
COVID-19 related risks. There is a renewed downturn with
declines in consumer spending and business investment.
Interest rates are reduced into negative territory. There is
wide-spread job shedding in the labour market while asset
prices see deep corrections, with housing market falls higher
than those seen during previous episodes. The recovery is tepid
throughout the five-year period, meaning only a gradual
decline in joblessness.
The approach of using four scenarios is similar to that as at 31
December 2020. Previously, NWM N.V. Group used five discrete
scenarios to characterise the distribution of risks in the
economic outlook. For 2021, the four scenarios were deemed
appropriate in capturing the uncertainty in economic forecasts
and the non-linearity in outcomes under different scenarios.
These four scenarios were developed to provide sufficient
coverage across potential rises in unemployment, inflation,
asset price falls and the degree of permanent damage to the
economy, around which there remains pronounced levels of
uncertainty.
The tables and commentary below provide details of the key
economic loss drivers under the four scenarios.
The main macroeconomic variables for these scenarios are set
out in table below. The compound annual growth rate (CAGR)
for GDP as well as the five-year average for unemployment
and the European Central Bank main refinancing rate.
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 35
Credit risk continued
Economic loss drivers
(audited)
Main macroeconomic variables
2021
2020
Extreme
Extreme
Upside
Base case
Downside
downside
Upside
Base case
Downside
downside
Five-year summary
%
%
%
%
%
%
%
%
Eurozone
GDP - CAGR
2.6
2.2
1.2
0.6
3.4
2.7
2.4
1.2
Unemployment - average
7.4
7.6
8.6
9.9
8.1
8.7
10.6
11.8
European Central Bank
- main refinancing rate - average
0.8
0.1
0.2
—
0.1
—
—
—
Probability weight
30.0
45.0
20.0
5.0
20.0
40.0
30.0
10.0
(1) The five year period starts after Q3 2021 for 2021 and Q3 2020 for 2020.
Probability weightings of scenarios
NWM N.V. Group’s approach to IFRS 9 multiple economic
scenarios (MES) involves selecting a suitable set of discrete
scenarios to characterise the distribution of risks in the
economic outlook and assigning appropriate probability
weights. The scale of the economic impact of COVID-19 and
the range of recovery paths necessitates a change of approach
to assigning probability weights from that used in recent
updates. Prior to 2020, GDP paths for NWM N.V. Group’s
scenarios were compared against a set of 1,000 model runs,
following which a percentile in the distribution was established
that most closely corresponded to the scenario.
Instead, NWM N.V. Group has subjectively applied probability
weights, reflecting expert views within NWM N.V. Group. The
probability weight assignment was judged to present good
coverage to the central scenarios and the potential for a robust
recovery on the upside and exceptionally challenging outcomes
on the downside. A 30% weighting was applied to the upside
scenario, a 45% weighting applied to the base case scenario, a
20% weighting applied to the downside scenario and a 5%
weighting applied to the extreme downside scenario. NWM N.V.
Group assessed the downside risk posed by COVID-19 to be
diminishing over the course of 2021, with the vaccination roll-
out and positive economic data being observed since the
gradual relaxing of lockdown restrictions. NWM N.V. Group
therefore judged it was appropriate to apply a higher
probability to upside-biased scenarios than at 31 December
2020. However, compared to 31 December 2020, the base case
has a higher weight reflecting reduction in uncertainty as the
path of economy recovery became clearer.
The 25% weighting to the two downside scenarios gives
appropriate consideration to the threats posed to the recovery,
including inflation, supply and COVID-19-related risks. Balanced
against that is the adaptability of the UK economy to successive
waves of COVID-19, and the resilience of labour and asset
markets. The potential for further better than expected
outcomes is reflected in the 30% probability weighting applied
to the upside scenario.
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 36
Credit risk continued
Economic loss drivers
(audited)
Annual figures
Extreme
Upside
Base case
Downside
downside
Eurozone GDP - annual growth
%
%
%
%
2021
5.2
5.2
5.2
5.2
2022
5.8
4.4
0.5
(5.1)
2023
3.5
2.5
1.3
4.3
2024
1.7
2.2
2.1
1.9
2025
1.4
1.7
1.6
1.7
2026
1.4
1.3
1.4
1.7
Extreme
Upside
Base case
Downside
downside
Eurozone - unemployment rate - annual average
%
%
%
%
2021
8.4
8.4
8.4
8.4
2022
7.8
8.1
8.9
10.7
2023
7.4
7.6
9.2
11.1
2024
7.1
7.4
8.7
10.0
2025
7.1
7.2
8.2
9.1
2026
7.1
7.2
8.0
8.9
Extreme
Upside
Base case
Downside
downside
European Central Bank - main refinancing rate - annual average
%
%
%
%
2021
—
—
—
—
2022
0.2
—
0.5
—
2023
0.6
0.1
0.6
—
2024
0.9
0.2
—
—
2025
1.2
0.2
—
—
2026
1.3
0.4
0.1
—
Worst points
31 December 2021
31 December 2020
Extreme
Extreme
Downside
downside
Downside
downside
Eurozone
%
Quarter
%
Quarter
%
Quarter
%
Quarter
GDP
(1.2)
Q1 2022
(8.7)
Q1 2022
(3.3)
Q4 2020
(8.3)
Q4 2020
Unemployment rate (peak)
9.3
Q2 2023
11.4
Q1 2023
13.8
Q4 2020
15.0
Q2 2021
(1) For the unemployment rate, the figures show the peak levels. For GDP, the figures show falls relative to the starting period. The calculations are performed over five years, with a
starting point of Q3 2021 for 31 December 2021 scenarios.
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 37
Credit risk continued
Use of the scenarios in lending
The lending ECL methodology is based on the concept of credit
cycle indices (CCIs). The CCIs represent all relevant economic
loss drivers for a region/industry segment aggregated into a
single index value that describes the loss rate conditions in the
respective segment relative to its long-run average. A CCI
value of zero corresponds to loss rates at long-run average
levels, a positive CCI value corresponds to loss rates below long
run average levels and a negative CCI value corresponds to
loss rates above long-run average levels.
The four economic scenarios are translated into forward-
looking projections of CCIs using a set of econometric models.
Subsequently the CCI projections for the individual scenarios
are averaged into a single central CCI projection according to
the given scenario probabilities. The central CCI projection is
then overlaid with an additional mean reversion assumption i.e.
that after reaching their worst forecast position the CCIs start
to gradually revert to their long-run average of zero.
Finally, ECL is calculated using a Monte Carlo approach by
averaging PD and LGD values arising from many CCI paths
simulated around the central CCI projection.
The rationale for the approach is the long-standing observation
that loss rates in the portfolios tend to follow regular cycles.
This allows NWM N.V. Group to enrich the range and depth of
future economic conditions embedded in the final ECL beyond
what would be obtained from using the discrete macro-
economic scenarios alone.
Economic uncertainty
(audited)
Treatment of COVID-19 relief mechanisms
Use of COVID-19 relief mechanisms does not automatically
merit identification of SICR and trigger a Stage 2 classification
in isolation.
NWM Group continues to provide support, where appropriate,
to existing customers. Those who are deemed either (a) to
require a prolonged timescale to return to within NWM N.V.
Group’s risk appetite, (b) not to have been viable pre-COVID-
19, or (c) not to be able to sustain their debt once COVID-19 is
over, will trigger a SICR and, if concessions are sought, be
categorised as forborne, in line with regulatory guidance.
Payment holiday extensions beyond an aggregate of 12 months
in an 18 month period to cover continuing COVID-19 business
interruption are categorised as forbearance, including for
customers where no other SICR triggers are present.
Model monitoring and enhancement
The severe economic impact from COVID-19 and the ensuing
government support schemes have disrupted the normal
relationships between key economic loss drivers and credit
outcomes. While most government support schemes have now
been phased out and economic conditions are normalising, the
effect of this disruption is still evident in model monitoring and
accounted for in judgments applied to the use and
recalibrations of models.
Most significantly, latest PD model monitoring shows general
overprediction across all key portfolios, i.e., observed default
rates still at or even below pre-COVID-19 levels despite
increased PD estimates from a deterioration in several key
economic variables. Model recalibrations to adjust for this
overprediction have been deferred based on the judgment that
default rate actuals are distorted due to government support.
In addition, to account for residual model uncertainty and the
risk of eventual default emergence hitherto supressed by
government support, lag assumptions of up to 12 months are
applied in the models. These assumptions are consistent with
and unchanged from previous disclosures in 2021, although
their effective impact gradually reduces over time.
Industry sector detail
The economic impact of COVID-19 is highly differentiated by
industry sector, with hospitality and other contact-based
leisure, service, travel and passenger transport activities
significantly more affected than the overall economy. On the
other hand, the corporate and commercial econometric
forecasting models used in Wholesale are sector agnostic.
Sector performance was monitored throughout the year and
additional post model adjustments were recognised where a
risk of higher than expected future default levels, including their
timing and value, was identified.
Measurement uncertainty and ECL sensitivity
analysis
(audited)
The recognition and measurement of ECL is complex and
involves the use of significant judgment and estimation,
particularly in times of economic volatility and uncertainty. This
includes the formulation and incorporation of multiple forward-
looking economic conditions into ECL to meet the measurement
objective of IFRS 9. The ECL provision is sensitive to the model
inputs and economic assumptions underlying the estimate.
The focus of the simulations is on ECL provisioning
requirements on performing exposures in Stage 1 and Stage 2.
The simulations are run on a stand-alone basis and are
independent of each other; the potential ECL impacts reflect
the simulated impact at 31 December 2021. Scenario impacts
on SICR should be considered when evaluating the ECL
movements of Stage 1 and Stage 2. In all scenarios the total
exposure was the same but exposure by stage varied in each
scenario.
Stage 3 provisions are not subject to the same level of
measurement uncertainty – default is an observed event as at
the balance sheet date. Stage 3 provisions therefore have not
been considered in this analysis.
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 38
Credit risk continued
Measurement uncertainty and ECL sensitivity
analysis
(audited)
The impact arising from the base case, upside, downside and
extreme downside scenarios has been simulated. In the
simulations, NWM N.V. Group has assumed that the economic
macro variables associated with these scenarios replace the
existing base case economic assumptions, giving them a 100%
probability weighting and therefore serving as a single
economic scenario.
These scenarios have been applied to all modelled portfolios in
the analysis below, with the simulation impacting both PDs and
LGDs. Modelled post model adjustments present in the
underlying ECL estimates are also sensitised in line with the
modelled ECL movements, but those that were judgmental in
nature, primarily those for deferred model calibrations and
economic uncertainty, were not (refer to the Governance and
post model adjustments section).
As expected, the scenarios create differing impacts on ECL by
portfolio and the impacts are deemed reasonable. In this
simulation, it is assumed that existing modelled relationships
between key economic variables and loss drivers hold, but in
practice other factors would also have an impact, for example,
potential customer behaviour changes and policy changes by
lenders that might impact on the wider availability of credit
NWM N.V. Group’s core criterion to identify a SICR is founded
on PD deterioration, as discussed above. Under the simulations,
PDs change and result in exposures moving between Stage 1
and Stage 2 contributing to the ECL impact.
Extreme
2021
Actual
Base case
Upside
Downside
downside
Stage 1 modelled exposure (€m)
425
425
425
425
356
Stage 1 modelled ECL (€m)
—
—
—
—
—
Stage 2 modelled exposure (€m)
46
46
46
46
115
Stage 2 modelled ECL (€m)
1
1
1
1
3
Stage 1 and Stage 2 modelled exposure (€m)
471
471
471
471
471
Stage 1 and Stage 2 modelled ECL (€m)
1
1
1
1
3
Stage 1 and Stage 2 coverage (%)
0.21%
0.21%
0.21%
0.21%
0.64%
Variance – (lower)/higher to actual total Stage 1 and Stage 2
ECL
—
—
—
2
(1) Variations in future undrawn exposure values across the scenarios are modelled, however the exposure position reported is that used to calculate modelled ECL as at 31 December
2021 and therefore does not include variation in future undrawn exposure values.
(2) Reflects ECL for all modelled exposure in scope for IFRS 9. The analysis excludes non-modelled portfolios and exposures relating to bonds and cash.
(3) All simulations are run on a stand-alone basis and are independent of each other, with the potential ECL impact reflecting the simulated impact as at 31 December 2021. The
simulations change the composition of Stage 1 and Stage 2 exposure but total exposure is unchanged under each scenario as the loan population is static.
(4) Refer to the Economic loss drivers section for details of economic scenarios.
(5) Refer to the NWM N.V. Group 2020 Annual Report and Accounts for 2020 comparatives.
Measurement uncertainty and ECL
adequacy
(audited)
The improvement in the economic outlook and scenarios used
in the IFRS 9 MES framework in 2021 resulted in a release of
modelled ECL. Given that continued uncertainty remains due to
COVID-19 despite the improved economic outlook, NWM N.V.
Group utilised a framework of quantitative and qualitative
measures to support the directional change and levels of ECL
coverage, including economic data, credit performance insights
and problem debt trends. This was particularly important for
consideration of post model adjustments.
As government support schemes continued to conclude during
2021, NWM N.V. Group anticipates further credit deterioration
in the portfolios. However, the income statement effect of this
will be mitigated by the forward-looking provisions retained on
the balance sheet at 31 December 2021.
There are a number of key factors that could drive further
downside to impairments, through deteriorating economic and
credit metrics and increased stage migration as credit risk
increases for more customers.
A key factor would be a more adverse deterioration in GDP
and unemployment in the economies in which NWM N.V. Group
operates, but also, among others:
The ongoing trajectory of lockdown restrictions and any
future repeated lockdown requirements.
The progress of the COVID-19 vaccination roll-out and its
effectiveness against new variants.
The long-term efficacy of the various government support
schemes in terms of their ability to defray customer defaults
is yet to be proven over an extended period.
The impact on customer affordability in the event of
sustained inflationary pressures.
The level of revenues lost by corporate clients and pace of
recovery of those revenues may affect NWM N.V. Group’s
clients’ ability to service their borrowing, especially in those
sectors most exposed to the effects of COVID-19.
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 39
Credit risk – Banking activities
Introduction
This section details the credit risk profile of NWM N.V. Group’s banking activities.
Refer to Accounting policies note 9 and Note 12 to the consolidated financial statements for policies and critical judgments relating
to impairment loss determination.
Financial instruments within the scope of the IFRS 9 ECL framework
(audited)
Refer to Note 7 to the consolidated financial statements for balance sheet analysis of financial assets that are classified as
amortised cost or fair value through other comprehensive income (FVOCI), the starting point for IFRS 9 ECL framework
assessment.
31 December 2021
31 December 2020
Gross
ECL
Net
Gross
ECL
Net
€bn
€bn
€bn
€bn
€bn
€bn
Balance sheet total gross amortised cost and FVOCI
7.4
7.0
In scope of IFRS 9 ECL framework
6.9
6.5
% in scope
93%
93%
Loans to customers - in scope - amortised cost
0.7
—
0.7
0.2
0.1
0.1
Loans to customers - in scope - FVOCI
—
—
—
—
—
—
Loans to banks - in scope - amortised cost
0.1
—
0.1
1.0
—
1.0
Total loans - in scope
0.8
—
0.8
1.2
0.1
1.1
Stage 1
0.7
—
0.7
0.8
—
0.8
Stage 2
0.1
—
0.1
0.3
—
0.3
Stage 3
—
—
—
0.1
0.1
—
Other financial assets - in scope - amortised cost
5.3
—
5.3
4.5
—
4.5
Other financial assets - in scope - FVOCI
0.8
—
0.8
0.8
—
0.8
Total other financial assets - in scope
6.1
—
6.1
5.3
—
5.3
Stage 1
6.1
—
6.1
5.3
—
5.3
Stage 2
—
—
—
—
—
—
Stage 3
—
—
—
—
—
—
Out of scope of IFRS 9 ECL framework
0.5
na
0.5
0.5
na
0.5
Loans to customers - out of scope - amortised cost
—
na
—
—
na
—
Loans to banks - out of scope - amortised cost
—
na
—
—
na
—
Other financial assets - out of scope - amortised cost
0.4
na
0.4
0.4
na
0.4
Other financial assets - out of scope - FVOCI
0.1
na
0.1
0.1
na
0.1
na = not applicable
The assets outside the scope of IFRS 9 ECL framework were as follows:
Settlement balances, items in the course of collection, cash balances and other non-credit risk assets of €408 million (2020 –
€353 million). These were assessed as having no ECL unless there was evidence that they were defaulted.
Equity shares of €99 million (2020 – €61 million) as not within the IFRS 9 ECL framework by definition.
In scope assets also include €220 million (2020 – €436 million) of inter-Group assets not shown in the table above.
Contingent liabilities and commitments
In addition to contingent liabilities and commitments disclosed in Note 23 to the consolidated financial statements, reputationally-
committed limits were also included in the scope of the IFRS 9 ECL framework. Total contingent liabilities (including financial
guarantees) and commitments within IFRS 9 ECL scope were €6,327 million (2020 – €7,005 million), comprised Stage 1 €6,164
million (2020 – €5,939 million); Stage 2 €163 million (2020 – €1,040 million); and Stage 3 nil (2020 – €26 million). The total ECL in
the remainder of the credit risk section of €40 million included ECL for both on and off balance sheet exposures.
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 40
Credit risk – Banking activities continued
Portfolio summary
(audited)
The table below shows gross loans and ECL, by stage, within the scope of the IFRS 9 ECL framework.
2021
2020
€m
€m
Loans - amortised cost and FVOCI
Stage 1
732
832
Stage 2
50
343
Stage 3
39
72
Inter-Group
(1)
220
436
Total
1,041
1,683
ECL provisions
Stage 1
—
1
Stage 2
1
41
Stage 3
39
69
Total
40
111
ECL provisions coverage
(2)
Stage 1 (%)
—
0.12
Stage 2 (%)
2.00
11.95
Stage 3 (%)
100.00
95.83
Total
4.87
6.60
Other financial assets
- Gross exposure
6,072
5,285
Other financial assets
- ECL provisions
—
—
Impairment (releases)/losses
ECL (release)/charge - third party
(3)
(13)
42
Amounts written-off
63
5
(1) The NWM N.V. Group’s intercompany assets were classified in Stage 1. The ECL for these loans was €0.1 million (2020 – €0.3 million).
(2) ECL provisions coverage is calculated as ECL provisions divided by loans – amortised cost and FVOCI. It is calculated on third party loans and total ECL provisions.
(3) Includes €0.1 million (2020 – nil) related to other financial assets and €1.0 million (2020 – €1.0 million release) relating to contingent liabilities.
(4) The table shows gross loans only and excludes amounts that are outside the scope of the ECL framework. Refer to the Financial instruments within the scope of the IFRS 9 ECL
framework for further details. Other financial assets within the scope of the IFRS 9 ECL framework were cash and balances at central banks totalling €5.1 billion (2020 – €4.5 billion)
and debt securities of €0.9 billion (2020 – €0.8 billion).
(5) NWM N.V Group held collateral against third party loans in Stage 3 of nil (2020 - €3 million) and against Stage 1 and Stage 2 third party loans of €275 million (2020 - €51 million).
Inter-group loans were uncollateralised.
The acceleration of the NWM Group strategy resulted in a
significant decrease of loans in Stage 2, Stage 3 as well as
the associated ECL, with only a few non-go-forward clients
remaining.
A large portion of the reduction in Stage 2 ECL was related
to the exit of a single customer resulting in a net release of
€5.2 million.
The remaining decrease of Stage 2 ECL was mainly due to
the improved economic outlook.
The reduction in Stage 3 loans was primarily the result of
the write-off of a legacy position in the CRC portfolio.
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 41
Credit risk – Banking activities continued
Sector analysis – portfolio summary
(audited)
The table below shows financial assets and off-balance sheet exposures gross of ECL and related ECL provisions, impairment by
sector, asset quality and geographical region based on the country of operation of the customer. The tables below show only third
party exposures and related ECL provisions, charges and write-offs.
Property
Corporate
FI
Sovereign
Total
2021
€m
€m
€m
€m
€m
Loans by geography
23
600
198
—
821
- Netherlands
6
7
50
—
63
- Other Europe
16
514
145
—
675
- RoW
1
79
3
—
83
Loans by asset quality
(1)
23
600
198
—
821
- AQ1
—
—
5
—
5
- AQ2
—
—
—
—
—
- AQ3
—
39
—
—
39
- AQ4
—
452
157
—
609
- AQ5
20
7
16
—
43
- AQ6
3
2
—
—
5
- AQ7
—
61
20
—
81
- AQ8
—
—
—
—
—
- AQ9
—
—
—
—
—
- AQ10
—
39
—
—
39
Loans by stage
23
600
198
—
821
- Stage 1
23
514
195
—
732
- Stage 2
—
47
3
—
50
- Stage 3
—
39
—
—
39
Weighted average life*
- ECL measurement (years)
3
4
25
—
13
Weighted average 12 months PDs*
- IFRS 9 (%)
0.16
0.55
0.29
—
0.47
- Basel (%)
0.65
0.51
0.45
—
0.50
ECL provisions by geography
—
40
—
—
40
- Netherlands
—
—
—
—
—
- Other Europe
—
1
—
—
1
- RoW
—
39
—
—
39
ECL provisions by stage
—
40
—
—
40
- Stage 1
—
—
—
—
—
- Stage 2
—
1
—
—
1
- Stage 3
—
39
—
—
39
ECL provisions coverage (%)
—
6.67
—
—
4.87
- Stage 1 (%)
—
—
—
—
—
- Stage 2 (%)
—
2.13
—
—
2.00
- Stage 3 (%)
—
100.00
—
—
100.00
ECL (release)/charge
- Third party
—
2
(15)
—
(13)
Amounts written-off
—
38
25
—
63
Other financial assets by asset quality
(1)
—
—
330
5,742
6,072
- AQ1-AQ4
—
—
99
5,742
5,841
- AQ5-AQ8
—
—
231
—
231
Off-balance sheet
285
4,641
1,401
—
6,327
- Loan commitments
285
4,640
927
—
5,852
- Financial guarantees
—
1
474
—
475
Off-balance sheet by asset quality
(1)
285
4,641
1,401
—
6,327
- AQ1-AQ4
223
4,216
1,352
—
5,791
- AQ5-AQ8
62
425
49
—
536
- AQ10
—
—
—
—
—
*Not within audit scope.
For the note to this table refer to the following page.
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 42
Credit risk – Banking activities continued
Sector analysis – portfolio summary
(audited)
Property
Corporate
FI
Sovereign
Total
2020
€m
€m
€m
€m
€m
Loans by geography
32
716
499
—
1,247
- Netherlands
32
1
45
—
78
- Other Europe
—
574
346
—
920
- RoW
—
141
108
—
249
Loans by asset quality
(1)
32
716
499
—
1,247
- AQ1
—
—
32
—
32
- AQ2
—
—
—
—
—
- AQ3
—
80
2
—
82
- AQ4
—
344
183
—
527
- AQ5
32
166
106
—
304
- AQ6
—
—
—
—
—
- AQ7
—
3
—
—
3
- AQ8
—
51
—
—
51
- AQ9
—
—
176
—
176
- AQ10
—
72
—
—
72
Loans by stage
32
716
499
—
1,247
- Stage 1
—
514
318
—
832
- Stage 2
32
130
181
—
343
- Stage 3
—
72
—
—
72
Weighted average life*
- ECL measurement (years)
4
3
4
—
4
Weighted average 12 months PDs*
—
—
—
—
—
- IFRS 9 (%)
0.36
1.14
16.11
0.23
7.43
- Basel (%)
0.64
1.06
14.71
0.23
6.86
ECL provisions by geography
—
73
38
—
111
- Netherlands
—
—
1
—
1
- Other Europe
—
37
37
—
74
- RoW
—
36
—
—
36
ECL provisions by stage
—
73
38
—
111
- Stage 1
—
1
—
—
1
- Stage 2
—
3
38
—
41
- Stage 3
—
69
—
—
69
ECL provisions coverage (%)
—
10.20
7.62
—
8.90
- Stage 1 (%)
—
0.19
—
—
0.12
- Stage 2 (%)
—
2.31
20.99
—
11.95
- Stage 3 (%)
—
95.83
—
—
95.83
ECL (release)/charge
- Third party
—
7
35
—
42
Amounts written-off
—
4
1
—
5
Other financial assets by asset quality
(1)
44
—
243
4,998
5,285
- AQ1-AQ4
—
—
—
4,996
4,996
- AQ5-AQ8
44
—
243
2
289
Off-balance sheet
341
5,603
1,061
—
7,005
- Loan commitments
341
5,583
587
—
6,511
- Financial guarantees
—
20
474
—
494
Off-balance sheet by asset quality
(1)
341
5,603
1,061
—
7,005
- AQ1-AQ4
323
4,804
908
—
6,035
- AQ5-AQ8
18
777
149
—
944
- AQ10
—
22
4
—
26
*Not within audit scope.
(1) AQ bandings are based on Basel PDs and mapping is as follows:
Internal asset quality band
Probability of default range
Indicative S&P rating
AQ1
0% - 0.034%
AAA to AA
AQ2
0.034% - 0.048%
AA to AA-
AQ3
0.048% - 0.095%
A+ to A
AQ4
0.095% - 0.381%
BBB+ to BBB-
AQ5
0.381% - 1.076%
BB+ to BB
AQ6
1.076% - 2.153%
BB- to B+
AQ7
2.153% - 6.089%
B+ to B
AQ8
6.089% - 17.222%
B- to CCC+
AQ9
17.222% - 100%
CCC to C
AQ10
100%
D
The corporate credit portfolio remains of high quality
with over 80% of exposure being to customers having an
investment grade rating (BBB-, Baa3 equivalent or
better).
Significant process was made in the execution of NWM
Group strategy announced in 2020, resulting in a
material decrease of loans in Stage 2 and Stage 3,
largely through disposals and write-offs.
The portfolio remains well diversified in terms of sectors
and geography. Within Europe, the exposure is skewed
to the largest economies and northern European
countries that have very good credit quality.
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 43
Credit risk – Banking activities continued
Sector analysis – portfolio summary
(audited)
The table below shows ECL by stage, for key sectors of the Wholesale portfolio that continue to be affected by COVID-19.
Loans - amortised cost & FVOCI
Off-balance sheet
ECL provisions
Loan
Contingent
Stage 1
Stage 2
Stage 3
Total
commitments
liabilities
Stage 1
Stage 2
Stage 3
Total
2021
€m
€m
€m
€m
€m
€m
€m
€m
€m
€m
Wholesale
732
50
39
821
5,852
475
—
1
39
40
Property
23
—
—
23
285
—
—
—
—
—
Financial institutions
195
3
—
198
927
474
—
—
—
—
Corporate
514
47
39
600
4,640
1
—
1
39
40
Of which:
Airlines and aerospace
—
—
—
—
33
—
—
—
—
—
Automotive
—
—
—
—
647
—
—
—
—
—
Health
5
—
—
5
178
—
—
—
—
—
Land transport and logistics
87
—
—
87
273
—
—
—
—
—
Leisure
—
4
—
4
174
—
—
—
—
—
Oil and gas
300
—
—
300
—
—
—
—
—
—
Retail
—
—
—
—
332
—
—
—
—
—
Total
732
50
39
821
5,852
475
—
1
39
40
2020
Wholesale
832
343
72
1,247
6,511
494
1
41
69
111
Property
—
32
—
32
341
—
—
—
—
—
Financial institutions
318
181
—
499
587
474
—
38
—
38
Sovereign
514
130
72
716
5,583
20
1
3
69
73
Corporate
Of which:
—
25
—
25
200
—
—
1
—
1
Airlines and aerospace
—
25
—
25
200
—
—
1
—
1
Automotive
—
—
—
—
716
—
—
—
—
—
Land transport and logistics
95
—
1
96
502
—
—
—
—
—
Leisure
—
56
—
56
129
—
—
1
—
1
Oil and gas
12
—
37
49
328
—
—
—
35
35
Retail
—
—
—
—
380
—
—
—
—
—
Total
832
343
72
1,247
6,511
494
1
41
69
111
Forbearance
The table below shows forbearance, Heightened Monitoring and Risk of Credit Loss by sector. This table show current exposure
but reflects risk transfers where there is a guarantee by another customer.
Property
Other corporate
Total
2021
€m
€m
€m
Forbearance (flow)
—
—
—
Forbearance (stock)
—
21
21
Heightened Monitoring and Risk of Credit Loss
—
4
4
2020
Forbearance (flow)
—
73
73
Forbearance (stock)
—
73
73
Heightened Monitoring and Risk of Credit Loss
32
233
265
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 44
Credit risk – Banking activities continued
Flow statement
(audited)
The flow statement that follows shows the main ECL and
related income statement movements. It also shows the
changes in ECL as well as the changes in related financial
assets used in determining ECL. Due to differences in scope,
exposures may differ from those reported in other tables,
principally in relation to exposures in Stage 1 and Stage 2.
These differences do not have a material ECL impact as they
relate to balances at central banks. Other points to note:
Financial assets include treasury liquidity portfolios,
comprising balances at central banks and debt securities, as
well as loans. Both modelled and non-modelled portfolios are
included.
Stage transfers (for example, exposures moving from Stage
1 into Stage 2) are a key feature of the ECL movements,
with the net re-measurement cost of transitioning to a worse
stage being a primary driver of income statement charges.
Similarly, there is an ECL benefit for accounts improving
stage.
Changes in risk parameters shows the reassessment of the
ECL within a given stage, including any ECL overlays and
residual income statement gains or losses at the point of
write-off or accounting write-down.
Amounts written-off represent the gross asset written-down
against accounts with ECL, including the net asset write-
down for any debt sale activity.
Stage 1
Stage 2
Stage 3
Total
Financial
Financial
Financial
Financial
assets
ECL
assets
ECL
assets
ECL
assets
ECL
NWM N.V. Group
€m
€m
€m
€m
€m
€m
€m
€m
At 1 January 2021
6,311
1
388
41
72
69
6,771
111
Currency translation and other adjustments
83
—
6
3
4
5
93
8
Transfers from Stage 1 to Stage 2
(182)
—
182
—
—
—
—
—
Transfers from Stage 2 to Stage 1
89
2
(89)
(2)
—
—
—
—
Transfers to Stage 3
—
—
—
—
—
—
—
—
Net re-measurement of ECL on stage transfer
(2)
2
—
—
Changes in risk parameters
(1)
(10)
4
(7)
Other changes in net exposure
636
—
(416)
(8)
2
—
222
(8)
Other P&L only items
—
2
(1)
1
Income statement (releases)/charges
(3)
(14)
3
(14)
Amounts written-off
—
—
(25)
(25)
(39)
(39)
(64)
(64)
At 31 December 2021
6,937
—
46
1
39
39
7,022
40
Net carrying amount
6,937
45
—
6,982
At 1 January 2020
5,619
2
123
2
80
74
5,822
78
2020 movements
692
(1)
265
39
(8)
(5)
949
33
At 31 December 2020
6,311
1
388
41
72
69
6,771
111
Net carrying amount
6,310
347
3
6,660
Stage 2 decomposition by a significant increase in credit risk trigger
The tables below show Stage 2 decomposition for the Wholesale portfolio.
Property
Corporate
FI
Total
Loans
ECL
Loans
ECL
Loans
ECL
Loans
ECL
2021
€m
€m
€m
€m
€m
€m
€m
€m
Wholesale
Currently up-to-date
—
—
47
1
3
—
50
1
- PD deterioration
—
—
40
—
1
—
41
—
- Other driver (adverse credit, forbearance etc)
—
—
7
1
2
—
9
1
Total Stage 2
—
—
47
1
3
—
50
1
Property
Corporate
FI
Total
Loans
ECL
Loans
ECL
Loans
ECL
Loans
ECL
2020
€m
€m
€m
€m
€m
€m
€m
€m
Wholesale
Currently up-to-date
32
—
130
3
181
38
343
41
- PD deterioration
32
—
129
3
181
38
342
41
- Other driver (adverse credit, forbearance etc)
—
—
1
—
—
—
1
—
Total Stage 2
32
—
130
3
181
38
343
41
Stage 2 loans decreased significantly as a result of disposals
and the improved economic outlook.
The majority of the remaining Stage 2 loans were related to
non-go-forward clients expected to be exited in the course
of 2022 and 2023.
Overall provisions coverage remained adequate.
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 45
Credit risk – Trading activities
This section details the credit risk profile of NWM N.V. Group’s trading activities.
Derivatives
(audited)
The table below shows third party derivatives by type of contract. The master netting agreements and collateral shown do not
result in a net presentation on the balance sheet under IFRS.
2021
2020
Notional
GBP
USD
EUR
Other
Total
Assets
Liabilities
Notional
Assets
Liabilities
€bn
€bn
€bn
€bn
€bn
€m
€m
€bn
€m
€m
Gross exposure
5,175
6,713
3,967
7,079
IFRS offset
—
—
—
—
Carrying value
465
65
1,257
27
1,814
5,175
6,713
2,274
3,967
7,079
Of which:
Interest rate
(1)
452
7
1,200
5
1,664
3,243
4,321
2,155
2,481
4,853
Exchange rate
13
58
56
22
149
1,932
2,382
119
1,486
2,220
Credit
—
—
1
—
1
—
10
—
—
6
Carrying value
1,814
5,175
6,713
2,274
3,967
7,079
Counterparty mark-to-market netting
(2,747)
(2,747)
(2,486)
(2,486)
Cash collateral
(1,382)
(3,105)
(983)
(3,230)
Securities collateral
(534)
(365)
(56)
(942)
Net exposure
512
496
442
421
Banks
(2)
32
35
16
29
Other financial institutions
(3)
233
179
282
147
Corporate
(4)
247
259
140
244
Government
(5)
—
23
4
1
Net exposure
512
496
442
421
UK
7
3
15
2
Europe
470
493
386
419
US
4
—
9
—
RoW
31
—
32
—
Net exposure
512
496
442
421
Asset quality of uncollateralised
derivative assets
AQ1-AQ4
446
401
AQ5-AQ10
66
41
Net exposure
512
442
(1) The notional amount of interest rate derivatives includes €1,556 billion (2020 – €2,073 billion) in respect of contracts cleared through central clearing counterparties.
(2) Transactions with certain counterparties with which NWM N.V. Group has netting arrangements but collateral is not posted on a daily basis; certain transactions with specific terms
that may not fall within netting and collateral arrangements; derivative positions in certain jurisdictions, for example, China, where the collateral agreements are not deemed to be
legally enforceable.
(3) Includes transactions with securitisation vehicles and funds where collateral posting is contingent on NWM N.V. Group’s external rating.
(4) Mainly large corporates with whom NWM N.V. Group may have netting arrangements in place, but operational capability does not support collateral posting.
(5) Sovereigns and supranational entities with no collateral arrangements, collateral arrangements that are not considered enforceable, or one-way collateral agreements in their
favour.
Derivatives: settlement basis and central counterparties
(audited)
The table below shows the derivative notional and fair value by trading and settlement method.
Notional
Asset
Liability
Traded over the counter
Traded on
Settled
Not settled
Traded on
Traded
Traded on
Traded
recognised
by central
by central
recognised
over the
recognised
over the
exchanges
counterparties
counterparties
Total
exchanges
counter
exchanges
counter
2021
€bn
€bn
€bn
€bn
€m
€m
€m
€m
Interest rate
5
1,556
103
1,664
—
3,243
—
4,321
Exchange rate
—
—
149
149
—
1,932
—
2,382
Credit
—
—
1
1
—
—
—
10
Total
5
1,556
253
1,814
—
5,175
—
6,713
2020
Interest rate
—
2,073
82
2,155
—
2,481
—
4,853
Exchange rate
—
—
119
119
—
1,486
—
2,220
Credit
—
—
—
—
—
—
—
6
Total
—
2,073
201
2,274
—
3,967
—
7,079
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 46
Compliance & conduct risk
Definition
Compliance risk is the risk that the behaviour of NWM N.V.
Group towards customers fails to comply with laws,
regulations, rules, standards and codes of conduct. Such a
failure may lead to breaches of regulatory requirements,
organisational standards or customer expectations and could
result in legal or regulatory sanctions, material financial loss or
reputational damage.
Conduct risk is the risk that the conduct of NWM N.V. Group
and its subsidiaries and its staff towards customers – or in the
markets in which it operates – leads to unfair or inappropriate
customer outcomes and results in reputational damage,
financial loss or both.
Sources of risk
Compliance and conduct risks exist across all stages of NWM
N.V. Group’s relationships with its customers and arise from a
variety of activities including product design, marketing and
sales, complaint handling, staff training, and handling of
confidential insider information.
Key developments in 2021
Risk appetite statements and measures were updated with
an enhanced focus to provide better visibility of key risks
across NatWest Group.
Oversight and management of major compliance
programmes including work to enhance the understanding
and the controls ensuring regulatory compliant post Brexit
cross border operations.
Governance
NatWest Group defines appropriate standards of compliance
and conduct and ensures adherence to those standards
through its risk management framework. Relevant compliance
and conduct matters that have an impact on NWM N.V. Group
are escalated to the Risk & Control Committee and to the
Managing Board.
Risk appetite
Risk appetite statements articulate the levels of risk that legal
entities, businesses and functions work within when pursuing
their strategic objectives and business plans.
A range of controls is operated to ensure the business delivers
good customer outcomes and is conducted in accordance with
legal and regulatory requirements. A suite of policies
addressing compliance and conduct risks set appropriate
standards across NWM N.V. Group.
Monitoring and measurement
Compliance and conduct risks are measured and managed
through continuous assessment and reporting to the Risk &
Control Committee and the Managing Board. The compliance
and conduct risk framework facilitates the consistent
monitoring and measurement of compliance with laws and
regulations and the delivery of consistently good customer
outcomes. The first line of defence is responsible for effective
risk identification, reporting and monitoring, with oversight,
challenge and review by the second line. Compliance and
conduct risk management is also integrated into NatWest
Group’s strategic planning cycle.
Mitigation
Activity to mitigate the most-material compliance and conduct
risks is carried out across NWM N.V. Group. Examples of
mitigation include consideration of customer needs in business
and product planning and targeted training. Internal policies
help support a strong customer focus across NWM N.V. Group.
Independent assessments of compliance with applicable
regulations are also carried out at NWM N.V. Group level.
Financial crime risk
Definition
Financial crime risk is presented by criminal activity in the form
of money laundering, terrorist financing, bribery and
corruption, sanctions and tax evasion, as well as fraud risk
management.
Sources of risk
Financial crime risk may be presented if NWM N.V. Group’s
customers, employees or third parties undertake or facilitate
financial crime, or if NWM N.V. Group’s products or services
are used to facilitate such crime. Financial crime risk is an
inherent risk across all lines of business.
Key developments in 2021
There was a significant focus on the financial crime control
environment – including activity designed to strengthen
customer due diligence standards and controls – across
NatWest Group in 2021.
NWM N.V. Group is fully engaged with NatWest Group’s
multi-year transformation plan. The plan has been
developed to ensure that, as the financial crime threat
evolves with changes in technology, the economy and
wider society, risks relating to money-laundering, terrorist-
financing, tax evasion, bribery and corruption and financial
sanctions are managed, mitigated and controlled as
effectively as possible. As part of this, NWM N.V. Group
implemented the first two phases of a new external
contextual transaction monitoring system. A final phase is
scheduled for implementation.
Aligned to the implementation of the enterprise-wide risk
management framework, financial crime policies and
standards were reviewed and updated. As a result, a NWM
Group-wide customer due diligence remediation project
started including all NWM N.V. Group customer due
diligence files. This work will continue during 2022.
Governance
NWM N.V. Group is represented on the Financial Crime Risk
Committee (FCRC), which is chaired by NWM Group’s Head of
Compliance & Financial Crime, and is NWM Group’s principal
financial crime risk management forum. The committee reviews
and, where appropriate, escalates material financial crime risks
and issues across NWM Group to the NWM Executive Risk
Committee and NWM Board Risk Committee. Additionally,
NWM Group – including NWM N.V. Group – is represented on
NatWest Group’s Financial Crime Executive Steering Group,
which oversees financial crime risk management, operational
performance, and transformation matters across NatWest
Group. Financial Crime Risk is a fixed agenda item for the NWM
N.V. Group Risk & Control Committee and is regularly discussed
by the NWM N.V. Group Managing Board, Board Risk
Committee and Supervisory Board.
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 47
Financial crime risk continued
Risk appetite
There is no appetite to operate in an environment where
systems and controls do not enable the identification,
assessment, monitoring, management and mitigation of
financial crime risk. NWM N.V. Group’s systems and controls
must be comprehensive and proportionate to the nature, scale
and complexity of its businesses. There is no tolerance to
systematically or repeatedly breach relevant financial crime
regulations and laws.
NWM N.V. Group operates a framework of preventative and
detective controls designed to mitigate the risk that it could
facilitate financial crime. These controls are supported by a
suite of policies, procedures and guidance to ensure they
operate effectively.
Monitoring and measurement
Financial crime risks are identified and reported through
continuous risk management and regular reporting to the Risk
& Control Committee and the Managing Board. Quantitative
and qualitative data is reviewed and assessed to measure
whether financial crime risk is within NWM N.V. Group’s risk
appetite.
Mitigation
Through the financial crime framework, relevant policies,
systems, processes and controls are used to mitigate and
manage financial crime risk. This includes the use of dedicated
screening and monitoring systems and controls to identify
people, organisations, transactions and behaviours that may
require further investigation or other actions. Centralised
expertise within NatWest Group is available to detect and
disrupt threats to NWM N.V. Group and its customers.
Intelligence is shared with law enforcement, regulators and
government bodies to strengthen national and international
defences against those who would misuse the financial system
for criminal motives.
Climate risk
Definition
Climate risk is the threat of financial loss or adverse non-
financial impacts associated with climate change and the
political, economic and environmental responses to it.
Sources of risk
Physical risks may arise from climate and weather-related
events such as heatwaves, droughts, floods, storms and sea
level rises. They can potentially result in financial losses,
impairing asset values and the creditworthiness of borrowers.
NWM N.V. Group could be exposed to physical risks directly by
the effects on its property portfolio and, indirectly, by the
impacts on the wider economy as well as on the property and
business interests of its customers.
Transition risks may arise from the process of adjustment
towards a low-carbon economy. Changes in policy, technology
and sentiment could prompt reassessment of customers’
financial risk and may lead to falls in the value of a large range
of assets. NWM N.V. Group could be exposed to transition risks
directly through the costs of adaptation within economic
sectors and markets as well as supply chain disruption leading
to financial impacts on it and its customers. Potential indirect
effects include the erosion of NWM N.V. Group’s
competitiveness, profitability, or reputation damage.
Key developments in 2021
NWM N.V. Group adopted the NatWest Group’s principles-
based climate risk policy, approved in April 2021.
A number of first-generation quantitative climate risk
appetite measures were approved by NatWest Group Board
in December 2021. These will enable reporting of climate
risk appetite and link business-as-usual risk management to
NatWest Group’s strategic goals and priorities.
A new Climate Centre of Excellence was established to
provide strategic horizon scanning, guidance and specialist
climate expertise across NatWest Group.
Qualitative assessment of climate risk was made mandatory
for the majority of the wholesale credit risk portfolio. This
was supported by enhancements to Transaction
Acceptance Standards (TAS), with the inclusion of sector-
specific climate considerations for the heightened risk
sectors and generic climate considerations for all other TAS
documents.
Risk governance
NatWest Group Board is responsible for monitoring and
overseeing climate-related risk within NWM N.V. Group’s
overall business strategy and risk appetite. NWM N.V. Group
participates in various NatWest Group and NWM Group
committees to ensure outcomes meet NWM N.V. Group
requirements. Climate-related risk topics are also discussed,
where appropriate, at NWM N.V. Group’s Risk & Control
Committee.
A Climate Change Executive Steering Group is in place at
NatWest Group and is responsible for overseeing the direction
of and progress against climate-related commitments, including
activities in NWM N.V. Group. During 2021, the Executive
Steering Group focused on overseeing the Group Climate
Change Programme, which was tasked with continuing to
deliver both the NatWest Group-wide climate strategy and the
climate-related mandatory change agenda before the activity
transitions into business-as-usual operations. The NatWest
Group Climate Centre of Excellence supports the Executive
Steering Group as it supervises strategic implementation and
delivery, including within NWM N.V. Group.
Risk appetite
NatWest Group’s climate ambition is underpinned by activity to
reduce the climate impact of its financing activity by at least
50% by 2030 and to do what is necessary to achieve alignment
with the 2015 Paris Agreement.
Work continued across NatWest Group – including within NWM
N.V. Group – during 2021 to integrate climate risk into the risk
management framework, including the development of
appropriate risk appetite metrics. In December 2021, the
NatWest Group Board approved the adoption of three first-
generation climate risk appetite measures into the enterprise-
wide risk management framework, for integration into
business-as-usual risk management.
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 48
Climate risk continued
Risk monitoring and measurement
NatWest Group is focused on developing the capabilities to use
scenario analysis to identify the most material climate risks and
opportunities for its customers, seeking to harness insights to
inform risk management practices and maximise the
opportunities arising from a transition to a low carbon
economy.
Scenario analysis allows the testing of a range of possible
future climate pathways and understand the nature and
magnitude of the risks they present. The purpose of scenario
analysis is not to forecast the future but to understand and
prepare to manage risks that could arise.
NWM N.V. Group regularly considers existing and emerging
regulatory requirements related to climate change.
Operational risk
Definition
Operational risk is the risk of loss resulting from inadequate or
failed internal processes, people and systems, or external
events. It arises from day-to-day operations and is relevant to
every aspect of the business.
Sources of risk
Operational risk may arise from a failure to manage operations,
systems, transactions, and assets appropriately. This can take
the form of human error, an inability to deliver change
adequately or on time, the non-availability of technology
services, or the loss of customer data. Systems failure, theft of
NatWest Group property, information loss and the impact of
natural, or man-made, disasters – as well as the threat of
cyber-attacks – are sources of operational risk. Operational risk
can also arise from a failure to account for changes in law or
regulations or to take appropriate measures to protect assets.
Key developments in 2021
Aligned to the implementation of the enterprise-wide risk
management framework, a new operational risk policy was
approved in April 2021. The new policy sets out the
qualitative expectations, guidance and standards that
stipulate the nature and extent of permissible risk-taking for
operational risk.
Operational risk appetite was enhanced using a quantitative
modelling approach to determine a meaningful quantitative
expression of the maximum level of operational risk NWM
N.V. Group is willing to accept.
Oversight of NatWest Group’s transformation agenda –
particularly in relation to the second-order impacts of
COVID-19 – remained a significant area of focus with
activity being closely monitored and managed to protect
key regulatory deliveries.
There was also a continued focus on operational resilience
to ensure planning, controls and operational activities
remained robust and appropriate, with continuing attention
on the potential operational risks arising from changes in
working practices.
The security threat and the potential for cyber-attacks on
NWM N.V. Group and its supply chain continued to be
closely monitored. During 2021, NatWest Group further
invested in its defences in response to the evolving threat.
There was also continued focus on assuring the security of
the supply chain.
There was a sustained focus on reducing the risks
associated with data use, particularly in terms of assuring
data quality. This was aligned to the NatWest Group data
strategy, designed to identify and implement enhancements
to the effective use of data across NatWest Group.
Governance
The governance arrangements in place for operational risk are
aligned to the requirements set out in the NatWest Group
Board-approved enterprise-wide risk management framework
and are consistent with achieving safety, soundness and
sustainable risk outcomes.
Aligned to this, a strong operational risk management function
is vital to support NWM N.V. Group ’s ambitions to serve its
customers better. Improved management of operational risk
against defined appetite is vital for stability and reputational
integrity.
Risk appetite
Operational risk appetite supports effective management of all
operational risks. It expresses the level and types of operational
risk NatWest Group is willing to accept to achieve its strategic
objectives and business plans. NWM N.V. Group operational risk
appetite statement encompasses the full range of operational
risks faced by its legal entities, businesses and functions.
Mitigation
The Control Environment Certification (CEC) process is a half-
yearly self-assessment by the CEO of NWM Group – including
NWM N.V. Group – as well as the senior executives of NatWest
Group’s other principal businesses, functions and legal entities.
It provides a consistent and comparable view on the adequacy
and effectiveness of the internal control environment.
CEC covers material risks and the underlying key controls,
including financial, operational and compliance controls, as well
as supporting risk management frameworks. The CEC
outcomes are reported to NWM N.V. Group’s Risk & Control
Committee, Managing Board and Board Risk Committee. They
are also shared with external auditors.
The CEC process helps to ensure compliance with the NatWest
Group Policy Framework, Sarbanes-Oxley 404 requirements
concerning internal control over financial reporting and certain
requirements of the UK Corporate Governance Code.
Risks are mitigated by applying key preventative and detective
controls, an integral step in the risk assessment methodology
which determines residual risk exposure. Control owners are
accountable for the design, execution, performance and
maintenance of key controls. Key controls are regularly
assessed for adequacy and tested for effectiveness. The results
are monitored and, where a material change in performance is
identified, the associated risk is re-evaluated.
Monitoring and measurement
Risk and control assessments are used across all business
areas and support functions to identify and assess material
operational and conduct risks and key controls. All risks and
controls are mapped to NWM N.V. Group’s Risk Directory. Risk
assessments are refreshed at least annually to ensure they
remain relevant and capture any emerging risks and also
ensure risks are reassessed.
The process is designed to confirm that risks are effectively
managed in line with risk appetite. Controls are tested at the
appropriate frequency to verify that they remain fit-for-purpose
and operate effectively to reduce identified risks.
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 49
Operational risk continued
NWM N.V. Group uses the basic indicator approach to calculate
its Pillar 1 operational risk capital requirement. This is based on
multiplying three years’ average historical gross income by
coefficients set by the regulator based on business line. As part
of the wider Internal Capital Adequacy Assessment Process an
operational risk economic capital model is used to assess Pillar
2A, which is a risk-sensitive add-on to Pillar 1. The model uses
historical loss data (internal and external) and forward-looking
scenario analysis to provide a risk-sensitive view of NWM N.V.
Group’s Pillar 2A capital requirement.
Scenario analysis is used to assess how severe but plausible
operational risks will affect NWM N.V. Group. It provides a
forward-looking basis for evaluating and managing operational
risk exposures.
Refer to the Capital, liquidity and funding risk section for
operational risk capital requirement figures.
Operational resilience
NWM N.V. Group manages and monitors operational resilience
through its risk and control assessment methodology. This is
underpinned by setting and monitoring risk indicators and
performance metrics for key business services. Progress
continues on the response to regulator expectations on
operational resilience, with involvement in a number of
industry-wide operational resilience forums. This enables a
more holistic view of the operational resilience risk profile and
the pace of ongoing innovation and change, both internally and
externally.
Event and loss data management
The operational risk event and loss data management process
ensures NWM N.V. Group captures and records operational risk
financial and non-financial events that meet defined criteria.
Loss data is used for regulatory and industry reporting and is
included in capital modelling when calculating economic capital
for operational risk. The most serious events are escalated in a
simple, standardised process to all senior management, by way
of a Group Notifiable Event Process. All financial impacts
associated with an operational risk event are reported in
NatWest Group’s Annual Report and Accounts.
Model risk
Definition
Model risk is the potential for adverse consequences arising
from inaccurate financial assessments or decisions made as a
result of incorrect or misused model outputs and reports. NWM
N.V. Group defines a model as a quantitative method, system,
or approach that applies statistical, economic, financial,
accounting, mathematical or data science theories, techniques
and assumptions to process input data into quantitative
estimates.
Sources of risk
NWM N.V. Group uses a variety of models in the course of its
business activities. Examples include the use of model outputs
to support measuring and assessing risk exposures (including
credit and market risk), as well as for valuation of positions and
for calculating regulatory capital and liquidity requirements.
The models used for stress-testing purposes also play a key
role in ensuring NWM N.V. Group holds sufficient capital, even
in stressed market scenarios.
Key developments in 2021
Improvements to models were made in 2021 resulting in a
reduction of out-of-appetite models across NWM N.V.
Group. Enhancements to models will continue in 2022 to
bring NWM N.V. Group back within model risk appetite.
Embedding and enhancement of the Model Risk
frameworks.
Governance
A governance framework is in place in NWM Group in which
NWM N.V. Group participates, to ensure policies and processes
relating to models are appropriate and effective. Two roles are
key to this – Model Risk Owners and Model Risk Officers. Model
Risk Owners are responsible for model approval and ongoing
performance monitoring. Model Risk Officers, in the second
line, are responsible for oversight, including ensuring that
models are independently validated prior to use and on an
ongoing basis aligned to the model’s risk rating. Escalations are
made to senior management through the NWM Group Model
Risk Committee. The committee also considers whether a
model can be approved for use. Additionally, model risk is
discussed as required by the Supervisory Board, Managing
Board and Risk & Control Committee. Models used for
regulatory reporting may additionally require regulatory
approval before implementation. Further escalation can also be
made to the NatWest Group Model Risk Oversight Committee.
Risk appetite
Model risk appetite is set in order to limit the level of model risk
that NWM N.V. Group is willing to accept in the course of its
business activities. NWM N.V. Group has defined limits and
triggers that are specific to NWM N.V. Group and that align
with NatWest Group’s model risk appetite statement. Model
performance is monitored against appetite on a model level by
model owners in the first line of defence. Risk appetite, defined
at an aggregate level, is monitored by the Risk & Control
Committee. Remediation for positions outside appetite is carried
out by NWM Group.
Policies and procedures related to the development, validation,
approval, implementation and use and ongoing monitoring of
models are in place to ensure adequate control across the
lifecycle of an individual model. Validation of material models is
conducted by an independent risk function comprised of skilled,
well-informed subject matter experts. This is completed for new
models or amendments to existing models and as part of an
ongoing periodic programme to assess model performance.
The frequency of periodic validation is aligned to the risk rating
of the model. The independent validation focuses on a variety
of model features, including modelling approach, the nature of
the assumptions used, the model’s predictive ability and
complexity, the data used in the model, its implementation and
its compliance with regulation.
Monitoring and measurement
The level of risk relating to an individual model is assessed
through a model risk rating that is based on the model’s
materiality and validation rating. This approach provides the
basis for model risk appetite measures and enables model risk
to be robustly monitored and managed across NWM N.V.
Group.
Ongoing performance monitoring is conducted by the first line
and overseen by the second line to ensure parameter estimates
and model constructs remain fit for purpose, model
assumptions remain valid and that models are being used
consistently with their intended purpose. This allows timely
action to be taken to remediate poor model performance
and/or any control gaps or weaknesses.
Risk and capital management continued
NatWest Markets N.V.
Annual Report and Accounts 2021 50
Model risk continued
Mitigation
Model risk is inherent in the use of models. It is managed by
refining or redeveloping models where appropriate – either due
to changes in market conditions, business assumptions or
processes – and by applying adjustments to model outputs
(either quantitative or based on expert opinion). Enhancements
may also be made to the process within which the model
output is used in order to further limit risk levels.
Reputational risk
Definition
Reputational risk is defined as the risk of damage to
stakeholder trust due to negative consequences arising from
internal actions or external events.
Sources of risk
Reputational risks originate from internal actions and external
events. The three primary drivers of reputational risk have
been identified as: failure in internal execution; a conflict
between NWM N.V. Group’s values and the public agenda; and
contagion (when NWM N.V. Group’s reputation is damaged by
failures in the wider financial sector).
Key developments in 2021
Reputation risk registers were introduced at NatWest Group
level in order to enhance monitoring of the most material
reputational risks.
An updated reputational risk appetite statement was
introduced with a specific focus on public trust.
The correlation between reputational risk and climate
change issues remained a significant area of focus during
2021. Enhancements were made to the Environmental,
Social & Ethical risk management framework to mitigate
reputational risk arising from exposure to carbon-intensive
sectors and to support the transition to a lower carbon
economy.
Governance
A reputational risk policy supports reputational risk
management across NatWest Group. In 2021, NWM N.V. Group
established the NWM N.V. Reputational Risk Forum as a sub-
committee of the NWM N.V. Group Risk & Control Committee.
The purpose of the Reputational Risk Forum is to review
matters which may give rise to reputational risk for NWM N.V.
Group and NWM Group, which arise from any aspect of NWM
N.V.’s business, whether from a transaction, a product, a
customer or any other activity or source. The forum either
approves where the risk is deemed acceptable or rejects cases
to stop activity from proceeding where reputational risk is not
manageable or deemed outside of appetite. When the matters
presented to the forum constitutes a reputational risk to NWM
Group, these are escalated to the NWM Group Reputational
Risk Committee. NWM N.V. Group representatives take part in
the NWM Group Reputational Risk Committee, to review
relevant issues and discuss cases, sectors and themes that
represent a material reputational risk.
Risk appetite
NatWest Group manages and articulates its appetite for
reputational risk through a qualitative reputational risk appetite
statement. NatWest Group seeks to identify and manage risk
exposures arising from internal actions and external events.
This is designed to ensure that stakeholder trust is retained.
However, reputational risk is inherent in NWM N.V. Group’s
operating environment and public trust is a specific factor in
setting reputational risk appetite.
Standards of conduct are in place across NWM N.V. Group that
require strict adherence to policies, procedures and ways of
working to ensure business is transacted in a way that meets –
or exceeds – stakeholder expectations.
Monitoring and measurement
Relevant internal and external factors are monitored in the
NWM N.V. Group Risk & Control Committee and escalated,
where appropriate, to NWM N.V. Group’s Managing Board, and
NWM N.V. Group’s Board Risk Committee.
Mitigation
Standards of conduct are in place across NatWest Group
requiring strict adherence to policies, procedures and ways of
working to ensure business is transacted in a way that meets –
or exceeds – stakeholder expectations.
NatWest Group has in recent years been the subject of
investigations and reviews by a number of regulators and
governmental authorities, some of which have resulted in past
fines, settlements and public censure.
Corporate governance
NatWest Markets N.V.
Annual Report and Accounts 2021 51
Page
Introduction
51
Corporate Governance in
the Netherlands
51
Approval of Annual Report
51
Boards
51
The report of the Supervisory
Board
52
The report of the Managing
Board
53
Code of conduct
54
Relations with shareholders
54
Employees
55
The Dutch Banking Code (Code
Banken)
55
Remuneration
56
Management’s report on
internal control over financial
reporting under the Dutch
Corporate Governance Code
59
Management’s report on the
Annual Report 2019 for
purposes of Section 5:25 sub 2
Financial Supervision Act
59
Introduction
In order to achieve high standards of
corporate governance, NWM N.V. Group
organises its business in a way that
promotes first-class stewardship by the
Managing Board and effective
supervision by the Supervisory Board.
Integrity, transparency and
accountability are key elements of NWM
N.V. Group’s corporate governance and
they are embedded in its business as a
whole. These key elements ensure that
the controls and oversight necessary for
effective risk management, compliance
with regulations, and accurate and
complete disclosure of information to the
market are effective.
With effect from 29 November 2019, RBS
Holdings N.V. (RBSH N.V.) is a wholly-
owned subsidiary of NatWest Markets
Plc (‘NWM Plc’ or ‘the intermediate
holding company’). RBSH N.V. is the
parent company of NatWest Markets
N.V. (NWM N.V.). NatWest Group plc is
‘the ultimate holding company’. The term
‘NatWest Group’ comprises NatWest
Group plc and its subsidiary and
associated undertakings.
NWM N.V. is a licenced bank regulated
by both the De Nederlandsche Bank
(’Dutch Central Bank’) and the Autoriteit
Financiële Markten (“AFM”).
Corporate governance in the
Netherlands,
Code Banken and the Dutch
Corporate Governance Code
NWM N.V. Group ensures proper
corporate governance by focusing on the
Dutch Banking Code (Code Banken)
which contains specific corporate
governance rules and principles for all
banks in the Netherlands. In addition,
NWM N.V. Group also adheres, where
possible, with the Dutch Corporate
Governance Code although this is not a
required code for NWM N.V. Group.
The Code Banken came into force on 1
January 2010 and was amended on 1
January 2015. It requires banks in the
Netherlands to either comply with the
rules and principles as set out in the
Code Banken or explain any deviation
from it. The Code Banken is applicable to
NWM N.V. Group as it has a banking
licence issued under the Dutch Financial
Supervision Act.
NWM N.V. Group operates in line with
the requirements under the Code
Banken. A further explanation on
compliance with the updated Code
Banken is provided on page 55 of this
report.
Capital Requirements Directive IV
(CRD IV)
On 1 January 2014, CRD IV came into
force in the EU. CRD IV contains several
Corporate Governance related
requirements, which were implemented
in Dutch law on 1 August 2014. It
required banks that fall under the Single
Supervisory Mechanism by the ECB to
set up separate Audit, Nomination and
Remuneration Committees for its
Supervisory Board. NWM N.V. Group has
been qualified as a less significant
institution as at 1 January 2017 and does
not fall under this Single Supervisory
Mechanism supervision of the ECB.
However, given its importance, NWM
N.V. Group has implemented this
requirement by allocating specific
responsibilities concerning the
nomination and remuneration areas to
the Supervisory Board as a whole.
Furthermore, a separate Board Risk
Committee and a separate Board Audit
Committee have been set up to support
the Supervisory Board.
European Banking Authority (EBA)
guidelines on internal governance
The EBA has issued guidelines relating to
internal governance arrangements of
credit institutions. These take into
account weaknesses identified in the
financial crisis and build upon the
Committee of European Banking
Supervisors (CEBS) Guidelines. The EBA
guidelines are implemented by the local
competent authorities, which is the
Dutch Central Bank. NWM N.V. Group
adheres to these guidelines. The updated
guidelines have come into effect on 31 of
December 2021 and are being
implemented in the Corporate
Governance Framework of the NWM
N.V. Group.
Wet beloningsbeleid financiële
ondernemingen
On 7 February 2015, the Wet
beloningsbeleid financiële
ondernemingen (Wbfo) came into force.
With this legislation, the Dutch
government ensures that financial
services companies carry out a sound
remuneration policy and avoid payment
of excessive variable remuneration.
Headline measure is the 20% bonus cap.
NWM N.V. Group adheres to these
principles.
Further information on the remuneration
policy can be found in the 2021 NatWest
Group Annual Report and Accounts,
available at natwestgroup.com.
Approval of Annual Report
The Managing Board approved the
Annual Report at its meeting on 17
February 2022. The Supervisory Board
approved the Annual Report at its
meeting on 17 February 2022. NWM N.V.
Group has proposed to its Shareholder
that it adopts the 2021 financial
statements, as included in this Annual
Report, and discharge the Managing
Board and Supervisory Board in respect
of their management and supervision
respectively.
Boards
RBSH N.V. and NWM N.V. are limited
liability companies (‘naamloze
vennootschap’) incorporated under the
laws of the Netherlands. Both companies
have a two-tier system of corporate
governance consisting of a Managing
Board and a Supervisory Board. The
day-to-day management of the
companies is vested with the Managing
Board, supervised by the Supervisory
Board. The members of the Managing
Board and Supervisory Board of RBS
Holdings N.V. and NWM N.V. are the
same.
Changes during 2021
On 23 September 2021, Harm Bots
stepped down from his role as Chief
Executive Officer and Chairman of the
Managing Board and has been replaced
on an interim basis by Cornelis Visscher.
Corporate Governance continued
NatWest Markets N.V.
Annual Report and Accounts 2021 52
The report of the
Supervisory Board
This report provides an overview of the
tasks and the activities of the
Supervisory Board during 2021.
In 2017, NatWest Group’s NatWest
Markets business (NWM Plc) announced
its plan to repurpose NWM N.V. Group’s
existing banking licence in the
Netherlands to minimise disruption to the
business and to serve customers
following the loss of EU passporting after
the UK's departure from the EU.
NWM Plc and NWM N.V. Group have
been working together to ensure the
banking licence is maintained and NWM
N.V. Group is operational. NWM N.V.
started trading on 25 March 2019.
The Supervisory Board supervised the
execution of this strategy by challenging
and advising the Managing Board on
client focus, timing and speed to ensure
the banking licence is maintained and
NWM N.V. Group is made operational.
Furthermore, the corporate strategy and
further de-risking of NWM N.V. Group
has been discussed during all the
Supervisory Board meetings in 2021.
The composition of the Supervisory
Board was discussed during all meetings
in 2021.
On 1 February 2021, Mr David King –
Chief Financial Officer of NWM Plc –
effectively joined as a member of the
Supervisory Board after receiving
regulatory approval in December 2020.
On 16 November 2021, Mr David King
announced that he would be stepping
down as Chief Financial Officer of NWM
Plc and as a result also as a member of
the Supervisory Board during 2022.
The tasks of the Supervisory Board
The main task of the Supervisory Board
is to supervise the Managing Board, as
well as the general affairs of NWM N.V.
Group and its associated enterprises. It
assists and advises the Managing Board
and supervises the corporate
governance structure of NWM N.V.
Group.
In performing their duties, the members
of the Supervisory Board are guided by
the interests of NWM N.V. Group, and
the businesses connected to it, taking
into account the relevant interests of
NWM N.V. Group's stakeholders. Certain
powers are vested in the Supervisory
Board, including the approval of certain
resolutions of the Managing Board. A
complete overview of the powers of the
Supervisory Board can be found in the
Rules Governing the Supervisory Board’s
Principles and Best Practices. These
rules also include specific provisions on
remuneration and nomination topics as
prescribed by the implementation of CRD
IV in the Netherlands.
Members of the Supervisory Board
The Supervisory Board is an independent
corporate body. Members of the
Supervisory Board are appointed by the
General Meeting of Shareholders. For
each vacant seat the Supervisory Board
nominates one or more candidates. The
candidates must meet the criteria of the
membership profile, which are set out in
the Rules Governing the Supervisory
Board’s Principles and Best Practices of
NWM N.V. Group.
The Chairman and Vice-Chairman of the
Supervisory Board are appointed by the
Supervisory Board from among its
members.
The Supervisory Board confirms that its
current composition has the necessary
experience, expertise and independence
to execute their duties. They have also
sufficient accounting and financial
management expertise to understand
NWM N.V. Group’s business, financial
statements and risk profile.
All appointments were made in
accordance with the Supervisory Board
profile resulting in the current
composition of the Supervisory Board.
Two members are female which aligns
with NatWest Group’s policy on diversity
and inclusion.
Supervisory Board members are
appointed for a term of four years and
may be re-appointed after the end of
their term, with a maximum term of 12
years from the date of their first
appointment.
Newly appointed Supervisory Board
members undertake an induction
programme which is tailor-made and
adjusted to the specific needs of each
new Supervisory Board member.
They also undertake a series of meetings
with the management of NWM N.V.
Group to gain insight and understanding
of NWM N.V. Group and its enterprises.
In case of a material (potential) conflict
of interest between a member of the
Supervisory Board and NWM N.V. Group,
the Chairman of the Supervisory Board
shall be notified. If the Chairman of the
Supervisory Board has a material
(potential) conflict of interest, the Vice-
Chairman is notified. The respective
Supervisory Board member will not take
part in the resolution and decision-
making process by the Supervisory
Board where a conflict of interest exists.
During 2021, no conflicts of interest have
arisen.
Details of the remuneration of the
Supervisory Board can be found in Note
27 to the consolidated financial
statements.
Activities of the Supervisory Board
Risk and audit topics are discussed on a
regular basis and a report with
deliberations and findings is prepared for
each regular meeting. This included
discussion on progress on the
remediation programmes.
Specific nomination and remuneration
topics are also discussed on a regular
basis. For instance, the Supervisory
Board was asked to approve the
appointment of Mr Cornelis Visscher as
Interim Chief Executive Officer and has
been involved in the nomination and
selection process of the new Chief
Executive Officer.
The Supervisory Board works alongside
the NatWest Group and NWM Plc
Remuneration Committees to ensure the
implementation of a restrained and long-
term remuneration policy that is aligned
with the organisation's strategy and risk
appetite for NWM N.V. Group. The
Supervisory Board extensively discussed
remuneration at two of its meetings
highlighting the focus that this topic
continues to receive in the organisation.
In addition, specific remuneration
provisions have been included into the
Rules Governing the Supervisory Board’s
Principles and Best Practices.
Regular and ad-hoc Supervisory Board
meetings were held during 2021. All
members of the Supervisory Board have
complied with the requirement to attend
meetings on a frequent basis.
Composition of the Supervisory Board
The members of the Supervisory Board as at 17 February 2022 are as follows:
Date of first appointment
Date for re-election
Robert Begbie (Chairman)
(60, British, male)
1 April 2020
1 April 2024
Maarten Klessens (Vice-Chairman)
(63, Dutch, male)
2 September 2015
30 August 2023
Annelies van der Pauw
(61, Dutch, female)
3 March 2019
3 March 2023
Anne Snel
(53, Irish, female)
25 March 2019
25 March 2023
David King
(53, British, male)
1 February 2021
1 February 2025
Corporate Governance continued
NatWest Markets N.V.
Annual Report and Accounts 2021 53
Robert Begbie
Chairman of the Supervisory Board
Mr Begbie was appointed CEO of NWM
Plc and joined the executive management
team of NatWest Group in December
2019. NWM Plc supports corporate and
institutional customers, helping them to
manage their risk and access
international capital markets. Mr Begbie
was appointed as the Chairman of the
NMW N.V. Supervisory Board on 1 April
2020.
Mr Begbie has been with NatWest Group
for 40 years and has extensive experience
in treasury and capital markets. During
his career, he has built successful capital
markets businesses across fixed income,
derivatives, asset management and cash
markets and led teams in the UK, Europe,
Asia and the US.
After spending 20 years in our Markets
business, Mr Begbie joined NatWest
Group Treasury in 2009 where he was
instrumental in transforming the NatWest
Group balance sheet. In 2017 Mr Begbie
was appointed as NatWest Group
Treasurer with responsibilities for all
aspects of Treasury and the management
of the bank’s balance sheet.
He holds an MBA from CASS Business
School and is a former president of The
Chartered Institute of Bankers in Scotland
(London Branch).
Maarten Klessens
Vice-Chairman of the Supervisory
Board and Chairman of the Board Risk
and Audit Committee
Mr Klessens was appointed as an
independent member of the Supervisory
Board on 2 September 2015 and re-
appointed on 30 August 2019.
In 2016 he joined the Supervisory Board
of Bank of Africa Holding S.A. and in 2017
he joined the Supervisory Board of DHB
Bank N.V. in the Netherlands. He was
senior advisor Benelux for StormHarbour
Securities LLP, London in 2014 and 2015.
From 2011 he was acting head of Global
Country Risk for NatWest Group and was
responsible for country appetite setting
and exposure management, with special
attention for the financial stress in the
Eurozone periphery.
Mr Klessens started his career with ABN
AMRO in 1986, in structured aircraft
finance. In 1997 he was appointed
Corporate Executive Vice President for
ABN AMRO and had subsequent
responsibilities in wholesale product
teams, client management and Group
Risk. For 12 years he was a voting
member of ABN AMRO's Group Risk
Committee. Mr Klessens holds a
postgraduate in Financial Economics of
Tilburg University and a Masters in
Business Economics of Erasmus University
Rotterdam and has had executive training
at IMD, INSEAD and University of
Michigan.
Annelies van der Pauw
Ms Van der Pauw was appointed as an
independent member of the Supervisory
Board on 3 March 2019.
Ms Van der Pauw was a partner of the
international law firm Allen & Overy LLP
(A&O) until 2020 and has chaired the
Amsterdam corporate practice group of
A&O since 2006. In her practice, Ms Van
der Pauw focused on mergers and
acquisitions and corporate governance
issues. Ms Van der Pauw also has
extensive equity capital markets
experience. In addition to a strong
understanding of the legal environment in
the Netherlands, Ms Van der Pauw was
also the co-chair of the A&O global
corporate responsibility programme for
many years and a member of the board
of the global A&O Foundation. Ms Van der
Pauw has been with A&O and its
predecessors since 1987. Presently Ms
Van der Pauw continues to hold various
non-executive board memberships in the
private and public sector.
Anne Snel
Ms Snel was appointed as an independent
member of the Supervisory Board on 25
March 2019.
Ms Snel is currently Partner Risk, Legal
and Compliance at DIF, a fund manager
specialised in infrastructure investment.
She has held senior risk roles at
Rabobank including Head of Operational
Risk and Head of Integrated Risk. She
brings a strong understanding of risk and
regulation and excellent relationships with
both the DNB and ECB, having previously
worked in banking supervision at the
DNB. Through her last role at Rabobank,
she established the Supervisory Relations
and Regulatory Oversight function in
order to enhance the relationship with
Dutch and European regulators. She also
has many years of experience in
wholesale banking and private equity with
ABN AMRO. Ms Snel is experienced in the
local legal, regulatory and commercial
environment. Her strong European
regulatory experience provides her with a
thorough understanding of banking and
regulation across the continent. Ms Snel is
also a member of the Supervisory Board
of NN Bank N.V.
David King
Mr King joined the Supervisory Board of
NWM N.V. on 1 February 2021.
Mr King is the Chief Financial Officer of
NWM Plc, which he joined in July 2020. As
a member of the NatWest Markets
Management Team and an Executive
Director of the NatWest Markets Board,
he is collectively responsible for the long-
term success of NatWest Markets and the
delivery of sustainable shareholder value.
Prior to joining NWM Plc Mr King was
Chief Executive Officer at MUFG
Securities, where he was previously Chief
Financial Officer. He has held senior
finance roles at Lloyds, HBOS and Halifax,
and worked in the RBS Financial Markets
Finance team between 1995 and 2001. Mr
King has a bachelor’s degree in
Mathematics from the University of
Surrey.
The Report of the Managing
Board
The members of the Managing Board and
NWM N.V. Group are responsible for the
general affairs of NWM N.V. Group and its
subsidiaries. The members are appointed
by the General Meeting of Shareholders.
On 23 September 2021, Mr Harm Bots
stepped down as Chief Executive Officer
of NWM N.V. and as a result stepped
down as a member of the Managing
Board. Mr Cornelis Visscher, Chief
Financial Officer of NWM N.V., took on
the role and accountabilities as interim
Chief Executive Officer and Chairman of
the Managing Board of NatWest Markets
N.V. and a member of NatWest Markets
Executive Committee in advance of Mr
Bots leaving the Group on 30 September
2021. This appointment is in addition to
his existing responsibilities as Chief
Financial Officer of NatWest Markets N.V..
Regulatory approval was received on 23
September 2021 for a 6-month period.
On 18
January 2022, Mr Vincent
Goedegebuure was nominated as CEO of
NatWest Markets N.V. and will be joining
in early May 2022 subject to regulatory
approval and the conclusion of the
consultation with the Dutch works
council.
The Supervisory Board of NWM N.V.
nominates one or more candidates for
each vacant seat in the Managing Board.
If the Supervisory Board nominates two or
more candidates for a vacant seat in the
Managing Board, the nomination list is
binding. The members of the Managing
Board are accountable both collectively
and individually for all decisions taken by
the Managing Board. The members of the
Managing Board are appointed by the
General Meeting of Shareholders of NWM
N.V..
Corporate Governance continued
NatWest Markets N.V.
Annual Report and Accounts 2021 54
The Chairman of the Managing Board
leads the members of the Managing
Board in its overall management of NWM
N.V. Group to achieve its performance
goals and ambitions. The Chairman of the
Managing Board is the main point of
liaison with the Supervisory Board. The
Chief Financial Officer is responsible for
the financial affairs of NWM N.V. Group.
Alongside their overall corporate
responsibilities, the members of the
Managing Board are responsible for the
management of the control and support
functions. The Managing Board has
delegated certain tasks to a number of
Managing Board committees which are
described on page 54 of this report.
Composition of the Managing Board
The members of the Managing Board as at 17 February 2022 are as follows:
Date of first appointment
Date for re-election
Cornelis Visscher (Interim Chairman)
(56, Dutch, male)
18 July 2013
18 July 2025
Marije Elkenbracht
(53, Dutch, female)
15 February 2019
15 February 2023
Angelique Slach
(50, Dutch, female)
18 March 2019
18 March 2023
Cornelis Visscher
Interim Chairman of the Managing
Board
Mr Visscher graduated from the Vrije
Universiteit in Amsterdam with a degree
in Business Economics, specialised in
Financial Accounting and Management
Accounting. He started his career at ABN
AMRO in 1988, where, after several
functions in Divisional and Group Finance,
he ultimately became responsible for
the delivery of ABN AMRO’s Group
Management Information. Following the
acquisition of ABN AMRO by NatWest
Group and Consortium members, Mr
Visscher became the head of Group
Consolidation, in which he was
responsible for the split of the ABN
AMRO accounts between the Consortium
members.
In 2011 Mr Visscher was seconded to
Edinburgh where he became the Head
of Financial Control for the Retail &
Wealth, Corporate and Business
Services Divisions of NatWest Group. In
this role, he was, amongst other things,
responsible for the Offshore
programme. As of 2013 he is the Chief
Financial Officer for NWM N.V. Group and
a member of the NWM N.V. Managing
Board.
On 23
September 2021, Mr Visscher took
on the role and accountabilities of interim
Chief Executive Officer and Chairman of
the Managing Board of NatWest Markets
N.V. and a member of NatWest Markets
Executive Committee.
Angelique Slach
Chief Operating Officer
Ms Slach started her career in
Technology at Rabobank’s International
division after finalising her Business and
Financial Economics studies. She fulfilled
roles within the international organisation
ranging from programme management,
strategy, regulatory compliance to
managerial roles in both front- and back-
office. She gained vast experience
working in Wholesale Banking and Capital
Markets with her latest roles as Chief
Operations Officer for Global Financial
Markets, Global Head of Operations and
Chief Innovation Officer for Trade and
Commodity Finance.
Marije Elkenbracht
Chief Risk Officer
Ms Elkenbracht brings 22 years of
experience in various risk and strategy
roles in ABN AMRO and NIBC. Before
joining NWM N.V. Group, Ms Elkenbracht
was Managing Director Risk Modelling at
ABN AMRO and a member of the
Supervisory Board of the ABN AMRO
Mortgage group. Prior to these roles, she
held the position of Managing Director
Market, ALM and Treasury Risk also at
ABN AMRO. Ms Elkenbracht holds a
Master’s degree and a PhD in
Mathematics from the University of
Leiden
Managing Board committees
In order to provide effective oversight and
leadership, the Managing Board has three
sub-committees; the Risk & Control
Committee (RCC), the Asset & Liability
management Committee (ALCo) and the
Disclosure Committee.
Risk & Control
Committee (RCC)
The RCC oversees the risk framework
within NWM N.V. Group, monitors the
actual risk profile and advises the
Managing Board on these matters. Its
scope is, amongst others, credit, market,
operational, compliance, financial crime,
and regulatory risk within NWM N.V.
Group.
Asset & Liability Committee (ALCo)
The Managing Board has delegated to the
ALCo the responsibility for the
management of capital, liquidity, interest
rate and foreign exchange risk. This
includes responsibility for reviewing,
approving and allocating balance sheet,
capital, liquidity and funding limits.
Disclosure Committee
The Disclosure Committee advises and
assists the Managing Board in fulfilling its
responsibilities for overseeing the
accuracy and timeliness of public
disclosures made by NWM N.V. Group.
This inter alia includes advising the
Managing Board on the disclosure of
financial information.
Code of conduct
NatWest Group’s Code of Conduct (Our
Code) informs everyone what to expect of
each other, what to do when unsure of a
decision, and where to go for advice
when needed. It is available at
www.natwestgroup.com/who-we-are/our-
values.html, or upon request by
contacting the Company Secretariat at
the telephone number listed on page 116.
In 2016 we incorporated five new
standards of behaviour into Our Code: (1)
You must act with integrity; (2) You must
act with due skill, care and diligence; (3)
You must be open and cooperative with
the Financial Conduct Authority (FCA),
the Prudential Regulatory Authority (PRA)
and other regulators; (4) You must pay
due regard to the interests of customers
and treat them fairly; and (5) You must
observe proper standards of market
conduct. These new conduct rules are
part of the changes our UK banking
regulators, the PRA and FCA, are making
to improve accountability across the
financial sector as part of the Individual
Accountability Regime. The rules are very
much in keeping with the values and
behaviours that we follow across NatWest
Group and NWM N.V. Group.
Relations with shareholders
Rights of shareholders
Any resolution to amend the Articles of
Association of NWM N.V. Group may only
be passed by the General Meeting of
Shareholders following a proposal by the
Managing Board which has been
approved by the Supervisory Board.
Meetings of shareholders and
convocation
The General Meetings of Shareholders
shall be held in Amsterdam, or in The
Hague, Rotterdam, Utrecht or
Haarlemmermeer (Schiphol). The Annual
General Meeting of Shareholders must be
held within six months of the end of each
financial year. In addition, General
Corporate Governance continued
NatWest Markets N.V.
Annual Report and Accounts 2021 55
Meetings of Shareholders shall be held as
frequently as deemed necessary by the
Shareholder, the Managing Board or the
Supervisory Board and when required by
law or by the Articles of Association.
General Meetings of Shareholders shall be
convened by the Shareholder, the
Managing Board or the Supervisory
Board, without prejudice to the provisions
of Sections 110, 111 and 112 of Book 2 of
the Netherlands Civil Code. Convocation
shall take place not later than on the
fifteenth day prior to the day of the
meeting. Convocation shall state the
items to be discussed or alternatively
notice shall be given that such items may
be inspected at the company’s offices.
Proposals to amend the Articles of
Association or proposals relating to a
reduction of the company’s capital shall
always be included in the actual
convocation.
Employees
Our colleagues
As at 31 December 2021, NWM N.V.
Group employed approximately 200
people within continuing operations.
Details of related costs are included in
Note 3 to the consolidated financial
statements.
Employee consultation
NWM Group recognises employee
representatives such as employee bodies
and work councils in a number of
businesses and countries, and
management regularly discuss
developments and updates on the
progress of its strategic plans with the
European Employee Council (EEC). NWM
Group has ongoing engagement and
discussion with those bodies given the
scale of change taking place across NWM
Group.
Inclusion
NatWest Group’s inclusion guidelines
apply to all NWM N.V. Group colleagues
globally and cover being LGBT Innovative,
Gender Balanced, Disability Smart,
Ethnically Diverse, all leading to an
Inclusive Culture. Detailed information can
be found on pages 58 to 61 of the 2021
NatWest Group Annual Report and
Accounts and on the Sustainable Banking
pages at natwestgroup.com.
The Dutch Banking Code
(Code Banken)
Introduction
The Code Banken was drawn up by the
Netherlands Bankers' Association (NVB)
and is mandatory for NWM N.V. Group as
stated in Book 2 of the Civil Code from 1
January 2010.
The renewed Code Banken was drawn up
by the NVB and applies to NWM N.V.
Group from 1 January 2015.
The Code Banken offers specific
provisions, but underlying these
provisions, its aim is to instil learning in
the banking sector following the financial
crisis. Drawing lessons and implementing
change with the aim to restore trust
among all our stakeholders, clients, staff,
investors and society at large. NatWest
Group, including NWM N.V. Group, has
undergone, and continues to undergo,
profound change following the crisis and
is committed to high standards of
corporate governance, business integrity
and professionalism in all its activities.
Corporate Governance codes and the
global footprint of NatWest Group
NWM N.V.’s ultimate parent company is
NatWest Group plc. When implementing
the Code Banken, the Managing Board
and Supervisory Board of NWM N.V. take
into account the effects of similar codes
of conduct implemented across NatWest
Group with the aim to align all businesses
within the wider NatWest Group.
Compliance with the Code Banken
NWM N.V. Group considers the Code
Banken as an important yardstick for the
way banks draw lessons from the crisis.
NWM N.V. Group takes account of all
relevant remuneration regulatory
regimes, including the Code Banken and
the requirements as included in the Dutch
Financial Supervision Act, in designing
and implementing its remuneration policy
as well as NWM N.V. Group’s corporate
governance structure.
Supervisory Board
The required expertise and experience
are well embedded in the Supervisory
Board providing for an independent board
with a diverse composition. The
Supervisory Board consists of an
executive of NatWest Group with broad
banking experience in addition to three
independent members. A clearly defined
process for the engagement and
recruitment of a Supervisory Board
member has been established.
If a vacancy for a new member exists, a
new member is sought based on an
established supervisory board profile to
ensure that the knowledge and expertise
obtained when filling the vacancy is fully
complementing the composition of the
board. This profile is amended to reflect
the specific requirements for the role.
If the position of Chairman of the
Supervisory Board became vacant, a
separate individual profile would be
drawn up based on an established
Chairman’s profile to ensure alignment
with the specific socio-economic and
political culture and the social
environment of the bank’s main markets.
All Supervisory Board members have
committed themselves to fulfil their
responsibilities as board members to the
best of their ability. Their attendance at
meetings is recorded. The Board
furthermore operates according to a set
of rules governing the Supervisory
Board’s principles and best practices.
These have been agreed by all Board
members. The remuneration received by
Supervisory Board members is not
dependent on NWM N.V. Group’s results.
A lifelong learning programme covering
aspects as included in the Code Banken
being amended to reflect the repurposed
banking license.
Managing Board
The composition of the Managing Board
of NWM N.V. Group ensures that all
business areas and all control and
support functions are well represented on
the board. The board comprises a Chief
Executive Officer (CEO), a Chief Financial
Officer (CFO), a Chief Risk Officer (CRO)
and a Chief Operating Officer (COO). To
further clarify the specifics of each role on
the board and to ensure adherence to
agreements made on procedure and
governance, a set of rules governing the
Managing Board’s principles and best
practices has been agreed.
The Managing Board will continuously
ensure a prudent risk appetite, based on
the risk appetite framework approved by
the Supervisory Board. The risk appetite
framework shall be approved by the
Supervisory Board at least once a year
and is actively monitored during the year.
Any material changes in the interim shall
also require the Supervisory Board’s
approval. The Managing Board takes the
interests of all stakeholders (e.g.
employees, clients, shareholders) into
account in their decision making. The
Managing Board recognises that duty of
care for clients is an important
component of doing business.
In line with the requirement of the Code
Banken, Managing Board members take
the Banker’s Oath.
The principles in the Banker’s Oath are
incorporated into NatWest Group’s code
of conduct which is issued to all new
employees joining NWM N.V. Group.
Risk Policy
The Managing Board has arranged risk
management in an adequate manner in
order to ensure the Managing Board is
aware in good time of any material risks
run by the bank and to enable the
Managing Board to manage these risks
properly. The Chief Risk Officer reports
into the Chief Executive Officer. The
Corporate Governance continued
NatWest Markets N.V.
Annual Report and Accounts 2021 56
Managing Board, through its sub
committees, the RCC and the ALCo, takes
any decision that is of material
significance to the risk profile, the capital
position or the liquidity impact.
The Supervisory Board reviews and
discusses the risk profile of NWM N.V.
Group during each of its meetings. This is
based on a risk appetite statement which
it reviews on a regular (i.e. a minimum of
once a year) basis. More information on
the risk organisation of NWM N.V. Group
can be found on pages 17 to 20 of this
report.
Audit
To ensure the function’s independence,
the Head of NWM N.V. Internal Audit
reports to the Chair of the Audit
Committee of NWM N.V. and the Chief
Audit Executive, NWM Plc, who in turn
reports to the Chair of the Audit
Committee of NWM Plc. Internal Audit
reports its opinion and findings on the
quality of the control framework, the
system of governance and the risk
management of NWM N.V. Group to the
Supervisory Board on a bi-annual basis
and provides the Supervisory Board with
their audit review in the remaining
quarters of the year. Internal Audit
furthermore presents its annual audit plan
to the Supervisory Board. The Managing
Board shall ensure that a systemic audit is
conducted of the risks managed in
relation to the business activities of NWM
N.V. Group.
The external auditors are invited to share
their findings and opinion concerning the
quality and effectiveness of the system of
governance, risk management and NWM
N.V. Group’s control procedures with the
Supervisory Board on a quarterly basis.
The external auditors present the annual
audit plan to the Supervisory Board and
both NWM N.V. Internal Audit and the
external auditors take part in a tri-partite
meeting with DNB (NWM N.V. Group’s
regulators in the Netherlands) to share
their audit plans, analysis and findings at
least once per annum. There is a clear
escalation process by which the external
auditors can raise, with management, any
significant concerns.
Remuneration Policy
Set out below is an overview of the NWM
N.V. Group Remuneration Policy.
Remuneration
This section contains a number of
disclosures which are required in
accordance with Article 450 of the Capital
Requirements Regulation, the Basel
Committee on Banking Supervision Pillar
3 disclosure requirements and the EBA
guidelines on sound remuneration
policies. This section should be read in
conjunction with the NatWest Group 2021
Pillar 3 Report which contains a number
of quantitative remuneration disclosures
and can be found on natwestgroup.com.
Remuneration policy for all colleagues
As NWM N.V. Group is an indirectly
owned subsidiary of NatWest Group, its
remuneration policy is fully aligned to
NatWest Group’s remuneration policy
principles with amendments only to
comply with Dutch remuneration rules, as
set down in regulation Book 1 of the FSA.
The NWM N.V. Group’s remuneration
policy is annually reviewed and approved
by the Supervisory Board, lastly at its
meeting on 14 December 2021.
The remuneration policy supports the
business strategy and is designed to
promote the long-term success of NWM
N.V. Group. It aims to reward the delivery
of good performance provided this is
achieved in a manner consistent with
NWM N.V. Group’s values and within
acceptable risk parameters.
The remuneration policy applies the same
principles to everyone who is working on
its behalf, including Material Risk Takers
(MRTs), with some minor adjustments to
the policy where necessary to comply
with local regulatory requirements. The
remuneration policy is compliant with
CRD IV, UK and Dutch regulatory
requirements. The key elements of the
policy are set out below.
Base salary
The purpose is to provide a competitive
level of fixed cash remuneration.
Operation
Base salaries are reviewed annually and
should reflect the talents, skills and
competencies that the individual brings to
the business.
Role-based allowance
Certain MRT roles receive a role-based
allowance. The purpose is to provide fixed
pay that reflects the skills and experience
required for the role.
Operation
Role-based allowances are fixed
allowances which form an element of
overall fixed remuneration for regulatory
purposes and are based on the role the
individual performs.
They are delivered in cash and/or shares
depending on the level of the allowance
and the seniority of the recipient. Shares
are subject to a three-year retention
period.
Benefits and pension
The purpose is to provide a range of
flexible and competitive benefits.
Operation
In most jurisdictions, benefits or a cash
equivalent are provided from a flexible
benefits account.
Pension funding forms part of fixed
remuneration and NWM N.V. Group does
not actively provide discretionary pension
benefits.
Annual bonus
The purpose is to support a culture where
individuals recognise the importance of
serving customers well and are rewarded
for superior performance.
Operation
The annual bonus pool is based on a
balanced scorecard of measures including
Customer, People & Culture, Financial &
Business Delivery, and Risk & Control
measures. Allocation from the pool
depends on performance of the business
area and the individual.
Individual performance assessment is
supported by a structured performance
management framework. This is designed
to assess performance against longer
term business requirements across a
range of financial and non-financial
metrics as well as an evaluation of
adherence to internal controls and risk
management. A balanced scorecard is
used to align with the business strategy.
Each individual will have defined
measures of success appropriate to their
role.
Risk and conduct performance is also
taken into account. Control functions are
assessed independently of the business
units that they oversee, with the
objectives and remuneration being set
according to the priorities of the control
area, not the targets of the businesses
they support. The NWM N.V. Group Chief
Risk Officer and the Head of Internal
Audit have the authority to escalate
matters to Board level if management do
not respond appropriately.
Independent control functions exist in
NWM N.V., with dual solid reporting lines
into both the NWM N.V. CEO and the
NWM Plc Control Function Head.
The variable remuneration of colleagues
who work the majority of their time in the
Netherlands will, as a rule, not exceed
20% of fixed pay. For colleagues who
work the majority of their time outside the
Netherlands, their variable remuneration
will, as a rule, not exceed 100% of fixed
pay.
For awards made in respect of the 2021
performance year, immediate cash
awards continue to be limited to a
maximum of the EUR equivalent of
Corporate Governance continued
NatWest Markets N.V.
Annual Report and Accounts 2021 57
£2,000. In line with regulatory
requirements, a significant proportion of
annual bonus awards for more senior
roles is deferred and includes partial
delivery in shares. Deferral of annual
bonus awards ranges from a three to
seven year period depending on an
individual’s MRT categorization.
Deferral is in a form that meets relevant
regulatory requirements, including cash,
bonds or shares. At least 40% is deferred
over a period which is not less than three
years, vesting no faster than on a pro-
rata basis; in the case of a variable pay
component of £500,000 (or EUR
equivalent) or more, at least 60% of the
total amount is deferred; at least 50% is
delivered in NatWest Group shares and all
shares are subject to a 12 month
retention period.
In certain circumstances NatWest Group
can reduce or cancel awards before they
vest (‘malus’) or recover awards after
they have vested (‘clawback’). Variable
pay of MRTs is subject to a minimum
clawback period of seven years from the
date of award. Awards made to all other
individuals are subject to a clawback
period of five years from the date
NatWest Group or NWM N.V. Group
becomes aware of information that
should result in clawback.
The fifth Capital Requirements Directive
(CRD V) took effect on 28 December 2020
which impacts remuneration
requirements for the 2021 performance
year. This includes extending the
minimum deferral period from three to
four years for MRTs. In the case of senior
management, the minimum deferral
period is five years. The definition of
MRTs is now contained in CRD V instead
of the relevant Regulatory Technical
Standard (art. 92). This includes any staff
that receives:
(i) remuneration of EUR 500,000 or more;
or
(ii) remuneration which is higher than the
average remuneration that is awarded to
senior management.
Listed institutions are allowed to use
share-linked instruments to fulfil the
requirement of paying a portion of
remuneration in instruments.
Remuneration policies need to be gender-
neutral and based on equal pay for
women and men for equal work or work
of equal value. Last, CRD V provides that
the remuneration principles will not apply
on a consolidated basis to subsidiaries
that are subject to other specific EU
remuneration requirements. This is
however subject to exceptions including
where the subsidiary's staff's activities
have a direct material impact on the
business of the institutions within the
group.
Criteria for identifying MRTs
The EBA has issued criteria for identifying
MRT roles, which captures those staff
whose activities have a material influence
over NatWest Group’s performance or
risk profile. The criteria are both
qualitative (based on the nature of the
role) and quantitative (for example those
who exceed the stipulated total
remuneration threshold).
In 2021, MRTs were identified for eleven
key ‘institutions’ within NatWest Group,
which included NWM N.V. Group, to bring
greater focus on MRT identification across
subsidiary entities. The MRT criteria are
applied for each of these institutions, and
consequently some MRTs are identified in
relation to more than one of these
entities.
The qualitative criteria can be
summarised as: staff within the
management body; senior management;
other staff with key functional or
managerial responsibilities; and staff who
individually, or as part of a Committee,
have authority to approve new business
products or to commit to credit risk
exposures and market risk transactions
above certain levels.
The quantitative criteria are: individuals
earning €500,000 or more in the previous
year; individuals in the top 0.3% of
earners of the relevant institution for the
previous year; and individuals who earned
more than the lowest paid identified staff
per certain qualitative criteria. In addition
to the qualitative and quantitative criteria,
NatWest Group has applied its own
minimum standards to identify roles that
are considered to have a material
influence over its risk profile.
Personal hedging strategies
The conditions attached to discretionary
share-based awards prohibit the use of
any personal hedging strategies to lessen
the impact of a reduction in value of such
awards. These conditions are explicitly
acknowledged and accepted by recipients
when any share-based awards are
granted.
Risk in the remuneration process
NatWest Group’s and NWM N.V. Group’s
approach to remuneration promotes
effective risk management through having
a clear distinction between fixed
remuneration, which reflects the role
undertaken by an individual, and variable
remuneration, which is directly linked to
performance and can be risk-adjusted.
Fixed pay is set at an appropriate level to
discourage excessive risk-taking, and at a
level which would allow NatWest Group
and NWM N.V. Group to pay zero variable
pay.
Focus on risk is achieved through clear
risk input into performance goals,
performance reviews, the determination
of variable pay pools, incentive plan
design and the application of malus and
clawback.
A robust process is used to assess risk
performance. A range of measures are
considered, specifically capital, liquidity
and funding risk, credit risk, market risk,
pension risk, compliance & conduct risk,
financial crime, operational risk, business
risk and reputational risk. Consideration is
also given to overall risk culture.
Remuneration arrangements are in line
with regulatory requirements and the
steps taken to ensure appropriate and
thorough risk adjustment are also fully
disclosed and discussed with regulators
where appropriate.
Variable pay determination
For the 2021 performance year, NatWest
Group operated a robust multi-step
process, which is control function led, to
assess performance and determine the
appropriate bonus pool by business area
and function. At multiple points
throughout the process, reference is
made to Group-wide business
performance (from both affordability and
appropriateness perspectives) and the
need to distinguish between go-forward
and resolution activities.
The process considers a balanced
scorecard of performance assessments at
the level of each business area or
function, across financial, customer and
people measures. Risk and conduct
assessments at the same level are then
undertaken to ensure that performance
achieved without appropriate
consideration of risk, risk culture and
conduct controls, is not inappropriately
rewarded.
NatWest Group Board Risk Committee
(BRC) reviews any material risk and
conduct events and, if appropriate, an
underpin may be applied to the individual
business and function bonus pools or to
the overall bonus pool. BRC may
recommend a reduction of a bonus pool if
it considers that risk and conduct
performance is unacceptable or that the
impact of poor risk management has yet
to be fully reflected in the respective
inputs.
Following further review against overall
performance and conduct, and taking into
account affordability, the CEO of NatWest
Group will make a final recommendation
to the NatWest Group Performance and
Remuneration Committee (RemCo),
informed by all the previous steps in the
Corporate Governance continued
NatWest Markets N.V.
Annual Report and Accounts 2021 58
process and her strategic view of the
business. RemCo will then make an
independent decision on the final bonus
pool taking all of these earlier steps into
account.
Bonus funding is allocated by the NatWest
Group RemCo at a franchise level which
in the case of NWM N.V. will be at the
NWM Plc parent entity level. The
allocation for NWM N.V. is determined by
the NatWest Markets Subsidiary RemCo
in cooperation with the NatWest Markets
CEO. The NWM N.V. Supervisory Board
have the opportunity to review the
allocation to ensure it is fit for purpose for
the entity and to ensure it meets capital
adequacy requirements at the N.V. level.
Remuneration and culture
NatWest Group continues to assess
conduct and its impact on remuneration
as part of the annual Group-wide bonus
pool process and also via the
accountability review framework.
NatWest Group has taken steps in recent
years to remove incentives for colleagues
where this could drive unintended
behaviours.
The governance of culture is clearly laid
out with Senior Management Function
roles having clearly defined
accountabilities, which is taken into
account in their pay decisions. The
NatWest Group Board and Sustainable
Banking Committee also play key roles in
building cultural priorities. Frameworks
are in place to measure progress.
Accountability review process and
malus/clawback
The accountability review process was
introduced in 2012 to identify any
material risk management, control and
general policy breach failures, and to
ensure accountability for those events.
The circumstances in which malus,
clawback or in-year bonus reduction may
be applied include:
conduct which results in significant
financial losses;
the individual failing to meet
appropriate standards of fitness and
propriety;
an individual’s misbehaviour or
material error;
NatWest Group or the individual’s
business unit suffering a material
failure of risk management; and
for malus and in-year bonus reduction
only, circumstances where there has
been a material downturn in financial
performance.
The above list of circumstances is not
exhaustive, and NatWest Group may
consider any further circumstances as it
deems appropriate.
This allows NatWest Group and NWM N.V
Group to respond to instances where new
information would change the variable
pay decisions made in previous years
and/or the decisions to be made in the
current year.
Potential outcomes under the
accountability review process are:
Malus - to reduce (to zero if
appropriate) the amount of any
unvested variable pay awards prior to
payment;
Clawback - to recover awards that
have already vested; and
In-year bonus reductions - to adjust
variable pay that would have
otherwise been awarded for the
current year.
As part of the acceptance of variable pay
awards, MRTs must agree to terms that
state that malus and clawback may be
applied. Any variable pay awarded to
MRTs in respect of the 2014 performance
year onwards is subject to clawback for
seven years from the date of grant.
For awards made in respect of the 2016
performance year onwards, this period
can be extended to ten years for MRTs
who perform a ‘senior management
function’ under the Senior Managers
Regime where there are outstanding
internal or regulatory investigations at the
end of the normal seven year clawback
period.
Corporate Governance continued
NatWest Markets N.V.
Annual Report and Accounts 2021 59
Management’s report on internal control over financial reporting under the Dutch Corporate Governance Code
Although NWM N.V. Group is not obliged to adhere to the Corporate Governance Declaration for the purposes of Corporate
Governance Degree (Besluit Corporate Governance), NWM N.V.'s Managing Board has decided nevertheless to adhere to the best
practice provision II.1.5 of the Dutch Corporate Governance Code and to substantiate the operation of the internal risk
management and control system during the year under review, and to state its adequacy and effectiveness.
NWM N.V. Group’s internal risk management and control system is a process, effected by the Managing Board, management, and
other personnel, which is designed to provide reasonable assurance regarding the achievement of objectives in the following
categories: (i) effectiveness and efficiency of operations; (ii) reliability of financial reporting; and (iii) compliance with laws and
regulations.
Different sections of this 2021 Annual Report and Accounts, including risk and capital management on pages 15 to 50, elaborate
on NWM N.V. Group's identified risks, such as capital, liquidity and funding risk, credit risk, market risk, conduct risk, operational
risk, business risk and reputational risk.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions or because the degree of compliance with policies or procedures may deteriorate.
Based on its assessment, management has concluded that, as of 31 December 2021, NWM N.V. Group’s internal control over
financial reporting is effective.
Managing Board
Amsterdam, 17 February 2022
Ma
nagement’s report on the 2021 Annual Report and Accounts for purposes of Section 5:25 sub 2 Financial Supervision Act
The Managing Board certifies that, to the best of their knowledge:
the financial statements give a true and fair view, in all material respects, of the assets, liabilities, financial position and profit of
NWM N.V. Group and its consolidated entities; and
the Annual Report gives a true and fair view, in all material respects, of NWM N.V. Group and its consolidated entities as at 31
December 2021 and their state of affairs during 2021; and the 2021 Annual Report and Accounts describes the material risks
that NWM N.V. Group is facing.
Managing Board
Amsterdam, 17 February 2022
Financial statements
NatWest Markets N.V.
Annual Report and Accounts 2021 60
Page
Consolidated income statement
61
Consolidated statement of comprehensive income
61
Consolidated balance sheet
62
Consolidated statement of changes in equity
63
Consolidated cash flow statement
64
Accounting policies
65
Notes to the consolidated financial statements
1
Net interest income
69
2
Non-interest income
69
3
Operating expenses
69
4
Segmental analysis
70
5
Auditor’s remuneration
70
6
Tax
71
7
Financial instruments - classification
73
8
Financial instruments - valuation
77
9
Financial instruments - maturity analysis
86
10
Trading assets and liabilities
88
11
Derivatives
88
12
Loan impairment provisions
89
13
Business transfers
90
14
Other financial assets
90
15
Other assets
90
16
Other financial liabilities
90
17
Subordinated liabilities
91
18
Other liabilities
92
19
Share capital and reserves
92
20
Structured entities
93
21
Asset transfers
94
22
Capital resources
94
23
Memorandum items
95
24
Analysis of the net investment in business interests and intangible
assets
97
25
Analysis of changes in financing during the year
98
26
Analysis of cash and cash equivalents
98
27
Remuneration of the Managing Board and Supervisory Board
98
28
Related parties
99
29
Post balance sheet events
99
Parent company financial statements and notes
100
Other information
116
Consolidated income statement for the year ended
31 December 2021
NatWest Markets N.V.
Annual Report and Accounts 2021 61
2021
2020
Note
€m
€m
Interest receivable
Interest payable
(50 )
(64 )
Net interest income
1
(9 )
(10 )
Fees and commissions receivable
Fees and commissions payable
(25 )
(46 )
Income from trading activities
(15 )
Other operating income
(3 )
Non-interest income
2
Total income
Staff costs
(71 )
(55 )
Premises and equipment
(6 )
(7 )
Other administrative expenses
(55 )
(27 )
Depreciation and amortisation
(3 )
(4 )
Operating expenses
3
(135 )
(93 )
Profit before impairment releases/(losses)
Impairment releases/(losses)
12
(42 )
Operating profit before tax
Tax credit/(charge)
6
(10 )
Profit for the year
Attributable to:
Ordinary shareholders
(8 )
AT1 capital securities
The appropriation of net profits pursuant to articles 37.2 and 37.3 of the Articles of Association includes the release from reserves
of all profits/(losses) attributable to controlling interests.
Consolidated statement of comprehensive income for
the year ended 31 December 2021
2021
2020
€m
€m
Profit for the year
Items that do not qualify for reclassification
Loss on fair value of credit in financial liabilities designated at FVTPL due to own credit
risk
(23 )
(27 )
FVOCI financial assets
(1 )
Tax
(24 )
(25 )
Items that do qualify for reclassification
FVOCI financial assets
(2 )
Currency translation
(3 )
Tax
(2 )
Other comprehensive loss after tax
(22 )
(27 )
Total comprehensive income/(loss) for the year
(21 )
Attributable to:
Ordinary shareholders
(35 )
AT1 capital securities
The accompanying notes on pages 69 to 99, the accounting policies on pages 65 to 68 and the audited sections of the Financial
review and Risk and capital management on pages 1 to 50 form an integral part of these financial statements.
Consolidated balance sheet as at
31 December 2021
NatWest Markets N.V.
Annual Report and Accounts 2021 62
2021
2020
Note
€m
€m
Assets
Cash and balances at central banks
9
Trading assets
10
Derivatives
11
Settlement balances
Loans to banks - amortised cost
9
Loans to customers - amortised cost
9
Amounts due from holding companies and fellow subsidiaries
9
Other financial assets
14
Other assets
15
Total assets
Liabilities
Bank deposits
9
Customer deposits
9
Amounts due to holding companies and fellow subsidiaries
9
Settlement balances
Trading liabilities
10
Derivatives
11
Other financial liabilities
16
Subordinated liabilities
17
Other liabilities
18
Total liabilities
Total equity
Total liabilities and equity
The accompanying notes on pages 69 to 99, the accounting policies on pages 65 to 68 and the audited sections of the Financial
review and Risk and capital management on pages 1 to 50 form an integral part of these financial statements.
Consolidated statement of changes in equity for the
year ended 31 December 2021
NatWest Markets N.V.
Annual Report and Accounts 2021 63
2021
2020
€m
€m
Share capital and share premium account - at 1 January and 31 December
(1)
AT1 capital securities - at 1 January and 31 December
Fair value through other comprehensive income - at 1 January
Unrealised (loss)/gains
(4 )
Realised loss
Tax
At 31 December
Foreign exchange reserve - at 1 January
Gains arising during the year
Tax
Recycled to profit or loss on disposal of business
(7 )
At 31 December
Retained earnings - at 1 January
Profit attributable to controlling interests
AT1 capital securities dividends paid
(14 )
(14 )
Changes in fair value of credit in financial liabilities designated at FVTPL
- gross
(23 )
(27 )
- tax
At 31 December
Equity attributable to controlling interests
(1) Includes Ordinary share capital of €50,000 (2020 - €50,000 ) – Refer to Note 19 for further details.
The accompanying notes on pages 69 to 99, the accounting policies on pages 65 to 68 and the audited sections of the Financial
review and Risk and capital management on pages 1 to 50 form an integral part of these financial statements.
Consolidated cash flow statement for the year
ended 31 December 2021
NatWest Markets N.V.
Annual Report and Accounts 2021 64
2021
2020
Note
€m
€m
Cash flows from Operating activities
Operating profit before tax
Adjustments for:
Impairment (releases)/losses
(13 )
Depreciation and amortisation
Change in fair value taken to profit or loss of other financial assets
Change in fair value taken to profit or loss on other financial liabilities and subordinated
liabilities
Elimination of foreign exchange differences
(26 )
(12 )
Other non-cash items
(4 )
Income receivable on other financial assets
(8 )
(10 )
Loss on sale of other financial assets
Profit on sale of subsidiaries and associates
(5 )
Interest payable on MRELs and subordinated liabilities
Charges and releases on provisions
(5 )
Net cash flows from trading activities
Decrease/(increase) in trading assets
(1,091 )
Increase in derivative assets
(832 )
(3,037 )
Increase in settlement balance assets
(33 )
(217 )
Decrease in loans to customers
Decrease/(increase) in amounts due from holding companies and fellow subsidiaries
(1,050 )
Decrease in other financial assets
Decrease in other assets
Decrease in banks deposits
(52 )
(7 )
Decrease in customers deposits
(378 )
(189 )
Increase in amounts due to holding companies and fellow subsidiaries
(Decrease)/increase in settlement balance liabilities
(757 )
Increase/(decrease) in trading liabilities
(320 )
(Decrease)/increase in derivative liabilities
(455 )
(Decrease)/increase in other financial liabilities
(317 )
Decrease in other liabilities
(11 )
(119 )
Changes in operating assets and liabilities
Income taxes paid
(34 )
(48 )
Net cash flows from operating activities
(1)
Cash flows from investing activities
Sale and maturity of other financial assets
Purchase of other financial assets
(924 )
(768 )
Income received on other financial assets
Net movement in business interests
24
Net cash flows from investing activities
(125 )
(314 )
Cash flow from financing activities
Movement in subordinated liabilities
(80 )
(35 )
Dividends paid
(14 )
(14 )
Net cash flows from financing activities
(94 )
(49 )
Effects of exchange rate changes on cash and cash equivalents
(10 )
Net (decrease)/increase in cash and cash equivalents
(57 )
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
26
(1) Includes interest received of €56 million (2020 - €54 million) and interest paid of €50 million (2020 - €66 million).
The accompanying notes on pages 69 to 99, the accounting policies on pages 65 to 68 and the audited sections of the Financial
review and Risk and capital management on pages 1 to 50 form an integral part of these financial statements.
Accounting policies
NatWest Markets N.V.
Annual Report and Accounts 2021 65
1. Corporate information
company, incorporated under Dutch law on 30 May 1990 and
registered at Claude Debussylaan 94, 1082 MD Amsterdam, the
principally in Europe.
wholly owned subsidiary of Natwest Markets Plc (NWM Plc),
and NWM Plc is owned by NatWest Group plc. NatWest Group
plc is incorporated in the UK and registered at 36 St. Andrew
Square, Edinburgh, Scotland. NatWest Group plc is the ultimate
parent company of NWM N.V.
The consolidated financial statements of NWM N.V. are
included in the consolidated financial statements of NatWest
Group plc. The consolidated financial statements of NWM N.V.
Group incorporate financial information of NWM N.V., its
controlled entities and interest in associates and joint ventures.
The consolidated financial statements were signed and
authorised for issue by the Managing Board on 17 February
2022 and by the Supervisory Board on 17 February 2022. The
right to request an amendment of the financial statements is
embedded in the Netherlands Civil Code. Interested parties
have the right to ask the Enterprise Chamber of the
Amsterdam Court of Appeal for an amendment of the financial
statements.
2 Basis of preparation
The Managing Board, having made such enquiries as they
considered appropriate, including: a review of NWM N.V.
Group’s activity, forecasts, projections and other relevant
evidence regarding the continuing availability of sufficient
resources from NatWest Group have prepared the financial
statements on a going concern basis based on the directors’
assessment that the NWM N.V. Group will continue in
operational existence for a period of twelve months from the
date the financial statements are approved. The consolidated
financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted
by the European Union.
The financial statements are presented in the functional
currency, euro.
The consolidated financial statements are prepared under
consistent accounting policies.
Transactions and balances between Group companies are
eliminated in the consolidated financial statements to show only
the transactions and balances external to the NWM N.V. Group.
The significant accounting policies and related judgments are
set out below. Except for certain financial instruments as
described in Accounting policies notes 8 and 14 the financial
statements are presented on a historical cost basis.
Accounting policy changes effective 1 January 2021.
The IASB amended IFRS 16 Leases with “COVID-19
amendments on lease modifications – Amendments to IFRS 16
– Leases (IFRS 16)” The effect of the amendment on NWM N.V.
Group’s financial statements is immaterial.
3. Revenue recognition
Interest income and expense are recognised in the income
statement using the effective interest rate method: for all
financial instruments measured at amortised cost, debt
instruments measured as fair value through other
comprehensive income and the effective part of any related
accounting hedging instruments. Negative interest on financial
assets is presented in interest payable and negative interest on
financial liabilities is presented in interest receivable.
Other interest relating to financial instruments measured at fair
value is recognised as part of the movement in fair value and is
reported in income from trading activities or other operating
income as relevant.
Fees in respect of services are recognised as the right to
consideration accrues through the performance of each distinct
service obligation to the customer. The arrangements are
generally contractual and the cost of providing the service is
incurred as the service is rendered. The price is usually fixed
and always determinable.
4. Staff costs
Employee costs, such as salaries, paid absences, and other
benefits are recognised over the period in which the employees
provide the related services to NWM N.V. Group. Employees
may receive variable compensation in cash, in deferred cash or
debt instruments issued by NWM Group or in ordinary shares of
NatWest Group plc subject to deferral. clawback and forfeiture
criteria. NatWest Group operates a number of share-based
compensation schemes under which it grants awards of
NatWest Group plc shares and share options to its employees.
Such awards are subject to vesting conditions and are
operated as part of wider NWM Group share compensation
schemes.
Contributions to defined contribution pension schemes are
recognised in the income statement when payable.
5. Foreign currencies
Foreign exchange differences arising on the settlement of
foreign currency transactions and from the translation of
monetary assets and liabilities are reported in income from
trading activities.
Non-monetary items denominated in foreign currencies that
are stated at fair value are translated into the functional
currency at the foreign exchange rates ruling at the dates the
values are determined. Translation differences are recognised
in the income statement except for differences arising on non-
monetary financial assets classified as fair value through other
comprehensive income.
Income and expenses of foreign subsidiaries and branches are
translated into euro at average exchange rates unless these do
not approximate the foreign exchange rates ruling at the dates
of the transactions. Foreign exchange differences arising on the
translation of a foreign operation are recognised in other
comprehensive income. The amount accumulated in equity is
reclassified from equity to the income statement on disposal of
a foreign operation.
Accounting policies continued
NatWest Markets N.V.
Annual Report and Accounts 2021 66
6. Provisions and contingent liabilities
NWM N.V. Group recognises a provision for a present
obligation resulting from a past event when it is more likely
than not that it will be required to pay to settle the obligation
and the amount of the obligation can be estimated reliably.
Provision is made for restructuring costs, including the costs of
redundancy, when NWM N.V. Group has a constructive
obligation. An obligation exists when NWM N.V. Group has a
detailed formal plan for the restructuring and has raised a valid
expectation in those affected by starting to implement the plan
or by announcing its main features.
NWM N.V. Group recognises any onerous cost of the present
obligation under a contract as a provision. An onerous cost is
the unavoidable cost of meeting its contractual obligations that
exceed the expected economic benefits. When NWM N.V.
Group intends to vacate a leasehold property or right of use
asset, the asset would be tested for impairment and a provision
may be recognised for the ancillary contractual occupancy
costs, such as rates.
Contingent liabilities are possible obligations arising from past
events, whose existence will be confirmed only by uncertain
future events, or present obligations arising from past events
that are not recognised because either an outflow of economic
benefits is not probable, or the amount of the obligation cannot
be reliably measured. Contingent liabilities are not recognised
but information about them is disclosed unless the possibility of
any outflow of economic benefits in settlement is remote.
7. Tax
Tax encompassing current tax and deferred tax is recognised
the income statement except when taxable items are
recognised in other comprehensive income or equity. Tax
consequences arising from servicing financial instruments
classified as equity are recognised in the income statement in
line with IAS 12.
Current tax is tax payable or recoverable in respect of the
taxable profit or loss for the year arising in the income
statement, other comprehensive income or equity. Provision is
made for current tax at rates enacted, or substantively
enacted, at the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable
in respect of temporary differences between the carrying
amount of an asset or liability for accounting purposes and the
carrying amount for tax purposes. Deferred tax liabilities are
generally recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent their recovery
is probable.
Deferred tax is not recognised on temporary differences that
arise from initial recognition of an asset or a liability in a
transaction (other than a business combination) that at the time
of the transaction affects neither accounting nor taxable profit
or loss. Deferred tax is calculated using tax rates expected to
apply in the periods when the assets will be realised or the
liabilities settled, based on tax rates and laws enacted, or
substantively enacted, at the balance sheet date.
Deferred tax assets and liabilities are offset where NWM N.V.
Group has a legally enforceable right to offset and where they
relate to income taxes levied by the same taxation authority
either on an individual NatWest Group company or on NatWest
Group companies in the same tax group that intend, in future
periods, to settle current tax liabilities and assets on a net basis
or on a gross basis simultaneously.
Accounting for taxes is judgmental and carries a degree of
uncertainty because tax law is subject to interpretation, which
might be questioned by the relevant tax authority. NWM N.V.
Group recognises the most likely current and deferred tax
liability or asset, assessed for uncertainty using consistent
judgments and estimates. Current and deferred tax assets are
only recognised where their recovery is deemed probable, and
current and deferred tax liabilities are recognised at the
amount that represents the best estimate of the probable
outcome having regard to their acceptance by the tax
authorities.
8. Financial instruments
Financial instruments are measured at fair value on initial
recognition on the balance sheet.
Monetary financial assets are classified into one of the following
subsequent measurement categories (subject to business model
assessment and review of contractual cash flow for the
purposes of sole payments of principal and interest where
applicable):
amortised cost
measured at cost using the effective
interest rate method, less any impairment allowance;
fair value through other comprehensive income (FVOCI)
measured at fair value, using effective interest rate method
and changes in fair value through other comprehensive
income;
mandatory fair value through profit or loss (MFVTPL)
measured at fair value and changes in fair value reported in
the income statement; or
designated at fair value through profit or loss (DFV)
measured at fair value and changes in fair value reported in
the income statement.
Classification by business model reflects how NWM N.V. Group
manages its financial assets to generate cash flows. A business
model assessment helps to ascertain the measurement
approach depending on whether cash flows result from holding
financial assets to collect the contractual cash flows, from
selling those financial assets, or both
Business model assessment of assets is made at portfolio level,
being the level at which they are managed to achieve a
predefined business objective. This is expected to result in the
most consistent classification of assets because it aligns with
the stated objectives for the portfolio, its risk management,
manager’s remuneration and the ability to monitor sales of
assets from a portfolio.
The contractual terms of a financial asset; any leverage
features; prepayment and extension terms; and triggers that
might reset the effective rate of interest; are considered in
determining whether cash flows are solely payments of
principal and interest.
Certain financial assets may be designated at fair value
through profit or loss (DFV) upon initial recognition if such
designation eliminates, or significantly reduces, accounting
mismatch
.
Equity shares are measured at fair value through profit or loss
unless specifically elected as at fair value through other
comprehensive income (FVOCI).
Upon disposal, the cumulative gains or losses in fair value
through other comprehensive income reserve are recycled to
the income statement for monetary assets and non-monetary
assets (equity shares) the cumulative gains or losses are
transferred directly to retained earnings.
Regular way purchases of financial assets classified as
amortised cost are recognised on the settlement date; all other
regular way transactions in financial assets are recognised on
the trade date.
Accounting policies continued
NatWest Markets N.V.
Annual Report and Accounts 2021 67
Financial liabilities are classified into one of following
measurement categories:
amortised cost
measured at cost using the effective interest
rate method;
held for trading
measured at fair value and changes in fair
value reported in income statement; or
designated at fair value through profit or loss
measured at
fair value and changes in fair value reported in the income
statement except changes in fair value attributable to the
credit risk component recognised in other comprehensive
income when no accounting mismatch occurs.
9. Impairment: expected credit losses (ECL)
At each balance sheet date each financial asset or portfolio of
financial assets measured at amortised cost or at fair value
through other comprehensive income, issued financial
guarantee and loan commitment (other than those classified as
held for trading) is assessed for impairment. Any change in
impairment is reported in the income statement. Loss
allowances are forward-looking, based on 12-month ECL
where there has not been a significant increase in credit risk
rating, otherwise allowances are based on lifetime expected
losses.
ECL are a probability-weighted estimate of credit losses. The
probability is determined by the risk of default which is applied
to the cash flow estimates. In the absence of a change in credit
rating, allowances are recognised when there is a reduction in
the net present value of expected cash flows. Following a
significant increase in credit risk, ECL are adjusted from 12
months to lifetime. This will lead to a higher impairment charge.
Judgment is exercised as follows:
Models
– in certain low default portfolios, Basel parameter
estimates are also applied for IFRS 9.
Non-modelled portfolios
, use a standardised capital
requirement under Basel II. Under IFRS 9, they have
bespoke treatments for the identification of significant
increase in credit risk. Benchmark PDs, EADs and LGDs are
reviewed annually for appropriateness. The ECL calculation
is based on expected future cash flows, which is typically
applied at a portfolio level.
Multiple economic scenarios (MES)
– the central, or base,
scenario is most critical to the ECL calculation, independent
of the method used to generate a range of alternative
outcomes and their probabilities.
Significant increase in credit risk
- IFRS 9 requires that at
each reporting date, an entity shall assess whether the
credit risk on an account has increased significantly since
initial recognition. Part of this assessment requires a
comparison to be made between the current lifetime PD (i.e.
the current probability of default over the remaining lifetime)
with the equivalent lifetime PD as determined at the date of
initial recognition.
On restructuring where a financial asset is not derecognised,
the revised cash flows are used in re-estimating the credit loss.
Where restructuring causes derecognition of the original
financial asset, the fair value of the replacement asset is used
as the closing cash flow of the original asset.
Where, in the course of the orderly realisation of a loan, it is
exchanged for equity shares or property, the exchange is
accounted for as the sale of the loan and the acquisition of
equity securities or investment property. Where NWM N.V.
Group ’s acquired interest is in equity shares relevant polices
for control, associates and joint ventures apply.
Impaired financial assets are written off and therefore
derecognised from the balance sheet when NWM N.V. Group
concludes that there is no longer any realistic prospect of
recovery of part, or all, of the loan. For financial assets that are
individually assessed for impairment, the timing of the write-off
is determined on a case-by-case basis. Such financial assets
are reviewed regularly and write-off will be prompted by
bankruptcy, insolvency, re-negotiation, and similar events.
Business loans are generally written off within five years.
10. Financial guarantee contracts
Under a financial guarantee contract, NWM N.V. Group, in
return for a fee, undertakes to meet a customer’s obligations
under the terms of a debt instrument if the customer fails to do
so. A financial guarantee is recognised as a liability; initially at
fair value and, if not designated as at fair value through profit
or loss, subsequently at the higher of its initial value less
cumulative amortisation and any provision under the contract
measured in accordance with ECL Accounting policy .
Amortisation is calculated to recognise fees receivable in profit
or loss over the period of the guarantee.
11. Derecognition
A financial asset is derecognised (removed from the balance
sheet) when the contractual right to receive cash flows from
the asset has expired or when it has been transferred and the
transfer qualifies for derecognition. Conversely, an asset is not
derecognised in a contract under which NWM N.V. Group
retains substantially all the risks and rewards of ownership.
A financial liability is removed from the balance sheet when the
obligation is paid, or is cancelled, or expires. Cancellation
includes the issuance of a substitute instrument on substantially
different terms.
12. Netting
Financial assets and financial liabilities are offset, and the net
amount presented on the balance sheet when, and only when,
NWM N.V. Group currently has a legally enforceable right to set
off the recognised amounts and it intends either to settle on a
net basis or to realise the asset and settle the liability
simultaneously. NWM N.V. Group is party to a number of
arrangements, including master netting agreements, that give it
the right to offset financial assets and financial liabilities, but
where it does not intend to settle the amounts net or
simultaneously, the assets and liabilities concerned are
presented separately on the balance sheet.
13. Capital instruments
NWM N.V. Group classifies a financial instrument that it issues
as a liability if it is a contractual obligation to deliver cash or
another financial asset, or to exchange financial assets or
financial liabilities on potentially unfavourable terms and as
equity if it evidences a residual interest in the assets of NWM
N.V. Group after the deduction of liabilities. Incremental costs
and related tax that are directly attributable to an equity
transaction are deducted from equity.
14.
Derivatives
Derivatives are reported on the balance sheet at fair value.
NWM N.V. Group uses derivatives as part of its trading
activities, or to manage its own risk such as interest rate,
foreign exchange, or credit risk.
Accounting policies continued
NatWest Markets N.V.
Annual Report and Accounts 2021 68
Critical accounting policies and key sources of estimation
uncertainty
The reported results of NWM N.V. Group are sensitive to the
accounting policies, assumptions and estimates that underlie
the preparation of the financial statements. Dutch company law
and The accounting standards used in the preparation of the
financial statements (see basis of preparation above)require
the directors, in preparing NWM N.V. Group 's financial
statements, to select suitable accounting policies, apply them
consistently and make judgments and estimates that are
reasonable and prudent. In the absence of accounting
guidance, standards used in the preparation of the financial
statements require the directors to develop and apply an
accounting policy that results in relevant and reliable
information in the light of the requirements and guidance in
IFRS dealing with similar and related issues and the IASB's
’Conceptual Framework for Financial Reporting’.
The judgments and assumptions involved in NWM N.V. Group's
accounting policies that are considered by the Board to be the
most important to the portrayal of its financial condition are
noted below. The use of estimates, assumptions or models that
differ from those adopted by NWM N.V. Group would affect its
reported results. Estimation uncertainty continues to be
affected by the COVID-19 pandemic. The COVID-19 pandemic
continued to cause significant economic and social disruption
during 2021. Key financial estimates are based on
management's latest five-year revenue and cost forecasts.
Measurement of deferred tax and expected credit losses are
highly sensitive to reasonably possible changes in those
anticipated conditions. Other reasonably possible assumptions
about the future include a prolonged financial effect of the
COVID-19 pandemic on the economy of the the Netherlands
and other countries.
Changes in judgments and assumptions could result in a
material adjustment to those estimates in the next reporting
periods. Consideration of this source of estimation uncertainty
has been set out in the notes below (as applicable).
Critical accounting policies
Note
Deferred tax
6
Fair value - financial instruments
8
Loan impairment provisions
12
Future accounting developments
International Financial Reporting Standards
Effective 1 January 2022
Onerous Contracts – Cost of Fulfilling a Contract
(Amendments to IAS 37);
Property, Plant and Equipment: Proceeds before Intended
Use (Amendments to IAS 16);
Reference to Conceptual Framework (Amendments to IFRS
3); and
Fees in the “10 per cent” test for Derecognition of Financial
Liabilities (Amendments to IFRS 9).
Other new standards and amendments that are effective for
annual periods beginning after 1 January 2023, with earlier
application permitted, are set out below.
Effective 1 January 2023
IFRS 17 Insurance Contracts (Amendments to IFRS 17
Insurance Contracts);
Classification of Liabilities as Current or Non-current
(Amendments to IAS 1);
Deferred Tax related to Assets and Liabilities arising from a
Single Transaction (Amendments to IAS 12);
Definition of Accounting Estimates (Amendments to IAS 8)
and
Disclosure of Accounting Policies (Amendments to IAS 1 and
IFRS Practice Statement 2).
NWM N.V. Group is assessing the effect of adopting these
standards and amendments on its financial statements but do
not expect the effect to be material.
Notes to the consolidated financial statements
NatWest Markets N.V.
Annual Report and Accounts 2021 69
1 Net interest income
2021
2020
€m
€m
Loans and advances to banks
1
1
Loans and advances to customers
22
42
Amounts due from holding companies and fellow subsidiaries
10
10
Other financial assets
8
1
Interest receivable
41
54
Balances with banks
21
—
Customer deposits
1
23
Amounts due to holding companies and fellow subsidiaries
8
9
Subordinated liabilities
18
31
Internal funding of trading businesses
2
1
Interest payable
50
64
Net interest income
(9)
(10)
Interest income on financial instruments measured at amortised cost and debt instruments classified as FVOCI is measured using
the effective interest rate which allocates the interest income or interest expense over the expected life of the asset or liability at
the rate that exactly discounts all estimated future cash flows to equal the instrument's initial carrying amount. Calculation of the
effective interest rate takes into account fees payable or receivable that are an integral part of the instrument's yield, premiums or
discounts on acquisition or issue, early redemption fees and transaction costs. All contractual terms of a financial instrument are
considered when estimating future cash flows.
For accounting policy information see Accounting policies note 3.
2 Non-interest income
2021
2020
€m
€m
Net fees and commissions
(1)
177
159
Foreign exchange
—
(11)
Interest rate
8
(4)
Income from trading activities
8
(15)
Changes in the fair value of financial assets and liabilities designated at fair value through profit or
loss
(2)
1
3
(Loss)/profit on sale of securities
(1)
(2)
Profit on sale of subsidiaries and associates
—
5
Release of IBNER reserve
(3)
1
4
Other income
(4)
(4)
7
Other operating income
(3)
17
Non-interest income
182
161
(1) Net fees and commissions includes transfer pricing income from NWM Plc of €106 million (2020 – €125 million), refer to Note 28 for further details.
(2) Including related derivatives.
(3) Review of insurance liabilities pertaining to claims resulted in a €1 million release (2020 – €4 million).
(4) Other income relates to loss on disposal of loans to customers of €12 million and insurance recoveries of €6 million. 2020 included other claims reserves release of €7 million.
For accounting policy information see Accounting policies note 3.
3 Operating expenses
2021
2020
€m
€m
Staff costs
70
53
Temporary and contract costs
1
2
Premises and equipment
6
7
Other administrative expenses
(1)
58
31
Operating expenses
135
93
(1) Other administrative expenses include €31 million of cost recharges from NatWest Group companies (2020 – €26 million).
For accounting policy information see Accounting policies note 4.
There were 200 people employed (rounded to the nearest hundred) in continuing operations at 31 December 2021 (2020 – 200).
The average number of persons employed in continuing operations during the year was 200 (2020 - 200).
There were 107 people employed in the Netherlands in continuing operations at 31 December 2021 (2020 – 94).
Notes to the consolidated financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 70
4 Segmental analysis
NWM N.V. Group is managed as a single reportable segment.
Geographical segments
The geographical analyses in the tables below have been compiled on the basis of location of office where the transactions are
recorded.
Netherlands
RoW
Total
2021
€m
€m
€m
Interest income
39
2
41
Interest expenses
(50)
—
(50)
Net fees and commissions
123
54
177
Income from trading activities (dealing profits)
(1)
9
8
Other operating income
(11)
8
(3)
Total income
100
73
173
Operating profit before tax
35
16
51
Total assets
20,192
586
20,778
Total liabilities
18,412
119
18,531
Contingent liabilities and commitments
6,444
—
6,444
2020
Interest income
51
3
54
Interest expenses
(64)
—
(64)
Net fees and commissions
100
59
159
Income from trading activities (dealing profits)
(6)
(9)
(15)
Other operating income
(1)
4
13
17
Total income
85
66
151
Operating profit before tax
8
8
16
Total assets
21,035
709
21,744
Total liabilities
19,237
334
19,571
Contingent liabilities and commitments
7,005
—
7,005
Analysis of net fees and commissions
2021
2020
€m
€m
Fees and commissions receivable
- Lending and financing
21
18
- Brokerage
—
8
- Underwriting fees
74
18
- Other
(1)
107
161
Total
202
205
Fees and commissions payable
(25)
(46)
Net fees and commissions
177
159
(1) Fees and commissions receivable – other includes transfer pricing income from NWM Plc of €106 million (2020 - €125 million). Refer to Note 28 for further details.
5 Auditor’s remuneration
Amounts payable to NWM N.V. Group’s auditors for statutory audit and audit related services are set out below.
2021
2020
€m
€m
Fees for the audit of NWM N.V. Group's annual accounts
1.2
1.0
Audit related services
(1)
1.0
0.8
Total audit and audit related services
2.2
1.8
(1) Fees incurred in relation to regulatory audits and statutory audits of subsidiaries and branches.
There are no non-audit services rendered to NWM N.V. Group.
Notes to the consolidated financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 71
6 Tax
2021
2020
€m
€m
Current tax
Charge for the year
(5)
(10)
Over/(under) provision in respect of prior periods
3
(6)
(2)
(16)
Deferred tax
Credit for the year
4
6
Increase in the carrying value of deferred tax assets in respect of available tax losses and tax credits to
be carried forward
57
—
Tax credit/(charge) for the year
59
(10)
The actual tax charge differs from the expected tax charge computed by applying the statutory tax rate of the Netherlands of
25.8% as follows:
2021
2020
€m
€m
Expected tax charge
(13)
(4)
Non-taxable items (including recycling of foreign exchange reserve)
(3)
(1)
Increase in the carrying value of deferred tax assets in respect of available tax losses and tax credits to
be carried forward
57
—
Foreign profits taxed at other rates
3
2
Losses in year not recognised
—
(1)
Losses brought forward and utilised
12
—
Adjustments in respect of prior years
(1)
3
(6)
Actual tax credit/(charge)
59
(10)
(1) Prior period tax adjustments include tax provision movements, adjustments to reflect submitted tax computations in the Netherlands and overseas, recovery of previously written-off
current tax assets and changes in the valuation of deferred tax assets previously recognised.
For accounting policy information see Accounting policies note 7.
2021
2020
€m
€m
Deferred tax asset
(57)
—
Deferred tax liability
5
9
Net deferred tax (asset)/liability
(52)
9
Revaluations/
Tax losses
deferred
carried
gains
forward
Other
Total
€m
€m
€m
€m
At 1 January 2020
—
—
15
15
Charge to income statement
—
—
(6)
(6)
At 1 January 2021
—
—
9
9
Charge to income statement
—
(57)
(4)
(61)
At 31 December 2021
—
(57)
5
(52)
Deferred tax assets in respect of unused tax losses and tax credits are recognised if the losses and tax credits can be used to
offset probable future taxable profits after taking into account the expected reversal of other temporary differences. Recognised
deferred tax assets in respect of tax losses and tax credits are analysed further below.
Critical accounting policy: Deferred tax
The deferred tax assets of €57 million as at 31 December 2021
(2020 - nil) comprises tax losses which arose in the
Netherlands, and Dutch tax credits. These deferred tax assets
are recognised to the extent that it is probable that there will
be future taxable profits to recover them.
Judgment
– NWM N.V. Group has considered the carrying
value of deferred tax assets and concluded that, based on
management’s estimates, sufficient taxable profits will be
generated in future years to recover the carrying value of the
recognised deferred tax assets.
Estimate
The existence of unused tax losses is usually strong evidence
that future taxable profit may not be available. However the
unused tax losses and tax credits of NWM N.V. Group do result
from identifiable causes which are unlikely to recur. Pursuant to
the new business model, from March 2019 onwards, NWM N.V.
is subject to transfer pricing arrangements with its parent
entity, NWM Plc. NWM N.V. Group’s Dutch fiscal unit has
reported profits in the period after the repurposing of NWM
N.V.’s banking license in 2019. In addition, NatWest Group
strategic review of NWM Group has been largely completed in
2021, which has removed material uncertainties around the
future business of NWM N.V.. As a result, NWM N.V.
Notes to the consolidated financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 72
6 Tax continued
Group now considers it to be probable, based on its 5 year
budget forecast, that future taxable profit will be available
against which the tax losses and tax credits can be partially
utilised. The carrying amount of the deferred tax assets is
sensitive to certain significant assumptions made in
management’s assessment. Significant assumptions relate to:
The 5 year forecast period;
The future macro-economic environment of NWM N.V.;
Transfer pricing model parameters;
The impact of strategic decisions made in 2021;
Decisions to be made within the strategy of NWM N.V.;
Dutch tax law.
NWM N.V. Group’s evaluation of alternative assumptions
revealed that the recognition of the deferred tax asset is highly
sensitive to the significant assumptions used in the assessment
and therefore subject to high estimation uncertainty. Due to the
uncertainty associated with the underlying forecast of probable
taxable income, the final outcome of the utilisation of the
deferred tax asset may vary significantly. This can lead to
material increase or decrease of the deferred tax assets
depending on the result of the strategic decisions made in 2021
and to be made in future periods.
Dutch tax law
– As from 2022, tax losses can be carried
forward indefinitely pursuant to Dutch tax law. However, the
utilisation of losses in a year is limited. The taxable profit up to
€1 million can be fully offset against prior year tax losses, the
taxable profit in excess thereof can only be reduced by tax
losses up to 50 percent. There is no change in Dutch tax law on
the utilisation of available tax credits for which taxable profit
can still be fully offset against available tax credits.
The corporate income tax rate has increased to 25.8% in 2022
(2021: 25%).
Tax losses
– NWM N.V. Group’s tax losses arose principally as a
result of running down its legacy business between 2013 and
2017.
Tax credits
– NWM N.V. Group’s Dutch tax credits relate to
foreign profits. In taxable years before 2012, Dutch resident
corporate taxpayers were fully liable to Dutch corporate
income tax on their worldwide income, including any income
derived from a foreign permanent establishment. Double
taxation was avoided by way of a tax reduction for income
attributable to the foreign permanent establishment. Foreign
profits which could not be exempted because no attributable
Dutch corporate income tax was due against which the foreign
profit could be offset, were carried forward to be used in a
later year. As from 2012, income (gains and losses) arising from
a foreign permanent establishment are in principle exempt
from the Dutch corporate income tax base (object exemption).
Pre-2012 carried forward foreign profits can still be used for
the elimination of double taxation in 2012 and subsequent
years.
Deferred tax assets
– A deferred tax asset of €57 million has
been recognised in respect of tax losses and tax credits to be
carried forward of €222 million.
Unrecognised deferred tax
– Deferred tax assets of €800 million
€2020 - €803 million) have not been recognised in respect of
tax losses and unused tax credits of €3,101 million (2020 -
€3,213 million). The tax losses and the tax credits have no
expiry date.
Notes to the consolidated financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 73
7 Financial instruments - classification
The following tables analyse financial assets and liabilities in accordance with the categories of financial instruments on an IFRS 9
basis.
Amortised
Other
MFVTPL
FVOCI
cost
assets
Total
€m
€m
€m
€m
€m
Assets
Cash and balances at central banks
5,145
5,145
Trading assets
4,174
4,174
Derivatives
7,767
7,767
Settlement balances
391
391
Loans to banks - amortised cost
139
139
Loans to customers - amortised cost
660
660
Amounts due from holding companies and fellow subsidiaries
765
—
612
3
1,380
Other financial assets
1
904
122
1,027
Other assets
95
95
31 December 2021
12,707
904
7,069
98
20,778
Cash and balances at central banks
4,452
4,452
Trading assets
4,380
4,380
Derivatives
6,935
6,935
Settlement balances
358
358
Loans to banks - amortised cost
190
190
Loans to customers - amortised cost
946
946
Amounts due from holding companies and fellow subsidiaries
2,254
—
1,285
1
3,540
Other financial assets
1
850
45
896
Other assets
47
47
31 December 2020
13,570
850
7,276
48
21,744
Held-for-
Amortised
Other
trading
DFV
cost
liabilities
Total
€m
€m
€m
€m
€m
Liabilities
Bank deposits
—
—
Customer deposits
880
880
Amounts due to holding companies and fellow subsidiaries
2,068
—
1,825
30
3,923
Settlement balances
186
186
Trading liabilities
2,080
2,080
Derivatives
8,854
8,854
Other financial liabilities
—
586
1,321
1,907
Subordinated liabilities
(1)
394
258
652
Other liabilities
(2)
7
42
49
31 December 2021
13,002
980
4,477
72
18,531
Bank deposits
52
52
Customer deposits
1,258
1,258
Amounts due to holding companies and fellow subsidiaries
2,247
—
1,298
6
3,551
Settlement balances
943
943
Trading liabilities
1,512
1,512
Derivatives
9,309
9,309
Other financial liabilities
—
886
1,314
2,200
Subordinated liabilities
(1)
414
241
655
Other liabilities
(2)
12
79
91
31 December 2020
13,068
1,300
5,118
85
19,571
Comparatives have been re-presented to aid comparability.
(1) The cumulative own credit adjustment, representing a reduction of the subordinated liability value, was €28 million (2020 - €51 million).
Judgment: classification of financial assets
Classification of financial assets between amortised cost and fair value through other comprehensive income requires a degree of
judgment in respect of business models and contractual cashflows.
The business model criteria is assessed at a portfolio level to determine whether assets are classified as held to collect or held
to collect and sell. Information that is considered in determining the applicable business model includes the portfolio’s policies
and objectives, how the performance and risks of the portfolio are managed, evaluated and reported to management; and the
frequency, volume and timing of sales in prior periods, sales expectation for future periods, and the reasons for sales.
The contractual cash flow characteristics of financial assets are assessed with reference to whether the cash flows represent
solely payments of principal and interest. A level of judgment is made in assessing terms that could change the contractual
cash flows so that it would not meet the condition for solely payments of principal and interest, including contingent and
leverage features, non-recourse arrangements and features that could modify the time value of money.
For accounting policy information see Accounting policies notes 8, 11, 12 and 14.
Notes to the consolidated financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 74
7 Financial instruments – classification continued
Amounts due from/to holding companies and fellow subsidiaries are as below:
2021
2020
Holding
Fellow
Holding
Fellow
companies
subsidiaries
Total
companies
subsidiaries
Total
€m
€m
€m
€m
€m
€m
Assets
Trading assets
765
—
765
2,254
—
2,254
Loans to banks - amortised cost
61
24
85
281
31
312
Loans to customers - amortised cost
135
—
135
124
—
124
Settlement balances
392
—
392
849
—
849
Other assets
3
—
3
—
1
1
Amounts due from holding companies and fellow
subsidiaries
1,356
24
1,380
3,508
32
3,540
Derivatives
(1)
2,592
—
2,592
2,968
—
2,968
Liabilities
Trading liabilities
2,068
—
2,068
2,247
—
2,247
Bank deposits - amortised cost
1,037
3
1,040
973
16
989
Customer deposits - amortised cost
—
179
179
—
—
—
Other financial liabilities - subordinated liabilities
150
—
150
150
—
150
Settlement balances
456
—
456
157
—
157
Other liabilities
23
7
30
6
2
8
Amounts due to holding companies and fellow subsidiaries
3,734
189
3,923
3,533
18
3,551
Derivatives
(1)
2,141
—
2,141
2,230
—
2,230
Comparatives have been re-presented to aid comparability.
(1) Intercompany derivatives are included within derivative classification on the balance sheet.
Notes to the consolidated financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 75
7 Financial instruments – classification continued
Interest rate benchmark reform
The Natwest Group IBOR program successfully delivered the conversion of the vast majority of the IBOR exposures to RFR in
advance of the cessation date. This encompasses loans, deposits, capital instruments and derivatives, which, have been converted
using fallback provisions, switch provisions or as part of market-wide conversion events in the case of derivatives subject to
clearing. These instruments will convert at the first repricing date post cessation.
The total amount of exposure at 31 December 2021 subject to above conversion provisions is €2 million of assets, €10 million of
liabilities, €8 million of loan commitments and above €49.2 billion of derivative notionals.
Despite certain instruments remain in discussion with customers and counterparties to achieve consensual conversion. If
consensual conversion is not achieved these instruments will default to synthetic LIBOR in line with relevant legislation.
The level of exposures without explicit or agreed conversion provisions as of 31 December 2021 is: €123 million in relation to USD
IBOR loans to customers; €125 million GBP LIBOR and €70 million USD IBOR(1) loan commitments; and €16.2 billion USD IBOR(1)
derivative notionals.
At December 2021, NWM N.V. held certain currency swaps with both legs subject to IBOR reform, for which only the GBP LIBOR
leg has an explicit or agreed conversion provisions as of 31 December 2021, but not the entire contract. These include currency
swaps of GBP LIBOR of €0.1 billion with USD IBOR of €0.1 billion; currency swaps of USD IBOR of €0.4 billion with GBP LIBOR of
€0.1 billion and EONIA and Other IBOR of €0.3 billion.
Rates subject to IBOR reform
GBP LIBOR
USD IBOR (1)
EURIBOR (2)
EONIA and Other
IBOR
Total
2020
€m
€m
€m
€m
€m
Loans to customers - amortised cost
127
151
423
7
708
Other financial assets
—
—
56
—
56
Amounts due from holding companies
and fellow subsidiaries
—
—
—
588
588
Amounts due to holding companies
and fellow subsidiaries
—
—
1,232
530
1,762
Loan commitments
(3)
102
134
5,325
—
5,561
Derivatives notional (€bn)
332.7
15.1
891.5
120.5
1,359.8
Comparatives have been re-presented to aid comparability.
(1) In 2021 the FCA declared that USD IBOR will be non-representative post 30 June 2023; at the time of preparing the 2020 Annual Report and Accounts this date was expected to be
31 December 2021.
(2) In 2021 management concluded that EURIBOR is not expected to be significantly reformed further and therefore any uncertainty due to interest benchmark rate reform for
EURIBOR has ended. 31 December 2020 data includes EURIBOR exposure as subject to reform
(3) Certain loan commitments are multi-currency facilities. Where these are fully undrawn, they are allocated to the principal currency of the facility. Where the facilities are partly
drawn, the remaining loan commitment is allocated to the currency with the largest drawn amount.
Included within the table above for derivatives were currency swaps with corresponding legs also subject to IBOR reform of USD
IBOR of €2.0 billion with GBP LIBOR €0.4 billion, EURIBOR €1.2 billion and EONIA and other IBOR €0.4 billion. Currency swaps of
EURIBOR of €3.4 billion with GBP LIBOR €1.7 billion, USD IBOR €1.2 billion and EONIA and other IBOR €0.5 billion. Currency swaps
of EONIA and other IBOR of €0.2 billion with EURIBOR.
Additionally, included above are basis swaps for GBP LIBOR of €30.0 billion, USD IBOR of €0.3 billion, EURIBOR of €16.4 billion and
EONIA and other IBOR of €11.5 billion.
AT1 issuances
NWM N.V. has issued a capital instrument (AT1) which are included within equity (€250 million EURIBOR) under which coupons are
linked to IBOR rates subject to reform. EURIBOR has been reformed however this instrument has been reported within the scope of
the IBOR reform in 2020.
Notes to the consolidated financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 76
7 Financial instruments – classification continued
The tables below present information on financial assets and liabilities that are offset in the balance sheet under IFRS or subject to
enforceable master netting agreements together with financial collateral received or given.
Offsetable potential not recognised by IFRS
Net amount
Offsetable instruments
after the effect
Effect of
netting
master netting
arrangements
Amounts
IFRS
Balance
and similar
Cash
Securities
and related
not subject
Balance
Gross
offset
sheet
arrangements
collateral
collateral
collateral
to offset
sheet total
2021
€m
€m
€m
€m
€m
€m
€m
€m
€m
Derivative assets
14,524
(6,844)
7,680
(4,888)
(1,827)
(534)
431
87
7,767
Derivative liabilities
13,916
(5,190)
8,726
(4,888)
(3,105)
(365)
368
128
8,854
Net position
(1)
608
(1,654)
(1,046)
—
1,278
(169)
63
(41)
(1,087)
Trading reverse repos
686
(82)
604
(73)
—
(531)
—
342
946
Trading repos
668
(82)
586
(73)
—
(513)
—
—
586
Net position
18
—
18
—
—
(18)
—
342
360
2020
Derivative assets
13,753
(6,886)
6,867
(4,735)
(1,721)
(56)
355
68
6,935
Derivative liabilities
13,449
(4,231)
9,218
(4,735)
(3,230)
(942)
311
91
9,309
Net position
(1)
304
(2,655)
(2,351)
—
1,509
886
44
(23)
(2,374)
Trading reverse repos
662
(56)
606
—
—
(606)
—
302
908
Trading repos
362
(56)
306
—
—
(306)
—
—
306
Net position
300
—
300
—
—
(300)
—
302
602
(1) The net IFRS offset balance of €1,654 million (2020 – €2,655 million) relates to variation margin netting reflected on other balance sheet lines.
Notes to the consolidated financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 77
8 Financial instruments – valuation
Critical accounting policy: Fair value -
financial instruments
Financial instruments classified as mandatory fair value
through profit or loss; held-for-trading; designated fair value
through profit or loss and fair value through other
comprehensive income are recognised in the financial
statements at fair value. All derivatives are measured at fair
value.
Fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between
market participants at the measurement date. A fair value
measurement considers the characteristics of the asset or
liability and the assumptions that a market participant would
consider when pricing the asset or liability.
Natwest Markets N.V. manages some portfolios of financial
assets and financial liabilities based on its net exposure to
either market or credit risk. In these cases, the fair value is
derived from the net risk exposure of that portfolio with
portfolio level adjustments applied to incorporate bid-offer
spreads, counterparty credit risk, and funding costs (see
‘Valuation Adjustments’).
Where the market for a financial instrument is not active, fair
value is established using a valuation technique. These
valuation techniques involve a degree of estimation, the extent
of which depends on the instrument’s complexity and the
availability of market-based data. The complexity and
uncertainty in the financial instrument’s fair value is
categorised using the fair value hierarchy.
For accounting policy information see Accounting policies
notes 8 and 14.
Valuation
Fair value hierarchy
Financial instruments carried at fair value have been classified
under the fair value hierarchy. The classification ranges from
level 1 to level 3, with more expert judgment and price
uncertainty for those classified at level 3.
The determination of an instrument’s level cannot be made at
a global product level as a single product type can be in more
than one level. For example, a single name corporate credit
default swap could be in level 2 or level 3 depending on the
level of market activity for the referenced entity.
Level 1 – instruments valued using unadjusted quoted prices in
active and liquid markets, for identical financial instruments.
Examples include government bonds, listed equity shares and
certain exchange-traded derivatives.
Level 2 - instruments valued using valuation techniques that
have observable inputs. Observable inputs are those that are
readily available with limited adjustments required. Examples
include most government agency securities, investment-grade
corporate bonds, certain mortgage products - including CLOs,
most bank loans, repos and reverse repos, state and municipal
obligations, most notes issued, certain money market
securities, loan commitments and most OTC derivatives.
Level 3 - instruments valued using a valuation technique where
at least one input which could have a significant effect on the
instrument’s valuation, is not based on observable market data.
Examples include non-derivative instruments which trade
infrequently, certain syndicated and commercial mortgage
loans, private equity, and derivatives with unobservable model
inputs.
Page
Financial instruments
Critical accounting policy: Fair value
77
Valuation
Fair value hierarchy
(D)
77
Valuation techniques
(D)
78
Inputs to valuation models
(D)
78
Valuation control
(D)
78
Key areas of judgment
(D)
79
Tables of assets and liabilities split by fair value
hierarchy level
(T)
80
Valuation adjustments
Table of fair value adjustments made
(T)
81
Funding valuation adjustments (FVA)
(D)
81
Credit valuation adjustments (CVA)
(D)
81
Bid-offer
(D)
81
Product and deal specific
(D)
81
Own credit
(D)
81
Level 3 additional information
Level 3 ranges of unobservable inputs
(D)
82
Table of level 3 instruments, valuation
techniques and inputs
(T)
82
Level 3 sensitivities
(D)
83
Alternative assumptions
(D)
83
Other considerations
(D)
83
Table of high and low range of fair value of
level 3 assets and liabilities
(T)
83
Movement in level 3 assets and liabilities
over the reporting period
(D)
84
Table of the movement in level 3 assets and liabilities
(T)
84
Fair value of financial instruments measured
at amortised cost
Table showing the fair value of financial instruments
measured at amortised cost on the balance sheet
(T)
85
(D) = Descriptive; (T) = Table
Notes to the consolidated financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 78
8 Financial instruments – valuation continued
Valuation techniques
NatWest Markets N.V. derives the fair value of its instruments
differently depending on whether the instrument is a non-
modelled or a modelled product.
Non-modelled products
are valued directly from a price input,
typically on a position-by-position basis. Examples include
equities and most debt securities.
Non-modelled products can fall into any fair value levelling
hierarchy depending on the observable market activity,
liquidity, and assessment of valuation uncertainty of the
instruments. The assessment of fair value and the classification
of the instrument to a fair value level is subject to the valuation
controls discussed in the “Valuation control” section.
Modelled products
valued using a pricing model range in
complexity from comparatively vanilla products such as interest
rate swaps and options (e.g., interest rate caps and floors)
through to more complex derivatives (e.g., balance guarantee
swaps).
For modelled products the fair value is derived using the model
and the appropriate model inputs or parameters, as opposed
from a cash price equivalent. Model inputs are taken either
directly or indirectly from available data, where some inputs
are also modelled.
Fair value classification of modelled instruments is either level 2
or level 3, depending on the product/model combination, the
observability and quality of input parameters and other factors.
All these must be assessed to classify a position. The modelled
product is assigned to the lowest fair value hierarchy level of
any significant input used in that valuation.
Most derivative instruments, for example vanilla interest rate
swaps, foreign exchange swaps and liquid single name credit
derivatives, are classified as level 2. This is because they are
vanilla products valued using standard market models and with
observable inputs. Level 2 products range from vanilla to more
complex products, where more complex products remain
classified as Level 2 due to the materiality of any unobservable
inputs.
Inputs to valuation models
When using valuation techniques, the fair value can be
significantly affected by the choice of valuation model and
underlying assumptions. Factors considered include the
cashflow amounts and timing of those cash flows, and
application of appropriate discount rates, incorporating both
funding and credit risk. Values between and beyond available
data points are obtained by interpolation and extrapolation.
The principal inputs to these valuation techniques are as
follows:
Bond prices - quoted prices are generally available for
government bonds, certain corporate securities, and some
mortgage-related products.
Credit spreads - these express the return required over a
benchmark rate or index to compensate for the referenced
credit risk. Where available, these are derived from the price of
credit default swaps or other credit-based instruments, such as
debt securities. When direct prices are not available; credit
spreads are determined with reference to available prices of
entities with similar characteristics.
Interest rates - these are principally based on interest rate
swap prices referencing benchmark interest rates. Benchmark
rates include Interbank Offered Rates (IBOR) and the Overnight
Index Swap (OIS) rate, including SONIA (Sterling Overnight
Interbank Average Rate). Other quoted interest rates may also
be used from both the bond, and futures markets.
Foreign currency exchange rates - there are observable prices
both for spot and forward contracts and futures in the world's
major currencies.
Equity and equity index prices - quoted prices are generally
readily available for equity shares listed on the world's major
stock exchanges and for major indices on such shares.
Price volatilities and correlations - volatility is a measure of the
tendency of a price to change with time. Correlation measures
the degree which two or more prices or variables are observed
to move together. Variables that move in the same direction
show positive correlation; those that move in opposite
directions are negatively correlated.
Prepayment rates - rates used to reflect how fast a pool of
assets prepay. The fair value of a financial instrument that can
be prepaid by the issuer or borrower differs from that of an
instrument that cannot be prepaid. When valuing prepayable
instruments, the value of this prepayment option is considered.
Recovery rates/loss given default - these are used as an input
to valuation models and reserves for asset-backed securities
and other credit products as an indicator of severity of losses
on default. Recovery rates are primarily sourced from market
data providers, the value of the underlying collateral, or
inferred from observable credit spreads.
Valuation control
NatWest Markets N.V.'s control environment for the
determination of the fair value of financial instruments includes
formalised procedures for the review and validation of fair
values. This review is performed by an independent price
verification (IPV) team.
IPV is a key element of the control environment. Valuations are
first performed by the business which entered into the
transaction. These valuations are then reviewed by the IPV
team, independent of those trading the financial instruments, in
light of available pricing evidence.
Independent pricing data is collated from a range of sources.
Each source is reviewed for quality and the independent data
applied in the IPV processes using a formalised input quality
hierarchy. Consensus services are one source of independent
data and encompass interest rate, currency, credit, and bond
markets, providing comprehensive coverage of vanilla products
and a wide selection of exotic products.
Where measurement differences are identified through the IPV
process these are grouped by the quality hierarchy of the
independent data. If the size of the difference exceeds defined
thresholds, an adjustment is made to bring the valuation to
within the independently calculated fair value range
.
Notes to the consolidated financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 79
8 Financial instruments – valuation continued
IPV takes place at least monthly, for all fair value financial
instruments. The IPV control includes formalised reporting and
escalation of any valuation differences in breach of established
thresholds.
The quality and completeness of the information gathered in
the IPV process gives an indication as to the liquidity and
valuation uncertainty of an instrument and forms part of the
information considered when determining fair value hierarchy
classifications.
Initial fair value level classification of a financial instrument is
carried out by the IPV team. These initial classifications are
subject to senior management review. Particular attention is
paid to instruments transferring from one level to another, new
instrument classes or products, instruments where the
transaction price is significantly different from the fair value
and instruments where valuation uncertainty is high.
Valuation Committees are made up of valuation specialists and
senior business representatives from various functions and
oversees pricing, reserving and valuations issues. These
committees meet monthly to review and ratify any
methodology changes. The Executive Valuation Committee
meets quarterly to address key material and subjective
valuation issues, to review items escalated by Valuation
Committees and to discuss other relevant industry matters.
The Group model risk policy sets the policy for model
documentation, testing and review. Governance of the model
risk policy is carried out by the Group model risk oversight
committee, which comprises model risk owners and
independent model experts. All models are required to be
independently validated in accordance with the Model Risk
Policy.
Key areas of judgment
Over the years the business has simplified, with most products
classified as level 1 or 2 of the fair value hierarchy. However,
the diverse range of products historically traded by NatWest
Markets N.V. means some products remain classified as level 3.
Level 3 indicates a significant level of pricing uncertainty,
where expert judgment is used. As such, extra disclosures are
required in respect of level 3 instruments
.
In general, the degree of expert judgment used and hence
valuation uncertainty depends on the degree of liquidity of an
instrument or input.
Where markets are liquid, little judgment is required. However,
when the information regarding the liquidity in a particular
market is not clear, a judgment may need to be made. For
example, for an equity traded on an exchange, daily volumes of
trading can be seen, but for an over the counter (OTC)
derivative, assessing the liquidity of the market with no central
exchange is more challenging.
A key related matter is where a market moves from liquid to
illiquid or vice versa. Where this movement is considered
temporary, the fair value level is not changed. For example, if
there is little market trading in a product on a reporting date
but at the previous reporting date and during the intervening
period the market has been liquid. In this case, the instrument
will continue to be classified at the same level in the hierarchy.
This is to provide consistency so that transfers between levels
are driven by genuine changes in market liquidity and do not
reflect short term or seasonal effects. Material movements
between levels are reviewed quarterly by the Business and IPV.
The breadth and depth of the IPV data allows for a rules-based
quality assessment to be made of market activity, liquidity, and
pricing uncertainty, which assists with the process of allocation
to an appropriate level. Where suitable independent pricing
information is not readily available, the quality assessment will
result in the instrument being assessed as level 3.
Notes to the consolidated financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 80
8 Financial instruments – valuation continued
The table below shows the assets and liabilities held by NWM N.V. split by fair value hierarchy level. Level 1 are considered the
most liquid instruments, and level 3 most illiquid, valued using expert judgment and hence carry the most significant price
uncertainty.
2021
2020
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
€m
€m
€m
€m
€m
€m
€m
€m
Assets
Trading assets
Loans
—
4,112
59
4,171
—
4,325
—
4,325
Securities
—
—
3
3
52
—
3
55
Derivatives
—
7,655
112
7,767
—
6,805
130
6,935
Amounts due from holding
companies
and fellow subsidiaries
—
765
—
765
—
2,254
—
2,254
Other financial assets - securities
460
445
—
905
378
473
—
851
Total financial assets held at fair
value
460
12,977
174
13,611
430
13,857
133
14,420
As % of total fair value assets
3%
96%
1%
3%
96%
1%
Liabilities
Amounts due to holding companies
and fellow subsidiaries
—
2,068
—
2,068
—
2,247
—
2,247
Trading liabilities
Deposits
—
2,059
—
2,059
—
1,378
—
1,378
Short positions
—
21
—
21
—
134
—
134
Derivatives
—
8,794
60
8,854
—
9,250
59
9,309
Other financial liabilities - deposits
—
586
—
586
—
886
—
886
Subordinated liabilities
—
394
—
394
—
414
—
414
Total financial liabilities held at fair
value
—
13,922
60
13,982
—
14,309
59
14,525
As % of total fair value liabilities
—
100%
0%
—
99%
0%
Comparatives have been re-presented to aid comparability.
(1) Transfers between levels are deemed to have occurred at the beginning of the quarter in which the instrument was transferred.
Notes to the consolidated financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 81
8 Financial instruments – valuation continued
When valuing financial instruments in the trading book,
adjustments are made to mid-market valuations to cover bid-
offer spread, funding and credit risk. These adjustments are
presented in the table below:
Adjustment
2021
€m
2020
€m
Funding – FVA
(19)
(21)
Credit – CVA
126
126
Bid – Offer
1
1
Product and deal specific
-
1
108
107
Funding valuation adjustments (FVA)
FVA represents an estimate of the adjustment that a market
participant would make to incorporate funding costs and
benefits that arise in relation to derivative exposures. FVA is
calculated as a portfolio level adjustment and can result in
either a funding charge (positive) or funding benefit (negative).
Funding levels are applied to estimated potential future
exposures. For uncollateralised derivatives, the exposure
reflects the future valuation of the derivative. For collateralised
derivatives, the exposure reflects the difference between the
future valuation of the derivative and the level of collateral
posted.
Credit valuation adjustments (CVA)
CVA represents an estimate of the adjustment to fair value that
is made to incorporate the counterparty credit risk inherent in
derivative exposures. CVA is actively managed by a credit and
market risk hedging process, and therefore movements in CVA
are partially offset by trading revenue on the hedges.
The CVA is calculated on a portfolio basis reflecting an
estimate of the amount a third party would charge to assume
the credit risk.
Collateral held under a credit support agreement is factored
into the CVA calculation. In such cases where NatWest Markets
N.V. holds collateral against counterparty exposures, CVA is
held to the extent that residual risk remains.
Bid-offer
Fair value positions are required to be marked to exit,
represented by bid (long positions) or offer (short positions)
levels. Non-derivative positions are typically marked directly to
bid or offer prices. However derivative exposures are adjusted
to exit levels by taking bid-offer reserves calculated on a
portfolio basis. The bid-offer approach is based on current
market spreads and standard market bucketing of risk.
Bid-offer spreads vary by maturity and risk type to reflect
different spreads in the market. For positions where there is no
observable quote, the bid-offer spreads are widened in
comparison to proxies to reflect reduced liquidity or
observability.
Netting is applied on a portfolio basis to reflect the value at
which NatWest Markets N.V. believes it could exit the net risk of
the portfolio, rather than the sum of exit costs for each of the
portfolio’s individual trades. This is applied where the asset and
liability positions are managed as a portfolio for risk and
reporting purposes.
Product and deal specific
On initial recognition of financial assets and liabilities valued
using valuation techniques which have a significant
dependence on information other than observable market data,
any difference between the transaction price and that derived
from the valuation technique is deferred. Such amounts are
recognised in the income statement over the life of the
transaction; when market data becomes observable; or when
the transaction matures or is closed out as appropriate.
Where system generated valuations do not accurately recover
market prices, manual valuation adjustments are applied either
at a position or portfolio level. Manual adjustments are subject
to the scrutiny of independent control teams and are subject to
monthly review by senior management.
Own Credit
NWM N.V. Group considers the effect of its own credit standing
when valuing financial liabilities recorded at fair value in. Own
credit spread adjustments are made when valuing issued debt
held at fair value, including issued structured notes. An own
credit adjustment is applied to positions where it is believed
that counterparties would consider NWM N.V. Group’s
creditworthiness when pricing trades.
Notes to the consolidated financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 82
8 Financial instruments – valuation continued
Level 3 additional information
For illiquid assets and liabilities classified as level 3, additional information is provided on the valuation techniques used and price
sensitivity of the products to those inputs. This is to enable the reader to gauge the level of uncertainty that arises from positions
with significant unobservable inputs or modelling parameters.
Level 3 ranges of unobservable inputs
The table below provides additional information on level 3 instruments and inputs. This shows the valuation technique used for the
fair value calculation, the unobservable input or inputs and input range.
2021
2020
Financial instruments
Valuation techniques
Unobservable inputs
Units
Low
High
Low
High
Trading assets and other financial assets
Loans to customers
Equity shares
Price-based
Price-based
Price
Price
%
EUR
99
1
100
5,705
—
1
—
5,705
Derivative assets and liabilities
Credit derivatives
Credit derivative
Recovery rate
%
—
—
40
40
pricing
Correlation
%
—
98
(27)
98
Volatility
%
17
77
17
43
Interest rate & FX derivatives
Option pricing
Constant prepayment rate
bps
5
15
7
18
Mean reversion
%
—
10
—
10
(1) NWM N.V. Group does not have any material liabilities measured at fair value that are issued with an inseparable third party credit enhancement.
.
Notes to the consolidated financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 83
8 Financial instruments – valuation continued
Level 3 sensitivities
The level 3 sensitivities presented below are calculated at a
trade or low-level portfolio basis rather than an overall portfolio
basis. As individual sensitivities are aggregated with n reflection
of the correlated nature between instruments, the overall
portfolio sensitivity may not be accurately reflected. For
example, some portfolios may be negatively correlated to
others, where a downwards movement in one asset would
produce an upwards movement in another. However, due to
the additive presentation of the above figures this correlation
impact cannot be displayed. As such, the actual potential
downside sensitivity of the total portfolio may be less than the
non-correlated sum of the additive figures as shown in the
below table.
Alternative assumptions
Reasonably plausible alternative assumptions of unobservable
inputs are determined based on a specified target level of
certainty of 90%.
Alternative assumptions are determined with reference to all
available evidence including consideration of the following:
quality of independent pricing information considering
consistency between different sources, variation over time,
perceived tradability or otherwise of available quotes;
consensus service dispersion ranges; volume of trading activity
and market bias (e.g. one-way inventory); day 1 profit or loss
arising on new trades; number and nature of market
participants; market conditions; modelling consistency in the
market; size and nature of risk; length of holding of position;
and market intelligence.
Other considerations
Whilst certain inputs used to calculate CVA, FVA and own
credit adjustments are not based on observable market data,
the uncertainty of these inputs is not considered to have a
significant effect on the net valuation of the related derivative
portfolios and issued debt.
As such, the fair value levelling of the derivative portfolios and
issued debt is not determined by CVA, FVA or own credit
inputs. In addition, any fair value sensitivity driven by these
inputs is not included in the level 3 sensitivities presented.
The table below shows the high and low range of fair value of the level 3 assets and liabilities. This range incorporates the range of
fair value inputs as described in the previous table.
2021
2020
Level 3
Favourable
Unfavourable
Level 3
Favourable
Unfavourable
Assets
€m
€m
€m
€m
€m
€m
Trading assets
Loans
59
—
—
—
—
—
Securities
3
—
—
3
—
—
Derivatives
112
10
(10)
130
10
(10)
Total financial assets held at fair value
174
10
(10)
133
10
(10)
Liabilities
Derivatives
60
—
—
59
—
—
Total financial liabilities held at fair value
60
—
—
59
—
—
Notes to the consolidated financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 84
8 Financial instruments – valuation continued
Movement in Level 3 assets and liabilities over the reporting period
The following table shows the movement in level 3 assets and liabilities in the year.
2021
2020
Trading
Other financial
Total
Total
Trading
Other financial
Total
Total
assets (2)
assets (3)
assets
liabilities
assets (2)
assets (3)
assets
liabilities
€m
€m
€m
€m
€m
€m
€m
€m
At 1 January
133
—
133
59
219
—
219
64
Amount recorded in the income
statement
(1)
3
—
3
(10)
(74)
—
(74)
1
Amount recorded in the statement of
comprehensive income
—
—
—
—
—
(2)
(2)
—
Level 3 transfers in
8
—
8
3
—
—
—
2
Level 3 transfers out
(7)
—
(7)
(21)
(6)
—
(6)
(8)
Purchases/originations
(4)
64
43
107
42
80
174
254
22
Settlements/other decreases
(7)
(43)
(50)
(2)
(72)
(172)
(244)
(10)
Sales
(26)
—
(26)
(11)
(7)
—
(7)
(12)
Foreign exchange and other
6
—
6
—
(7)
—
(7)
—
At 31 December
174
—
174
60
133
—
133
59
Amounts recorded in the income
statement in respect of balances held at
year end
- unrealised
3
—
3
(10)
(74)
—
(74)
1
Comparatives have been re-presented to aid comparability.
(1) There were €13 million net gains on trading assets and liabilities (2020 - €75 million losses) recorded in income from trading activities.
(2) Trading assets comprise assets held at fair value in trading portfolios.
(3) Other financial assets comprise fair value through other comprehensive income, designated as at fair value through profit or loss and other fair value through profit or loss.
(4) Movement in the period includes new loan originations classified as HTC&S under IFRS 9 and fair valued through other comprehensive income.
Notes to the consolidated financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 85
8 Financial instruments – valuation continued
Fair value of financial instruments measured at amortised cost on the balance sheet
The following table shows the carrying value and fair value of financial instruments measured at amortised cost on the balance
sheet.
Items where fair
value
approximates
Fair value hierarchy level
carrying value
Carrying value
Fair value
Level 2
Level 3
2021
€m
€m
€m
€m
€m
Financial assets
Cash and balances at central banks
5,145
Settlement balances
391
Loans to banks
18
121
121
62
59
Loans to customers
660
656
—
656
Amounts due from holding companies and fellow subsidiaries
612
612
—
612
Other financial assets
122
122
—
122
2020
Financial assets
Cash and balances at central banks
4,452
Settlement balances
358
Loans to banks
2
188
188
59
129
Loans to customers
946
929
—
929
Amounts due from holding companies and fellow subsidiaries
849
436
436
—
436
Other financial assets
45
45
—
45
2021
Financial liabilities
Bank deposits
—
—
—
—
—
Customer deposits
4
876
876
—
876
Amounts due to holding companies and fellow subsidiaries
31
1,794
1,807
157
1,650
Settlement balances
186
Other financial liabilities
1,321
1,321
814
507
Subordinated liabilities
258
382
380
2
2020
Financial liabilities
Bank deposits
2
50
50
—
50
Customer deposits
2
1,256
1,256
—
1,256
Amounts due to holding companies and fellow subsidiaries
186
1,112
1,112
150
962
Settlement balances
943
Other financial liabilities
1,314
1,314
949
365
Subordinated liabilities
241
351
351
—
Comparatives have been re-presented to aid comparability.
The assumptions and methodologies underlying the calculation
of fair values of financial instruments at the balance sheet date
are as follows:
Short-term financial instruments
For certain short-term financial instruments: cash and balances
at central banks, items in the course of collection from other
banks, settlement balances, items in the course of transmission
to other banks, customer demand deposits and notes in
circulation, carrying value is deemed a reasonable
approximation of fair value.
Loans to banks and customers
In estimating the fair value of net loans to customers and banks
measured at amortised cost, NWM N.V. Group’s loans are
segregated into appropriate portfolios reflecting the
characteristics of the constituent loans.
Two principal methods are used to estimate fair value:
(a) Contractual cash flows are discounted using a market
discount rate that incorporates the current spread for the
borrower or where this is not observable, the spread for
borrowers of a similar credit standing. This method is used
for portfolios where counterparties have external ratings:
institutional and corporate lending.
(b) Expected cash flows (unadjusted for credit losses) are
discounted at the current offer rate for the same or similar
products.
Debt securities and subordinated liabilities
Most debt securities are valued using quoted prices in active
markets. Fair values of the remaining population are
determined using market standard valuation techniques, such
as discounted cash flows, adjusting for own credit spreads
where appropriate.
Bank and customer deposits
Fair values of deposits are estimated using discounted cash
flow valuation techniques. Where required, methodologies can
be revised as additional information and valuation inputs
become available.
Notes to the consolidated financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 86
9 Financial instruments - maturity analysis
Remaining maturity
The following table shows the residual maturity of financial instruments, based on contractual date of maturity.
2021
2020
Less than
More than
Less than
More than
12 months
12 months
Total
12 months
12 months
Total
€m
€m
€m
€m
€m
€m
Assets
Cash and balances at central banks
5,145
—
5,145
4,452
—
4,452
Trading assets
4,141
33
4,174
4,328
52
4,380
Derivatives
3,143
4,624
7,767
3,372
3,563
6,935
Settlement balances
391
—
391
358
—
358
Loans to banks - amortised cost
139
—
139
190
—
190
Loans to customers - amortised cost
9
651
660
36
910
946
Amounts due from holding companies and fellow
subsidiaries
(1)
1,092
285
1,377
2,669
870
3,539
Other financial assets
889
138
1,027
580
316
896
Liabilities
Bank deposits
—
—
—
52
—
52
Customer deposits
826
54
880
1,225
33
1,258
Amounts due to holding companies and fellow
subsidiaries
(2)
2,168
1,725
3,893
1,847
1,698
3,545
Settlement balances
186
—
186
943
—
943
Trading liabilities
2,058
22
2,080
1,377
135
1,512
Derivatives
3,018
5,836
8,854
3,351
5,958
9,309
Other financial liabilities
1,907
—
1,907
2,000
200
2,200
Subordinated liabilities
—
652
652
—
655
655
Lease liabilities
1
6
7
2
8
10
(1) Amounts due from holding companies and fellow subsidiaries relating to non-financial instruments of €3 million (2020 - €1 million) have been excluded from the table.
(2) Amounts due to holding companies and fellow subsidiaries relating to non-financial instruments of €30 million (2020 – €6 million) have been excluded from the table.
Assets and on balance sheet liabilities by contractual cash flows
up to 20 years
The tables below show the contractual undiscounted cash flows
receivable and payable, up to a period of 20 years, including
future receipts and payments of interest of financial assets and
liabilities by contractual maturity. The balances in the following
tables do not agree directly with the consolidated balance sheet,
as the tables include all cash flows relating to principal and
future coupon payments, presented on an undiscounted basis.
The tables have been prepared on the following basis:
Financial assets have been reflected in the time band of the
latest date on which they could be repaid, unless earlier
repayment can be demanded by NWM N.V.. Financial liabilities
are included at the earliest date on which the counterparty can
require repayment, regardless of whether or not such early
repayment results in a penalty. If repayment is triggered by, or
is subject to, specific criteria such as market price hurdles being
reached, the asset is included in the time band that contains the
latest date on which it can be repaid, regardless of early
repayment. The liability is included in the time band that
contains the earliest possible date on which the conditions could
be fulfilled, without considering the probability of the conditions
being met. For example, if a structured note is automatically
prepaid when an equity index exceeds a certain level, the cash
outflow will be included in the less than three months’ period
whatever the level of the index at the year end.
The settlement date of debt securities in issue, issued by certain
securitisation vehicles consolidated by NWM N.V. depends on
when cash flows are received from the securitised assets.
Where these assets are prepayable, the timing of the cash
outflow relating to securities assumes that each asset will be
prepaid at the earliest possible date. As the repayments of
assets and liabilities are linked, the repayment of assets in
securitisations is shown on the earliest date that the asset can
be prepaid, as this is the basis used for liabilities.
The principal amounts of financial liabilities that are repayable
after 20 years or where the counterparty has no right to
repayment of the principal, are excluded from the table along
with interest payments after 20 years.
MFVTPL assets of €12.7 billion (2020 - €13.6 billion) and HFT
liabilities of €13 billion (2020 - €13.1 billion) have been excluded
from the following tables.
0 - 3
3 - 12
1 - 3
3 - 5
5 - 10
10 - 20
months
months
years
years
years
years
2021
€m
€m
€m
€m
€m
€m
Assets by contractual maturity up to 20 years
Cash and balances at central banks
5,145
—
—
—
—
—
Settlement balances
391
—
—
—
—
—
Loans to banks - amortised cost
124
14
1
—
—
—
Loans to customers - amortised cost
4
8
420
247
5
—
Amounts due from holding companies and fellow
subsidiaries
(1)
477
—
—
—
—
—
Other financial assets
(2)
96
510
213
26
7
13
6,237
532
634
273
12
13
For the notes to this table refer to the following page.
Notes to the consolidated financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 87
9 Financial instruments - maturity analysis continued
0 - 3
3 - 12
1 - 3
3 - 5
5 - 10
10 - 20
months
months
years
years
years
years
2021
€m
€m
€m
€m
€m
€m
Liabilities by contractual maturity up to 20 years
Bank deposits
—
—
—
—
—
—
Customer deposits
519
307
30
16
—
19
Amounts due to holding companies and fellow
subsidiaries
(3)
663
30
480
652
—
Settlement balances
186
—
—
—
—
—
Subordinated liabilities
—
—
136
—
—
395
Other financial liabilities
507
1,400
—
—
—
—
Lease liabilities
—
1
3
3
—
—
1,875
1,738
649
671
—
414
Guarantees and commitments notional amount
Guarantees
(4)
486
—
—
—
—
—
Commitments
(5)
5,822
—
—
—
—
—
6,308
—
—
—
—
—
0 - 3
3 - 12
1 - 3
3 - 5
5 - 10
10 - 20
months
months
years
years
years
years
2020
€m
€m
€m
€m
€m
€m
Assets by contractual maturity up to 20 years
Cash and balances at central banks
4,452
—
—
—
—
—
Settlement balances
358
—
—
—
—
—
Loans to banks - amortised cost
190
—
—
—
—
—
Loans to customers - amortised cost
3
54
501
434
7
—
Amounts due from holding companies and fellow
subsidiaries
(1)
1,162
—
—
—
—
—
Other financial assets
(2)
10
570
136
61
60
—
6,175
624
637
495
67
—
2020
Liabilities by contractual maturity up to 20 years
Bank deposits
2
50
—
—
—
—
Customer deposits
852
372
25
—
—
20
Amounts due to holding companies and fellow
subsidiaries
(3)
194
16
327
761
—
—
Settlement balances
943
—
—
—
—
—
Subordinated liabilities
—
—
137
—
—
—
Other financial liabilities
365
1,634
201
—
—
—
Lease liabilities
—
2
4
2
2
—
2,356
2,074
694
763
2
20
Guarantees and commitments notional amount
Guarantees
(4)
493
—
—
—
—
—
Commitments
(5)
6,415
—
—
—
—
—
6,908
—
—
—
—
—
(1) Amounts due from holding companies and fellow subsidiaries relating to non-financial instruments have been excluded from the tables.
(2) Other financial assets excludes equity shares.
(3) Amounts due to holding companies and fellow subsidiaries relating to non-financial instruments have been excluded from the tables.
(4) NWM N.V. Group is only called upon to satisfy a guarantee when the guaranteed party fails to meet its obligations. The NWM N.V. Group expects most guarantees it provides to
expire unused.
(5) NWM N.V. Group has given commitments to provide funds to customers under undrawn formal facilities, credit lines and other commitments to lend subject to certain conditions
being met by the counterparty. The NWM N.V. Group does not expect all facilities to be drawn, and some may lapse before drawdown.
Notes to the consolidated financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 88
10 Trading assets and liabilities
Trading assets and liabilities comprise assets and liabilities held at fair value in trading portfolios.
2021
2020
Assets
€m
€m
Loans
Reverse repos
946
908
Collateral given
3,164
3,417
Other loans
61
—
Total loans
4,171
4,325
Securities
(1)
3
55
Total
4,174
4,380
Liabilities
Deposits
Repos
586
306
Collateral received
1,468
1,067
Other deposits
5
5
Total deposits
2,059
1,378
Short positions
21
134
Total
2,080
1,512
(1) Securities are primarily non-domestic in both periods.
For accounting policy information see Accounting policies note 8.
11 Derivatives
NWM N.V. Group uses derivatives as part of its trading activities or to manage its own risk such as interest rate, foreign exchange,
or credit risk.
The following table shows the notional amounts and fair values of the NWM N.V. Group's derivatives.
2021
2020
Notional
Assets
Liabilities
Notional
Assets
Liabilities
€bn
€m
€m
€bn
€m
€m
Exchange rate contracts
307
4,494
4,488
273
4,429
4,438
Interest rate contracts
1,904
3,273
4,356
2,320
2,506
4,865
Credit derivatives
1
—
10
—
—
6
7,767
8,854
6,935
9,309
For accounting policy information see Accounting policies notes 8 and 14.
Refer to note 7 for amounts due from/to fellow NatWest Group companies.
Notes to the consolidated accounts continued
NatWest Markets N.V.
Annual Report and Accounts 2021 89
12 Loan impairment provisions
The table below summarises loans and related credit impairment measures within the scope of ECL framework.
2021
2020
€m
€m
Loans - amortised cost
Stage 1
732
832
Stage 2
50
343
Stage 3
39
72
Inter-Group
(1)
220
436
Total
1,041
1,683
ECL provisions
Stage 1
—
1
Stage 2
1
41
Stage 3
39
69
Total
40
111
ECL provisions coverage
(2)
Stage 1 (%)
—
0.12
Stage 2 (%)
2.00
11.95
Stage 3 (%)
100.00
95.83
Total
4.87
6.60
Other financial assets
- Gross exposure
6,072
5,285
Other financial assets
- ECL provision
—
—
Impairment (releases)/losses
ECL (release)/charge - third party
(3)
(13)
42
Amounts written off
63
5
(1) The NWM N.V. Group’s intercompany assets were classified in Stage 1. The ECL for these loans was €0.1 million (2020 – €0.3 million).
(2) ECL provisions coverage is calculated as ECL provisions divided by loans – amortised cost and FVOCI. It is calculated on third party loans and total ECL provisions
(3) Includes €0.1 million (2020 – nil) related to other financial assets and €1.0 million (2020 – €1.0 million release) relating to contingent liabilities.
(4) The table shows gross loans only and excludes amounts that are outside the scope of the ECL framework. Refer to page 39 for Financial instruments within the scope of the IFRS 9
ECL framework in the NatWest Markets N.V. 2021 Annual Accounts and Report for further details. Other financial assets within the scope of the IFRS 9 ECL framework were cash
and balances at central banks totalling €5.1 billion (2020 – €4.5 billion) and debt securities of €0.9 billion (2020 – €0.8 billion).
(5) NWM N.V. Group held collateral against third party loans in Stage 3 of nil (2020 - €3 million) and against Stage 1 and Stage 2 third party loans of €275 million (2020 - €51 million).
Inter-group loans were uncollateralised.
Credit risk enhancement and mitigation
For information on Credit risk enhancement and mitigation held
as security, refer to Risk and capital management – Credit risk
enhancement and mitigation section.
Critical accounting policy: Loan impairment provisions
Accounting policies note 9 sets out how the expected loss
approach is applied. At 31 December 2021, customer loan
impairment provisions amounted to €40 million (2020 - €111
million). A loan is impaired when there is objective evidence that
the cash flows will not occur in the manner expected when the
loan was advanced. Such evidence includes, changes in the
credit rating of a borrower, the failure to make payments in
accordance with the loan agreement, significant reduction in the
value of any security, breach of limits or covenants, and
observable data about relevant macroeconomic measures.
The impairment loss is the difference between the carrying
value of the loan and the present value of estimated future cash
flows at the loan's original effective interest rate.
The measurement of credit impairment under the IFRS expected
loss model depends on management’s assessment of any
potential deterioration in the creditworthiness of the borrower,
its modelling of expected performance and the application of
economic forecasts. All three elements require judgments that
are potentially significant to the estimate of impairment losses.
For further information and sensitivity analysis, refer to Risk and
capital management – Measurement uncertainty and ECL
sensitivity analysis section.
IFRS 9 ECL model design principles
Refer to Credit risk – IFRS 9 ECL model design principles section
for further details.
Approach for multiple economic scenarios (MES)
The base scenario plays a greater part in the calculation of ECL
than the approach to MES. Refer to Credit risk – Economic loss
drivers – Probability weightings of scenarios section for further
details.
Notes to the consolidated financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 90
13 Business transfers
In 2021 €1.4 billion of assets and €1.6 billion of liabilities were transferred from NWM Plc to NWM N.V.. These transfers which
covered both FSMA scheme and non-FSMA scheme portfolios, included trading assets of €0.4 billion, derivative assets of €1.0
billion, trading liabilities of €0.4 billion and derivative liabilities of €1.2 billion.
In 2021 an amount of €0.3 billion of contingent liabilities and commitments were transferred from NatWest Markets Plc to NWM
N.V. in relation to the Western European Corporate Portfolio. An amount of €0.9 billion on contingent liabilities and commitments
were transferred from Natwest Bank Plc to NWM N.V.. This was partly offset with an amount of €0.4 billion on contingent liabilities
and commitments that were transferred from NWM N.V. to NatWest Bank Plc.
14 Other financial assets
Debt securities
Central and local government
Other central and
and local
Other
Equity
UK
US
government
debt
Total
shares
Total
2021
€m
€m
€m
€m
€m
€m
€m
Mandatory fair value through profit or loss
—
—
—
—
—
1
1
Fair value through other comprehensive income
328
176
50
251
805
99
904
Amortised cost
—
—
—
122
122
—
122
Total
328
176
50
373
927
100
1,027
2020
Mandatory fair value through profit or loss
—
—
—
—
—
1
1
Fair value through other comprehensive income
116
81
158
433
788
62
850
Amortised cost
—
—
—
45
45
—
45
Total
116
81
158
478
833
63
896
For accounting policy information see Accounting policies note 8.
15 Other assets
2021
2020
€m
€m
Property and equipment
30
35
Deferred tax
57
—
Other assets
8
12
95
47
16 Other financial liabilities
2021
2020
€m
€m
Customer deposits - designated as at fair value through profit or loss
586
886
Debt securities in issue - amortised cost
1,321
1,314
1,907
2,200
For accounting policy information see Accounting policies notes 8 and 13.
Notes to the consolidated financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 91
17 Subordinated liabilities
2021
2020
€m
€m
Dated loan capital
652
655
(1) Excludes amounts due to holding company and fellow subsidiaries of €150 million (2020 – €150 million).
Capital
2021
2020
Maturities and redemptions in the period (values as at date of transaction)
treatment
€m
€m
€15 million 6.00% notes 2020
Tier 2
—
13
(1) There were no issuances in 2021 or 2020.
Subordinated liabilities held at 31 December:
Capital
2021
2020
Dated loan capital
treatment
€m
€m
€170 million floating rate notes 2041
Tier 2
395
414
US$136 million 7.75% notes 2023
Tier 2
123
117
US$150 million 7.13% notes 2093
Tier 2
134
124
652
655
(1) Since the introduction of CRDIV and CRR, all Tier 2 subordinated debt issuances are eligible for grandfathering only and therefore subject to transitional rules.
The following table analyses intercompany subordinated liabilities. These balances are included in amounts due to holding
companies and fellow subsidiaries, refer to Note 7.
Capital
2021
2020
Dated loan capital
treatment
€m
€m
€150 million 1.72% notes 2029 (callable 2024)
Tier 2
150
150
For accounting policy information see Accounting policies notes 8 and 13.
Notes to the consolidated financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 92
18 Other liabilities
2021
2020
€m
€m
Lease liabilities
7
10
Provisions for liabilities and charges
6
8
Accruals
10
8
Deferred income
8
11
Current tax
2
32
Deferred tax
5
9
Other liabilities
11
13
49
91
Included in other liabilities are provisions for liabilities and charges of €6 million (2020 - €8 million), of which litigation provisions are
€0.4 million (2020 - €2 million) and restructuring provisions of €3 million (2020 - nil). Arising out of its normal business operations,
the NWM N.V. Group is party to legal proceedings in the Netherlands, the United Kingdom, the United States of America and other
jurisdictions.
Litigation provisions at 31 December 2021 related to numerous proceedings; no individual provision is material. Detailed
descriptions of the NWM N.V. Group’s legal proceedings and discussion of the associated uncertainties are given in Note 23.
For accounting policy information see Accounting policies note 6.
19 Share capital and reserves
NWM N.V.’s share capital at 31 December 2021 consisted of 11,112 issued and fully paid ordinary shares of €4.50 each. Its
authorised share capital amounts to €225,000. It comprises 41,500 ordinary shares, each with a nominal value of €4.50 and 8,500
preference shares, each with a nominal value of €4.50.
All issued ordinary shares have been fully paid. Each ordinary share entitles the holder to cast one vote. Subject to certain
exceptions provided for by law or in the Articles of Association, resolutions are passed by an absolute majority of the votes cast.
When shares are issued, each holder of shares shall have pre-emptive right, in proportion to the aggregate amount of their shares,
except in the case of an issue of shares for a consideration other than in cash.
In the event of the dissolution and liquidation of NWM N.V., the assets remaining after payment of all debts will be distributed to the
holders of ordinary shares on a pro-rata basis.
For accounting policy information see Accounting policies note 13.
Share premium reserve
As a part of the Dutch Scheme one share was issued against the share premium account.
Ordinary shares carry certain pre-emption rights and rank equally in voting, dividend and liquidation rights.
Dutch law prescribes that only the freely distributable reserves of NWM N.V. are taken into account for the purpose of making
distributions and in determining the permissible applications of the share premium account. NWM N.V. Group optimises capital
efficiency by maintaining reserves in subsidiaries, including regulated entities. The remittance of reserves to NWM N.V. or the
redemption of capital by regulated entities may be subject to maintaining the capital resources required by the relevant regulator
Dividends
No dividends were paid in 2021 (2020 - nil).
Notes to the consolidated financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 93
20 Structured entities
Structured entities
A structured entity (SE) is an entity that has been designed such that voting or similar rights are not the dominant factor in
deciding who controls the entity, for example when any voting rights relate to administrative tasks only and the relevant activities
are directed by means of contractual arrangements. SEs are usually established for a specific, limited purpose. They do not carry
out a business or trade and typically have no employees. They take a variety of legal forms - trusts, partnerships and companies -
and fulfil many different functions. As well as being a key element of securitisations, SEs are also used in fund management
activities to segregate custodial duties from the fund management advice.
Unconsolidated structured entities
NWM N.V. Group’s interest in unconsolidated structured entities is analysed below.
2021
2020
Asset backed
Investment
Asset backed
Investment
securitisation
funds and
securitisation
funds and
vehicles
other
Total
vehicles
other
Total
€m
€m
€m
€m
€m
€m
Trading assets and derivatives
Trading assets
2
—
2
2
—
2
Non-trading assets
Loans to customers
43
—
43
176
96
272
Other financial assets
99
23
122
45
—
45
Total
142
23
165
221
96
317
Liquidity facilities/loan commitments
32
14
46
—
65
65
Maximum exposure
176
37
213
223
161
384
.
Notes to the consolidated financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 94
21 Asset transfers
Transfers that do not qualify for
derecognition
NWM N.V. Group enters into securities repurchase and
securities lending agreements in accordance with normal
market practice which includes the provision of additional
collateral if necessary. Under standard terms in the UK and US
markets, the recipient has an unrestricted right to sell or
repledge collateral, subject to returning equivalent securities on
maturity of the transaction.
Securities sold under repurchase transactions and transactions
with the substance of securities repurchase agreements are not
derecognised if NWM N.V. Group retains substantially all the
risks and rewards of ownership. Securities received as
collateral under reverse repurchase agreements were €1.6
billion (2020 - €2.6 billion) of which €1.3 billion (2020 - €2.2
billion) had been sold or repledged as collateral of the NWM
N.V. Group’s own transactions.
For accounting policy information see Accounting policies note
11.
2021
2020
The following assets have failed derecognition
€m
€m
Trading assets
—
51
Other financial assets
148
—
(1) Associated liabilities were €148 million (2020- €51 million).
Assets pledged as collateral
NWM N.V. Group pledges collateral with its counterparties in respect of derivative liabilities. There were €3.2 billion of assets
pledged against liabilities in 2021 (2020 - €3.4 billion).
22 Capital resources
NWM N.V. Group's regulatory capital resources were as follows:
2021
2020
€m
€m
Tier 1
Controlling interests
1,998
1,923
Adjustment for:
- Other regulatory adjustments
(1)
(311)
(285)
Common equity Tier 1
1,687
1,638
Hybrid capital
250
250
Additional Tier 1
250
250
Total Tier 1
1,937
1,888
Tier 2
Subordinated debt
315
325
Deductions from Tier 2 capital
(132)
(122)
Total Tier 2 capital
183
203
Total regulatory capital
2,120
2,091
(1) Includes reversal of own credit risk of €28 million (2020 - €51 million) plus the elimination of the profit that has not been approved yet.
It is NWM N.V. Group’s policy to maintain an appropriate
capital base, to expand it as appropriate and to utilise it
efficiently throughout its activities to optimise the return to
shareholders, while maintaining a prudent relationship between
the capital base and the underlying risks of the business. In
carrying out this policy, NWM N.V. Group has regard to the
supervisory requirements of DNB. DNB uses capital ratios as a
measure of capital adequacy in the Dutch banking sector,
comparing a bank’s capital resources with its risk-weighted
assets (RWAs) (the assets and off-balance sheet exposures are
weighted to reflect the inherent credit and other risks). NWM
N.V. Group has complied with its capital requirements during
the year.
A number of subsidiaries and sub-groups within NWM N.V.
Group are subject to various individual regulatory capital
requirements. Furthermore, the payment of dividends by
subsidiaries and the ability of members of NWM N.V. Group to
lend money to other members of NWM N.V. Group may be
subject to restrictions such as local regulatory or legal
requirements, the availability of reserves and financial and
operating performance.
Notes to the consolidated financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 95
23 Memorandum items
Contingent liabilities and commitments
The amounts shown in the table below are intended only to provide an indication of the volume of business outstanding at 31
December 2021. Although NWM N.V. Group is exposed to credit risk in the event of non-performance of the obligations undertaken
by customers, the amounts shown do not, and are not intended to, provide any indication of NWM N.V. Group's expectation of
future losses.
For accounting policy information see Accounting policies note 6.
Less than
Over
5 years
5 years
2021
2020
€m
€m
€m
€m
Contingent liabilities and commitments
(1)
Guarantees and assets pledged as collateral security
—
486
486
493
Other contingent liabilities
1
—
1
1
Standby facilities, credit lines and other commitments
5,860
97
5,957
6,511
5,861
583
6,444
7,005
Banking commitments and contingent obligations, which have
been entered into on behalf of customers and for which there
are corresponding obligations from customers, are not included
in assets and liabilities. NWM N.V. Group's maximum exposure
to credit loss, in the event of non-performance by the other
party and where all counterclaims, collateral or security proves
valueless, is represented by the contractual nominal amount of
these instruments included in the table above. These
commitments and contingent obligations are subject to NWM
N.V. Group's normal credit approval processes.
Guarantees
- NWM N.V. Group gives guarantees on behalf of
customers. A financial guarantee represents an irrevocable
undertaking that NWM N.V. Group will meet a customer's
obligations to third parties if the customer fails to do so. The
maximum amount that NWM N.V. Group could be required to
pay under a guarantee is its principal amount as disclosed in
the table above. NWM N.V. Group expects most guarantees it
provides to expire unused.
Other contingent liabilities
- these include standby letters of
credit, supporting customer debt issues and contingent
liabilities relating to customer trading activities such as those
arising from performance and customs bonds, warranties and
indemnities.
Standby facilities and credit lines
- under a loan commitment
NWM N.V. Group agrees to make funds available to a customer
in the future. Loan commitments, which are usually for a
specified term may be unconditionally cancellable or may
persist, provided all conditions in the loan facility are satisfied
or waived. Commitments to lend include commercial standby
facilities and credit lines, liquidity facilities to commercial paper
conduits and unutilised overdraft facilities.
Other commitments
-
these include documentary credits, which
are commercial letters of credit providing for payment by NWM
N.V. Group to a named beneficiary against presentation of
specified documents, forward asset purchases, forward
deposits placed and undrawn note issuance and revolving
underwriting facilities, and other short-term trade related
transactions.
Risk-sharing agreements
NWM Plc and NWM N.V. have limited risk-sharing
arrangements to facilitate the smooth provision of services to
NatWest Markets’ customers. The arrangements include:
The provision of a funded guarantee of up to €1.2 billion by
NWM Plc to NWM N.V. that limits NWM N.V.’s exposure to
large individual customer credits to 10% of NWM N.V.’s
capital. Funding is provided by NWM Plc deposits placed
with NWM N.V. of not less than the guaranteed amount. At
31 December 2021 the deposits amounted to €1.0 billion
and the guaranteed fees in the year were €6.5 million.
The provision of funded and unfunded guarantees by NWM
Plc in respect of NWM N.V.’s legacy portfolio. At 31
December 2021 the exposure at default covered by the
guarantees was approximately €0.2 billion (of which €44
million was cash collateralised). The guarantee fees in the
year were €7.9 million. Receivable for indemnification
recognised in the period were €6.1 million.
Obligations with ABN AMRO Bank N.V.
Included within guarantees and assets pledged as collateral
security as at 31 December 2021 is €0.5 billion (2020 - €0.5
billion), which relates to NWM N.V. Group’s obligations over
liabilities held within the Dutch State acquired businesses
included in ABN AMRO Bank N.V..
On the division of an entity by demerger, Dutch law establishes
a cross liability between surviving entities in respect of the
creditors at the time of the demerger. NWM N.V. Group’s cross
liability is limited by law to the lower of its equity and the
eligible debts of ABN AMRO Bank N.V. on 6 February 2010. The
likelihood of cross liability crystallising is considered remote.
Litigation and regulatory matters
NWM N.V. and certain members of NatWest Group are party to
legal proceedings and involved in regulatory matters, including
as the subject of investigations and other regulatory and
governmental action (Matters) in the Netherlands, the United
Kingdom (UK), the European Union (EU), the United States (US)
and other jurisdictions.
NWM N.V. Group recognises a provision for a liability in relation
to these matters when it is probable that an outflow of
economic benefits will be required to settle an obligation
resulting from past events, and a reliable estimate can be made
of the amount of the obligation.
Notes to the consolidated financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 96
23 Memorandum items continued
In many of these Matters, it is not possible to determine
whether any loss is probable or to estimate reliably the amount
of any loss, either as a direct consequence of the relevant
proceedings and regulatory matters or as a result of adverse
impacts or restrictions on NWM N.V. Group’s reputation,
businesses and operations. Numerous legal and factual issues
may need to be resolved, including through potentially lengthy
discovery and document production exercises and
determination of important factual matters, and by addressing
novel or unsettled legal questions relevant to the proceedings in
question, before a liability can reasonably be estimated for any
claim. NWM N.V. Group cannot predict if, how, or when such
claims will be resolved or what the eventual settlement,
damages, fine, penalty or other relief, if any, may be,
particularly for claims that are at an early stage in their
development or where claimants seek substantial or
indeterminate damages.
There are situations where NWM N.V. Group may pursue an
approach that in some instances leads to a settlement
agreement. This may occur in order to avoid the expense,
management distraction or reputational implications of
continuing to contest liability, or in order to take account of the
risks inherent in defending claims or regulatory matters, even
for those matters for which NWM N.V. Group believes it has
credible defences and should prevail on the merits. The
uncertainties inherent in all such matters affect the amount and
timing of any potential outflows for both matters with respect
to which provisions have been established and other contingent
liabilities. It is not practicable to provide an aggregate estimate
of potential liability for our legal proceedings and regulatory
matters as a class of contingent liabilities.
The future outflow of resources in respect of any matter may
ultimately prove to be substantially greater than or less than
the aggregate provision that NWM N.V. Group has recognised.
Where (and as far as) liability cannot be reasonably estimated,
no provision has been recognised. Please refer to Note 18 for
information on material provisions.
We have provided information below on the procedural history
of certain Matters, where we believe appropriate, to aid the
understanding of the Matter.
NatWest Group is involved in ongoing litigation and regulatory
matters that are not described below but are described on
pages 368 to 374 in NatWest Group’s Annual Report &
Accounts 2021. NatWest Group expects that in future periods,
additional provisions, settlement amounts and customer redress
payments will be necessary, in amounts that are expected to
be substantial in some instances. While NWM N.V. Group may
not be directly involved in such NatWest Group matters, any
final adverse outcome of those matters may also have an
adverse effect on NWM N.V. Group.
Litigation
Madoff
NWM N.V. is a defendant in two actions filed by the trustee for
the bankruptcy estates of Bernard L. Madoff and Bernard L.
Madoff Investment Securities LLC, in bankruptcy court in New
York, which together seek to clawback more than US$298
million that NWM N.V. allegedly received from certain Madoff
feeder funds and certain swap counterparties. The claims were
previously dismissed, but as a result of an August 2021 decision
by the US Court of Appeals for the Second Circuit (US Court of
Appeals), they will now proceed in the bankruptcy court subject
to NWM N.V.’s legal and factual defences.
Australian Bank Bill Swap Reference Rate (BBSW)
In August 2017, a class action complaint was filed in the United
States District Court for the Southern District of New York
(SDNY) against certain NatWest Group companies (including
NWM N.V.) and a number of other financial institutions. The
complaint alleges that the defendants conspired to manipulate
the BBSW and asserts claims under the U.S. antitrust laws, the
Commodity Exchange Act, RICO (Racketeer Influenced and
Corrupt Organizations Act), and the common law. The court
dismissed all claims against NatWest Group companies for lack
of personal jurisdiction in November 2018, but plaintiffs filed an
amended complaint. In February 2020, the court declined to
dismiss the amended complaint as against NWM Plc and
certain other defendants, but reiterated its prior dismissal of all
claims asserted against NWM N.V. The claims against non-
dismissed defendants (including NWM Plc) are now proceeding
in discovery.
FX litigation
In December 2021, a claim was issued in the Netherlands
against NatWest Group plc, NWM Plc and NWM N.V. by
Stichting FX Claims, seeking a declaration from the court that
anti-competitive FX market conduct described in decisions of
the European Commission of 16 May 2019 (relating to NatWest
Group plc and NWM Plc) is unlawful, along with unspecified
damages. The claimant has indicated that it may seek to
amend its claim to also refer to a December 2021 decision by
the EC also relating to NatWest Group plc and NWM Plc. A
hearing is scheduled for June 2022.
Fondazione Monte dei Paschi di Siena
A claim for €285.9 million was brought by Fondazione Monte
dei Paschi di Siena (FMPS) in July 2014 against former directors
and 13 syndicate banks, including NWM N.V. and NWM Plc, in
connection with an Italian law-governed term facility
agreement for €600 million dated 4 June 2011. The claim was
based on a non-contractual liability arising from the alleged
breach of the by-laws of FMPS which set a 20 per cent limit for
its debt to equity ratio (the Ratio). FMPS and the syndicate
banks settled the claim between them within provision in
December 2021.
Anti-Terrorism Act litigation against NWM N.V.
NWM N.V. and certain other financial institutions are
defendants in several actions filed by a number of US nationals
(or their estates, survivors, or heirs), most of whom are or were
US military personnel, who were killed or injured in attacks in
Iraq between 2003 and 2011. NWM Plc is also a defendant in
some of these cases.
According to the plaintiffs’ allegations, the defendants are liable
for damages arising from the attacks because they allegedly
conspired with Iran and certain Iranian banks to assist Iran in
transferring money to Hezbollah and the Iraqi terror cells that
committed the attacks, in violation of the US Anti-Terrorism
Act, by agreeing to engage in ‘stripping’ of transactions
initiated by the Iranian banks so that the Iranian nexus to the
transactions would not be detected.
The first of these actions was filed in the United States District
Court for the Eastern District of New York in November 2014.
In September 2019, the district court dismissed the case,
finding that the claims were deficient for several reasons,
including lack of sufficient allegations as to the alleged
conspiracy and causation. The plaintiffs are appealing the
decision to the US Court of Appeals. Another action, filed in the
SDNY in 2017, was dismissed in March 2019 on similar
grounds, but remains subject to appeal to the US Court of
Appeals. Other follow-on actions that are substantially similar
to the two that have now been dismissed are pending in the
same courts.
Notes to the consolidated financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 97
23 Memorandum items continued
Regulatory matters (including investigations)
NWM N.V. Group’s financial condition can be affected by the
actions of various governmental and regulatory authorities in
the Netherlands, the UK, the EU, the US and elsewhere.
NatWest Group has engaged, and will continue to engage, in
discussions with relevant governmental and regulatory
authorities, including in the Netherlands, the UK, the EU, the US
and elsewhere, on an ongoing and regular basis, and in
response to informal and formal inquiries or investigations,
regarding operational, systems and control evaluations and
issues including those related to compliance with applicable
laws and regulations, including consumer protection,
investment advice, business conduct, competition/anti-trust,
VAT recovery, anti-bribery, anti-money laundering and
sanctions regimes.
NWM Group companies have been providing information
regarding a variety of matters, including, for example, offering
of securities, the setting of benchmark rates and related
derivatives trading, conduct in the foreign exchange market,
product mis-selling and various issues relating to the issuance,
underwriting, and sales and trading of fixed income securities,
including structured products and government securities, some
of which have resulted, and others of which may result, in
investigations or proceedings.
Any matters discussed or identified during such discussions and
inquiries may result in, among other things, further inquiry or
investigation, other action being taken by governmental and
regulatory authorities, increased costs being incurred by NWM
N.V. Group, remediation of systems and controls, public or
private censure, restriction of NWM N.V. Group’s business
activities and/or fines. Any of these events or circumstances
could have a material adverse effect on NWM N.V. Group, its
business, authorisations and licences, reputation, results of
operations or the price of securities issued by it, or lead to
material additional provisions being taken.
24 Analysis of the net investment in business interests
2021
2020
Acquisitions and disposals
€m
€m
Net assets sold
—
16
Net inflow of cash in respect of disposals
—
16
Net inflow
—
16
25 Analysis of changes in financing during the year
Share capital and AT1
Subordinated liabilities
2021
2020
2021
2020
€m
€m
€m
€m
At 1 January
1,950
1,950
805
792
Redemption of subordinated liabilities
—
(13)
Interest on subordinated liabilities
(80)
(22)
Net cash outflow from financing
—
—
(80)
(35)
Effects of foreign exchange
19
(22)
Changes in fair value of subordinated liabilities
20
48
Interest on subordinated liabilities
38
22
At 31 December
1,950
1,950
802
805
Notes to the consolidated financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 98
26 Analysis of cash and cash equivalents
In the cash flow statement, cash and cash equivalents comprises cash, loans to banks and treasury bills with an original maturity
of less than three months that are readily convertible to known amounts of cash and subject to insignificant risk of change in value.
2021
2020
€m
€m
At 1 January
- cash
4,452
3,191
- cash equivalents
2,834
2,106
7,286
5,297
Net (decrease)/increase in cash and cash equivalents
(57)
1,989
At 31 December
7,229
7,286
Comprising:
Cash and balances at central banks
5,145
4,452
Trading assets
1,265
645
Loans to banks including intragroup balances
(1)
819
2,189
Cash and cash equivalents
7,229
7,286
(1) Cash collateral posted with bank counterparties in respect of derivative liabilities is €863 million (2020 - €504 million).
The NWM N.V. Group had mandatory reserve deposits with De Nederlandsche Bank N.V of €60 million (2020 - €81 million).
27 Remuneration of the Managing Board and Supervisory Board
Remuneration of the Managing Board
The Managing Board during the year comprised the following
members:
(1) H. Bots (till 23 September 2021)
(2) C. Visscher
(3) M. Elkenbracht
(4) A. Slach
Members receive pension benefits through their employment in
NatWest Group.
The remuneration of the Managing Board is presented in
aggregate in the table below. NatWest Group plc and its
subsidiaries adhere to relevant statutory requirements and
NatWest Group discloses individual remuneration of NatWest
Group executive directors, compliant with the UK PRA
Remuneration Code.
2021
2020
€000
€000
Salaries and short-term benefits
1,564
1,682
Pensions
280
301
Profit sharing and bonus payments
216
236
Total
2,060
2,219
(1) There are no loans from NWM N.V. Group to the Managing Board members.
(2) The vesting of long-term incentive awards in the form of shares in NatWest Group will normally be subject to the satisfaction of financial and non-financial performance conditions.
The performance conditions will be set by the NatWest Group Performance and Remuneration Committee for each award. In addition, awards will only vest to the extent the
Committee is satisfied that the vesting outcome reflects underlying financial results and if conduct and risk management during the performance period has been effective.
Remuneration of the Supervisory Board
The Supervisory Board during the year comprised the following
members:
(1) R. Begbie
(2) M. Klessens
(3) A. van der Pauw
(4) A. Snel
(5) D. King (from 1 February 2021)
The Supervisory Board included members employed elsewhere
within NatWest Group. The Supervisory Board members from
NatWest Group were not remunerated for time spent on matters
relating to NWM N.V..
The table below provides information on the remuneration of
the Supervisory Board in aggregate.
2021
2020
€000
€000
Remuneration
(1)
145
144
(1) There are no loans from NWM N.V. Group to the Supervisory Board members.
Notes to the consolidated financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 99
28 Related parties
NWM N.V. Group has a related party relationship with
associates, joint ventures, key management and shareholders.
The UK Government through HM Treasury is the ultimate
controlling party of NatWest Group plc.
Parties are considered to be related if one party has the ability
to control or exercise significant influence over the other party
in making financial or operational decisions. NWM N.V. Group
enters into a number of banking transactions with related
parties in the normal course of business. These transactions
include loans, deposits, foreign currency transactions and
receiving of services. These transactions are carried out on
commercial terms and at market rates. Employees are offered
preferential terms for certain banking products. No allowances
for loan losses have been recognised in respect of loans to
related parties in 2021 and 2020.
Transfer pricing
The NWM N.V. Group is a party to transfer pricing
arrangements with its parent entity, NWM Plc. Arm’s length
transfer pricing legislation in both the Netherlands and UK
requires that, for transactions between related parties, each
entity is remunerated on the same basis as two independent
parties negotiating a contract covering similar activities. The
transfer pricing arrangements between NWM N.V. and NWM
Plc require approval by both counterparties.
Since 2019 individual transfer pricing models for each of the
main business line interactions with NWM Plc are in place. Each
type of transaction relies on a transfer pricing model with an
appropriate remuneration, based on cost-plus, (hurdle rate of)
return on equity or revenue split. Under the 2021 transfer
pricing arrangements, NWM N.V. reported income of €106
million (2020 - €125 million) for the activities it performed for
European customers as part of the NWM Plc post Brexit
operating model. The at arm’s length nature of the transfer
pricing arrangements is confirmed by transfer pricing
documentation which has been prepared by an external expert.
Judgment and estimation uncertainty
- NWM N.V. Group
management has concluded it is probable that the Dutch and
UK tax authorities will accept the current transfer pricing
models. The transfer pricing models are sensitive to parameters
used, such as the mark-ups and the return on capital. The tax
authorities could have a different interpretation of the OECD
Transfer Pricing Guidelines and / or facts and circumstances.
Any adjustments requested by the Dutch and UK tax authorities
to the current transfer pricing models may therefore have a
material impact on the NWM N.V. Group’s non-interest income
and hence its taxable profit and unused taxable losses and tax
credits. For the cost-plus, NWM N.V. Group has considered a
range of mark-ups from benchmarking studies. Applying the
lower quartiles of the benchmarks used for the cost-plus
calculations and reducing the return on equity percentage by
2%, would decrease the transfer pricing income by €15 million
to €91 million. Applying the upper quartiles of the benchmarks
used for the cost-plus calculations and increasing the return on
equity percentage by 2%, would increase the transfer pricing
income by €24 million to €130 million.
Business transfers
For business transfers with NWM Plc and NWB Plc refer to Note
13.
Loan purchases via NWM Plc
In Q4 2021 NWM N.V. started purchasing loans onto the
banking book as part of a larger initiative to increase its risk
and portfolio diversity. NWM N.V. has identified a list of loans it
wishes to purchase which NWM Plc has purchased from
market participants on behalf of NWM N.V.. NWM N.V.
subsequently purchased the loans at the same price for which
NWM Plc had purchased them for and paid a fee to NWM Plc in
respect of each loan purchased. As at 31 December 2021,
loans of €24 million have moved onto NWM N.V. balance sheet.
Transactions and balances with the UK Government
Transactions conducted directly with the UK Government are
limited to normal banking transactions, taxation and other
administrative relationships. There may be other significant
transactions with entities under the common control of or
subject to significant influence by the UK Government. These
would include, amongst others, loans, deposits, guarantees, fee
based relationships, or equity holdings. Disclosure is made of
any significant transactions with these entities.
Transactions with directors or key management
At 31 December 2021 there were no transactions outstanding
with directors or key management (for NWM N.V. Group this
comprises the members of the Managing and Supervisory
Boards). Refer to Note 27 for further details of remuneration of
the Managing and Supervisory Boards.
The table below discloses transactions between NWM N.V. and subsidiaries of NatWest Group.
2021
2020
€m
€m
Interest receivable
10
11
Interest payable
(8)
(9)
Fees and commissions receivable
112
155
Fees and commissions payable
(12)
(34)
102
123
29 Post balance sheet events
Other than as disclosed in the accounts, there have been no other significant events between 31 December 2021 and the date of
approval of these accounts which would require a change to or additional disclosure.
Parent Company financial statements
NatWest Markets N.V.
Annual Report and Accounts 2021 100
Basis of preparation
NWM N.V. financial statements are prepared in accordance with the requirements in Title 9 Book 2 of the Dutch Civil Code. The
NWM N.V. Group prepares its consolidated financial statements in accordance with International Financial Reporting Standards
(IFRS) as adopted by the EU. The accounting policies applied in NWM N.V. financial statements are the same as those applied in
the consolidated financial statements on pages 65 to 68.
Interest in subsidiaries are accounted for using the equity method.
The financial statements are presented in euros, which is the presentation currency of the NWM N.V.. Refer to Accounting policies
note 2 to the consolidated financial statements for further information on going concern.
In these parent company financial statements the legal reserves for 31 December 2020 should have included the restricted capital
invested in subsidiaries as disclosed in note 12. The effect of this correction has been disclosed in the Company Statement of
changes in Equity and in Note 20.
Future accounting developments
International Financial Reporting Standards
A number of IFRSs and amendments to IFRS were in issue at 31 December 2021. NWM N.V. is assessing the effect of adopting
these standards and amendments on its financial statements but does not expect the effect to be material.
Company income statement for the year ended 31 December 2021
2021
2020
Note
€m
€m
Interest receivable
39
52
Interest payable
(50)
(64)
Net interest income
1
(11)
(12)
Income from subsidiaries and associates
12
5
4
Fees and commissions receivable
202
205
Fees and commissions payable
(24)
(47)
Net fees and commissions income
2
178
158
Results from financial transactions
2
8
(2)
Other income
2
(5)
(1)
Total income
175
147
Staff costs
3
(70)
(55)
Other expenses
(61)
(31)
Depreciation and amortisation
(3)
(4)
Operating expenses before impairment releases/(losses)
(134)
(90)
Impairment releases/(losses)
11
13
(42)
Operating expenses including impairment releases/(losses)
(121)
(132)
Operating profit before tax
54
15
Tax credit/(charge)
5
56
(9)
Profit for the year
110
6
Attributable to:
Ordinary shareholders
96
(8)
AT1 capital securities
14
14
The accompanying notes on pages 103 to 115 form an integral part of these financial statements.
Parent Company financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 101
Company balance sheet as at 31 December 2021 (before appropriation of result)
2021
2020
Note
€m
€m
Assets
Cash and balances at central banks
8
5,145
4,452
Short term government paper
301
148
Loans to banks
(1), (2)
4,8,11
2,303
3,378
Loans to customers
(3), (4)
4,8,11
3,655
4,752
Derivatives
(5)
7
7,767
6,934
Debt securities
6
418
493
Equity securities
3
3
Investment in subsidiaries
12
440
439
Property and equipment
15
8
13
Other assets
(6)
14
852
1,218
Total assets
20,892
21,830
Bank deposits
(7)
8
3,645
4,173
Customer deposits
(8)
8
3,288
2,737
Derivatives
(9)
7
8,854
9,309
Debt securities in issue
6
1,320
1,314
Other liabilities
(10)
18
730
1,285
Provisions
18
6
34
Subordinated liabilities
(11)
17
802
805
Total liabilities
18,645
19,657
Share capital and share premium account
1,700
1,700
Revaluation reserves
—
7
Legal reserves
384
380
Other reserves
(197)
(170)
AT1 capital securities
250
250
Unappropriated results
110
6
Total equity
20
2,247
2,173
Comparatives have been re-presented to aid comparability.
(1) Loans to banks includes amounts due from holding company and fellow subsidiaries of €841 million (2020 - €2,566 million).
(2) Loans to banks includes amounts held for trading of €2,093 million (2020 - €2,899 million). Of this €1,081 million reverse repos (2020 - €1,796 million). Collateral given €863 million
(2020 - €504 million). Other loans €149 million (2020 - €599 million).
(3) Loans to customers includes amounts due from holding company and fellow subsidiaries of €152 million (2020 - €124 million).
(4) Loans to customers includes amounts held for trading of €2,843 million (2020 - €3,681 million). Of this €481 million reverse repos (2020 - €768 million). Collateral given €2,301 million
(2020 - €2,913 million). Other loans €61 million (2020 - nil).
(5) Derivative assets include amounts due from holding company and fellow subsidiaries of €2,592 million (2020 - €2,968 million).
(6) Other assets includes amounts due from holding company and fellow subsidiaries of €396 million (2020 - €849 million)
(7) Bank deposits includes amounts due to holding company and fellow subsidiaries of €3,109 million (2020 - €3,336 million).
(8) Customer deposits includes amounts due to holding company and fellow subsidiaries of €297 million (2020 - nil).
(9) Derivative liabilities include amounts due to holding company and fellow subsidiaries of €2,141 million (2020 - €2,230 million).
(10) Other liabilities includes amounts due to holding company and fellow subsidiaries of €487 million (2020 - €157million)
(11) Subordinated liabilities includes amounts due to holding company and fellow subsidiaries of €150 million (2020 - €150 million).
(12) As at 31 December 2021 contingent liabilities and commitments were €6,444 million (2020 - €7,005 million).
The accompanying notes on pages 103 to 115 form an integral part of these financial statements.
Parent Company financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 102
Company statement of changes in equity for the year ended 31 December 2021
2021
2020
€m
€m
Share capital and share premium account - at 1 January and 31 December
(1)
1,700
1,700
Revaluation reserves
At 1 January
7
4
Changes in equity securities and debt securities at fair value through other comprehensive income
(7)
3
At 31 December
—
7
Legal reserves
At 1 January
380
22
Correction for restricted capital in subsidiaries
—
361
Changes in foreign exchange reserve
4
(3)
At 31 December
384
380
Other reserves
At 1 January
(170)
(402)
Correction for restricted capital in subsidiaries
—
(361)
Transfer from unappropriated results
6
634
AT1 capital securities dividends paid
(14)
(14)
Changes in fair value of credit in financial liabilities designated at fair value
(23)
(27)
Other movements
4
—
At 31 December
(197)
(170)
AT1 capital securities - at 1 January and 31 December
250
250
Unappropriated results
At 1 January
6
634
Transfer to other reserves
(6)
(634)
Net result for the year
110
6
At 31 December
110
6
Total equity
2,247
2,173
(1) Includes Ordinary share capital of €50,000 (2020 - €50,000) – refer to Note 20 for further details.
Parent Company financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 103
1 Net interest income
2021
2020
€m
€m
Loans to customers
28
40
Loans to banks
1
1
Amounts due from holding companies and fellow subsidiaries
10
11
Interest receivable
39
52
Balances with banks
21
—
Customer deposits
1
22
Amounts due to holding companies and fellow subsidiaries
8
10
Subordinated liabilities
16
31
Other financial liabilities
3
—
Internal funding of trading businesses
1
1
Interest payable
50
64
(11)
(12)
2 Non-interest income
2021
2020
€m
€m
Fees and commissions receivable
202
205
Fees and commissions payable
(24)
(47)
Net fees and commissions
(1)
178
158
Results from financial transactions
(2)
8
(2)
Other operating income
(5)
(1)
(1)
Fees and commissions is mainly driven by transfer pricing income from NWM Plc of €106 million (2020 - €125 million).
(2)
Results from financial transactions in 2021 and 2020 relate to income from trading activities.
3 Operating expenses
2021
2020
€m
€m
Wages and salaries
59
46
Social security costs
7
5
Pension costs
4
4
- defined benefit schemes
—
3
- defined contribution schemes
4
1
Staff costs
70
55
There were 200 persons employed (full time equivalent rounded to the nearest hundred) at 31 December 2021 (2020 – 200). The
average number of persons employed during the year was 200 (2020 – 200).
This includes 107 persons which were employed in the Netherlands at 31 December 2021 (2020 – 94). The average number of
persons employed in the Netherlands during the year was 100 (2020 - 100).
Refer to Note 5 to the consolidated financial statements for details on auditor’s remuneration.
4 Segmental analysis
The geographical analyses in the tables below have been compiled on the basis of location of the counterparty.
Rest of
United Kingdom
Netherlands
Europe
RoW
Total
2021
€m
€m
€m
€m
€m
Loans - amortised cost and FVOCI
—
64
686
84
834
2020
Loans - amortised cost and FVOCI
10
78
895
249
1,232
Refer to Note 4 to the consolidated financial statements for further details on segments.
5 Tax
Refer to Note 6 to the consolidated financial statements for further details.
Parent Company financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 104
6 Debt securities
Debt securities - assets
Debt securities
Central and local
government
Other
UK
US
Financial
institutions
debt
Total
2021
€m
€m
€m
€m
€m
Mandatory fair value through profit or loss
—
—
—
—
—
Fair value through other comprehensive income
120
176
—
—
296
Amortised cost
—
—
—
122
122
Total
120
176
—
122
418
2020
Mandatory fair value through profit or loss
52
—
—
—
52
Fair value through other comprehensive income
116
81
200
—
397
Amortised cost
—
—
—
44
44
Total
168
81
200
44
493
Debt securities in issue - liabilities
Debt securities in issue in both periods represent unlisted instruments. Refer to Note 16 to the consolidated financial statements for
further details.
7 Derivatives
The following table shows the notional amounts and fair values of NWM N.V.’s derivatives.
2021
2020
Notional
Assets
Liabilities
Notional
Assets
Liabilities
€bn
€m
€m
€bn
€m
€m
Exchange rate contracts
307
4,494
4,488
273
4,428
4,438
Interest rate contracts
1,904
3,273
4,356
2,320
2,506
4,865
Credit derivatives
1
—
10
—
—
6
7,767
8,854
6,934
9,309
8 Financial instruments – classification
The following tables analyse financial assets and liabilities in accordance with the categories of financial instruments on an IFRS 9
basis.
Amortised
Other
MFVTPL
FVOCI
cost
assets
Total
€m
€m
€m
€m
€m
Assets
Cash and balances at central banks
5,145
5,145
Short term government paper
301
301
Loans to banks
(1)
2,093
—
210
2,303
Loans to customers
(1)
2,843
—
812
3,655
Derivatives
7,767
7,767
Debt securities
—
296
122
418
Equity securities
3
—
3
Investment in subsidiaries
440
440
Property and equipment
8
8
Other assets
783
69
852
31 December 2021
12,706
597
7,072
517
20,892
Cash and balances at central banks
4,452
4,452
Short term government paper
148
148
Loans to banks
(1)
2,899
—
479
3,378
Loans to customers
(1)
3,681
—
1,071
4,752
Derivatives
6,934
6,934
Debt securities
52
397
44
493
Equity securities
3
—
3
Investment in subsidiaries
439
439
Property and equipment
13
13
Other assets
1,207
11
1,218
31 December 2020
13,569
545
7,253
463
21,830
Comparatives have been re-presented to aid comparability.
For the notes to this table refer to the following page.
Parent Company financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 105
8 Financial instruments – classification continued
Held-for-
Amortised
Other
trading
DFV
cost
liabilities
Total
€m
€m
€m
€m
€m
Liabilities
Bank deposits
(2)
2,606
—
1,039
3,645
Customer deposits
(2)
1,524
584
1,180
3,288
Derivatives
8,854
8,854
Debt securities in issue
—
—
1,320
1,320
Other liabilities
(3)
21
649
60
730
Provisions
6
6
Subordinated liabilities
395
407
802
31 December 2021
13,005
979
4,595
66
18,645
Bank deposits
(2)
3,033
—
1,140
4,173
Customer deposits
(2)
593
886
1,258
2,737
Derivatives
9,309
9,309
Debt securities in issue
—
—
1,314
1,314
Other liabilities
(3)
134
1,114
37
1,285
Provisions
34
34
Subordinated liabilities
414
391
805
31 December 2020
13,069
1,300
5,217
71
19,657
Comparatives have been re-presented to aid comparability.
(1) Includes third party reverse repos of €465 million (2020 - €1,796 million) in loans to banks, and €481 million (2020 - €768 million) in loans to customers.
(2) Includes third party repos of €73 million (2020 - €1,025 million) in bank deposits, and €513 million (2020 - €188 million) in customer deposits.
(3) Includes lease liabilities of €7 million (2020 - €12 million) held at amortised cost.
Financial instruments – financial assets and liabilities that can be offset
The tables below present information on the NWM N.V.’s financial assets and liabilities that are offset in the balance sheet under
IFRS or subject to enforceable master netting agreement together with financial collateral received or given.
Instruments which can be offset
Potential for offset not recognised by IFRS
Net amount
after the
Effect of
effect of netting
Instruments
master netting
arrangement
outside
IFRS
Balance
and similar
Cash
Other financial
and related
netting
Balance
Gross
offset
sheet
agreements
collateral
collateral
collateral
agreements
sheet total
2021
€m
€m
€m
€m
€m
€m
€m
€m
€m
Derivative assets
14,524
(6,844)
7,680
(4,888)
(1,827)
(534)
431
87
7,767
Derivative liabilities
13,916
(5,190)
8,726
(4,888)
(3,105)
(365)
368
128
8,854
Net position
(1)
608
(1,654)
(1,046)
—
1,278
(169)
63
(41)
(1,087)
Trading reverse repos
(2)
686
(82)
604
(73)
—
(531)
—
342
946
Trading repos
(2)
668
(82)
586
(73)
—
(513)
—
—
586
Net position
18
—
18
—
—
(18)
—
342
360
2020
Derivative assets
13,753
(6,886)
6,867
(4,735)
(1,721)
(56)
355
67
6,934
Derivative liabilities
13,449
(4,231)
9,218
(4,735)
(3,230)
(942)
311
91
9,309
Net position
304
(2,655)
(2,351)
—
1,509
886
44
(24)
(2,375)
Trading reverse repos
(2)
662
(56)
606
—
—
(606)
—
302
908
Trading repos
(2)
362
(56)
306
—
—
(306)
—
—
306
Net position
300
—
300
—
—
(300)
—
302
602
(1) The net IFRS offset balance of €1,654 million (2020 – €2,655 million) relates to variation margin netting reflected on other balance sheet lines.
(2) Excludes balances with holding company and fellow group subsidiaries.
Parent Company financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 106
9 Financial instruments – valuation
For further information relating to the following tables, refer to Note 8 to the consolidated financial statements.
Valuation hierarchy
The following table shows the financial instruments carried at fair value on the balance sheet by valuation hierarchy.
2021
2020
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
€m
€m
€m
€m
€m
€m
€m
€m
Assets
Short term government paper
50
251
—
301
100
48
—
148
Loans to banks
—
2,093
—
2,093
—
2,899
—
2,899
Loans to customers
—
2,784
59
2,843
—
3,681
—
3,681
Derivatives
—
7,655
112
7,767
—
6,804
130
6,934
Debt securities
296
—
—
296
249
200
—
449
Equity securities
—
—
3
3
—
—
3
3
Total financial assets held at fair value
346
12,783
174
13,303
349
13,632
133
14,114
Liabilities
Bank deposits
—
2,606
—
2,606
—
3,033
—
3,033
Customer deposits
—
2,108
—
2,108
—
1,479
—
1,479
Derivatives
—
8,794
60
8,854
—
9,250
59
9,309
Other liabilities
—
21
—
21
—
134
—
134
Subordinated liabilities
—
395
—
395
—
414
—
414
Total financial liabilities held at fair value
—
13,924
60
13,984
—
14,310
59
14,369
Comparatives have been re-presented to aid comparability.
(1) Transfers between levels are deemed to have occurred at the beginning of the quarter in which the instruments were transferred. There were no significant transfers between level 1
and level 2.
(2) The determination of an instrument’s level cannot be made at a global product level as a single product type can be in more than one level. For example, a single name corporate
credit default swap could be in level 2 or level 3 depending on whether the reference counterparty’s obligations are liquid or illiquid.
For further information on the level 3 movements and sensitivities, refer to Note 8 to the consolidated financial statements.
Parent Company financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 107
9 Financial instruments - fair value of financial instruments not carried at fair value
The following table shows the carrying value and fair value of financial instruments carried at amortised cost on the balance sheet.
Items where
fair value
approximate
carrying
Carrying
Fair value hierarchy level
value
value
Fair value
Level 2
Level 3
2021
€m
€m
€m
€m
€m
Financial assets
Cash and balances at central banks
5,145
Loans to banks
18
192
192
62
130
Loans to customers
812
808
—
808
Debt securities
122
122
—
122
Other assets - settlement balances
783
Financial liabilities
Bank deposits
31
1,008
1,008
—
1,008
Customer deposits
4
1,176
1,176
—
1,176
Debt securities in issue
1,320
1,320
813
507
Other liabilities - settlement balances
642
Subordinated liabilities
407
538
536
2
2020
Financial assets
Cash and balances at central banks
4,452
Loans to banks
2
477
477
58
419
Loans to customers
1,071
1,053
—
1,053
Debt securities
44
44
—
44
Other assets - settlement balances
1,207
Financial liabilities
Bank deposits
28
1,112
1,112
—
1,112
Customer deposits
2
1,256
1,256
—
1,256
Debt securities in issue
1,314
1,314
949
365
Other liabilities - settlement balances
1,114
Subordinated liabilities
391
501
501
—
Comparatives have been re-presented to aid comparability.
Parent Company financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 108
10 Financial instruments - maturity analysis
Remaining maturity
The following table shows the NWM N.V.'s residual maturity of financial instruments, based on contractual date of maturity.
2021
Repayable
0-1
1-3
3-6
6-12
1-2
2-5
Over 5
Maturity
on demand
months
months
months
months
years
years
years
not relevant
€m
€m
€m
€m
€m
€m
€m
€m
€m
Assets
Cash and balances at central banks
5,145
—
—
—
—
—
—
—
—
Short term government paper
—
—
—
50
251
—
—
—
—
Loans to banks
1,073
1,050
30
—
—
—
—
150
—
Loans to customers
2,284
417
138
—
—
358
318
140
—
Derivatives
—
949
1,102
664
415
673
731
3,233
—
Debt securities
—
211
—
—
207
—
—
—
—
Equity securities
—
—
—
—
—
—
—
—
3
Other assets
(1)
—
783
—
—
—
—
—
—
—
Liabilities
Bank deposits
493
1,460
88
30
—
27
954
593
—
Customer deposits
1,313
714
314
657
235
30
16
9
—
Derivatives
—
883
1,038
639
456
497
979
4,362
—
Debt securities in issue
—
205
302
179
634
—
—
—
—
Other liabilities
(2)
—
642
—
—
1
3
2
22
—
Subordinated liabilities
—
—
—
—
—
123
150
529
—
2020
Repayable
0-1
1-3
3-6
6-12
1-2
2-5
Over 5
Maturity
on demand
months
months
months
months
years
years
years
not relevant
€m
€m
€m
€m
€m
€m
€m
€m
€m
Assets
Cash and balances at central banks
4,452
—
—
—
—
—
—
—
—
Short term government paper
—
—
—
148
—
—
—
—
—
Loans to banks - amortised cost
728
1,211
4
680
9
229
61
456
—
Loans to customers - amortised cost
2,838
342
500
13
25
136
767
131
—
Derivatives
—
1,154
1,128
641
447
396
763
2,405
—
Debt securities
—
—
—
—
397
—
—
96
—
Equity securities
—
—
—
—
—
—
—
—
3
Other assets
(1)
—
1,207
—
—
—
—
—
—
—
Liabilities
Bank deposits
703
1,331
528
50
12
434
921
194
—
Customer deposits
407
539
500
1,017
40
225
—
9
—
Derivatives
—
1,147
1,148
634
423
310
620
5,027
—
Debt securities in issue
—
156
210
322
626
—
—
—
—
Other liabilities
(2)
—
1,100
—
1
1
2
4
4
134
Subordinated liabilities
—
—
—
—
—
—
267
538
—
Comparatives have been re-presented to aid comparability.
(1) Includes settlement balances of €783 million (2020 - €1,207 million).
(2) Includes settlement balances of €642 million (2020 - €1,100 million), short positions of €21 million (2020 - €134 million) and lease liabilities of €7 million (2020 - €12 million).
Parent Company financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 109
10 Financial instruments - maturity analysis
continued
Assets and liabilities by contractual cash flow
maturity
The tables below show the contractual undiscounted cash flows
receivable and payable, up to a period of 20 years, including
future receipts and payments of interest of financial assets and
liabilities by contractual maturity. The balances in the following
tables do not agree directly with the consolidated balance
sheet, as the tables include all cash flows relating to principal
and future coupon payments, presented on an undiscounted
basis. The tables have been prepared on the following basis:
Financial assets have been reflected in the time band of the
latest date on which they could be repaid, unless earlier
repayment can be demanded by NWM N.V.. Financial liabilities
are included at the earliest date on which the counterparty can
require repayment, regardless of whether or not such early
repayment results in a penalty. If repayment is triggered by, or
is subject to, specific criteria such as market price hurdles
being reached, the asset is included in the time band that
contains the latest date on which it can be repaid, regardless of
early repayment. The liability is included in the time band that
contains the earliest possible date on which the conditions
could be fulfilled, without considering the probability of the
conditions being met. For example, if a structured note is
automatically prepaid when an equity index exceeds a certain
level, the cash outflow will be included in the less than three
months’ period whatever the level of the index at the year end.
The settlement date of debt securities in issue, issued by certain
securitisation vehicles consolidated by NWM N.V. depends on
when cash flows are received from the securitised assets.
Where these assets are prepayable, the timing of the cash
outflow relating to securities assumes that each asset will be
prepaid at the earliest possible date. As the repayments of
assets and liabilities are linked, the repayment of assets in
securitisations is shown on the earliest date that the asset can
be prepaid, as this is the basis used for liabilities.
The principal amounts of financial liabilities that are repayable
after 20 years or where the counterparty has no right to
repayment of the principal are excluded from tables along with
interest payments after 20 years.
The maturity of guarantees and commitments is based on the
earliest possible date they would be drawn in order to evaluate
NWM N.V.’s liquidity position.
MFVTPL assets of €12.7 billion (2020 - €13.6 billion) and HFT
liabilities of €13 billion (2020 - €13.1 billion) have been excluded
from the following tables.
0-3
3-12
months
months
1-3 years
3-5 years
5-10 years
10-20 years
2021
€m
€m
€m
€m
€m
€m
Assets by contractual maturity
Cash and balances at central banks
5,145
—
—
—
—
—
Short dated government papers
—
301
—
—
—
—
Loans to banks
195
14
1
—
—
—
Loans to customers
22
8
419
246
5
—
Debt securities
96
209
4
26
7
13
Other assets
783
—
—
—
—
—
6,241
532
424
272
12
13
2021
Liabilities by contractual maturity
Bank deposits
28
30
287
694
—
—
Customer deposits
819
891
30
16
—
19
Debt securities in issue
507
813
—
—
—
—
Other liabilities
642
1
4
4
—
—
Subordinated liabilities
—
—
286
—
—
395
1,996
1,735
607
714
—
414
Guarantees and commitments notional amount
Guarantees
(1)
486
—
—
—
—
—
Commitments
(2)
5,822
—
—
—
—
—
6,308
—
—
—
—
—
For notes to this table refer to the following page.
Parent Company financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 110
10 Financial instruments - maturity analysis continued
0-3
3-12
months
months
1-3 years
3-5 years
5-10 years
10-20 years
2020
€m
€m
€m
€m
€m
€m
Assets by contractual maturity
Cash and balances at central banks
4,452
—
—
—
—
—
Short dated government papers
—
148
—
—
—
—
Loans to banks
479
—
—
—
—
—
Loans to customers
4
54
501
434
7
—
Debt securities
—
396
—
—
45
—
Other assets
1,207
—
—
—
—
—
6,142
598
501
434
52
—
2020
Liabilities by contractual maturity
Bank deposits
136
66
327
611
—
—
Customer deposits
851
1,058
226
—
—
20
Debt securities in issue
365
949
—
—
—
—
Other liabilities
1,101
2
4
2
2
—
Subordinated liabilities
—
—
137
150
—
—
2,453
2,075
694
763
2
20
Guarantees and commitments notional amount
Guarantees
(1)
493
—
—
—
—
—
Commitments
(2)
6,415
—
—
—
—
—
6,908
—
—
—
—
—
Comparatives have been re-presented to aid comparability.
(1) The NWM N.V. is only called upon to satisfy a guarantee when the guaranteed party fails to meet its obligations. The NWM N.V. expects most guarantees it provides to expire
unused. For further information, refer to Note 23 to the consolidated financial statements.
(2) The NWM N.V. has given commitments to provide funds to customers under undrawn formal facilities, credit lines and other commitments to lend subject to certain conditions being
met by the counterparty. The NWM N.V. does not expect all facilities to be drawn, and some may lapse before drawdown.
11 Loan impairment provisions
31 December 2021
Loans - amortised cost & FVOCI
Off-balance sheet
ECL provisions
Loan
Contingent
Stage 1
Stage 2
Stage 3
Total
commitments
liabilities
Stage 1
Stage 2
Stage 3
Total
€m
€m
€m
€m
€m
€m
€m
€m
€m
€m
Wholesale
730
48
39
817
5,852
475
—
1
39
40
Property
23
—
—
23
285
—
—
—
—
—
Financial institutions
193
1
—
194
927
474
—
—
—
—
Corporate
514
47
39
600
4,640
1
—
1
39
40
Of which:
Airlines and aerospace
—
—
—
—
33
—
—
—
—
—
Automotive
—
—
—
—
647
—
—
—
—
—
Health
5
—
—
5
178
—
—
—
—
—
Land transport and
logistics
87
—
—
87
273
—
—
—
—
—
Leisure
—
4
—
4
174
—
—
—
—
—
Oil and gas
300
—
—
300
—
—
—
—
—
—
Retail
—
—
—
—
332
—
—
—
—
—
Total
730
48
39
817
5,852
475
—
1
39
40
Parent Company financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 111
11 Loan impairment provisions continued
31 December 2020
Loans - amortised cost
Off-balance sheet
ECL provisions
Loan
Contingent
Stage 1
Stage 2
Stage 3
Total
commitments
liabilities
Stage 1
Stage 2
Stage 3
Total
€m
€m
€m
€m
€m
€m
€m
€m
€m
€m
Wholesale
819
341
72
1,232
6,511
494
1
41
69
111
Property
—
32
—
32
341
—
—
—
—
—
Financial institutions
305
179
—
484
587
474
—
38
—
38
Corporate
514
130
72
716
5,583
20
1
3
69
73
Of which:
Airlines and aerospace
—
25
—
25
200
—
—
1
—
1
Automotive
—
—
—
—
716
—
—
—
—
—
Land transport and
logistics
95
—
1
96
502
—
—
—
—
—
Leisure
—
56
—
56
129
—
—
1
—
1
Oil and gas
12
—
37
49
328
—
—
—
35
35
Retail
—
—
—
—
380
—
—
—
—
—
Shipping
—
—
—
—
—
1
—
—
—
—
Total
819
341
72
1,232
6,511
494
1
41
69
111
Refer to Note 12 to the consolidated financial statements for further details.
12 Investment in Group undertakings
The parent company's subsidiary undertakings, participating interests and branches at 31 December 2021 are shown below:
Group interest 100%
Notes
Group interest <100%
Notes
s
AA Merchant Services B.V.
i, (2)
Eris Finance S.R.L
ii, (5)
Alcover A.G.
i, (1)
German Public Sector Finance B.V.
iii, (6)
Alternative Investment Fund B.V.
i, (2)
Maja Finance S.R.L
iv, (5)
KEB Investors, L.P.
i, (3)
RBS Hollandsche N.V.
i, (2)
Actively being dissolved or liquidated
Note
RBS Investments (Ireland) Ltd
i, (4)
RBS Asia Holdings B.V.
i, (2)
RBS Nominees (Ireland) Ltd
i, (4)
RBS Nominees (Netherlands) B.V.
i, (2)
Branches geographic location
France, Germany, Italy, Republic of Ireland, Spain, Sweden, United Kingdom
Key:
i
Group interest of 100%
ii
Group interest of 45%
iii
Group interest of 50%
iv
Group interest of 97.87%
Registered addresses Country of incorporation
(1)
Tirolerweg 8, Zug, CH-6300 Switzerland
(2)
Claude Debussylaan 94, 1082 MD, Amsterdam Netherlands
(3)
Clarendon House, Two Church Street, Suite 104, Reid Street, Hamilton, HM 11 Bermuda
(4)
Ulster Bank Head Office, Bock B Central Park, Leopardstown, Dublin 18, D18 N153 Republic of Ireland
(5)
Via Vittorio Alfieri 1, Conegliano TV, IT-TN 31015 Italy
(6)
De entree 99 -197, 1101 HE Amsterdam Zuidoost Netherlands
All subsidiaries and participating interests operate principally in their country of incorporation.
The list of participating interests for which statements of liability have been issued, has been filed with the Chamber of Commerce
in Amsterdam.
Some of NWM N.V.’s subsidiaries and participating investments are regulated entities and therefore their ability to transfer funds to
NWM N.V. is subject to regulatory approvals.
Parent Company financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 112
12 Investment in Group undertakings continued
Changes in investments in subsidiaries
2021
2020
€m
€m
At 1 January
439
441
Income from subsidiaries
5
4
Capital repatriation/dividends received
(2)
(9)
Other changes
(2)
3
At 31 December
440
439
13 Financial assets – other
Credit risk impairments
- refer to Note 12 to the consolidated financial statements and the Risk and capital management - Credit
risk section for further details.
Non-traded market risk
- refer to the Risk and capital management - Non-traded market risk section for details on structural
foreign exchange exposure.
14 Other assets
2021
2020
€m
€m
Settlement balances
783
1,207
Prepaid expenses
1
1
Accrued income
2
2
Deferred tax
57
—
Other
9
8
852
1,218
Comparatives have been re-presented to aid comparability.
15 Property and equipment
2021
Right-of-use
Computer
equipment
Total
€m
€m
€m
Cost or valuation
At 1 January 2021
15
4
19
Disposals
(3)
—
(3)
At 31 December 2021
12
4
16
Accumulated impairment, depreciation and amortisation
At 1 January 2021
4
2
6
Disposals
(1)
—
(1)
Charge for the year
2
1
3
At 31 December 2021
5
3
8
Net book value at 31 December
7
1
8
Cost or valuation
At 1 January 2020
12
4
16
Additions
3
—
3
At 31 December 2020
15
4
19
Accumulated impairment, depreciation and amortisation
At 1 January 2020
1
1
2
Charge for the year
3
1
4
At 31 December 2020
4
2
6
Net book value at 31 December
11
2
13
Parent Company financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 113
16 Contingent liabilities and commitments and contractual obligations for future expenditure
not provided in the accounts
The amounts shown in the table below are intended only to provide an indication of the volume of business outstanding at 31
December 2021. Although the NWM N.V. is exposed to credit risk in the event of non-performance of the obligations undertaken by
customers, the amounts shown do not, and are not intended to, provide any indication of the NWM N.V.'s expectation of future
losses. In relation to contingent liabilities and commitments and contractual obligations for future expenditure, refer to Note 23 to
the consolidated financial statements for further details.
Less than
Over
5 years
5 years
2021
2020
€m
€m
€m
€m
Contingent liabilities and commitments
Guarantees and assets pledged as collateral security
1
486
487
493
Standby facilities, credit lines and other commitments
5,860
97
5,957
6,512
5,861
583
6,444
7,005
17 Subordinated liabilities
Refer to Note 17 to the consolidated financial statements for further details.
18 Other liabilities and provisions
2021
2020
€m
€m
Short positions in securities
21
134
Settlement balances
642
1,114
Accruals
10
13
Deferred Income
8
11
Other liabilities
49
13
730
1,285
2021
2020
Provisions for liabilities and charges
€m
€m
Litigation and other regulatory
—
2
Taxation
2
26
Other
4
6
6
34
Comparatives have been re-presented to aid comparability.
Arising out of its normal business operations, the NWM N.V. is party to legal proceedings in the Netherlands, United Kingdom, the
United States of America and other jurisdictions. Litigation provisions at 31 December 2021 related to numerous proceedings; no
individual provision is material. Detailed descriptions of the NWM N.V.’s legal proceedings and discussion of the associated
uncertainties are given in Note 23 to the consolidated financial statements.
Parent Company financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 114
19 Asset transfers
Refer to Note 21 to the consolidated financial statements for further details.
20 Equity
Share capital
NWM N.V.’s share capital at 31 December 2021 consisted of 11,112 issued and fully paid ordinary shares of €4.50 each. Its
authorised share capital amounts to €225,000. It comprises 41,500 ordinary shares, each with a nominal value of €4.50 and 8,500
preference shares, each with a nominal value of €4.50. All issued ordinary shares have been fully paid. Each ordinary share entitles
the holder to cast one vote. Subject to certain exceptions provided for by law or in the Articles of Association, resolutions are
passed by an absolute majority of the votes cast. When shares are issued, each holder of shares shall have pre-emptive right, in
proportion to the aggregate amount of their shares, except in the case of an issue of shares for a consideration other than in cash.
In the event of the dissolution and liquidation of NWM N.V., the assets remaining after payment of all debts will be distributed to the
holders of ordinary shares on a pro-rata basis.
Share premium account
The Share premium account amounts to €1.7 billion (2020 - €1.7 billion).
Revaluation reserves
Revaluation reserves are nil. 2020 Revaluation reserves consisted of €3 million equity securities at fair value through other
comprehensive income and €4 million debt securities at fair value through other comprehensive income.
Legal reserves
The Legal reserves consist of €361 million non-distributable profit participations (2020 - €361 million), €10 million non-distributable
reserve shares (2020 - €10 million) and €13 million foreign exchange reserve (2020 - €9 million).
AT1 Capital securities
In June 2019 NWM N.V. issued capital securities of €250 million which qualify as Additional Tier 1 capital as described in CRD IV
and CRR. These securities are perpetual. They can be called on after five years and have a coupon of 3 month Euribor plus 6.10%,
payable on a quarterly basis.
Dividends
No ordinary dividends were paid in 2021 (2020 - nil).
21 Profit appropriation
Profit is appropriated in accordance with article 37 of the Articles of Association. The main stipulations with respect to shares
currently in issue are as follows:
The Managing Board may decide to make appropriations to reserves, subject to the approval of the Supervisory Board (article
37.2.a.). The allocation of the amount remaining after these appropriations shall be determined by the General Meeting of
Shareholders. The Managing Board, subject to the approval of the Supervisory Board, shall make a proposal to that effect. A
proposal to pay a dividend shall be dealt with as a separate agenda item at the General Meeting of Shareholders (article 37.2.a.).
NWM N.V.’s policy on reserves and dividends shall be determined and can be amended by the Supervisory Board, upon the
proposal of the Managing Board. The adoption of and each subsequent amendment to the policy on reserves and dividends shall
be discussed and accounted for at the General Meeting of Shareholders under a separate agenda item (article 37.2.b.).
Subject to approval of the Supervisory Board, the Managing Board may make the dividend or interim dividend on the shares
payable, at the discretion of the holders, either in cash or, provided it is authorised to issue shares, partly or wholly in shares in
the Company’s capital or in a combination thereof, such combination to be determined by the Managing Board (article 37.3.).
Subject to the approval of the Supervisory Board, the Managing Board shall be authorised, in so far as such is permitted by the
profit as evidenced by an interim balance sheet drawn up with due observance of the provisions of Section 105, Subsection 4 of
Book 2 of the Netherlands Civil Code, to make payable an interim dividend on the shares once or more frequently in the course
of any financial year and prior to the approval of the Annual Accounts by the General Meeting of Shareholders (article 37.4.).
Subject to the approval of the Supervisory Board, the Managing Board may decide on a distribution charged against reserves in
cash or, if the Board is authorised to issue shares, in the form of shares (article 37.5.).
Proposed profit appropriation
Appropriation of net profit pursuant to articles 37.2 and 37.3 of the Articles of Association:
2021
2020
€m
€m
Addition to reserves
110
6
Parent Company financial statements continued
NatWest Markets N.V.
Annual Report and Accounts 2021 115
22 Incorporation and registration
NWM N.V. is a public limited liability company, incorporated under Dutch law on 30 May 1990, and registered at Claude
Debussylaan 94, 1082 MD Amsterdam, the Netherlands and is entered in the Trade Register of the Amsterdam Chamber of
Commerce under no. 33002587.
23 Remuneration of the Managing Board and Supervisory Board
Refer to Note 27 to the consolidated financial statements for further details.
24 Related parties
Refer to Note 28 to the consolidated financial statements for further details.
25 Post balance sheet events
Other than as disclosed in the accounts, there have been no other significant events between 31 December 2021 and the date of
approval of these accounts which would require a change to or additional disclosure.
The publication of these accounts was approved by the Supervisory Board on 17 February 2022. The financial statements will be
presented for adoption at the forthcoming General Meeting. With regard to the adoption of the financial statements of NWM N.V.,
the Articles of Association state: ‘The resolution to adopt the financial statements will be passed by an absolute majority of votes
validly cast be the General Members’ Council.’
Amsterdam, 17 February 2022
Supervisory Board
Managing Board
Robert Begbie
Cornelis Visscher
Maarten Klessens
Angelique Slach
Annelies van der Pauw
Marije Elkenbracht
Anne Snel
David King
Other information
NatWest Markets N.V.
Annual Report and Accounts 2021 116
Articles of Association
The description set out below is a summary of the material
information relating to the Company’s share capital,
including summaries of certain provisions of the Articles of
Association and applicable Dutch law in effect at the relevant
date. The Articles of Association of NWM N.V. were last
amended by a notarial deed executed by Mr B.J. Kuck, civil
law notary in Amsterdam on 30 April 2018, under register
entry number 33002587.
As stated in the Articles of Association the object of the
Company is:
The participation in, collaboration with and financing,
administration and management of other enterprises and
companies and the performance of all acts, activities and
services which are related or may be conducive thereto.
The engagement in banking and stockbroking activities, the
management of third party assets, acting as trustee,
administrator, executor of wills and executive director, non-
executive director or liquidator of companies or other
organisations, the provision of insurances and the
performance of all other acts and activities which are
related or may be conducive thereto, all in the broadest
possible sense.
The fostering of the direct and indirect interests of all those
who are involved in any way in the Company and the
safeguarding of the continuity of the Company and its
affiliated enterprise(s).
Shares and voting rights
The company’s share capital at 31 December 2021 consisted of
11,112 issued and fully paid ordinary shares of €4.50 each. The
Company’s authorised share capital amounts to €225,000. It
comprises 41,500 ordinary shares, each with a nominal value of
€4.50, and 8,500 preference shares, each with a nominal value
of €4.50.
When shares are issued, each holder of shares shall have pre-
emptive right, in proportion to the aggregate amount of their
shares, except in the case of an issue of shares for a
consideration other than in cash or an issue of shares to
employees of the company or of a group company (art.9).
In the event of the dissolution and liquidation of the Company,
the assets remaining after payment of all debts will be
distributed to the shareholders of ordinary shares on a pro-rata
basis (art 39.3).
Relations with shareholders
Rights of shareholders
Any resolution to amend the Articles of Association or dissolve
NWM N.V. may only be passed by the General Meeting of
Shareholders following a proposal by the Managing Board
which has been approved by the Supervisory Board. A copy of
the proposal containing the literal text of the proposed
amendments shall be made available for inspection by the
holders of shares of NWM N.V. at the offices of NWM N.V. and
at the offices stated in the convocation to the meeting, from the
day of convocation to the end of the Meeting. Each
Shareholder may obtain a full copy of the proposal free of
charge.
Meetings of shareholders and convocation
General meetings of shareholders shall be held in Amsterdam,
or in The Hague, Rotterdam, Utrecht or Haarlemmermeer
(Schiphol). Annual General Meeting of Shareholders must be
held within six months of the end of each financial year. In
addition, General meetings of shareholders shall be held as
frequently as deemed necessary by the Managing Board or the
Supervisory Board and when required by law or by the Articles
of Association. General meetings of shareholders shall be
convened by the Managing Board or the Supervisory Board,
without prejudice to the provisions of Sections 110, 111 and
112 of Book 2 of the Netherlands Civil Code. Convocation shall
take place not later than on the fifteenth day prior to the day of
the meeting. Convocation shall state the items to be discussed
or alternatively notice shall be given that such items may be
inspected at the company’s offices.
Proposals to amend the Articles of Association or proposals
relating to a reduction of the company’s capital shall always be
included in the actual convocation.
Code of conduct
The code of conduct applies to everyone who works for the
NWM N.V. Group.
It promotes honest and ethical conduct, including the handling
of actual or apparent conflicts of interest between personal and
professional relationships. The NWM N.V. Group recognises
that personal conduct, business integrity and the NWM N.V.
Group’s security are crucial, and the code of conduct serves to
inform those who work for us of the NWM N.V. Group’s
expectations of their behaviour and practices.
The code of conduct is available on the NatWest Group’s
website,
natwestgroup.com,
and will be provided to any person without charge, upon request, by contacting Company
Secretariat on the telephone number listed below.
Important addresses
Corporate Governance & Regulatory Affairs
Claude Debussylaan 94
1082 MD Amsterdam
The Netherlands
Telephone: + 31 20 464 26 99
Email:
NVCorporateGovernance&Secretariat@natwestmarkets.com
Investor Relations
250 Bishopsgate
London EC2M 4AA
Telephone: +44 (0)207 672 1758
Email: investor.relations@natwest.com
Registered office
Claude Debussylaan 94
1082 MD Amsterdam
The Netherlands
Website
https://www.natwestmarkets.com/natwest-markets/about-
us/board-and-governance/natwest-markets-n-v-.html
Independent auditor’s report
NatWest Markets N.V.
Annual Report and Accounts 2021 117
To: the shareholder and supervisory board of NatWest Markets N.V.
Report on the audit of the financial statements 2021 included in the Annual Report and
Accounts
Our opinion
We have audited the financial statements 2021 of NatWest Markets N.V. (NWM N.V., the Company or the group) based in
Amsterdam. The financial statements comprise the consolidated and parent company financial statements.
In our opinion:
the accompanying consolidated financial statements give a true and fair view of the financial position of NWM N.V. as at 31
December 2021 and of its result and its cash flows for 2021 in accordance with International Financial Reporting Standards as
adopted by the European Union (EU-IFRS) and with Part 9 of Book 2 of the Dutch Civil Code
the accompanying parent company financial statements give a true and fair view of the financial position of NWM N.V. as at 31
December 2021 and of its result for 2021 in accordance with Part 9 of Book 2 of the Dutch Civil Code
The consolidated financial statements comprise:
the consolidated balance sheet as at 31 December 2021
the following statements for the year ended 31 December 2021: the consolidated income statement, the consolidated
statements of comprehensive income and changes in equity and the consolidated cash flow statement
the notes comprising a summary of the significant accounting policies and other explanatory information.
The parent company financial statements comprise:
the company balance sheet as at 31 December 2021
the company income statement for the year ended 31 December 2021
the notes comprising a summary of the accounting policies and other explanatory information.
Basis for our opinion
We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those
standards are further described in the
Our responsibilities for the audit of the financial statements
section of our report.
We are independent of NWM N.V. in accordance with the EU Regulation on specific requirements regarding statutory audit of
public-interest entities, the “Wet toezicht accountantsorganisaties” (Wta, Audit firms supervision act), the “Verordening inzake de
onafhankelijkheid van accountants bij assurance-opdrachten” (ViO, Code of Ethics for Professional Accountants, a regulation with
respect to independence) and other relevant independence regulations in the Netherlands. Furthermore we have complied with the
“Verordening gedrags- en beroepsregels accountants” (VGBA, Dutch Code of Ethics).
We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Information in support of our opinion
We designed our audit procedures in the context of our audit of the financial statements as a whole and in forming our opinion
thereon. The following information in support of our opinion and any findings were addressed in this context, and we do not
provide a separate opinion or conclusion on these matters.
Our understanding of the business
NWM N.V. is a licensed bank which operates as an investment banking firm serving corporates and financial institutions in the
European Economic Area (‘EEA’) . The group is structured in components and we tailored our group audit approach accordingly.
We paid specific attention in our audit to a number of areas driven by the operations of the group and our risk assessment.
We start by determining materiality and identifying and assessing the risks of material misstatement of the financial statements,
whether due to fraud or error in order to design audit procedures responsive to those risks and to obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud
is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
Materiality
Materiality
€22 million (2020: €22 million)
Benchmark applied
1% of total equity (2020: 1%)
Explanation
Based on our professional judgment, a benchmark of 1% of total equity is an appropriate
quantitative indicator of materiality and it best reflects the focus of users of the financial
statements on the financial position of the company, while earnings are highly volatile
following the start of new business transferred from NWM Plc in 2019 and changes in the
strategic business plan of NWM N.V. in 2021.
Independent auditor’s report continued
NatWest Markets N.V.
Annual Report and Accounts 2021 118
We have also taken into account misstatements and/or possible misstatements that in our opinion are material for the users of the
financial statements for qualitative reasons.
We agreed with the supervisory board that misstatements in excess of €1.1 million, which are identified during the audit, would be
reported to them, as well as smaller misstatements that in our view must be reported on qualitative grounds..
Scope of the group audit
NWM N.V. is at the head of a group of entities. The financial information of this group is included in the consolidated financial
statements. The banking activities of NWM N.V. are structured in geographical segments: the Netherlands, United Kingdom, other
parts of the European Union and the rest of the world. NWM N.V. has one subsidiary in Switzerland that has insurance services
which is in run-off.
Because we are ultimately responsible for the opinion, we are also responsible for directing, supervising and performing the group
audit. In this respect we have determined the nature and extent of the audit procedures to be carried out for group entities.
Decisive were the size and/or the risk profile of the group entities or operations. On this basis, we selected group entities for which
an audit had to be carried out on the complete set of financial information or specific items.
We assigned a full scope to the banking activities in the geographical segments mentioned above which are managed centrally and
audited by the group audit team. The component in Switzerland, focusing on insurance services, is audited by our Swiss EY
member firm. We assigned a specific scope to the component in Switzerland. We sent detailed instructions covering significant
areas including the relevant risks of material misstatement and set out the information required to be reported to the group audit
team.
Our audit scope resulted in a nearly full coverage of total equity and total assets.
By performing the procedures mentioned above at components of the group, together with additional procedures at group level,
we have been able to obtain sufficient and appropriate audit evidence about the group’s financial information to provide an opinion
about the consolidated financial statements.
Teaming and use of specialists
We ensured that the audit teams both at group and at component levels included the appropriate skills and competences which
are needed for the audit of a listed client in the banking industry. We included specialists in the areas of IT audit, forensics,
treasury, income tax, transfer pricing and have made use of our own experts in the areas of valuations of derivatives, expected
credit losses and insurance liabilities.
Our focus on climate risks and the energy transition
Climate change and energy transition are emerging topics and lead to significant change for many businesses and society. The
banking industry has to respond to these changes and related risks for the business model and valuation of assets. The section
“Climate-related disclosures” of the annual report includes disclosures about governance, strategy, risk management and metrics
and targets relating to climate change directly and indirectly impacting NWM N.V.’s business.
As part of our audit of the financial statements, we evaluated the extent to which climate-related risks and the possible effects of
the energy transition are materially impacting judgments, estimates and significant assumptions applied by NWM N.V. Furthermore,
we read the other information included in the annual report and accounts and considered whether there is any material
inconsistency between the non-financial information in the section “Climate-related disclosures” of the annual report and the
financial statements. Based on the audit procedures performed, we do not deem climate-related risks to have a material impact on
the financial reporting judgments, estimates or significant assumptions per 31 December 2021. Therefore this did not require
significant auditor’s attention during our audit.
Our focus on fraud and non-compliance with laws and regulations
Our responsibility
Although we are not responsible for preventing fraud or non-compliance and cannot be expected to detect non-compliance with
all laws and regulations, it is our responsibility to obtain reasonable assurance that the financial statements, taken as a whole, are
free from material misstatement, whether caused by fraud or error.
Our audit response related to fraud risks
We identify and assess the risks of material misstatements of the financial statements due to fraud. During our audit we obtained
an understanding of the company and its environment and the components of the system of internal control, including the risk
assessment process and the managing board process for responding to the risks of fraud and monitoring the system of internal
control and how the supervisory board exercises oversight, as well as the outcomes..
We refer to section “Risk factors” of the annual report and accounts 2021 for the Managing Board’s (fraud) risk assessment.
We evaluated the design and relevant aspects of the system of internal control and in particular the fraud risk assessment, as well
as the code of conduct, whistle blower procedures and incident registration. We evaluated the design and the implementation and,
where considered appropriate, tested the operating effectiveness, of internal controls designed to mitigate fraud risks.
As part of our process of identifying fraud risks, we evaluated fraud risk factors with respect to financial reporting fraud,
misappropriation of assets and bribery and corruption in close co-operation with our forensic specialists. We evaluated whether
these factors indicate that a risk of material misstatement due fraud is present.
Independent auditor’s report continued
NatWest Markets N.V.
Annual Report and Accounts 2021 119
We incorporated elements of unpredictability in our audit. We also considered the outcome of our other audit procedures and
evaluated whether any findings were indicative of fraud or non-compliance.
As in all of our audits, we addressed the risks related to management override of controls and when identifying and assessing
fraud risks we presumed that there are risks of fraud in revenue recognition. For the risks related to management override of
controls we performed procedures to evaluate key accounting estimates for management bias in particular relating to important
judgement areas and significant accounting estimates as disclosed in Note “Accounting Policies – Critical accounting policies and
key sources of estimation uncertainty” to the financial statements. We have also used data analysis to identify and address high-
risk journal entries. These risks did however not require significant auditor’s attention in addition to the following fraud risks
identified during our audit:
Risk of management override in regard to transfer pricing arrangements, uncertain tax positions and deferred tax asset
recognition
Fraud risk and
our audit
approach
In identifying and assessing fraud risks, we considered the risks of management bias that may represent a risk of
material misstatement due to fraud and the presumed risk of fraud in revenue recognition in connection with
deferred tax asset recognition and transfer pricing arrangements.
We refer to key audit matter ”Transfer pricing arrangements, uncertain tax positions and deferred tax asset
recognition” that describes this fraud risk and our audit approach..
Risk of management bias in regard to the valuation of financial instruments with higher risk characteristics including related
income from trading activities
Fraud risk and
our audit
approach
In identifying and assessing fraud risks, we considered the risks of management bias that may represent a risk of
material misstatement due to fraud in connection with valuation of financial instruments with higher risk
characteristics which requires significant judgement.
We refer to key audit matter ” Valuation of financial instruments with higher risk characteristics including related
income from trading activities” that describes this fraud risk and our audit approach.
We considered available information and made enquiries of relevant executives, directors including internal audit, legal,
compliance, human resources and business heads and the supervisory board.
The fraud risks we identified, enquires and other available information did not lead to specific indications for fraud or suspected
fraud potentially materially impacting the view of the financial statements.
Our audit response related to risks of non-compliance with laws and regulations
We assessed factors related to the risks of non-compliance with laws and regulations that could reasonably be expected to have a
material effect on the financial statements from our general industry experience, through discussions with the Managing Board
specifically about the procedures management performs to be compliant with the banking regulation, reading minutes, inspection
of internal audit and compliance reports and performing substantive tests of details of classes of transactions, account balances or
disclosures. We make a reference to the disclosure in Note “23 Memorandum Items”, “Financial crime risk”, “Compliance &
conduct risk”, “Model risk” sections of chapter “Capital and Risk Management” of 2021 annual report and accounts.
We also inspected lawyers’ letters and correspondence with regulatory authorities and remained alert to any indication of
(suspected) non-compliance throughout the audit. In case of potential non-compliance with laws and regulations that may have a
material effect on the financial statements, we assessed whether NWM N.V, has an adequate process in place to evaluate the
impact of non-compliance for its activities and financial reporting and, where relevant, whether NWM N.V, implemented
remediation plans. Finally we obtained written representations that all known instances of non-compliance with laws and
regulations have been disclosed to us. We refer to the key audit matter “Identified shortcomings in the areas of financial crime,
data management, internal models and outsourcing arrangements” below.
Our audit response related to going concern
The Managing Board made a specific assessment of NWM N.V.’s ability to continue as a going concern and to continue its
operations for at least the next 12 months. We discussed and evaluated the specific assessment with the management exercising
professional judgment and maintaining professional skepticism.
We consider whether management’s going concern assessment, based on our knowledge and understanding obtained through our
audit of the financial statements or otherwise, contains all events or conditions that may cast significant doubt on the company’s
ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our
auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion.
Based on our procedures performed, we did not identify serious doubts on the NWM N.V.’s ability to continue as a going concern
for the next 12 months. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However,
future events or conditions may cause a company to cease to continue as a going concern.
Our key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial
statements. We have communicated the key audit matters to the supervisory board. The key audit matters are not a
comprehensive reflection of all matters discussed.
Given that several remediation programmes are in progress to address shortcomings on internal controls and governance a new
key audit matter “Identified shortcomings in the areas of financial crime, data management, internal models and outsourcing
arrangements” has been defined.
Independent auditor’s report continued
NatWest Markets N.V.
Annual Report and Accounts 2021 120
Risk
Our response to the risk
Transfer pricing arrangements, uncertain tax positions and deferred tax asset recognition
As part of the commencement of new
business in the first half of 2019, NWM N.V.
designed a new transfer pricing framework,
including a set of profit allocation models for
its activities based on cost plus, return on
equity and revenue split. The application of
local regulations on income tax is complex
and requires compliance of the transfer
pricing agreements related to intergroup
transactions and services. The adequacy of
the methodology depends on the underlying
business and suitability of the transfer
pricing arrangement and is therefore subject
to judgement and pending the approval of
tax authorities creates uncertainty.
Furthermore, there have been major
changes in the strategic business plan of
NWM N.V. in 2021 as a response to Brexit
and wider strategic business plan of the
NWM Franchise. Consequently, the
recognition and measurement of income
from transfer pricing agreements, corporate
income tax and deferred tax assets require
NWM N.V. to use significant assumptions in
estimating future revenue and tax positions
as at 31 December 2021. Considering the
uncertainties in respect of the Brexit and
future strategy of the Company have
reduced, management recognised deferred
tax assets of €57 million as at 31 December
2021.
Deferred tax assets may be misstated due to
incorrect management assumptions on the
utilization of carry forward tax losses and
tax credits and we identified risks of
management override of controls with
regard to these accounts.
Reference is made to the ‘Accounting
Policies’ to the consolidated financial
statements, Note 2 ‘Non-interest income’,
Note 6 ‘Tax’ and Note 28 ‘Related Parties’.
We have obtained an understanding of the entity’s controls, including
control activities, evaluated the design and implementation of internal
controls across the processes relevant to transfer pricing adjustments,
uncertain tax positions and recognition of deferred tax assets. This
included, amongst other, controls governing budget process, transfer
pricing model inputs, post model adjustments, posting of journal entries and
disclosures.
With the support of our internal transfer pricing and income tax specialists,
we have assessed the completeness, measurement and accuracy of
transfer pricing adjustments and documentation. In order to understand and
evaluate management’s judgments, we have considered the status of
current tax authority enquiries and correspondences, current estimates and
developments in the tax environment and challenged management’s key
assumptions.
We have evaluated whether NWM N.V. has appropriately applied the
requirements of the IAS 1- Presentation of Financial Statements, IAS 12-
Income Taxes and IFRIC 23- Uncertain Tax Positions and whether the
methods for making estimates are appropriate and were applied
consistently in connection with the recognition of deferred tax assets.
We have tested how management has assessed the recognition of deferred
tax assets and the data on which these were measured. We have evaluated
the appropriateness of the methods and the reasonableness of assumptions
used, mainly being the approved forecast of taxable income for future
periods. We evaluated the outcome of alternative scenarios and sensitivity
analysis to assess if the management’s assessment is within the reasonable
range.
Finally, we have evaluated the completeness and accuracy of the
disclosures relating to the uncertain tax positions, deferred tax assets and
transfer pricing adjustments in compliance with EU-IFRS. This includes
evaluation of particularly whether disclosures adequately convey the degree
of estimation uncertainty and the range of possible outcomes.
Key observations
We are satisfied that the models and assumptions used by management to determine transfer pricing income and deferred tax
assets are reasonable. The related disclosures in the financial statements are considered adequate and appropriate and meet
the requirements under EU-IFRS.
Independent auditor’s report continued
NatWest Markets N.V.
Annual Report and Accounts 2021 121
Risk
Our response to the risk
Valuation of financial instruments with higher risk characteristics including related income from trading activities
As reported in note 8 to the financial
statements, as at 31 December 2021 the
company held financial instruments with
higher risk characteristics. This included (but
is not limited to) reported level 3 assets of
€174 million (2020: €133 million) and level 3
liabilities of €60 million (2020: €59 million)
whose value is dependent upon
unobservable inputs.
The valuation of those financial instruments
with higher risk characteristics can include
both significant judgement and the risk of
inappropriate recognition of income from
trading activities through incorrect pricing as
outlined below. The fair value of these
instruments can involve complex valuation
models and significant fair value
adjustments, both of which may be reliant on
data inputs where there is limited market
observability.
Areas which required Management
estimates and significant judgement include:
Complex models – Complex model-
dependent Valuations of financial
instruments, which include interest rate
swaps linked to pre-payment behaviour
and interest rate and foreign exchange
options with exotic features:;
Unobservable inputs - Pricing inputs and
calibrations for illiquid instruments,
including debt securities and loans; and
Fair value adjustments - The
appropriateness and completeness of fair
value adjustments made to derivatives
including Funding Valuation Adjustments
(FVA) and Credit Valuation Adjustments
(CVA).
We identified risks of management override
of controls and considered that the
manipulation of income from trading
activities recognition is most likely to arise
through the inappropriate valuation of these
instruments given the level of judgement
involved.
We evaluated the design and tested operating effectiveness of controls
relating to financial instrument valuation and related income statement
measurement including independent price verification, valuation models
governance , collateral management, income statement analysis and the
associated controls over relevant information technology systems. We also
observed the Valuation Committees meetings where valuation inputs,
assumptions and adjustments were discussed and approved.
We involved our financial instrument valuation and modelling specialists to
assist us in performing procedures including the following:
Complex models: Testing complex model-dependent valuations by
performing independent revaluation to assess the appropriateness of models
and the adequacy of assumptions and inputs used by NWM N.V.;
Unobservable inputs: Independently re-pricing instruments that had been
valued using illiquid pricing inputs, using alternative pricing sources where
available to evaluate management’s valuation;
Fair value adjustments: Comparing fair value adjustment methodologies to
current market practice and assessing the appropriateness and adequacy of
the valuation adjustment framework in light of market practice and changes
in the risk profile of the underlying portfolio; and Revaluing a sample of
counterparty level FVA and CVAs, comparing funding spreads to third party
data and independently challenging illiquid CVA inputs.
Throughout our audit procedures, we considered the appropriateness of
modelling changes in relation to IBOR transition. In addition, we assessed
whether there were any indicators of aggregate bias in financial instrument
marking and methodology assumptions.
We performed back-testing analysis of recent trade activity and asset
disposals to evaluate the drivers of significant differences between book
value and trade value and to assess the impact on the fair value of similar
instruments within the portfolio. We performed an analysis of significant
collateral discrepancies with counterparties to assess the potential impact
on the fair value of the underlying (and similar) financial instruments.
Key observations
We are satisfied that the models and assumptions used by management to reflect the fair value of financial instruments with
higher risk characteristics and the recognition of related income are reasonable and in accordance with EU-IFRS.
Independent auditor’s report continued
NatWest Markets N.V.
Annual Report and Accounts 2021 122
Risk
Our response to the risk
Expected Credit Loss
At 31 December 2021 NWM N.V. reported total
gross loans of €1,041 million (2020: €1,683 million)
and €40million of expected credit loss (hereafter:
“ECL”) provisions under IFRS 9 ‘Financial
Instruments’ (2020: €111 million). Impairment
releases were €13 million compared with losses of
€42 million in 2020.
Management’s judgments and estimates are
especially subjective due to significant uncertainty
associated with the assumptions used. Uncertainty
related with the path to recovery from Covid-19
was considered in our risk assessment. Aspects
with increased complexity in respect of the timing
and measurement of ECL include:
Staging: Allocation of assets to stage 1, 2, or 3
using criteria in accordance with IFRS 9;
Model estimations: Accounting interpretations,
modelling assumptions and data used to build
and run the Probability of Default (‘PD’), Loss
Given Default (‘LGD’) and Exposure at Default
(‘EAD’) models that calculate the ECL;
Economic scenarios: Inputs, assumptions and
weightings used to estimate the impact of
multiple economic scenarios particularly those
impacted by Covid-19 including any change to
scenarios required through 31 December 2021;
Individual provisions: Measurement of individual
provisions including the assessment of multiple
scenarios considering the impact of Covid-19 on
exit strategies and time to collect.
Reference is made to ‘Credit Risk’ section of the
‘Risk and capital management’ section, ‘Accounting
policies’ to the consolidated financial statements
and Note 12 ‘Loan impairment provisions’.
Our audit procedures included, among others, assessing the
appropriateness of the company’s accounting policies related to expected
credit losses according to IFRS 9 and whether the accounting policies have
been applied consistently or whether changes, if any, are appropriate in the
circumstances. In addition, we evaluated the design and tested operating
effectiveness of controls across the processes relevant to ECL, including the
judgments and estimates noted, involving specialists to assist us in
performing our procedures where appropriate. These included, among
others, controls over the allocation of assets into stages including
management’s monitoring of stage effectiveness, model governance
including monitoring and model validation, data accuracy and
completeness, credit monitoring, multiple economic scenarios, individual
provisions and production of journal entries and disclosures.
In evaluating the governance process, we observed the Group Provisions
Committee and Metrics Oversight Committee meetings where the inputs,
assumptions and adjustments to the ECL were discussed and approved.
We performed an overall assessment of the ECL provision levels by stage to
determine if they were reasonable by considering the overall credit quality
of NWM N.V.’s portfolio, risk profile, credit risk management practices and
assessment of the impact of the Covid-19 on customers.
We evaluated the criteria used to allocate a financial asset to stage 1, 2 or 3
in accordance with IFRS 9. We recalculated the assets in stage 1, 2 and 3,
assessed if they were allocated to the appropriate stage, and performed
sensitivity analysis to assess the impact of different criteria on the ECL
To test credit monitoring, which drives the probability of default estimates
used in the staging calculation, we recalculated the risk ratings for a sample
of performing loans and focused our testing on high risk industries. We also
assessed whether the credit reviews performed by management
appropriately considered risk factors by considering independent publicly
available information.
We performed a risk assessment on all models used in the calculation of
ECL to select a sample of models to test. We involved modelling specialists
to assist us to test this sample of ECL models by testing the assumptions,
inputs and formulae used. This included a combination of assessing the
appropriateness of model design and formulae used, alternative modelling
techniques, recalculating the Probability of Default, Loss Given Default and
Exposure at Default, and model implementation. We also considered the
results of internal model validation results.
To evaluate data quality, we agreed a sample of ECL calculation data points
to source systems including balance sheet date data used to run the models
and historic loss data to monitor models. We also tested the ECL data points
from the calculation engine through to the general ledger and disclosures.
We involved economic specialists to assist us to evaluate the base case and
alternative economic scenarios, including evaluating probability weights and
considered contrary evidence by comparing these to other scenarios from a
variety of external sources. This assessment included the latest
developments related to Covid-19 as at 31 December 2021. We assessed
whether forecasted macroeconomic variables were appropriate, such as
GDP, unemployment rate and interest rates. With the support of our
modelling specialists we assessed the correlation and the overall impact of
the macroeconomic factors to the ECL.
We recalculated a sample of individual provisions including the alternative
scenarios and evaluating probability weights assigned.
We tested the data flows used to populate the disclosures and evaluated the
adequacy of disclosures for compliance with the accounting standards and
regulatory considerations and in particular whether the disclosures
adequately convey the degree of estimation uncertainty.
Key observations
We are satisfied that provisions for the expected credit losses were reasonable and recognised in accordance with IFRS 9.
We concur with the related disclosures in the financial statements.
Independent auditor’s report continued
NatWest Markets N.V.
Annual Report and Accounts 2021 123
Risk
Our response to the risk
Identified shortcomings in the areas of financial crime, data management, internal models and outsourcing arrangements
NWM NV has to comply with a wide range of laws
and regulations, including those in relation to anti-
money laundering and financing of terrorism. There
are shortcomings identified by management and
through regulatory inspections in the prior years on
internal controls and governance relating to
financial crime, outsourcing arrangements, internal
models used for calculating regulatory capital and
data quality. NWM NV has developed remediation
programmes to address these shortcomings. As
these remediation programmes are currently still in
progress, there is a risk of non-compliance with the
laws and regulations. The consequences of non-
compliance, such as enforcement actions from the
regulator, possible fines, litigation and/or
remediation costs, could have a direct or indirect
material effect on amounts recognized or
disclosures provided in the financial statements.
Due to the significance and complexity of these
remediation programmes as well as the possible
outcomes, we consider this a key audit matter.
Reference is made to the disclosure in Note “23
Memorandum Items” and in the sections “Risk
management framework”, “Financial crime risk”,
“Compliance & conduct risk” and “Model risk” in
the chapter “Risk and Capital Management”.
We obtained an understanding of the entity level controls and the legal and
regulatory framework of NWM NV. Throughout the audit, we have made
inquiries with members of the Managing Board, Internal Audit, Compliance
and Legal departments to understand and assess existing and potentially
new constructive and legal obligations and compliance matters. We have
also inspected legal and compliance management reports and read the
minutes of the Managing Board, Supervisory Board and its committees.
Furthermore, we have inspected and discussed progress reports of the
remediation programmes. We have inspected the correspondence with the
relevant regulatory authorities to assess developments in regulatory
matters.
For the significant remediation programmes, among others, together with
our forensic and legal specialists, we have performed the following
procedures:
Obtained an understanding of the process and control framework
around financial crime, outsourcing arrangements, data management
and internal models
Performed a walkthrough regarding the design and implementation of
the know your customer procedures, as well as transaction and
sanction monitoring process
Read and discussed the internal reports prepared by Internal Audit,
Operational Risk Management and Compliance with management
Assessed and discussed the relevant correspondences of inspections
and reports from supervisors and regulators with management
Discussed the status and progress of remediation projects regarding
financial crime, outsourcing arrangements, data quality and internal
models with management
Discussed the impact of new internal models or add-ons imposed by the
regulator on the capital adequacy of NWM NV
Evaluated the adequacy of disclosures for compliance with the EU-IFRS
and Part 9 of Book 2 of the Dutch Civil Code, in particular IAS 37
‘Provisions, contingent liabilities and contingent assets’.
Key observations
The disclosures related to the remediation programmes to address the shortcomings is considered adequate and appropriate and
meet the requirements under EU-IFRS and Part 9 of Book 2 of the Dutch Civil Code.
Independent auditor’s report continued
NatWest Markets N.V.
Annual Report and Accounts 2021 124
Risk
Our response to the risk
IT systems and controls impacting financial reporting
The IT environment is complex and
pervasive to the operations and financial
reporting of NWM N.V. due to the large
volume of transactions processed in
numerous locations daily and the reliance on
automated and IT dependent manual
controls. Appropriate IT controls are
required to ensure that applications process
data as expected and that changes are
made in an appropriate manner. Such
controls contribute to mitigating the risk of
potential fraud or errors as a result of
changes to applications and data. The risk is
also impacted by the greater dependency on
other NatWest Group entities and third-
parties, increasing use of cloud platforms,
decommissioning of legacy systems,
migration to new systems and identified
deficiencies on user access related controls.
We evaluated the design and tested operating effectiveness of IT general
controls over the applications, operating systems and databases that are
relevant to financial reporting. During our planning and test of design phases of
our audit, we performed procedures to assess the cybersecurity program and
how management evaluates cyber risks and to determine whether changes in
restrictions in different global locations as a result of the ongoing Covid-19
pandemic had caused material changes in IT processes or controls and noted
no such changes that would result in an increased IT risk.
We tested user access by assessing the controls in place for in-scope
applications, in particular those pertaining to the addition and periodic
recertification of users’ access.
As part of our user access testing, we reviewed the core access management
processes. We tested controls over approvals, user entitlement reviews, and
managements approval process over role combinations.
We tested change management controls in relation to amendments to
applications. We tested IT application and controls over data interfaces
between applications.
For relevant external cloud and system migrations completed in 2021, we
performed procedures to evaluate the governance structure and key controls in
place to manage the audit risks in relation to transformations and migrations.
We assessed automated controls within business processes and the reliability of
relevant reports used as part of a manual control. This included assessing the
integrity of system interfaces, the completeness and accuracy of data feeds,
automated calculations and specific input controls.
Where control deficiencies were identified, we tested remediation activities
performed by management and compensating controls in place and assessed
what additional testing procedures were necessary to mitigate any residual risk.
Key observations
We are satisfied that IT controls impacting financial reporting are designed and operating effectively.
Independent auditor’s report continued
NatWest Markets N.V.
Annual Report and Accounts 2021 125
Report on other information included in the Annual Report and Accounts
The annual report and accounts contains other information in addition to the financial statements and our auditor’s report thereon.
Based on the following procedures performed, we conclude that the other information:
Is consistent with the financial statements and does not contain material misstatements
Contains the information as required by Part 9 of Book 2 of the Dutch Civil Code for the management board report and the
other information as required by Part 9 of Book 2 of the Dutch Civil Code
We have read the other information. Based on our knowledge and understanding obtained through our audit of the financial
statements or otherwise, we have considered whether the other information contains material misstatements. By performing these
procedures, we comply with the requirements of Part 9 of Book 2 of the Dutch Civil Code and the Dutch Standard 720. The scope
of the procedures performed is substantially less than the scope of those performed in our audit of the financial statements.
The Managing Board is responsible for the preparation of the other information, including the managing board report in
accordance with Part 9 of Book 2 of the Dutch Civil Code and the other information required by Part 9 of Book 2 of the Dutch Civil
Code.
Report on other legal and regulatory requirements and ESEF
Engagement
We were engaged by the Supervisory Board as auditor of NWM N.V. on 22 July 2016, as of the audit for the year 2016 and have
operated as statutory auditor ever since that date.
No prohibited non-audit services
We have not provided prohibited non-audit services as referred to in Article 5(1) of the EU Regulation on specific requirements
regarding statutory audit of public-interest entities.
European Single Electronic Reporting Format
NWM N.V. has prepared the annual report and accounts in the European single electronic reporting format (ESEF). The
requirements for this format are set out in the Commission Delegated Regulation (EU) 2019/815 with regard to regulatory technical
standards on the specification of a single electronic reporting format (hereinafter: the RTS on ESEF).
In our opinion, the presentation of the annual report and accounts, prepared in the XHTML format, including the partially marked-
up consolidated financial statements, as included in the reporting package by NWM N.V., complies in all material respects with the
RTS on ESEF.
The Managing Board is responsible for presenting the annual report and accounts, including the financial statements, in
accordance with RTS on ESEF, whereby management combines the various components into a single reporting package.
Our responsibility is to obtain reasonable assurance for our opinion whether the presentation of the annual report and accounts in
this reporting package complies with the RTS on ESEF.
Our procedures, taking into account Alert 43 of the NBA (the Netherlands Institute of Chartered Accountants), included amongst
others:
obtaining an understanding of the entity’s financial reporting process, including the preparation of the reporting package
obtaining the reporting package and performing validations to determine whether the reporting package containing the Inline
XBRL instance and the XBRL extension taxonomy files has been presented in accordance with the technical specifications as
included in the RTS on ESEF
examining the information related to the consolidated financial statements in the reporting package to determine whether all
required mark-ups have been applied and whether these are in accordance with the RTS on ESEF.
Description of responsibilities for the financial statements
Responsibilities of the Managing Board and the Supervisory Board for the financial statements
The Managing Board is responsible for the preparation and fair presentation of the financial statements in accordance with EU-
IFRS and Part 9 of Book 2 of the Dutch Civil Code. Furthermore, the Managing Board is responsible for such internal control as
management determines is necessary to enable the preparation of the financial statements that are free from material
misstatement, whether due to fraud or error.
As part of the preparation of the financial statements, the Managing Board is responsible for assessing the company’s ability to
continue as a going concern. Based on the financial reporting frameworks mentioned, the Managing Board should prepare the
financial statements using the going concern basis of accounting unless management either intends to liquidate the company or to
cease operations, or has no realistic alternative but to do so. The Managing Board should disclose events and circumstances that
may cast significant doubt on the company’s ability to continue as a going concern in the financial statements.
The supervisory board is responsible for overseeing the company’s financial reporting process.
Our responsibilities for the audit of the financial statements
Our objective is to plan and perform the audit engagement in a manner that allows us to obtain sufficient and appropriate audit
evidence for our opinion.
Independent auditor’s report continued
NatWest Markets N.V.
Annual Report and Accounts 2021 126
Our audit has been performed with a high, but not absolute, level of assurance, which means we may not detect all material errors
and fraud during our audit.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of these financial statements. The materiality affects
the nature, timing and extent of our audit procedures and the evaluation of the effect of identified misstatements on our opinion.
We have exercised professional judgment and have maintained professional skepticism throughout the audit, in accordance with
Dutch Standards on Auditing, ethical requirements and independence requirements. The
‘Information in support of our opinion’
section above includes an informative summary of our responsibilities and the work performed as the basis for our opinion.
Our audit further included among others:
Performing audit procedures responsive to the risks identified, and obtaining audit evidence that is sufficient and appropriate to
provide a basis for our opinion
Obtaining an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control
Evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by Managing Board
Evaluating the overall presentation, structure and content of the financial statements, including the disclosures
Evaluating whether the financial statements represent the underlying transactions and events in a manner that achieves fair
presentation
Communication
We communicate with the Supervisory board regarding, among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant findings in internal control that we identify during our audit.
In this respect we also submit an additional report to the audit committee in accordance with Article 11 of the EU Regulation on
specific requirements regarding statutory audit of public-interest entities. The information included in this additional report is
consistent with our audit opinion in this auditor’s report.
We provide the Supervisory Board with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with the Supervisory Board, we determine the key audit matters: those matters that were of most
significance in the audit of the financial statements. We describe these matters in our auditor’s report unless law or regulation
precludes public disclosure about the matter or when, in extremely rare circumstances, not communicating the matter is in the
public interest.
Amsterdam, 17 February 2022
Ernst & Young Accountants LLP
P.J.A.J. Nijssen
Risk factors
NatWest Markets N.V.
Annual Report and Accounts 2021 127
Principal Risks and Uncertainties
Set out below are certain risk factors
that could adversely affect NWM N.V.
Group’s future results, its financial
condition and prospects and cause them
to be materially different from what is
forecast or expected, and directly or
indirectly impact the value of its
securities in issue. These risk factors are
broadly categorised and should be read
in conjunction with other sections of this
annual report, including the forward-
looking statements section, the strategic
report and the risk and capital
management section. They should not be
regarded as a complete and
comprehensive statement on its own of
all potential risks and uncertainties facing
NWM N.V. Group. The COVID-19
pandemic may exacerbate any of the
risks described below.
Economic and political risk
The impact of the COVID-19 pandemic
and related uncertainties continue to
affect the UK, Dutch, European and
global economies and financial markets
and NWM N.V. Group’s customers, as
well as its competitive environment,
which may continue to have an adverse
effect on NWM N.V. Group.
In many countries, including the UK
(NWM Group’s most significant market),
the Netherlands and other European
countries the COVID-19 pandemic has,
at times, resulted in the imposition of
strict social distancing measures,
restrictions on non-essential activities
and travel quarantines, in an attempt to
slow the spread and reduce the impact
of the COVID-19 pandemic.
Despite widespread COVID-19
vaccination within the geographical
regions in which NWM N.V. Group
operates, the proliferation of COVID-19
variants continues to affect the UK,
Dutch, European and global economies.
Further waves of infection or the spread
of new strains may result in renewed
restrictions in affected countries and
regions. As a result, significant
uncertainties remain as to how long the
impact of the COVID-19 pandemic will
last, and how it will continue to affect the
global economy.
In response to the COVID-19 pandemic,
central banks, governments, regulators
and legislatures in the UK, the
Netherlands, other European countries
and elsewhere have offered
unprecedented levels of support and
various schemes to assist impacted
businesses and individuals. This has
included forms of financial assistance
and legal and regulatory initiatives. Many
of these support schemes have now been
curtailed. However, uncertainty remains
as to the impact of the ending or
tapering of these schemes and the
repayment of the loans involved on
customers, the economic environment
and NWM N.V. Group. Moreover, it is
unclear as to how any further measures,
such as rising interest rates and inflation,
may affect NWM N.V. Group’s business
and performance.
The COVID-19 pandemic has prompted
many changes that may prove to be
permanent shifts in customer behaviour
and economic activity, such as changes
in spending patterns and significantly
more people working from home. These
changes may have long-lasting impacts
on asset prices, the economic
environment and its customers’ financial
needs.
Uncertainties relating to the COVID-19
pandemic have made reliance on
analytical models, planning and
forecasting for NWM N.V. Group more
complex, and may result in uncertainty
impacting the risk profile of NWM N.V.
Group and/or that of the wider banking
industry. The medium and long-term
implications of the COVID-19 pandemic
for NWM N.V. Group customers, and the
UK, the Netherlands, other European
countries and global economies and
financial markets remain uncertain.
Any of the above may have a negative
impact on NWM N.V. Group.
NWM N.V. Group faces continued
economic and political risks and
uncertainty in the UK, European and
global markets.
The value of NWM N.V. Group’s financial
instruments may be materially affected
by market risk, including as a result of
market fluctuations. Market volatility,
illiquid market conditions and disruptions
in the credit markets may make it
extremely difficult to value certain of
NWM N.V. Group’s financial instruments,
particularly during periods of market
displacement. This could cause a decline
in the value of NWM N.V. Group’s
financial instruments. This may have an
adverse effect on NWM N.V. Group’s
results of operations in future periods, or
cause inaccurate carrying values for
certain financial instruments. Similarly,
NWM N.V. Group trades a considerable
amount of financial instruments
(including derivatives) and volatile
market conditions could result in a
significant decline in NWM N.V. Group’s
net trading income or result in a trading
loss. In addition, financial markets are
susceptible to severe events evidenced
by rapid depreciation in asset values,
which may be accompanied by a
reduction in asset liquidity. Under these
extreme conditions, hedging and other
risk management strategies may not be
as effective at mitigating trading losses
as they would be under more normal
market conditions. Moreover, under
these conditions, market participants are
particularly exposed to trading strategies
employed by many market participants
simultaneously and on a large scale,
increasing NWM N.V. Group’s
counterparty risk. NWM N.V. Group’s risk
management and monitoring processes
seek to quantify and mitigate NWM N.V.
Group’s exposure to extreme market
moves. However, severe market events
have historically been difficult to predict
and NWM N.V. Group could realise
significant losses if extreme market
events were to occur.
The outlook for the global economy over
the medium-term remains uncertain due
to a number of factors including: the
COVID-19 pandemic, societal inequalities
and changes, trade barriers and the
increased possibility and/or continuation
of trade wars, widespread political
instability (including as a result of
populism and nationalism, which may
lead to protectionist policies, state and
privately sponsored cyber and terrorist
acts or threats, efforts to destabilise
regimes or armed conflict), changes in
inflation and interest rates (including
negative interest rates), supply chain
disruption, climate, environmental, social
and other sustainability-related risks and
global regional variations in the impact
and responses to these factors
These conditions could be worsened by a
number of factors including macro-
economic deterioration, increased
instability in the global financial system
and concerns relating to further financial
shocks or contagion (for example, due to
economic concerns in emerging
markets), market volatility or fluctuations
in the value of the pound sterling, new or
extended economic sanctions, volatility in
commodity prices or concerns regarding
sovereign debt. This may be
compounded by the changing
demographics of the populations in the
markets that NWM N.V. Group serves,
increasing inequalities, or rapid change
to the economic environment due to the
adoption of technology and artificial
intelligence.
Any of the above developments could
adversely impact NWM N.V. Group
directly (for example, as a result of credit
losses) or indirectly (for example, by
impacting global economic growth and
financial markets and NWM N.V. Group’s
clients and their banking needs).
Risk factors continued
NatWest Markets N.V.
Annual Report and Accounts 2021 128
In addition, NWM N.V. Group is exposed
to risks arising out of geopolitical events
or political developments, such as
exchange controls, and other measures
taken by sovereign governments that
may hinder economic or financial activity
levels. Furthermore, unfavourable
political, military or diplomatic events,
including secession movements or the
exit of other member states from the EU,
armed conflict, pandemics and
widespread public health crises
(including the current COVID-19
pandemic and any future epidemics or
pandemics), state and privately
sponsored cyber and terrorist acts or
threats and the responses to them by
governments and markets, could
negatively affect the business and
performance of NWM N.V. Group,
including as a result of the indirect effect
on regional or global trade and/or NWM
N.V. Group’s customers.
NatWest Group faces political uncertainty
in Scotland as a result of a possible
second Scottish independence
referendum. Independence may impact
NWM Group (including NWM N.V. Group)
since NatWest Group plc and other
NatWest Group entities (including NWM
Plc) are incorporated in Scotland. Any
changes to Scotland’s relationship with
the UK or the EU would impact the
environment in which NatWest Group
and its subsidiaries operate, and may
require further changes to NatWest
Group (including the structure of NWM
Group and NWM N.V. Group),
independently or in conjunction with
other mandatory or strategic structural
and organisational changes which, any
of which could adversely impact NWM
N.V. Group.
Any of the above may have a negative
effect on NWM N.V. Group.
Continuing uncertainty regarding the
effects and extent of the UK’s post Brexit
divergence from EU laws and regulation,
and NWM N.V.’s post Brexit EU operating
model may continue to adversely affect
NWM Plc (NWM N.V.’s parent company)
and its operating environment and
NatWest Group plc (NWM N.V.’s ultimate
parent company) and may have an
indirect effect on NWM N.V. Group.
The UK ceased to be a member of the
EU and the European Economic Area
(‘EEA’) on 31 January 2020 (‘Brexit’) and
the 2020 EU-UK Trade and Cooperation
Agreement (‘TCA’) ended the transition
period on 31 December 2020. The TCA
provides for free trade between the UK
and EU with zero tariffs and quotas on
all goods that comply with the
appropriate rules of origin, with minimal
coverage. However, for financial
services, UK-incorporated financial
services providers no longer have EU
passporting rights and there is no mutual
recognition regime. Financial services
may largely be subject to individual
equivalence decisions by relevant
regulators. A number of temporary
equivalence decisions have been made
that cover certain services offered by
NWM Group (NWM N.V. Group’s parent).
The EU’s equivalence regime does not
cover most lending and deposit taking,
and determinations in respect of third
countries have not, to date, covered the
provision of most investment services. In
addition, equivalence determinations do
not guarantee permanent access rights
and can be withdrawn with short notice.
The TCA is accompanied by a Joint
Declaration on financial services, which
sets out an intention for the EU and UK
to cooperate on matters of financial
regulation and to agree a Memorandum
of Understanding, which has yet to be
signed. In late 2021 the European
Commission proposed draft legislation
that would require non-EU firms to
establish a branch or subsidiary in the
EU before providing “banking services”
in the EU. If these proposals become law
all “banking services” will be licensable
activities in each EU member states and
member states will not be permitted to
offer bilateral permissions to financial
institutions outside the EU allowing them
to provide “banking services” in the EU.
Uncertainty remains as to whether
“banking services” will also include
investment products. Furthermore,
failure to extend existing equivalence
determinations, exemptions and
derogations in relation to regulations
such as margin and clearing regulations
or capital regulations, may have a
negative impact on customer
engagement and/or may significantly
negatively impact the operating model
and business operations of NWM N.V.
Group.
NatWest Group continues to evaluate its
post Brexit EU operating model, making
adaptations as necessary. NatWest
Group also continues to assess where
NatWest Group companies can obtain
bilateral regulatory permissions to
facilitate intragroup transactions and/or to
permit business to continue from its UK
entities, transferring what cannot be
continued to be rendered from the UK to
an EEA subsidiary or branch where
permitted. Where these regulatory
permissions are temporary or are
withdrawn, a different approach may
need to be taken or may result in a
change in operating model or some
business being ceased. Not all NatWest
Group entities have applied for bilateral
regulatory permissions and instead
intend to move EEA business to an EEA
licensed subsidiary or branch. There is a
risk that these EEA licenses may not be
granted or may be withdrawn, and
where these permissions are not
obtained, further changes to NatWest
Group’s operating model may be
required or some business may need to
be ceased. In addition, failure to obtain
required regulatory permissions or
licences in one part of NatWest Group
may impact other parts of NatWest
Group (including NWM N.V. Group)
adversely. Certain permissions are
required in order to maintain the ability
to clear euro payments. Other
permissions, including the ability to have
two intermediate EU parent undertakings
would allow NatWest Group to continue
to serve EEA customers from both the
ring-fenced and non-ring-fenced banking
entities. As described in ‘
NWM Group has
been in a period of significant structural
and other change, including as a result
of NatWest Group’s purpose-led strategy
(including the NWM Refocusing) and may
continue to be subject to significant
structural and other change
’, NWM
Group expects that NatWest Group’s
Transfer Business will be transferred
from the ring-fenced subgroup of
NatWest Group to NWM Group.
Transferring business to an EEA based
subsidiary is a complex exercise and
involves legal, regulatory and execution
risks, and could result in a loss of
business and/or customers or greater
than expected costs. The changes to
NatWest Group’s and NWM Group’s
operating model have been costly and
further changes to their business
operations, product offering and
customer engagement could result in
further costs and operating complexity.
Any of the above could, in turn,
negatively impact NWM N.V. Group.
The long-term effects of Brexit and the
uncertainty regarding NatWest Group’s
EU operating model may have a negative
impact on NWM Group and NWM N.V.
Group’s business. These may be
exacerbated by wider global macro-
economic trends and events, particularly
COVID-19 pandemic related
uncertainties, which may significantly
impact NWM N.V. Group and its
customers and counterparties who are
themselves dependent on trading with
the EU or personnel from the EU. They
may exacerbate the global macro-
economic impacts on the UK, the
Netherlands, the Republic of Ireland
(‘ROI’) and the rest of the EU/EEA.
Risk factors continued
NatWest Markets N.V.
Annual Report and Accounts 2021 129
Significant uncertainties remain as to the
extent to which EU/EEA laws will diverge
from UK law (including bank regulation),
whether and what equivalence
determinations will be made by the
various regulators, whether the proposed
EEA licensed subsidiary is granted a
banking licence, whether banking
services will be harmonised across the
EEA and, therefore, what the respective
legal and regulatory arrangements will
be, under which NWM Group and its
subsidiaries (including NWM N.V. Group)
will operate. This divergence could lead
to further market fragmentation. These
risks and uncertainties may require
costly changes to NWM N.V. Group’s EU
operating model. The legal and political
uncertainty, and any actions taken as a
result of this uncertainty, as well as the
approach taken by regulators and new
or amended rules, could have a
significant adverse impact on NWM
Group’s businesses, non-UK operations
and/or legal entity structure, including
NWM N.V. Group, including attendant
operating, compliance and costs, level of
impairments, capital requirements,
changes to intragroup arrangements,
increased complexity of the regulatory
environment and tax implications and as
a result may adversely impact the
profitability, competitive position,
business model and product offering of
NWM Group and NWM N.V. Group.
Changes in interest rates have affected
and will continue to affect NWM N.V.
Group’s business and results.
NWM N.V. Group is affected by interest
rate risk. Monetary policy has been
accommodative in recent years including
initiatives implemented by the European
Central Bank (‘ECB’) such as its
corporate sector purchase programme,
which helped to support demand at a
time of pronounced fiscal tightening and
balance sheet repair. However, market
expectations are currently that
benchmark interest rates such as UK
base rate, could begin to rise further and
faster than had been anticipated
previously and that this could be
accompanied by other measures to
reverse accommodative policy, such as
quantitative tightening.
While increases in medium term swap
rates may support the yield of NWM
Group’s equity structural hedge, sharp
rises could have macroeconomic effects
that lead to adverse outcomes for NWM
N.V. Group’s business or customers. For
example, they could lead to generally
weaker than expected growth, or even
contracting GDP, reduced business
confidence and higher levels of
unemployment or underemployment, all
of which could have an adverse effect on
NWM N.V. Group’s business, results of
operations and outlook. Conversely,
decreases in interest rates and/or
continued sustained low, zero or
negative interest rates would be
expected to put pressure on NWM N.V.
Group’s interest income and profitability.
Unexpected moves in interest rates will
also affect valuations of assets and
liabilities that are recognised at fair value
on the balance sheet. Changes in these
valuations may be adverse. Unexpected
movements in spreads between key
benchmark rates could have adverse
impacts and also adversely affect NWM
N.V. Group’s financial position. Finally,
changes in interest rates and inflation
may adversely affect the income from
NWM N.V. Group’s dealing activity.
HM Treasury (or UKGI on its behalf)
could exercise a significant degree of
influence over NatWest Group and NWM
N.V. Group is ultimately controlled by
NatWest Group.
In November 2019, NWM Plc acquired
RBS Holdings N.V. (‘RBSH’), NWM N.V.’s
immediate parent, from RFS Holdings
B.V. (‘RFSH’). All entities are wholly
owned by NatWest Group plc. As such,
NatWest Group plc is the ultimate parent
company of NWM N.V.
In its March 2021 Budget, the UK
Government announced its intention to
continue the process of privatisation of
NatWest Group plc and to carry out a
programme of sales of NatWest Group
plc ordinary shares with the objective of
selling all of its remaining shares in
NatWest Group plc by 2025-2026. As a
result of a directed buyback of NatWest
Group plc shares by NatWest Group plc
from UK Government Investments
Limited (‘UKGI’) in March 2021, sales of
NatWest Group plc shares by UKGI by
accelerated bookbuild in May 2021 and
purchases made under NatWest Group
plc’s on-market buyback program
announced in July 2021, as at 11
February 2022, the UK Government held
50.94% of the issued share capital with
voting rights of NatWest Group plc. In
addition to the £750 million on-market
buyback announced on 18 February
2022, NatWest Group may participate in
further directed or on-market buybacks
in the future. The timing, extent and
continuation of UKGI’s sell-downs is
uncertain, which could result in a
prolonged period of increased price
volatility on NatWest Group plc’s
ordinary shares.
HM Treasury has indicated that it intends
to respect the commercial decisions of
NatWest Group and that NatWest Group
entities (including NWM N.V. Group) will
continue to have their own independent
board of directors and management
team determining their own strategy.
However, for as long as HM Treasury
remains NatWest Group plc’s, as the
largest single shareholder, HM Treasury
and UK Government Investments Limited
(‘UKGI’, as manager of HM Treasury’s
shareholding) could exercise a significant
degree of influence over the election of
directors and appointment of senior
management, NatWest Group’s (including
NWM N.V. Group’s) capital strategy,
dividend policy, remuneration policy or
the conduct of NatWest Group’s
(including NWM N.V. Group’s) operations,
amongst others. HM Treasury or UKGI’s
approach depends on government policy,
which could change, including as a result
of a general election. The manner in
which HM Treasury or UKGI exercises
HM Treasury’s rights as the largest single
shareholder of NatWest Group could give
rise to conflicts between the interests of
HM Treasury and the interests of other
shareholders, including as a result of a
change in government policy. The
exertion of such influence over NatWest
Group could in turn have an adverse
effect on the governance or business
strategy of NWM N.V. Group.
In addition, as a wholly owned subsidiary
of NWM Plc (and ultimately NatWest
Group plc), NWM plc and NatWest Group
plc directly and indirectly control NWM
N.V. Group’s corporate policies and
strategic direction. The interests of
NatWest Group plc as an equity holder
and as NWM N.V. Group’s ultimate
parent may differ from the interests of
NWM N.V. Group or of potential investors
in NWM N.V. Group’s securities.
Strategic risk
NWM Group (including NWM N.V. Group)
has been in a period of significant
structural and other change, including as
a result of NatWest Group’s purpose-led
strategy (including the NWM Refocusing)
and may continue to be subject to
significant structural and other change.
In February 2020, NatWest Group
announced its ‘purpose-led strategy’,
which is focused on becoming a
purpose-led business designed to
champion potential, and to help
individuals, families and businesses to
thrive. This strategy has required, and
continues to require, changes in NWM
Group’s business, including an increased
focus on serving NatWest Group’s
corporate and institutional customer
base. To date, NWM Group has
implemented this strategy through its
‘NWM Refocusing’ initiative by simplifying
its operating model and technology
platform, as well as reducing its cost
Risk factors continued
NatWest Markets N.V.
Annual Report and Accounts 2021 130
base and capital requirements. The
implementation of the NWM Refocusing
has been a complex process and
although substantial progress has been
made, the risk remains that this strategy
may not result in the contemplated
business outcome.
On 27 January 2022, NatWest Group
announced that, in order to further
support its customers’ growth ambitions
and deliver on the next phase of its
strategy, it is evolving its Commercial,
NatWest Markets and RBS International
businesses to form a single franchise to
best support its customers across the full
non-personal customer lifecycle. The
transition is expected to begin over the
coming months and be effective from
July 2022. Any of the above may result in
material execution, commercial and
operational risks for NWM Group and
NWM Group may continue to be subject
to significant structural and other
change.
As part of the NWM Refocusing, NWM
Group has directed resources to
emphasising and growing product
capability in the areas of importance to
NatWest Group’s corporate and
institutional customers, including the
Fixed Income and Capital Markets
businesses, and has refocused its Rates
business to best serve its core customers.
As a result of focusing further on
NatWest Group core corporate
customers, NWM Group’s prospects are
becoming further dependent on the
success and strategy of NatWest Group.
In addition, to improve efficiencies and
best serve customers, including in light of
Brexit planning, NWM Group expects
that certain assets, liabilities, transactions
and activities of NatWest Group
(including NatWest Group’s Western
European corporate portfolio, principally
including term funding and revolving
credit facilities) (the ‘Transfer Business’),
will be transferred from the ring-fenced
subgroup of NatWest Group to NWM
Group on a rolling basis, subject to
certain regulatory and customer
requirements. The timing and quantum
of such transfers remains uncertain and
NWM Group can give no assurance as to
the full impact of such transactions on its
go-forward results of operations. As a
result, NWM Group’s business, results of
operations and outlook could be
adversely affected.
NWM Group’s ability to serve its
customers may be diminished by the
changed business strategy as a result of
the NWM Refocusing. In addition,
customer reactions to the changed
nature of NWM Group’s business model
may be more adverse than expected and
previously anticipated revenue and
profitability levels (including, for example,
in relation to income from the Rates
business) may not be achieved in the
timescale envisaged or at all. An adverse
macroeconomic environment, including
due to the COVID-19 pandemic,
heightened inflation and rising interest
rates, continued political and regulatory
uncertainty, market volatility and/or
strong market competition may also pose
significant challenges to the achievement
of the anticipated targets and goals of
the NWM Refocusing.
As part of the NWM Refocusing, NWM
Group has accepted a number of
financial, capital and operational targets
and expectations, which entail further
reductions to its wider cost base. In
addition to requiring cost reductions
within NWM Group, this could affect the
cost and scope of NatWest Group’s
provision of services to NWM Group,
which individually or collectively may
impact NWM N.V. Group’s competitive
position and its ability to meet its other
targets.
The financial, operational and capital
targets and expectations envisaged by
the NWM Refocusing may not be met or
maintained in the timeframes expected
or at all. In addition, targets and
expectations for NWM Group are based
on management plans, projections and
models, and are subject to a number of
key assumptions and judgments, any of
which may prove to be inaccurate. The
significant scale and scope of the
changes implemented (and those that
remain to be implemented) as a result of
the NWM Refocusing may continue to
entail operational, IT system, culture,
conduct, business and financial risks to
NWM Group.
The NWM Refocusing requires NWM
Group to meet cost reduction targets,
including through head-count reductions
and redirecting investment from certain
business areas to others, which could
affect NWM Group’s (including NWM N.V.
Group’s) long-term prospects, product
offering or competitive position and its
ability to meet its other targets and
commitments. A significant proportion of
the cost savings are dependent on
simplification of the IT systems and
therefore may not be realised in full if IT
capabilities are not delivered in line with
assumptions. These risks are expected to
continue to last for at least the medium
term.
The NWM Refocusing is expected to
result in, and the refocused NWM Group
continues to face, increased people risk
through the loss of key staff, the
recalibration of roles and loss of
institutional knowledge. This, combined
with the prolonged COVID-19 pandemic,
continues to impact NWM Group’s
(including NWM N.V. Group’s) culture
and morale. The remaining parts of the
NWM Refocusing and other structural
changes, may continue to be resource-
intensive and disruptive, and may divert
management resources. In addition, the
scale of changes that have been
concurrently implemented require the
implementation and application of robust
governance and controls frameworks
and robust IT systems. There is a risk
that NWM Group may not be successful
in maintaining such governance and
control frameworks and IT systems.
Moreover, whether the NWM Refocusing
and further structural changes are
successful will depend on how the NWM
resulting business is perceived by NWM
Group’s customers, regulators, rating
agencies, stakeholders and the wider
market, how it impacts its business, and
NWM Group’s (including NWM N.V.
Group’s) ability to retain employees
required to deliver its go-forward
strategic priorities.
NWM Group has implemented a shared
services model and entered into revenue
share agreements with some entities
within NatWest Group’s ring-fenced sub-
group (including NatWest Bank Plc, The
Royal Bank of Scotland Plc and Ulster
Bank Ireland DAC). NWM Group
therefore relies directly or indirectly on
NatWest Group entities to provide
services to itself and its clients. A failure
of NWM Group to receive these services
(on a cost-effective basis or at all) may
result in operational risk. See also,
‘
Operational risks (including reliance on
third party suppliers and outsourcing of
certain activities) are inherent in NWM
N.V. Group’s businesses
’.
The changed nature of NWM Group’s
business may also adversely affect the
credit rating assigned to NWM Plc and
certain of its subsidiaries (including NWM
N.V.) or any of their respective debt
securities, which could adversely affect
the availability and cost of funding for
NWM N.V. Group and negatively impact
NWM N.V. Group’s liquidity position.
Each of the risks identified in this risk
factor, individually or collectively could
adversely impact NWM Group’s
(including NWM N.V. Group’s) products
and services offering or office locations,
reputation with customers or business
model and adversely impact NWM
Group’s ability to deliver its strategy and
the anticipated benefits thereof and meet
Risk factors continued
NatWest Markets N.V.
Annual Report and Accounts 2021 131
its targets and guidance. Any of the
above could in turn have a material
adverse effect on NWM Group’s
(including NWM N.V. Group’s) business,
results of operations and outlook.
While NWM Group has made substantial
progress in implementing the NWM
Refocusing, there remain certain aspects
of the NWM Refocusing and other
structural changes that are still to be
implemented entail further execution,
commercial, operational and other risks.
As a result, there is a risk that the NWM
Refocusing and other structural change
may not be successful, or that the
business resulting from the NWM
Refocusing and other structural changes
may not be a viable, competitive or
profitable business.
Trends relating to the COVID-19
pandemic may adversely affect NWM
N.V. Group’s strategy and impair its
ability to meet its targets and strategic
objectives.
The trajectory of the COVID-19
pandemic’s impact on the UK, Dutch,
European and global economy and NWM
N.V. Group remain uncertain. If trends
relating to the COVID-19 pandemic
negatively impact the UK, Dutch,
European and global economy, NWM
N.V. Group may be unable to meet its
financial, capital and operational targets
and expectations.
Whilst NWM N.V. Group, as part of
NatWest Group, remains committed to its
cost reduction targets, achieving the
planned reductions in an environment
affected by the COVID-19 pandemic may
be more challenging and may require
additional savings to be made in a
manner that may increase certain
operational risks and could impact
productivity and competitiveness within
NWM N.V. Group and which may have
an adverse effect on NWM N.V. Group.
It is uncertain as to how the broader
macroeconomic business environment
and societal norms may be impacted by
the COVID-19 pandemic, causing
significant wider societal changes. For
example, one of the most notable effects
of the COVID-19 pandemic has been its
disproportionate impact on the most
vulnerable groups of society and
concerns about systemic racial biases
and social inequalities.
In addition, the COVID-19 pandemic has
accelerated existing economic trends
that may radically change the way
businesses are run and people live their
lives. These trends include digitalisation,
decarbonisation, intelligence automation,
servitisation, asset tokenisation, e-
commerce and agile working, each of
which has resulted in significant market
volatility in asset prices. There is also
increased investor, regulatory and
customer scrutiny regarding how
businesses address these changes and
related climate, environmental, social,
governance and other sustainability
issues including tackling inequality,
working conditions, workplace health,
safety and wellbeing, diversity and
inclusion, data protection and
management, workforce management,
human rights and supply chain
management. Any failure or delay by
NWM N.V. Group to successfully adapt its
business strategy and to establish and
maintain effective governance,
procedures, systems and controls in
response to these changes, and to
manage emerging climate,
environmental, social and other
sustainability-related risks and
opportunities, may have a material
adverse impact on NWM N.V. Group’s
reputation, business, results of
operations, outlook and the value of
NWM N.V. Group’s securities. See also,
‘Any failure by NWM N.V. Group to
implement effective and compliant
climate change resilient systems, controls
and procedures could adversely affect
NWM N.V. Group’s ability to manage
climate-related risks
’ and
‘A failure to
adapt NWM N.V. Group’s business
strategy, governance, procedures,
systems and controls to manage
emerging sustainability-related risks and
opportunities may have a material
adverse effect on NWM N.V. Group, its
reputation, business, results of operations
and outlook.’
The COVID-19 pandemic may also result
in unexpected developments or changes
in financial markets, tax and regulatory
frameworks and consumer customer and
corporate client behaviour, which could
intensify competition in the financial
services industry. This could negatively
impact NWM N.V. Group if it is not able
to adapt or compete effectively.
Financial resilience risk
NWM Group, including NWM N.V. Group,
may not meet the targets it
communicates, generate returns or
implement its strategy effectively.
NWM N.V. Group is subject to transfer
pricing arrangements with NWM Plc
(NWM N.V.’s parent company). Arm’s
length transfer pricing legislation in both
the Netherlands and UK requires that, for
transactions between related parties,
each entity is rewarded on the same
basis as two independent parties
negotiating a contract covering the same
activities. The transfer pricing
arrangements between NWM N.V. and
NWM Plc require approval by both
counterparties and are subject to audit
and/or assessment by Dutch and UK tax
authorities. A portion of NWM N.V.
Group’s income derives from transfer
pricing income received from NWM Plc.
Should the level of such income change
as a result of regulatory intervention or
otherwise, this may have a material and
adverse impact on NWM N.V. Group’s
profitability.
As part of NatWest Group’s purpose-led
strategy and the NWM Refocusing, NWM
N.V. Group has set a number of internal
and external financial, capital and
operational targets including in respect
of: balance sheet and cost reductions,
CET1 ratio targets (for NWM Plc and
NWM N.V.), MREL targets, leverage ratio
targets (for NWM Plc and NWM N.V.),
targets in relation to local regulation,
funding plans and requirements,
employee engagement, diversity and
inclusion as well as ESG (including
climate and sustainable funding and
financing targets and customer
satisfaction targets.
NWM N.V. Group’s ability to meet its
targets and to successfully implement its
strategy is subject to various internal and
external factors and risks. These include
but are not limited to, the impact of the
COVID-19 pandemic, client and staff
behaviour and actions, market,
regulatory, economic and political
factors, developments relating to
litigation, governmental actions,
investigations and regulatory matters,
and operational risks and risks relating to
NWM N.V. Group’s business model and
strategy (including risks associated with
climate, environmental, social,
governance and other sustainability-
related issues) and the NWM Refocusing.
See also, ‘
NWM Group (including NWM
N.V. Group) has been in a period of
significant structural and other change,
including as a result of NatWest Group’s
purpose-led strategy (including the NWM
Refocusing) and may continue to be
subject to significant structural and other
change
’.
A number of factors, including the
economic and other effects of the
COVID-19 pandemic, may impact NWM
Plc and NWM N.V.’s ability to maintain
their current CET1 ratio targets,
including impairments, the extent of
organic capital generation or the
reduction of RWAs. NWM N.V. may incur
disposal losses as part of the process of
exiting positions to reduce RWAs. Some
of these losses may be recognised ahead
of the actual disposals and the losses
overall may be higher than currently
anticipated.
Risk factors continued
NatWest Markets N.V.
Annual Report and Accounts 2021 132
NWM N.V. Group’s ability to meet its
planned reductions in annual costs may
vary considerably from year to year.
Furthermore, the focus on meeting
balance sheet and cost reduction targets
may result in limited investment in other
areas which could affect NWM N.V.
Group’s long-term product offering or
competitive position and its ability to
meet its other targets, including those
related to customer satisfaction.
In addition, challenging trading
conditions may have an adverse impact
on NWM N.V. Group’s business and may
adversely affect its ability to achieve its
targets and execute its strategy.
There is a risk that NWM N.V. Group’s
strategy may not be successfully
executed, that it will not meet its targets
and expectations, or that it will not be a
viable, competitive or profitable banking
business.
NWM N.V. is NatWest Group’s banking
and trading entity located in the
Netherlands. NWM N.V. has repurposed
its banking licence, and NWM N.V. Group
may be subject to further changes.
As part of NatWest Group’s strategy,
NWM N.V. is NatWest Group’s banking
and trading entity located in the
Netherlands, serves EEA customers, and
became a NWM Plc subsidiary in
November 2019. The banking licence of
NWM N.V. was repurposed for which
purpose a declaration of non-objection
(DNO) was received from the DNB.
Approval from the DNB is required for
material changes to NWM N.V.’s
operating model. In addition, although
the head office for NWM N.V. is located
in Amsterdam, NWM N.V. Group also
operates branches in France, Germany,
Ireland, Italy, Sweden and Spain
(although the branch in Spain is due to
close in the course of 2022).As a
subsidiary of NWM Plc (and ultimately
NatWest Group plc), NWM N.V. utilises a
number of NWM Group and NatWest
Group systems, policies and frameworks
(via a shared services model) including in
relation to: technology (including
innovation) and network infrastructure,
marketing, risk frameworks, financial
accounting systems, reporting, on-
boarding processes, model development
and validation, certain administrative and
legal services and governance. In
addition, the products that NWM N.V.
offers are based on those offered by
NWM Plc. See also, ‘
Operational risks
(including reliance on third party
suppliers and outsourcing of certain
activities) are inherent in NWM N.V.
Group’s businesses
’. As such, any
changes made to systems, policies,
frameworks or products of NatWest
Group or NWM Group may have a
corresponding adverse effect on NWM
N.V.
A number of other factors described
above are outside the control of NWM
N.V., and should changes be made, there
may be a material and adverse impact
on NWM N.V.’s profitability
.
NWM N.V. may not meet the prudential
regulatory requirements for capital and
liquidity.
NWM N.V. Group is required by the DNB
to maintain adequate financial resources.
Adequate capital provides NWM N.V.
Group with financial flexibility in the face
of turbulence and uncertainty in the
global economy and specifically in its
core European operations.
NWM N.V.’s target CET1 ratio is based
on regulatory requirements, internal
modelling and risk appetite (including
under stress).
NWM N.V.’s 2022 target CET1 ratio is
based on expected regulatory
requirements, internal modelling and risk
appetite (including under stress), taking
into account the anticipated extent of
transfers of certain parts of NatWest
Group’s Western European corporate
portfolio.
As at 31 December 2021, NWM N.V.
Group’s CET1 ratio (on a consolidated
basis) was 29.7%. NWM N.V.’s current
capital strategy is based on the
management of RWAs and other capital
management initiatives.
Other factors that could influence NWM
N.V.’s CET1 ratios include, amongst
other things (See also, ‘
NWM Group
(including NWM N.V. Group) has been in
a period of significant structural and
other change, including as a result of
NatWest Group’s purpose-led strategy
(including the NWM Refocusing) and may
continue to be subject to significant
structural and other change’
:
a depletion of NWM N.V.’s capital
resources through losses (which
would in turn impact retained
earnings) and may result from
revenue attrition or increased
liabilities, sustained periods of low
interest rates, reduced asset values
resulting in write-downs or reserve
adjustments, impairments, changes in
accounting policy, accounting
charges or foreign exchange
movements;
a change in the quantum of NWM
N.V.’s RWAs, stemming from
exceeding target RWA levels, the
continued implementation of the
NWM Refocusing, regulatory
adjustments (for example, from
additional market risk back testing
exceptions), foreign exchange
movements or a failure in internal
controls or procedures to accurately
measure and report RWAs. An
increase in RWAs would lead to a
reduction in the CET1 ratio;
changes in prudential regulatory
requirements including the Total
Capital Requirement for NWM N.V.
(as regulated by the DNB), including
Pillar 2 requirements and regulatory
buffers as well as any applicable
scalars;
further developments of prudential
regulation (for example, finalisation of
Basel 3 standards), which will impact
various areas including the approach
to calculating credit risk, market risk,
leverage ratio, capital floors and
operational risk RWAs, as well as
continued regulatory uncertainty on
the details thereto;
further losses (including as a result of
extreme one-off incidents such as
cyberattack, fraud or conduct issues)
would deplete capital resources and
place downward pressure on the
CET1 ratio; or
the timing of planned liquidation,
disposal and/or capital releases of
capital optimisation activity or legacy
entities owned by NWM Plc and NWM
N.V.
Any capital management actions taken
under a stress scenario may affect,
among other things, NWM N.V. Group’s
product offering, its credit ratings, its
ability to operate its businesses and
pursue its current strategies and
strategic opportunities, any of which may
negatively impact investor confidence
and the value of NWM N.V. Group’s
securities. See also, ‘—
NWM N.V. may
not manage its capital, liquidity or
funding effectively which could trigger
the execution of certain management
actions or recovery options
’ and ‘
—
NatWest Group (including NWM N.V.)
may become subject to the application of
statutory stabilisation or resolution
powers which may result in, among
other actions, the write-down or
conversion of certain Eligible Liabilities
(including NWM N.V.’s Eligible Liabilities)
.’
NWM N.V. Group may not be able to
adequately access sources of liquidity
and funding.
NWM N.V. Group is required to access
sources of liquidity and funding through
deposits and wholesale funding, including
debt capital markets and trading
liabilities such as repurchase
agreements. As at 31 December 2021,
NWM N.V. Group held €880 million in
deposits from banks and customers. The
level of deposits and wholesale funding
may fluctuate due to factors outside
NWM N.V. Group’s control. These factors
include: loss of investor confidence
(including in individual NWM N.V. Group
entities, the European banking sector or
the banking sector as a whole), sustained
low or negative interest rates,
Risk factors continued
NatWest Markets N.V.
Annual Report and Accounts 2021 133
government support, increasing
competitive pressures for bank funding
or the reduction or cessation of deposits
and other funding by counterparties, any
of which could result in a significant
outflow of deposits or reduction in
wholesale funding within a short period
of time.
See also, ‘—
NWM N.V. Group has
significant exposure to counterparty and
borrower risk
’.
An inability to grow, roll-over, or any
material decrease in, NWM N.V. Group’s
deposits, short-term wholesale funding
and short-term liability financing could,
particularly if accompanied by one of the
other factors described above, materially
affect NWM N.V. Group’s ability to satisfy
its liquidity needs.
NWM N.V. Group engages from time to
time in ‘fee based borrow’ transactions
whereby collateral (such as government
bonds) is borrowed from counterparties
on an unsecured basis in return for a fee.
This borrowed collateral may be used by
NWM N.V. Group to finance parts of its
balance sheet, either in its repo financing
business, derivatives portfolio or more
generally across its balance sheet. If
such ‘fee based borrow’ transactions are
unwound whilst used to support the
financing of parts of NWM N.V. Group
balance sheet, then unsecured funding
from other sources would be required to
replace such financing. There is a risk
that NWM N.V. Group would be unable to
replace such financing on acceptable
terms or at all, which could adversely
affect its liquidity position and have an
adverse effect on NWM N.V. Group. In
addition, because ‘fee base borrow’
transactions are conducted off-balance
sheet (due to the collateral being
borrowed) investors may find it more
difficult to gauge NWM N.V. Group’s
creditworthiness, which may be affected
if these transactions were to be unwound
in a stress scenario. Any lack of or
perceived lack of creditworthiness may
adversely affect NWM N.V. Group.
The effects of the COVID-19 pandemic,
current economic uncertainties and any
significant market volatility, could affect
NWM N.V. Group’s ability to access
sources of liquidity and funding, which
may result in higher funding costs and
failure to comply with regulatory capital,
funding and leverage requirements. As a
result, NWM N.V. Group and its
subsidiaries could be required to adapt
their funding plans. This could
exacerbate funding and liquidity risk,
which could have a negative effect on
NWM N.V. Group.
As at 31 December 2021, NWM N.V.
Group reported a liquidity coverage ratio
of 255% on a solo basis. If its liquidity
position were to come under stress and if
NWM N.V. Group is unable to raise funds
through deposits or wholesale funding
sources on acceptable terms or at all, its
liquidity position could be adversely
affected. This would mean that NWM
N.V. Group might be unable to: meet
deposit withdrawals on demand or
satisfy buy back requests, repay
borrowings as they mature, meet its
obligations under committed financing
facilities, comply with regulatory funding
requirements, undertake certain capital
and/or debt management activities, or
fund new loans, investments and
businesses. NWM N.V. Group may need
to liquidate unencumbered assets to
meet its liabilities, including disposals of
assets not previously identified for
disposal to reduce its funding
commitments or trigger the execution of
certain management actions or recovery
options. This could also lead to higher
funding costs and/or changes to NWM
N.V. Group’s funding plans. In a time of
reduced liquidity or market stress, NWM
N.V. Group may be unable to sell some
of its assets or may need to sell assets at
depressed prices, which in either case
could negatively affect NWM N.V.
Group’s results.
NWM N.V. Group independently manages
liquidity risk on a stand-alone basis,
including through holding its own liquidity
portfolio. It has restricted access to
liquidity or funding from other NatWest
Group entities. As a result, NWM N.V.’s
liquidity position could be adversely
affected, which may also require
unencumbered assets to be liquidated or
may result in higher funding costs which
may adversely impact NWM N.V. Group’s
margins and profitability. NWM N.V.’s
management of its own liquidity portfolio
and the structure of capital support are
subject to operational and execution risk,
as NWM N.V. is required to meet its own
liquidity and capital requirements.
The risks described in the paragraphs
above may have a negative effect on
NWM N.V. Group’s access to liquidity and
funding, which could mean that NWM
N.V. Group is required to adapt its
funding plan and could adversely affect
NWM N.V. Group.
NWM N.V. Group is reliant on access to
the capital markets to meet its funding
requirements. The inability to do so may
adversely affect NWM N.V. Group.
NWM N.V. Group is reliant on frequent
access to the capital markets for funding,
at a cost that can be passed through to
its customers. Such access entails
execution risk, regulatory risk, risk of
reduced commercial activity, risk of loss
of market confidence in the NWM N.V.
Group if it cannot finance its activities
which could be impeded by a number of
internal or external factors, including,
those referred to above in ‘
NWM N.V.
Group faces continued economic and
political risks and uncertainty in the UK,
European and global markets
’
and
‘
Continuing uncertainty regarding the
effects and extent of the UK’s post Brexit
divergence from EU laws and regulation,
and NWM N.V.’s post Brexit EU operating
model may continue to adversely affect
NWM Plc (NWM N.V.’s parent company)
and its operating environment and
NatWest Group plc (NWM N.V.’s ultimate
parent company) and may have an
indirect effect on NWM N.V. Group
’
.
In addition, NWM N.V. receives capital
and funding from NatWest Group plc and
NWM N.V. is therefore reliant on the
willingness of NatWest Group plc to fund
its internal capital targets. NWM N.V.
Group has set target levels for different
tiers of capital as percentages of its
RWAs. The level of capital and funding
required for NWM N.V. to meet its
internal targets is therefore a function of
the level of RWAs and its leverage
exposure in NWM N.V. and this may vary
over time.
Any inability of NWM N.V. Group to
adequately access the capital markets, to
manage its balance sheet in line with
assumptions in its funding plans, may
adversely affect NWM N.V. Group, such
that NWM N.V. Group may not constitute
a viable banking business and/or NWM
N.V. may fail to meet its regulatory
capital requirements (at present, NWM
N.V. does not yet have its own MREL
requirements). See also, ‘
The effects of
the COVID-19 pandemic could affect
NWM N.V. Group’s ability to access
sources of liquidity and funding, which
may result in higher funding costs and
failure to comply with regulatory capital,
funding and leverage requirements
’.
The effects of the COVID-19 pandemic
could affect NWM N.V. Group’s ability to
access sources of liquidity and funding,
which may result in higher funding costs
and failure to comply with regulatory
capital, funding and leverage
requirements.
The COVID-19 pandemic has at times
caused significant market volatility.
Should further market volatility arise
from COVID-19 pandemic related
uncertainties and the impact on capital
and RWAs, NWM N.V. Group and its
subsidiaries may be required to adapt
their funding plans in order to satisfy
their respective capital and funding
Risk factors continued
NatWest Markets N.V.
Annual Report and Accounts 2021 134
requirements, which may have a
negative impact on NWM N.V. Group. In
addition, impairments or other losses as
well as increases to capital deductions
may result in a decrease to NWM Plc’s
capital base, and/or that of its
subsidiaries (including NWM N.V.). If
NatWest Group Plc is unable to issue
securities externally as planned, this may
have a negative impact on NWM Plc’s
current and forecasted MREL position,
particularly if NatWest Group plc is
unable to downstream capital and/or
funding to NWM Plc.
In addition, increased income as a result
of higher levels of customer flow activity
and balance sheet growth (as a result of
increases in corporate deposits and
derivative valuations) may not be
sustained in the future. Furthermore,
market volatility may result in increases
to leverage exposure.
Any downgrading to the credit ratings
and/or outlooks assigned to NWM Group
plc, NWM Plc, NWM N.V. or certain other
NatWest Group entities and their
respective debt securities as a result of
the economic impact of the COVID-19
pandemic could exacerbate funding and
liquidity risk, which could have a
negative effect on NWM N.V. Group.
NWM N.V. may not manage its capital,
liquidity or funding effectively which
could trigger the execution of certain
management actions or recovery
options.
Under the EU Bank Recovery and
Resolution Directives I and II (‘BRRD’), as
implemented in the UK and the
Netherlands, NatWest N.V. Group must
maintain a recovery plan acceptable to
its regulator, such that a breach of NWM
N.V.’s applicable capital or leverage,
liquidity or funding requirements would
trigger consideration of NWM N.V.’s
recovery plan, and in turn may prompt
consideration of NatWest Group’s
recovery plan. If, under stressed
conditions, the liquidity, capital or
leverage ratio were to decline, there are
a range of recovery management actions
(focused on risk reduction and mitigation)
that NWM N.V. could undertake that may
or may not be sufficient to restore
adequate liquidity, capital and leverage
ratios. Additional management options
relating to existing capital issuances,
asset or business disposals, capital
payments and dividends from NWM Plc
to its parent, could also be undertaken to
support NWM N.V.’s capital and leverage
requirements. NatWest Group may also
address a shortage of capital in NWM
N.V. by providing parental support to
NWM N.V., subject to evidence that the
conditions set out in Article 23 of the
BRRD, as implemented into Dutch law
article 3:301 and 3:305 of the FMSA have
been met. NatWest Group’s and/or NWM
N.V.’s regulator may also request that
NWM N.V. Group carry out additional
capital management actions. The Bank
of England has identified single point-of-
entry as the preferred resolution strategy
for NatWest Group. However, under
certain conditions set forth in the BRRD,
as implemented by the FMSA, the Dutch
resolution authority, the DNB, also has
the power to execute the ‘bail-in’ of
certain securities of NWM N.V. without
further action at NatWest Group level.
Any capital management actions taken
under a stress scenario may affect,
among other things, NWM N.V. Group’s
product offering, credit ratings, ability to
operate its businesses and pursue its
current strategies and strategic
opportunities as well as negatively
impacting investor confidence and the
value of NWM N.V. Group’s securities.
See also, ‘—
NatWest Group (including
NWM N.V.) may become subject to the
application of statutory stabilisation or
resolution powers which may result in,
among other actions, the write-down or
conversion of certain Eligible Liabilities
(including NWM N.V.’s Eligible Liabilities)
’.
In addition, if NWM N.V.’s liquidity
position was to be adversely affected,
this may require unencumbered assets to
be liquidated or may result in higher
funding costs, which may adversely
impact NWM N.V. Group’s operating
performance.
Any reduction in the credit rating and/or
outlooks assigned to NatWest Group plc,
any of its subsidiaries (including NWM Plc
or NWM N.V.) or any of their respective
debt securities could adversely affect the
availability of funding for NWM N.V.
Group, reduce NWM N.V. Group’s
liquidity position and increase the cost of
funding.
Rating agencies regularly review
NatWest Group plc, NWM Plc, NWM N.V.
and other NatWest Group entity credit
ratings and outlooks, which could be
negatively affected by a number of
factors that can change over time,
including: the credit rating agency’s
assessment of NWM N.V. Group’s
strategy and management’s capability;
its financial condition including in respect
of profitability, asset quality, capital,
funding and liquidity; the level of political
support for the industries in which NWM
N.V. Group operates; the implementation
of structural reform; the legal and
regulatory frameworks applicable to
NWM N.V. Group’s legal structure;
business activities and the rights of its
creditors; changes in rating
methodologies; changes in the relative
size of the loss-absorbing buffers
protecting bondholders and depositors;
the competitive environment, political
and economic conditions in NWM N.V.
Group’s key markets (including the
impact of the COVID-19 pandemic and
any further Scottish independence
referendum); any reduction of the UK’s
sovereign credit rating and market
uncertainty.
In addition, credit ratings agencies are
increasingly taking into account
sustainability-related factors, including
climate, environmental, social and
governance related risk, as part of the
credit ratings analysis, as are investors in
their investment decisions.
Any reductions in the credit ratings of
NatWest Group plc, NWM Plc, NWM N.V.
or of certain other NatWest Group
entities, including, in particular,
downgrades below investment grade, or
a deterioration in the capital markets’
perception of NWM N.V. Group’s
financial resilience could significantly
affect NWM N.V. Group’s access to
money markets, reduce the size of its
deposit base and trigger additional
collateral or other requirements in
derivatives contracts and other secured
funding arrangements or the need to
amend such arrangements, which could
adversely affect NWM N.V. Group’s (and,
in particular, NWM N.V.’s) cost of funding
and its access to capital markets which
could limit the range of counterparties
willing to enter into transactions with
NWM N.V. Group (and, in particular, with
NWM N.V.). This could in turn adversely
impact NWM N.V. Group’s competitive
position and threaten its prospects in the
short to medium-term.
NWM N.V. Group operates in markets
that are highly competitive, with
increasing competitive pressures and
technology disruption.
The markets in which NWM N.V. Group
operates are highly competitive, and
competition may intensify in response to
various changes. These include: evolving
customer behaviour, technological
changes (including the prospect of new
digital currencies such as central bank
digital currencies or stablecoins, and the
growth of digital banking, from fintech or
other entrants), competitor behaviour,
new entrants to the market, industry
trends resulting in increased
disaggregation or unbundling of financial
services, the impact of regulatory actions
and other factors.
Risk factors continued
NatWest Markets N.V.
Annual Report and Accounts 2021 135
Innovations such as biometrics, artificial
intelligence, the cloud, blockchain,
cryptocurrencies and quantum
computing may also rapidly facilitate
industry transformation.
Increasingly, many of the products and
services offered by NWM N.V. Group are,
and will become, more technology
intensive. NWM N.V. Group’s ability to
develop such services (which also comply
with applicable and evolving regulations)
has become increasingly important to
retaining and growing NWM N.V. Group’s
client businesses across its geographical
footprint. There can be no certainty that
NWM N.V. Group’s innovation strategy
(which is based on NWM Group’s
strategy and which includes investment
in its IT capability intended to improve its
core infrastructure and client interface
capabilities as well as investments and
partnerships with third party technology
providers) will be successful or that it will
allow NWM N.V. Group to continue to
grow such services in the future.
In addition, certain of NWM N.V. Group’s
current or future competitors may be
more successful in implementing
innovative technologies for delivering
products or services to their clients.
These competitors may be better able to
attract and retain clients and key
employees, may have better IT systems,
and may have access to lower cost
funding and/or be able to attract deposits
or provide investment-banking services
on more favourable terms than NWM
N.V. Group. As mentioned above, NWM
N.V. operates a shared services model in
relation to technology and innovation.
Although NWM N.V. Group invests in new
technologies and participates in industry
and research-led initiatives aimed at
developing new technologies, such
investments may be insufficient or
ineffective, especially given NWM N.V.
Group’s focus on its cost savings targets.
This may limit additional investment in
areas such as financial innovation and
could therefore affect NWM N.V. Group’s
offering of innovative products or
technologies for delivering products or
services to clients and its competitive
position. NWM Group and NWM N.V.
Group may also fail to identify future
opportunities or derive benefits from
disruptive technologies in the context of
rapid technological innovation, changing
customer behaviour and growing
regulatory demands. The development of
innovative products depends on NWM
Group and NWM N.V. Group’s ability to
produce underlying high quality data,
failing which its ability to offer innovative
products may be compromised.
If NWM N.V. Group is unable to offer
competitive, attractive and innovative
products that are also profitable and
timely, it will lose share, incur losses on
some or all of its activities and lose
opportunities for growth. In this context,
NWM N.V. Group is investing in the
automation of certain solutions and
interactions within its customer-facing
businesses, including through artificial
intelligence. Such initiatives may result in
operational, reputational and conduct
risks if the technology used is defective,
inadequate or is not fully integrated into
NWM N.V. Group’s current solutions.
There can be no certainty that such
initiatives will deliver the expected cost
savings and investment in automated
processes will likely also result in
increased short-term costs for NWM N.V.
Group.
In addition, NatWest Group’s purpose-led
strategy, as well as employee
remuneration constraints may also have
an impact on NWM N.V. Group’s ability
to compete effectively and intensified
competition from incumbents,
challengers and new entrants could
affect NWM N.V. Group’s ability to
provide satisfactory returns.
Moreover, activist investors have
increasingly become engaged and
interventionist in recent years, which
may pose a threat to NatWest Group’s
strategic initiatives. Furthermore,
continued consolidation or technological
or other developments in certain sectors
of the financial services industry could
result in NWM N.V. Group’s remaining
competitors gaining greater capital and
other resources, including the ability to
offer a broader range of products and
services and geographic diversity, or the
emergence of new competitors. Any of
the above may negatively affect NWM
N.V. Group.
NWM N.V. Group may be adversely
affected if NatWest Group fails to meet
the requirements of regulatory stress
tests.
NatWest Group is subject to annual
stress tests by its regulator in the UK and
is also subject to stress tests by
European regulators with respect to
NWM N.V. and Ulster Bank Ireland DAC.
Stress tests are designed to assess the
resilience of banks to potential adverse
economic or financial developments and
ensure that they have robust, forward-
looking capital planning processes that
account for the risks associated with
their business profile. If the stress tests
reveal that a bank’s existing regulatory
capital buffers are not sufficient to
absorb the impact of the stress, then it is
possible that NatWest Group and/or
NWM Group may need to take action to
strengthen their capital positions.
Failure by NatWest Group to meet its
quantitative and qualitative requirements
of the stress tests set forth by its UK
regulators or those elsewhere may result
in: NatWest Group’s regulators requiring
NatWest Group to generate additional
capital, reputational damage, increased
supervision and/or regulatory sanctions
and/or loss of investor confidence.
The impact of the COVID-19 pandemic on
the credit quality of NWM N.V. Group’s
counterparties may negatively impact
NWM N.V. Group.
The effects of the COVID-19 pandemic
have adversely affected the credit quality
of some of NWM N.V. Group’s borrowers
and other counterparties, and
government support schemes may delay
the effects of defaults by such
counterparties. As government support
schemes reduce, defaults are expected
to rise with more customers moving from
IFRS9 Stage 2 to Stage 3. As a result,
NWM N.V. Group may continue to
experience elevated exposure to credit
risk and demands on its funding, and the
long-term effects remain uncertain. If
borrowers or counterparties face
increasing levels of debt and default or
suffer deterioration in credit, this
increases impairment charges, write-
downs, regulatory expected loss and
impacts credit reserves. An increase in
drawings upon committed credit facilities
may also increase NWM Plc’s and/or its
subsidiaries’ - including NWM N.V. Group
- RWAs. If NWM N.V. Group experiences
losses and a reduction in future
profitability, this is likely to affect the
recoverable value of fixed assets,
including deferred taxes, which may lead
to further write-downs.
Any of the above may have a negative
impact on NWM N.V. Group.
NWM N.V. Group has significant
exposure to counterparty and borrower
risk.
NWM N.V., a subsidiary of NWM Plc, has
a portfolio of loans and loan
commitments to Western European
corporate customers. As a result,
through the NWM N.V. business and
NWM Group’s other activities, NWM
Group has exposure to many different
industries, customers and counterparties,
and risks arising from actual or
perceived changes in credit quality and
the recoverability of monies due from
borrowers and other counterparties are
inherent in a wide range of NWM N.V.
Group’s businesses. These risks may be
concentrated for those businesses for
which client income is heavily weighted
towards a specific geographic region,
industry or client base.
Risk factors continued
NatWest Markets N.V.
Annual Report and Accounts 2021 136
Furthermore, these risks increase due to
the expected transfer of NatWest
Group’s Transfer Business from its ring-
fenced subgroup to NWM Group (see
‘
NWM Group (including NWM N.V.
Group) has been in a period of significant
structural and other change, including as
a result of NatWest Group’s purpose-led
strategy (including the NWM Refocusing)
and may continue to be subject to
significant structural and other change
’.
Credit risk may arise from a variety of
business activities, including, but not
limited to: extending credit to clients
through various lending commitments;
entering into swap or other derivative
contracts under which counterparties
have obligations to make payments to
NWM N.V. Group (including un-
collateralised derivatives); providing short
or long-term funding that is secured by
physical or financial collateral whose
value may at times be insufficient to fully
cover the loan repayment amount;
posting margin and/or collateral and
other commitments to clearing houses,
clearing agencies, exchanges, banks,
securities firms and other financial
counterparties; and investing and trading
in securities and loan pools, whereby the
value of these assets may fluctuate
based on realised or expected defaults
on the underlying obligations or loans.
See also, ‘
Risk and capital management
— Credit Risk
’. Any negative
developments in the activities listed
above may negatively impact NWM N.V.
Group’s clients and credit exposures,
which may, in turn, adversely impact
NWM N.V. Group’s profitability.
The credit quality of NWM N.V. Group’s
borrowers and other counterparties may
be affected by a deterioration in
prevailing economic and market
conditions (including those caused by the
COVID-19 pandemic) and by changes in
the legal and regulatory landscape in
countries where NWM N.V. Group takes
credit risk (including the extent of the
UK’s post-Brexit divergence from EU
laws and regulation). These could
worsen borrower and counterparty
credit quality or impact the enforcement
of contractual rights over security,
increasing credit risk.
Concerns about, or a default by, a
financial institution could lead to
significant liquidity problems and losses
or defaults by other financial institutions,
since the commercial and financial
soundness of many financial institutions
is closely related and interdependent as
a result of credit, trading, clearing and
other relationships. Any perceived lack of
creditworthiness of a counterparty may
lead to market-wide liquidity problems
and losses for NWM N.V. Group. In
addition, the value of collateral may be
correlated with the probability of default
by the relevant counterparty (‘wrong
way risk’), which would increase NWM
N.V. Group’s potential loss. This systemic
risk may also adversely affect financial
intermediaries, such as clearing
agencies, clearing houses, banks,
securities firms and exchanges with
which NWM N.V. Group interacts on a
daily basis. See also, ‘—
NWM N.V.
Group is reliant on access to the capital
markets to meet its funding
requirements. The inability to do so may
adversely affect NWM N.V. Group
’.
As a result of the above, adverse
changes in borrower and counterparty
credit quality may cause accelerated
impairment charges under IFRS 9,
increased repurchase demands, higher
costs, additional write-downs and losses
for NWM N.V. Group and an inability to
engage in routine funding transactions.
NWM N.V. Group has applied an internal
analysis of multiple economic scenarios
(MES) together with the determination of
specific overlay adjustments to inform its
IFRS 9 ECL (Expected Credit Loss). The
recognition and measurement of ECL is
complex and involves the use of
significant judgment and estimation. This
includes the formulation and
incorporation of multiple forward-looking
economic scenarios into ECL to meet the
measurement objective of IFRS 9. The
ECL provision is sensitive to the model
inputs and economic assumptions
underlying the estimate. Going forward,
NWM N.V. Group anticipates observable
credit deterioration of a proportion of
assets resulting in a systematic uplift in
defaults, which is mitigated by those
economic assumption scenarios being
reflected in the Stage 2 ECL across
portfolios, along with a combination of
post model overlays in both wholesale
and retail portfolios reflecting the
uncertainty of credit outcomes. See also,
‘
Risk and Capital Management — Credit
Risk’
. A credit deterioration would also
lead to RWA increases. Furthermore, the
assumptions and judgments used in the
MES and ECL assessment at 31
December 2021 may not prove to be
adequate resulting in incremental ECL
provisions for the NWM N.V. Group. As
government support schemes reduce,
defaults are expected to rise with more
ECLs cases moving from Stage 2 to
Stage 3.
NWM N.V. Group is exposed to the
financial industry, including sovereign
debt securities, banks, financial
intermediation providers (including
providing facilities to financial sponsors
and funds, backed by assets or investor
commitments) and securitised products
(typically senior lending to special
purpose vehicles backed by pools of
financial assets). Due to NWM N.V.
Group’s exposure to the financial
industry, it also has exposure to shadow
banking entities (i.e. entities which carry
out banking activities outside a regulated
framework). NWM N.V. Group is required
to identify and monitor its exposure to
shadow banking entities, implement and
maintain an internal framework for the
identification, management, control and
mitigation of the risks associated with
exposure to shadow banking entities,
and ensure effective reporting and
governance in respect of such exposure.
If NWM N.V. Group is unable to properly
identify and monitor its shadow banking
exposure, maintain an adequate
framework, or ensure effective reporting
and governance in respect of shadow
banking exposure, this may adversely
affect the business, results of operations
and outlook of NWM N.V. Group.
NWM N.V. Group could incur losses or be
required to maintain higher levels of
capital as a result of limitations or failure
of various models.
Given the complexity of NWM N.V.
Group’s business, strategy and capital
requirements, NWM N.V. Group relies on
analytical and other models for a wide
range of purposes, including to manage
its business, assess the value of its assets
and its risk exposure, as well as to
anticipate capital and funding
requirements (including to facilitate
NatWest Group’s mandated stress
testing). In addition, NWM N.V. Group
utilises models for valuations, credit
approvals, calculation of loan impairment
charges on an IFRS 9 basis, financial
reporting and for financial crime
(criminal activities in the form of money
laundering, terrorist financing, bribery
and corruption, tax evasion and
sanctions as well as fraud risk
management (collectively, ‘financial
crime’)). NWM N.V. Group’s models, and
the parameters and assumptions on
which they are based, are periodically
reviewed and updated to maximise their
accuracy.
As models analyse scenarios based on
assumed inputs and a conceptual
approach, model outputs therefore
remain uncertain. Failure of models
(including due to errors in model design)
or new data inputs (including non-
representative data sets), for example, to
accurately reflect changes in the micro
and macroeconomic environment in
which NWM N.V. Group operates (for
example to account for the impact of the
Risk factors continued
NatWest Markets N.V.
Annual Report and Accounts 2021 137
COVID-19 pandemic), to capture risks
and exposures at the subsidiary level,
and to update for changes to NWM N.V.
Group’s current business model or
operations, or for findings of deficiencies
by NatWest Group (and in particular,
NWM Group’s) or NWM N.V. Group’s
regulators (including as part of NatWest
Group’s mandated stress testing) may
render some business lines uneconomic,
result in increased capital requirements,
may require management action or may
subject NWM N.V. Group to regulatory
sanction. NWM N.V. Group may also face
adverse consequences as a result of
actions based on models that are poorly
developed, implemented or used, or
models that are non-compliant with
regulatory standards, or models that are
based on inaccurate or compromised
data or as a result of the modelled
outcome being misunderstood, or by
such information being used for purposes
for which it was not designed.
NWM N.V. Group’s financial statements
are sensitive to underlying accounting
policies, judgments, estimates and
assumptions.
The preparation of financial statements
requires management to make
judgments, estimates and assumptions
that affect the reported amounts of
assets, liabilities, income, expenses,
exposures and RWAs. While estimates,
judgments and assumptions take into
account historical experience and other
factors (including market practice and
expectations of future events that are
believed to be reasonable under the
circumstances), actual results may differ
due to the inherent uncertainty in making
estimates, judgments and assumptions
(particularly those involving the use of
complex models).
The accounting policies deemed critical
to NWM N.V. Group’s results and
financial position, based upon materiality
and significant judgments and estimates,
which include loan impairment
provisions, are set out in ‘
Critical
accounting policies and key sources of
estimation uncertainty’
. New accounting
standards and interpretations that have
been issued by the International
Accounting Standards Board but which
have not yet been adopted by NWM N.V.
Group are discussed in ‘
Future
Accounting Developments
’.
Changes in accounting standards may
materially impact NWM N.V. Group’s
financial results.
Changes in accounting standards or
guidance by accounting bodies or in the
timing of their implementation, whether
immediate or foreseeable, could result in
NWM N.V. Group having to recognise
additional liabilities on its balance sheet,
or in further write-downs or impairments
to its assets and could also significantly
impact the financial results condition and
prospects of NWM N.V. Group.
NWM N.V. Group’s trading assets
amounted to EUR4,174 million as at 31
December 2021. The valuation of
financial instruments, including
derivatives, measured at fair value can
be subjective, in particular where models
are used which include unobservable
inputs. Generally, to establish the fair
value of these instruments, NWM N.V.
Group relies on quoted market prices or,
where the market for a financial
instrument is not sufficiently credible,
internal valuation models that utilise
observable market data. In certain
circumstances, the data for individual
financial instruments or classes of
financial instruments utilised by such
valuation models may not be available or
may become unavailable due to
prevailing market conditions. In these
circumstances, NWM N.V. Group’s
internal valuation models require NWM
N.V. Group to make assumptions,
judgments and estimates to establish fair
value, which are complex and often
relate to matters that are inherently
uncertain. Any of these factors could
require NWM N.V. Group to recognise
fair value losses which may have an
adverse effect on NWM N.V. Group’s
income generation and financial position.
NatWest Group (including NWM N.V.)
may become subject to the application of
statutory stabilisation or resolution
powers which may result in, among
other actions, the write-down or
conversion of certain Eligible Liabilities
(including NWM N.V.’s Eligible Liabilities).
The directive providing for the
establishment of an EU-wide framework
for the recovery and resolution of credit
institutions and investment firms
(2014/59/EU)
(
‘BRRD’) establishes a common approach within the EU for the
recovery and resolution of banks. In the
UK and the Netherlands, the BRRD has
been implemented via national legislation
which grants powers to a national
resolution authority (the ‘NRA’). The UK
implementation of the BRRD remains in
force now that the Brexit transition has
ended. In Europe (which for the
avoidance of doubt excludes the UK) the
BRRD is also (partly) implemented by a
directly binding regulation which
established a Single Resolution
Mechanism (‘SRM’) and a single EU
Resolution Board (‘SRB’) with powers
which exceed the powers of the EU
NRAs.
United Kingdom – NatWest Group plc
and its UK affiliates
HM Treasury, the Bank of England and
the Prudential Regulation Authority
(‘PRA’) and FCA (together, the ‘UK
Authorities’) are granted substantial
powers to resolve and stabilise UK-
incorporated financial institutions. Five
stabilisation options exist: (i) transfer of
all of the business of a relevant entity or
the shares of the relevant entity to a
private sector purchaser; (ii) transfer of
all or part of the business of the relevant
entity to a ‘bridge bank’ wholly-owned
by the Bank of England; (iii) transfer of
part of the assets, rights or liabilities of
the relevant entity to one or more asset
management vehicles for management
of the transferor’s assets, rights or
liabilities; (iv) the write-down, conversion,
transfer, modification, or suspension of
the relevant entity’s equity, capital
instruments and liabilities (‘Eligible
Liabilities’); and (v) temporary public
ownership of the relevant entity. These
tools may be applied to NatWest Group
plc as the parent company or to NWM
Group, as an affiliate, where certain
conditions are met (such as, whether the
firm is failing or likely to fail, or whether
it is reasonably likely that action will be
taken (outside of resolution) that will
result in the firm no longer failing or
being likely to fail). Moreover, there are
modified insolvency and administration
procedures for relevant entities, and the
Authorities have the power to modify or
override certain contractual
arrangements in certain circumstances
and amend the law for the purpose of
enabling their powers to be used
effectively and may promulgate
provisions with retrospective
applicability. Similar powers may also be
exercised with respect to NWM N.V. in
the Netherlands by the relevant Dutch
regulatory authorities.
Under the UK Banking Act, the
Authorities are generally required to
have regard to specified objectives in
exercising the powers provided for by
the Banking Act. One of the objectives
(which is required to be balanced as
appropriate with the other specified
objectives) refers to the protection and
enhancement of the stability of the
financial system of the UK. Moreover, the
‘no creditor worse off’ safeguard
contained in the Banking Act (which
provides that creditors’ losses in
resolution should not exceed those that
would have been realised in an
insolvency of the relevant institution)
may not apply in relation to an
application of the separate write-down
and conversion power relating to capital
instruments under the Banking Act, in
circumstances where a stabilisation
Risk factors continued
NatWest Markets N.V.
Annual Report and Accounts 2021 138
power is not also used; Holders of debt
instruments which are subject to the
power may, however, have ordinary
shares transferred to or issued to them
by way of compensation.
Uncertainty exists as to how the
Authorities may exercise their powers
including the determination of actions
undertaken in relation to the ordinary
shares and other securities of NatWest
Group (including NWM Group), which
may depend on factors outside of NWM
Group’s control. Moreover, the Banking
Act provisions remain untested in
practice.
The Netherlands – NWM N.V.
The special resolution regime measures
set out in the BRRD were implemented
into Dutch law in 2015. The BRRD, and
the SRM, provide that the DNB and the
SRB are the resolution authorities
responsible for a resolution in relation to
NWM N.V. (the ‘N.V. Authorities’, and
together with the UK Authorities, the
‘Authorities’) with broad powers to
implement resolution measures with
respect to banks incorporated in the
Netherlands which meet the conditions
for resolution, which may include
(without limitation) measures analogous
to the Resolution Stabilisation Tools
(options set out at points (i) to (iv) above
under the Banking Act). These powers
and tools are designed to be used prior
to the point at which any insolvency
proceedings with respect to NWM N.V.
could have been initiated.
In addition to the resolution powers of
the N.V. Authorities described above, the
Dutch Minister of Finance may, with
immediate effect, take measures or
expropriate assets and liabilities of,
claims against or securities issued by or
with the consent of NWM N.V., if in the
Minister of Finance’s opinion the stability
of the financial systems is in serious and
immediate danger as a result of the
situation in which the firm finds itself (the
‘Minister of Finance Powers‘).
There remains uncertainty regarding the
ultimate nature and scope of these
powers, and any exercise of the
resolution regime powers by the N.V.
Authorities or the Minister of Finance
Powers may adversely affect holders of
NWM N.V.’s Eligible Liabilities that fall
within the scope of such powers.
If NatWest Group is at or is approaching
the point of non-viability such that
regulatory intervention is required, there
may correspondingly be an adverse
effect on the business, results of
operations and outlook of NWM N.V.
Group.
NatWest Group is subject to Bank of
England and PRA oversight in respect of
resolution, and NWM N.V. Group could
be adversely affected should the Bank of
England deem NatWest Group’s
preparations to be inadequate.
NatWest Group is subject to regulatory
oversight by the Bank of England and the
PRA, and is required (under the PRA
rulebook) to carry out an assessment of
its preparations for resolution, submit a
report of the assessment to the PRA, and
disclose a summary of this report. The
initial report was submitted to the PRA
on 30 September 2021 and the Bank of
England’s assessment of NatWest
Group’s preparations is scheduled to be
released on 10 June 2022 although the
Bank of England may provide feedback
before then.
NatWest Group has dedicated significant
resources towards the preparation of
NatWest Group for a potential resolution
scenario. However, if the Bank of
England assessment identifies a
significant gap in NatWest Group’s ability
to achieve the resolvability outcomes, or
reveals that NatWest Group is not
adequately prepared to be resolved, or
did not have adequate plans in place to
meet resolvability requirements which
came into effect on 1 January 2022,
NatWest Group may be required to take
action to enhance its preparations to be
resolvable, resulting in additional cost
and the dedication of additional
resources. These actions may have an
impact on NatWest Group (and NWM
N.V. Group) as, depending on the Bank
of England’s assessment, potential action
may include, but is not limited to,
resulting in restrictions on maximum
individual and aggregate exposures, a
requirement to dispose of specified
assets, a requirement to change legal or
operational structure, a requirement to
cease carrying out certain activities
and/or maintaining a specified amount of
MREL. This may also impact NatWest
Group’s (and NWM N.V. Group’s)
strategic plans and have an adverse
effect on the financial position of NWM
N.V. Group or may result in reputational
damage and/or loss of investor
confidence. Additionally, DNB and SRB
may exercise similar powers if the
recovery and resolution plans of NWM
N.V. Group are not satisfactory.
Climate and sustainability-related risks
NWM N.V. Group and its customers face
significant climate-related risks, including
in transitioning to a net zero economy,
which may adversely impact NWM N.V.
Group.
Climate-related risks and uncertainties
are continuing to receive increasing
regulatory, judicial, political and societal
scrutiny.
Financial and non-financial risks from
climate change arise through physical
and transition risks. Furthermore, NWM
N.V. Group may also face a variety of
climate-related legal risks, both physical
and transition, from potential litigation
and conduct liability. See also, ‘
— NWM
N.V. Group may be subject to potential
climate, environmental and other
sustainability-related litigation,
enforcement proceedings, investigations
and conduct risk
’.
There are significant uncertainties as to
the extent and timing of the
manifestation of the physical risks of
climate change, such as more severe
and frequent extreme weather events,
(flooding, subsidence, heat waves and
long-lasting wildfires), rising sea levels,
biodiversity loss and resource scarcity.
Damage to NWM N.V. customers’
properties and operations could disrupt
business, impair asset values and
negatively impact the creditworthiness of
customers leading to increased default
rates, delinquencies, write-offs and
impairment charges in NWM N.V.
Group’s portfolios. In addition, NWM N.V.
Group’s premises and operations, or
those of its critical outsourced functions
may experience damage or disruption
leading to increased costs and negatively
affecting NWM N.V. Group’s business
continuity and reputation.
In October 2021, the UK Government
published its Net Zero Strategy which
sets out how the UK will deliver on its
commitment to reach net zero emissions
by 2050. The timing, content and
implementation of the specific policies
and proposals remain uncertain.
Widespread transition to a net zero
economy across all sectors of the
economy and markets in which NWM
Group operates will be required to meet
the goals of the 2015 Paris Agreement,
the UK’s Net Zero Strategy and the
Glasgow Climate Pact of 2021 and the
Dutch Government's commitment to
cutting the Netherlands' carbon
emissions with 95% by 2050, compared
to 1990 levels, and by proposals
stemming from the EU Sustainable
Finance Action Plan. The impact of the
extensive commercial, technological,
policy and regulatory changes required
to achieve transition remains uncertain,
but it is expected to be significant and
may be disruptive across the global
economy and markets, especially if these
changes do not occur in an orderly or
timely manner or are not effective in
reducing emissions sufficiently. Some
sectors such as property, energy
(including oil and gas), mining,
infrastructure, transport (including
automotive and aviation) and agriculture
are expected to be particularly impacted.
The timing and pace of the transition to
Risk factors continued
NatWest Markets N.V.
Annual Report and Accounts 2021 139
a net zero economy is also uncertain and
may be near term, gradual and orderly
or delayed, rapid and disorderly, or the
combination of these.
Climate-related risks may be drivers of
several different risk categories
simultaneously and may exacerbate
existing risks, including credit risk,
operational risk (business continuity),
market risk (both traded and non-
traded), liquidity and funding risk (for
example, net cash outflows or depletion
of liquidity buffers).
If NWM N.V. Group fails to adapt its
business and operating model in a timely
manner to the climate-related risks and
opportunities and changing regulatory
and market expectations, or to
appropriately identify, measure, manage
and mitigate climate change related
physical, transition and legal risks and
opportunities that NWM N.V. Group, its
customers and value chain face, NWM
N.V. Group’s reputation, business,
operation or value chain and results of
operations and outlook may be impacted
adversely.
NatWest Group’s purpose-led strategy
includes climate change as one of its
three areas of focus. This is likely to
require material changes to the business
and operating model of NWM N.V. Group
which entails significant execution risk.
In February 2020, NatWest Group
announced its ambition to become a
leading bank on climate in the UK,
helping to address the climate challenge
by setting itself the challenge to at least
halve the climate impact of its financing
activity by 2030 and intending to do what
is necessary to achieve alignment with
the 2015 Paris Agreement. In addition, in
April 2021, NatWest Group by joining the
Net Zero Banking Alliance 'Business
Ambition to 1.5C', stated its ambition to
reach net zero by 2050. Furthermore, as
part of its efforts to support the transition
to a net zero economy, NatWest Group
has also announced its ambitions to
phase out of coal for UK and non-UK
customers who have UK coal production,
coal fired generation and coal related
infrastructure by 1 October 2024, with a
full global phase out by 1 January 2030;
to plan to stop financing new customer
relationships with corporate customers
who explore for, extract or produce coal
or operate unabated coal powered
plants; and that it would not provide
services to existing customers who are
increasing coal mining activity by
exploring for new coal, developing new
coal mines or increasing thermal coal
production.
To achieve its 2030 and 2050 ambitions,
NatWest Group has also announced
other climate ambitions, targets and
commitments, and going-forward it may
also announce other climate ambitions,
targets and commitments, including
science-based targets to be validated by
the Science Based Target Initiative.
Making the changes necessary to
achieving these ambitions may materially
affect NWM N.V. Group’s business and
operations and may require significant
reductions to its financed emissions and
to its exposure to customers that do not
align with a transition to a net zero
economy or do not have a credible
transition plan. Increases in lending and
financing activities may wholly or
partially offset some or all of these
reductions, which may increase the
extent of changes and reductions
necessary. It is anticipated that achieving
these reductions, together with the active
management of climate-related risks and
other regulatory, policy and market
changes, are likely to necessitate
material and accelerated changes to
NWM N.V. Group’s business, operating
model and existing exposures (potentially
on accelerated timescales and outside of
risk appetite) which may have a material
adverse effect on NWM N.V. Group’s
ability to achieve its financial targets and
generate sustainable returns.
NWM N.V. Group’s ability to contribute to
achieving NatWest Group’s climate-
related ambitions, targets and
commitments through its own specific
targets will depend to a large extent on
many factors and uncertainties beyond
NWM N.V. Group’s control. These include
the macroeconomic environment, the
extent and pace of climate change,
including the timing and manifestation of
physical and transition risks, the
effectiveness of actions of governments,
legislators, regulators, businesses,
investors, customers and other
stakeholders to adapt and/or mitigate the
impact of climate-related risks, changes
in customer behaviour and demand, the
challenges related with the
implementation and integration of
adoption policy tools, changes in the
available technology for mitigation and
adaptation, the availability of accurate,
verifiable, reliable, consistent and
comparable data. See also, ‘
NatWest
Group’s purpose-led strategy includes
climate change as one of its three areas
of focus. This is likely to require material
changes to the business and operating
model of NWM N.V. Group which entails
significant execution risk
’ and ‘
There are
significant challenges in relation to
climate related data due to quality and
other limitations, lack of consistency,
standardisation and incompleteness
which amongst other factors contribute
to the significant uncertainties inherent in
accurately modelling the impact of
climate related risks
’.
These internal and external factors and
uncertainties will make it challenging for
NatWest Group to meet its climate
ambitions, targets and commitments and
for NWM N.V. Group to contribute to
these and there is a significant risk that all
or some of them will not be achieved.
Any delay or failure by NWM N.V. Group
to contribute to setting, making progress
against or meeting NatWest Group’s
climate-related ambitions, targets and
commitments through its own specific
targets may have a material adverse
impact on NWM N.V. Group, its
reputation, business, results of
operations, outlook, market and
competitive position and may increase
the climate-related risks NWM N.V.
Group faces.
Any failure by NWM N.V. Group to
implement effective and compliant
climate change resilient systems, controls
and procedures could adversely affect
NWM N.V. Group’s ability to manage
climate-related risks.
The prudential regulation of climate-
related risks is an important driver in how
NWM N.V. Group develops its risk
appetite for financing activities or
engaging with counterparties that do not
align with a transition to a net zero
economy or do not have a credible
transition plan. Legislative and regulatory
authorities are also publishing
expectations as to how banks should
prudently manage and transparently
disclose climate-related and
environmental risks under prudential
rules.
The UK
In April 2019, the PRA published a
supervisory statement (the ‘SS 3/19’) with
particular focus on the management of
financial risks from climate change with
respect to governance, risk management,
scenario analysis and disclosures.
Following the submission of initial plans by
UK banks in October 2019, in July 2020
the PRA issued a ‘Dear CEO’ letter
requiring firms to embed fully their
approaches to managing climate-related
financial risks by the end of 2021. In
response, on 8 October 2020, NatWest
Group provided the PRA with an update
to its original plan noting that the COVID-
19 pandemic had disrupted some
elements of NatWest Group’s original plan
and, as a result, the updated plan would
require additional operating cycles
Risk factors continued
NatWest Markets N.V.
Annual Report and Accounts 2021 140
reaching into 2022 and beyond to prove
embedding. Subsequently the PRA issued
its ‘Climate Change Adaptation Report’ in
October 2021 advising firms of the need
to continue to refine and innovate ways to
further integrate the financial risks from
climate change within risk management
practices and it restated that by the end
of 2021, firms should be able to
demonstrate that the expectations set out
in SS3/19 have been implemented and
embedded throughout the firms’
organisation as fully as possible. In
January 2022, NatWest Group provided
the PRA with an update on how it has
addressed the commitments made in its
October 2020 plan, noting the delivery of
a 1st generation, largely qualitative in
nature, approach to supervisory
requirements.
In June 2021, the Bank of England
launched its 2021 Biennial Exploratory
Scenario (‘CBES’) to stress test the
resilience of the current business models
of the largest banks, insurers and the
financial system to the physical and
transition risks from climate change under
three climate scenarios. NatWest Group
delivered its CBES submission to the PRA
in October 2021. The Bank of England
has since announced that the CBES is
likely to include a second round over
February and March 2022, which is likely
to be largely qualitative in nature.
The Bank of England guidance for the
CBES confirmed that it is exploratory in
nature and not intended to be used to set
capital requirements. In the
aforementioned ‘Climate Change
Adaptation Report 2021’, the Bank of
England confirmed that over the coming
year it will undertake further analysis to
explore enhancements to the regulatory
capital frameworks as they relate to
climate related financial risk. To support
this work, the Bank of England will put
out a ‘Call for Papers’ and host a
Research Conference on the interaction
between climate change and capital in
Q4 2022. Informed by these steps and
internal analysis, the Bank of England is
expected to publish a follow-up report on
the use of capital including on the role of
any future scenario exercises by the end
of 2022. It is therefore likely that in the
coming years financial institutions,
including NatWest Group (including NWM
N.V. Group), may be required to hold
additional capital to enhance their
resilience against systemic and/or
institution specific vulnerabilities to
climate-related financial risks, which
could, in turn, negatively impact NWM
N.V. Group.
European Union and the Netherlands
NWM N.V. Group is subject to regulatory
developments in the Netherlands and the
wider European Union. In this regard,
legislative and regulatory authorities in
the Netherlands and the wider European
Union are publishing expectations as to
how banks should prudently manage and
transparently disclose climate-related
and environmental risks under prudential
rules. In November 2020, the European
Central Bank (‘ECB’) published its ‘Guide
on climate-related and environmental
risks’ (‘ECB Guide’) which is applicable to
Significant Institutions (NWM N.V. does
not qualify as a Significant Institution for
the purposes of the ECB Guide),
in June 2021, the European Banking
Agency (‘EBA’) published its Report on
Environmental, Social and Governance
risk management and supervision and in
December 2021 the DNB published a
paper titled “Towards a sustainable
balance” which aligns with the ECB
publication of November 2021 on “The
state of climate and environmental risk
management in the banking sector”.
Both documents highlight the prudential
view and expectations towards financial
institutions regarding managing of
climate, environmental and social risks
as part of their strategy, governance, risk
management and reporting practices
and will drive the supervisory dialogue in
2022 and beyond. Further to it, in
January 2022 the EBA has also published
final draft implementing technical
standards on Pillar 3 disclosures on ESG
risks.
In April 2020, the DNB published its
'Good Practices on Integration of Climate
Risks for Banks' document in which it
sets out the supervisory expectation that
banks (including NWM N.V.) should
incorporate climate-related risks into
their governance and risk management
arrangements in line with the principle of
proportionality. In order to achieve this,
the DNB provides several non-binding
'good practices' that banks could adhere
to, including:
incorporating an organisation-wide
strategic approach toward climate-
related risks, along with the
integration of climate-related
considerations in policy framework;
embedding the identification,
assessment, mitigation and
monitoring of climate change related
risks in banks' risk management
framework; and
disclosing the carbon footprint of
lending and investment portfolio in
the annual report.
In addition, the DNB has confirmed that it
will perform more stress tests to assess
the impact of climate change on the
financial sector.
In June 2020, the Dutch Authority for the
Financial Markets in the Netherlands
(
Stichting Autoriteit Financiële Markten
(‘AFM’)) published its position paper on
sustainability. In this position paper the
AFM describes what it expects from
market parties when it comes to
sustainability and how the AFM will be
supervising this. The AFM confirms,
amongst others, that:
a sustainable economy and society is
a supervisory priority of the AFM and
is increasingly becoming an integral
part of its supervision strategy; and
it expects market participants to
integrate sustainability aspects in a
responsible and careful manner in
their financial products and services.
In order to ensure that the same high
level of supervisory standards is applied
consistently among the institutions that
DNB supervise, to raise awareness of
climate-related and environmental risks,
and to better prepare Less Significant
Institutions (LSIs) – such as NWM N.V. -
for the future, DNB stated its intention to
use the ECB Guide as a basis for its
supervisory engagements with LSIs from
2021 in a proportionate manner. On 2
February 2021, the DNB requested the
Dutch financial institutions to do a self-
assessment on climate-related,
environmental and social risks, indicating
that these risks will feature in prudential
supervision with increasing prominence
going forward.
Any failure of NWM N.V. Group to fully
and timely embed climate and wider
environmental related risks into its risk
management practices and governance
framework to appropriately identify,
measure, manage and mitigate the
various climate-related physical and
transition risks and apply the appropriate
product governance in line with
applicable legal and regulatory
requirements and expectations, may
have a material and adverse impact on
NWM N.V. Group’s regulatory
compliance, prudential capital
requirements, liquidity position,
reputation, business, results of operations
and outlook.
There are significant challenges in
relation to climate related data due to
quality and other limitations, lack of
consistency, standardisation and
incompleteness which amongst other
factors contribute to the significant
uncertainties inherent in accurately
modelling the impact of climate related
risks.
Meaningful reporting of climate-related
risks and opportunities and their
potential impacts and related metrics
depend on access to accurate, reliable,
consistent and comparable climate-
related data from counterparties or
customers. These may not be generally
available or, if available, may not be
accurate, verifiable, reliable, consistent
or comparable. Any failure of NWM N.V.
Additional information
Risk factors continued
NatWest Markets N.V.
Annual Report and Accounts 2021 141
Group to incorporate climate-related
factors into its counterparty and
customer data sourcing and
accompanying analytics, or to develop
accurate, reliable, consistent and
comparable counterparty and customer
data, may have a material adverse
impact on NWM N.V. Group’s ability to
prepare meaningful reporting of climate-
related risks and opportunities, its
regulatory compliance, reputation,
business and its competitive position.
In the absence of other sources,
reporting of financed emissions by
financial institutions, including NWM N.V.
Group, is necessarily based therefore on
aggregated information developed by
third parties that may be prepared in an
inconsistent way using different
methodologies, interpretations, or
assumptions. Accordingly, our climate-
related disclosures use a greater number
and level of assumptions and estimates
than many of our financial disclosures.
These assumptions and estimates are
highly likely to change over time, and,
when coupled with the longer time
frames used in these climate related
disclosures, make any assessment of
materiality inherently uncertain. In
particular, in the absence of actual
emissions monitoring and measurement,
emissions estimates are based on
industry and other assumptions that may
not be accurate for a given counterparty
or customer. There may also be data
gaps, particularly for private companies,
that are filled using proxy data, such as
sectoral averages, again developed in
different ways. As a result, our climate
related disclosures may be amended,
updated or restated in the future as the
quality and completeness of our data and
methodologies continue to improve.
These data quality challenges, gaps and
limitations could have a material impact
on NWM N.V. Group’s ability to make
effective business decisions about climate
risks and opportunities, including risk
management decisions, comply with
disclosure requirements and our ability to
monitor and report our progress in
meeting our ambitions, targets and
commitments.
Significant risks, uncertainties and
variables are inherent in the assessment,
measurement and mitigation of climate-
related risks. These include data quality
gaps and limitations mentioned above,
the pace at which climate science,
greenhouse gas accounting standards
and various emissions reduction solutions
develop. In addition, there is a significant
uncertainty about how climate change
and the transition to a net zero economy
will unfold over the coming decades and
affect how and when climate-related
risks will manifest. These timeframes are
considerably longer than NWM N.V.
Group’s historical strategic, financial,
resilience and investment planning
horizons.
As a result, it is very difficult to predict
and model the impact of climate-related
risks into precise financial and economic
outcomes and impacts. Climate-related
risks present significant methodological
challenges due to their forward-looking
nature, the lack and/or quality of
historical testing capabilities, lack of
standardisation and incompleteness of
emissions and other climate and sub-
sector related data and the immature
nature of risk measurement and
modelling methodologies. The evaluation
of climate-related risk exposure and the
development of associated potential risk
mitigation techniques largely depend on
the choice of climate scenario modelling
methodology and the assumptions made
which involves a number of risks and
uncertainties, for example:
climate scenarios are not predictions
of what is likely to happen or what
NatWest Group would like to happen,
they rather explore the possible
implications of different judgments
and assumptions by considering a
series of scenarios;
climate scenarios do not provide a
comprehensive description of all
possible future outcomes;
lack of specialist expertise in banks
such that NWM N.V. Group needs to
rely on third party advice, modelling,
and data which is also subject to
many limitations and uncertainties;
immaturity of modelling of and data
on the impact of climate-related risks
on financial assets which will evolve
rapidly in the coming years;
the number of variables and forward-
looking nature of climate scenarios
which makes them challenging to
back test and benchmark;
the significant uncertainty as to how
the climate will evolve over time, how
and when governments, regulators,
businesses, investors and customers
respond and how those responses
impact the economy, asset
valuations, land systems, energy
systems, technology, policy and wider
society;
the assumptions will be continually
evolving with more data/information
which may affect the baselines for
comparability across reporting
periods and impact internal and
external verification processes; and
the pace of the development of the
methodologies across different
sectors may be different and
therefore it may be challenging to
report on the whole balance sheet
with regard to emissions.
Accordingly, these risks and
uncertainties coupled with significantly
longer timeframes make the outputs of
climate-related risk modelling, including
emissions reductions targets and
pathways, inherently more uncertain
than outputs modelled for traditional
financial planning cycles based on
historical financial information.
Capabilities within NWM N.V. Group to
appropriately assess, model and manage
climate-related risks and the suitability of
the assumptions required to model and
manage climate-related risks
appropriately are developing. Even when
those capabilities are developed, the high
level of uncertainty regarding any
assumptions modelled, the highly
subjective nature of risk measurement
and mitigation techniques, incorrect or
inadequate assumptions and judgments
and data quality gaps and limitations
may lead to inadequate risk
management information and
frameworks, or ineffective business
adaptation or mitigation strategies,
which may have a material adverse
impact on NWM N.V. Group’s regulatory
compliance, reputation, business, results
of operations and outlook.
A failure to adapt NWM N.V. Group’s
business strategy, governance,
procedures, systems and controls to
manage emerging sustainability-related
risks and opportunities may have a
material adverse effect on NWM N.V.
Group, its reputation, business, results of
operations and outlook.
Investors, customers, international
organisations, regulators and other
stakeholders are increasingly focusing on
identification, measurement,
management and mitigation of
‘sustainability-related’ risks and
opportunities such as environmental
(including biodiversity and loss of natural
capital); social (including diversity and
inclusion, the living wage, fair taxation
and value chains); and governance
(including board diversity, ethics,
executive compensation and
management structure) related risks and
opportunities and on long term
sustainable value creation.
Financial institutions, including NWM N.V.
Group, are directly and indirectly
exposed to multiple types of
environmental and biodiversity-related
risk through their activities, including risk
of default by clients. Additionally, there is
a growing need to move from safeguards
and interventions that focus on reducing
negative impacts on environment and
biodiversity towards those that focus on
increasing positive impact on
environment and biodiversity and nature-
based solutions. In 2021, NatWest Group
(including NWM N.V. Group) accordingly
classified ‘Biodiversity and Nature Loss’
as an emerging risk for NatWest Group
Risk factors continued
NatWest Markets N.V.
Annual Report and Accounts 2021 142
(including NWM N.V. Group) within its
Risk Management Framework.
This is an evolving and complex area
which requires collaborative approaches
with partners, stakeholders and peers to
help measure and mitigate negative
impacts of financing activities on the
environment, biodiversity and nature as
well as supporting the growing sector of
nature-based solutions, habitat
restoration and biodiversity markets.
NatWest Group, including NWM N.V.
Group, is in the early stages of
developing its approach and NatWest
Group, including NWM N.V. Group,
recognises the need for more progress.
See also, ‘
There are significant
challenges in relation to climate related
data due to quality and other limitations,
lack of consistency, standardisation and
incompleteness which amongst other
factors contribute to the significant
uncertainties inherent in accurately
modelling the impact of climate related
risks
’.
There is also increased investor,
regulatory and customer scrutiny
regarding how businesses address social
issues, including tackling inequality,
working conditions, workplace health,
safety and wellbeing, diversity and
inclusion, data protection and
management, workforce management,
human rights and supply chain
management which may impact NWM
N.V. Group’s employees, customers and
their business activities or the
communities in which they operate.
There is also growing attention on the
need for a 'just transition' and ‘energy
justice’ – in recognition that the transition
to a net zero economy should not
disproportionally affect the most
disadvantaged members of society. The
increased focus on these issues may
create reputational and other risks for
financial institutions, including NWM N.V.
Group.
In addition to climate-related risks,
sustainability-related risks (i) may also
adversely affect economic activity, asset
pricing and valuations of issuers’
securities and, in turn, the wider financial
system; (ii) may impact economic
activities directly (for example through
lower corporate profitability or the
devaluation of assets) or indirectly (for
example through macro-financial
changes); (iii) may also affect the viability
or resilience of business models over the
medium to longer term, particularly those
business models most vulnerable to
sustainability-related risks; (iv) can
trigger further losses stemming directly
or indirectly from legal claims (liability
risks) and reputational damage as a
result of the public, customers,
counterparties and/or investors
associating the NWM N.V. Group or its
customers with adverse sustainability-
related issues; and (v) intersect with and
further complexity and challenge to
achieving our purpose-led strategy
including climate ambitions, targets and
commitments. Together with climate-
related risks, these risks may combine to
generate even greater adverse effects on
our business.
Furthermore, sustainability-related risks
may be drivers of several different risk
categories simultaneously and may
exacerbate the risks described herein,
including credit risk, operational risk
(business continuity), market risk (both
traded and non-traded), liquidity and
funding risk (for example, net cash
outflows or depletion of liquidity buffers).
Accordingly, any failure or delay by
NWM N.V. Group to successfully adapt its
business strategy and to establish and
maintain effective governance,
procedures, systems and controls in
response to these issues, and to manage
these emerging sustainability-related
risks and opportunities may have a
material adverse impact NWM N.V.
Group’s reputation, liquidity position,
business, results of operations, outlook
and the value of NWM N.V. Group’s
securities.
Any reduction in the ESG ratings of
NatWest Group or NWM Group (including
NWM N.V. Group) could have a negative
impact on NatWest Group’s or NWM
Group’s (including NWM N.V. Group)
reputation and on investors’ risk appetite
and customers’ willingness to deal with
NatWest Group, NWM Group or NWM
N.V. Group.
ESG ratings from agencies and data
providers which rate how NatWest Group
or NWM Group (including NWM N.V.
Group) manages environmental, social
and governance risks are increasingly
influencing investment decisions or being
used as a basis to label financial
products and services as green or
sustainable. ESG ratings are (i)
unsolicited; (ii) subject to the assessment
and interpretation by the ESG rating
agencies; (iii) provided without warranty;
(iv) not a sponsorship, endorsement, or
promotion of NatWest Group (including
NWM N.V. Group) by the relevant rating
agency; and (v) may depend on many
factors some of which are beyond
NatWest Group’s and NWM N.V. Group’s
control (e.g. any change in rating
methodology). Any reduction in the ESG
ratings of NatWest Group (including
NWM N.V. Group) could have a negative
impact on NWM N.V. Group’s reputation
and could influence investors’ risk
appetite for NWM N.V. Group’s and/or its
subsidiaries’ securities, particularly ESG
securities and could affect a customer’s
willingness to deal with NWM N.V. Group.
Increasing levels of climate,
environmental and sustainability-related
laws, regulation and oversight may
adversely affect NWM N.V. Group’s
business and expose NWM N.V. Group to
increased costs of compliance,
regulatory sanction and reputational
damage.
There are an increasing number of UK,
Dutch, European and other regulatory
and legislative initiatives to address
issues around climate, environmental and
sustainability risks and opportunities and
to promote the transition to a net zero
economy. The DNB and the AFM are
also increasingly focused on climate
change and sustainability and have
announced good practices and
supervisory expectations relating to
these topics. As a result, an increasing
number of laws, regulations, legislative
actions are likely to affect the financial
sector and the real economy, including
proposals, guidance, policy and
regulatory initiatives many of which have
been introduced or amended recently
and are subject to further changes.
Many of these initiatives are focused on
developing standardised definitions for
green and sustainable criteria of assets
and liabilities, integrating climate change
and sustainability into decision-making
and customers access to green and
sustainable financial products and
services which may have a significant
impact on the services provided by NWM
N.V. Group and its associated credit,
market and financial risk profile. They
could also impact NWM Group’s
recognition of its climate and sustainable
funding and financing activity and may
adversely affect NWM N.V. Group’s
ability to achieve its climate strategy and
climate and sustainable funding and
financing ambitions.
In addition, NWM N.V. Group and its
branches will continue to be subject to
an increasing array of the EU/EEA
climate and sustainability-related legal
and regulatory requirements, such as the
EU Taxonomy, EU Green Bond
Standards and Pillar 3 disclosures on
ESG risks.
In addition, NatWest Group and its
subsidiaries (including NWM N.V.) will be
subject to increasing entity wide climate-
related and other non-financial
disclosure requirements pursuant to the
recommendations of the Task Force on
Climate-related Financial Disclosure
(‘TCFD’) and under other regimes. From
February 2022, NatWest Group will be
required to provide enhanced climate-
related disclosures consistent with TCFD
recommendations to comply with the
FCA Policy Statement on the new Listing
Risk factors continued
NatWest Markets N.V.
Annual Report and Accounts 2021 143
Rules (PS 20/17) that require commercial
companies with a UK premium listing –
such as NatWest Group (the ultimate
parent company of NWM N.V. Group) -
to make climate related disclosures,
consistent with TCFD, on a ‘comply or
explain’ basis. The FCA is proposing to
expand this requirement to a wider
scope of listed issuers which would
include NatWest Group’ subsidiaries,
including NWM Group (the direct parent
of NWM N.V. Group), as it moves
towards mandatory TCFD reporting
across the UK economy by 2025. See
also, ‘
There are significant challenges in
relation to climate related data due to
quality and other limitations, lack of
consistency, standardisation and
incompleteness which amongst other
factors contribute to the significant
uncertainties inherent in accurately
modelling the impact of climate related
risks
’.
NatWest Group (including NWM N.V.
Group) is also participating in various
voluntary carbon reporting and other
standard setting initiatives for disclosing
climate and sustainability-related
information, many of which have
differing objectives and methodologies
and are at different stages of
development in terms of how they apply
to financial institutions.
Compliance with these developing and
evolving climate and sustainability-
related requirements is likely to require
NWM N.V. Group to implement
significant changes to its business
models, product and other governance,
internal controls over financial reporting,
disclosure controls and procedures,
modelling capability and risk
management systems, which may
increase the cost of doing business, entail
additional change risk and compliance
costs.
Failure to implement and comply with
these legal and regulatory requirements
or emerging best practice expectations
may have a material adverse effect on
NWM N.V. Group’s regulatory
compliance and may result in regulatory
sanction, reputational damage and
investor disapproval each of which could
have an adverse on NWM N.V. Group’s
business, results of operations and
outlook.
NWM N.V. Group may be subject to
potential climate, environmental and
other sustainability-related litigation,
enforcement proceedings, investigations
and conduct risk.
Due to increasing new climate and
sustainability-related jurisprudence, laws
and regulations in the UK and other
jurisdictions, growing demand from
investors and customers for
environmentally sustainable products
and services, and regulatory scrutiny,
financial institutions, including NWM
Group, may through their business
activities face increasing litigation,
conduct, enforcement and contract
liability risks related to climate change,
environmental degradation and other
social, governance and sustainability-
related issues.
These risks may arise, for example, from
claims pertaining to: (i) failures to meet
obligations, targets or commitments
relating to or to disclose accurately or
provide updates on material climate
and/or sustainability related risks or
otherwise provide appropriate disclosure
to investors, customers, counterparties
and other stakeholders; (ii) conduct, mis-
selling and other customer protection
type claims; (iii) marketing that portrays
products, securities, activities or policies
as producing positive climate,
environmental or sustainable outcomes
to an extent that may not the case; (iv)
damages claims under various tort
theories, including common law public
nuisance claims, or negligent
mismanagement of physical and/or
transition risks; (v) alleged violations of
officers’, directors’ and other fiduciaries’
fiduciary duties, for example by financing
various carbon-intensive,
environmentally harmful or otherwise
highly exposed assets, companies, and
industries; (v) changes in understanding
of what constitutes positive climate,
environmental or sustainable outcomes
as a result of developing climate science,
leading to discrepancy between current
product offerings and investor and/or
market and/or broader stakeholder
expectations; (vi) any weaknesses or
failures in specific systems or processes
associated particularly with climate,
environmental or sustainability linked
products, including any failure in timely
implementation, onboarding and/or
updating of such systems or processes;
or (vii) counterparties, collaborators and
third parties in NWM Group’s value chain
action who act, or fail to act or
undertake due diligence or apply
appropriate risk management and
product governance in a manner that
impacts Natwest Group’s reputation or
sustainability credentials.
Furthermore, there is a risk that
shareholders, campaign groups,
customers and special interest groups
could seek to take legal action against
NWM Group for financing or contributing
to climate change and environmental
degradation and for not supporting the
principles of “just transition” (i.e.
maximising the social benefits of the
transition, mitigating the social risks of
the transition, empowering those
affected by the change, anticipating
future shifts to address issues up front
and mobilising investments from the
public and private sectors).
There is a risk that as climate and the
wider environmental science develops
and societal understanding of climate the
wider environmental science increases
and deepens, courts, regulators and
enforcement authorities may apply the
then current understandings of climate
related matters retrospectively when
assessing claims about historic conduct
or dealings of financial institutions,
including NWM Group.
In addition, there is a growing focus on
the structural parameters of financial
products with climate, environmental and
sustainability labels. This focus may give
rise to elevated risks of litigation and
regulatory enforcement as well as have
broader reputational consequences on
any such products where NWM N.V.
Group is an involved party.
These potential litigation, conduct,
enforcement and contract liability risks
may have a material adverse effect on
NatWest Group’s ability to achieve its
strategy, including its climate ambition,
and they could have an adverse effect on
NWM N.V. Group’s reputation, business,
financial results, position and prospects,
results of operations and outlook.
Operational and IT resilience risk
Operational risks (including reliance on
third party suppliers and outsourcing of
certain activities) are inherent in NWM
N.V. Group’s businesses.
Operational risk is the risk of loss
resulting from inadequate or failed
internal processes, procedures, people or
systems, or from external events,
including legal risks. NWM N.V. Group
operates in a number of countries,
offering a diverse range of products and
services supported directly or indirectly
by third party suppliers. As a result,
operational risks or losses can arise from
a number of internal or external factors
(including financial crime and fraud), for
which there is now greater scrutiny by
third parties on NWM Group’s
compliance with financial crime
requirements; see ‘
NWM N.V. Group and
NWM Plc are exposed to the risks of
various litigation matters, regulatory and
governmental actions and investigations
as well as remedial undertakings, the
outcomes of which are inherently difficult
to predict, and which could have an
adverse effect on NWM N.V. Group
’).
These risks are also present when NWM
N.V. Group relies on NatWest Group,
NWM Group, third-party suppliers or
vendors to provide services to it or its
clients, as is increasingly the case as
NWM N.V. Group outsources certain
activities, including with respect to the
Risk factors continued
NatWest Markets N.V.
Annual Report and Accounts 2021 144
implementation of cloud platforms, new
technologies, innovation and responding
to regulatory and market changes.
Furthermore, NWM N.V. is subject to the
EBA guidelines on outsourcing
arrangements. If the systems and
services provided by NatWest Group,
NWM Group or any third party do not
comply with such EBA requirements,
there is a risk of increase in operational
and compliance costs, which may
negatively affect NWM N.V. Group’s
business continuity and reputation.
Operational risks continue to be
heightened as a result of the NWM
Refocusing, NatWest Group’s purpose-led
strategy, NWM Group’s current cost-
reduction measures and conditions
affecting the financial services industry
generally (including the COVID-19
pandemic and other geo-political
developments) and in particular the legal
and regulatory uncertainty resulting
therefrom. It is unclear as to how the
future ways of working may evolve,
including in respect of how working
practices may develop, or how NWM
N.V. Group will evolve to best serve its
customers. Any of the above may place
significant pressure on NWM N.V.
Group’s ability to maintain effective
dependency analysis, internal controls
and governance frameworks.
In recent years, NWM Group (including
NWM N.V. Group) has materially
increased its dependence on NatWest
Bank Plc for numerous critical services
and operations, including without
limitation, property, finance, accounting,
treasury, risk, regulatory compliance and
reporting, human resources, and certain
other support and administrative
functions. In addition, NWM N.V. Group
has materially increased its dependence
on NWM Plc for numerous critical
services similar to those outlined above
and for certain sales activities, which due
to their complexities could potentially
trigger regulatory, tax, reputational,
financial crime and conduct risks. A
failure by NatWest Bank Plc or NWM Plc
to adequately supply these services may
expose NWM N.V. Group to critical
business failure risk, increased costs and
other liabilities. These and any increases
in the cost of these services may
adversely impact NWM N.V. Group’s
business, results of operations and
outlook.
The effective management of operational
risks is critical to meeting customer
service expectations and retaining and
attracting client business. Although NWM
N.V. Group has implemented risk
controls and mitigation actions, with
resources and planning having been
devoted to mitigate operational risk, such
measures may not be effective in
controlling each of the operational risks
faced by NWM N.V. Group. Ineffective
management of such risks could
adversely affect NWM N.V. Group.
NWM N.V. Group is subject to
increasingly sophisticated and frequent
cyberattacks.
NWM N.V. Group experiences a constant
threat from cyberattacks across the
entire NatWest Group (including NWM
N.V. Group) and against NatWest Group
and NWM N.V. Group’s supply chain,
reinforcing the importance of due
diligence of close working relationship
with, the third parties on which NWM
N.V. Group relies. NWM N.V. Group is
reliant on technology, against which
there is a constantly evolving series of
attacks, that are increasing in terms of
frequency, sophistication, impact and
severity. As cyberattacks evolve and
become more sophisticated, NWM N.V.
Group is required to continue to invest in
additional capability designed to defend
against emerging threats. In 2021, NWM
N.V. Group and its supply chain were
subjected to a small number of
Distributed Denial of Service (‘DDOS’)
and ransomware attacks, which are a
pervasive and significant threat to the
global financial services industry. The
focus is to manage the impact of the
attacks and sustain availability of
services for NWM N.V. Group’s
customers. NWM N.V. Group continues to
invest significant resources in the
development and evolution of cyber
security controls that are designed to
minimise the potential effect of such
attacks.
Hostile attempts are made by third
parties to gain access to, introduce
malware (including ransomware) into
and exploit vulnerabilities of NWM N.V.
Group’s IT systems or NWM N.V.’s third
party providers. NWM N.V. Group has
information and cyber security controls
in place to minimise the impact of any
attack, which are subject to review on a
continuing basis, but given the nature of
the threat, there can be no assurance
that such measures will prevent all
attacks in the future. See also, ‘— ‘
NWM
N.V. Group’s operations are highly
dependent on its complex IT systems
(including those that enable remote
working), IT infrastructure and cloud
platforms and any IT failure could
adversely affect NWM N.V. Group
’.
Any failure in NWM Group’s (and
therefore NWM N.V. Group’s) or third
party providers cybersecurity policies,
procedures or controls, may result in
significant financial losses, major
business disruption, inability to deliver
customer services, or loss of data or
other sensitive information (including as
a result of an outage) and may cause
associated reputational damage. Any of
these factors could increase costs
(including costs relating to notification of,
or compensation for clients and credit
monitoring), result in regulatory
investigations or sanctions being imposed
or may affect NWM N.V. Group’s ability
to retain and attract clients. Regulators
in the UK, US, Europe and Asia continue
to recognise cybersecurity as an
important systemic risk to the financial
sector and have highlighted the need for
financial institutions to improve their
monitoring and control of, and resilience
(particularly of critical services) to
cyberattacks, and to provide timely
notification of them, as appropriate.
Additionally, third parties may also
fraudulently attempt to induce
employees, customers, third party
providers or other users who have
access to NWM N.V. Group’s systems to
disclose sensitive information in order to
gain access to NWM N.V. Group’s data or
that of NWM N.V. Group’s clients or
employees. Cybersecurity and
information security events can derive
from groups or factors such as: internal
or external threat actors, human error,
fraud or malice on the part of NWM N.V.
Group’s employees or third parties,
including third party providers, or may
result from accidental technological
failure.
NWM N.V. Group expects greater
regulatory engagement, supervision and
enforcement to continue at a high level
in relation to its overall resilience to
withstand IT and related disruption,
either through a cyberattack or some
other disruptive event. Such increased
regulatory engagement, supervision and
enforcement is uncertain in relation to
the scope, cost, consequence and the
pace of change, which could negatively
impact NWM N.V. Group. Due to NWM
N.V. Group’s reliance on technology and
the increasing sophistication, frequency
and impact of cyberattacks, it is likely
that such attacks may adversely impact
NWM N.V. Group.
In accordance with the Data Protection
Act 2018 and the European Union
Withdrawal Act 2018, the Data
Protection, Privacy and Electronic
Communications (Amendments Etc.) (EU
Exit) Regulations 2019, as amended by
the Data Protection, Privacy and
Electronic Communications
(Amendments Etc.) (EU Exit) Regulations
2020 (‘UK Data Protection Framework’),
the General Data Protection Regulation
(EU) 2016/679 (and its subsequent
amendments) (‘EU GDPR’), Schrems and
EBA Guidelines on Resilience, ICT and
Security Risk Management, and EU’s
Digital Operational Resilience Act, NWM
N.V. Group is required to ensure it
Risk factors continued
NatWest Markets N.V.
Annual Report and Accounts 2021 145
implements timely appropriate and
effective organisational and technological
safeguards against unauthorised or
unlawful access to data of NWM N.V.
Group, its clients and its employees. In
order to meet this requirement, NWM
N.V. Group relies on the effectiveness of
its internal policies, controls and
procedures to protect the confidentiality,
integrity and availability of information
held on its IT systems, networks and
devices as well as with third parties with
whom NWM N.V. Group interacts. A
failure to monitor and manage data in
accordance with the UK Data Protection
Framework and EBA requirements of the
applicable legislation may result in
financial losses, regulatory fines and
investigations and associated
reputational damage. In addition, whilst
NWM N.V. Group takes measures to
prevent, detect and minimize attacks,
NWM N.V. Group’s systems, and those
third party providers, are subject to
frequent cyberattacks.
NWM N.V. Group operations and
strategy are highly dependent on the
accuracy and effective use of data.
NWM N.V. Group relies on the effective
use of accurate data to support, monitor,
evaluate, manage and enhance its
operations, including its regulatory
reporting obligations and deliver its
strategy. The availability of current,
complete, detailed, accurate and,
wherever possible, machine-readable
customer segment and sub-sector data,
together with appropriate governance
and accountability for data, is fast
becoming a critical strategic asset, which
is subject to increased regulatory focus.
Failure to have that data or the
ineffective use, governance or control of
that data could result in a failure to
manage and report important risks and
opportunities or satisfy customers’
expectations including the inability to
deliver innovative products and services.
This could also result in a failure to
deliver NWM N.V. Group’s strategy and
could place NWM N.V. Group at a
competitive disadvantage by increasing
its costs, inhibiting its efforts to reduce
costs or its ability to improve its systems,
controls and processes which could
result in a failure to deliver NWM N.V.
Group’s strategy. These data
weaknesses and limitations, or the
unethical or inappropriate use of data,
and/or non-compliance with customer
data protection laws could give rise to,
for example, conduct and litigation risks
and increased risk of operational events,
losses or other adverse consequences
due to inappropriate models, systems,
processes, decisions or other actions.
Any of the above may lead to key
business processes being negatively
impacted by inappropriately managed
data, which could lead to material
financial, customer and regulatory
impacts.
NWM N.V. Group relies on attracting,
retaining, developing and remunerating
diverse senior management and skilled
personnel (such as market trading
specialists), and is required to maintain
good employee relations.
NWM N.V. Group’s success depends on
its ability to attract, retain, through
creating an inclusive environment, and
develop and remunerate highly skilled
and qualified diverse personnel, including
senior management, directors, market
trading specialists and key employees,
especially for technology and data
focused roles, in a highly competitive
market, in an era of strategic change
and under internal cost reduction
pressures.
The inability to compensate employees
competitively and/or any reduction of
compensation as a result of the impact of
the NWM Refocusing, the perception that
following the Refocusing NWM Group may
not be a viable or competitive business,
heightened regulatory oversight of banks
and the increasing scrutiny of, and (in
some cases) restrictions placed upon,
employee compensation arrangements (in
particular those of banks in receipt of
government support such as NatWest
Group), negative economic developments
or other factors, could have an adverse
effect on NWM N.V. Group’s ability to
hire, retain and engage well qualified
employees, especially at a senior level,
which could have an adverse effect on
financial position and prospects of NWM
N.V. Group.
This increases the cost of hiring, training
and retaining diverse skilled personnel. In
addition, certain economic, market and
regulatory conditions and political
developments may reduce the pool of
diverse candidates for key management
and non-executive roles, including non-
executive directors with the right skills,
knowledge and experience, or increase
the number of departures of existing
employees. Moreover, a failure to foster
a diverse and inclusive workforce may
have an adverse impact on NWM
Group’s employee engagement and the
formulation and execution of its strategy
and could also have a negative effect on
its reputation with customers, investors
and regulators. The NWM Refocusing has
also reduced NWM N.V. Group’s ability to
engage in succession planning for critical
roles given the recent reduction in
headcount. This has placed increased
risk on employee turnover within revenue
generating areas.
Sustained periods of remote working
may also negatively affect workforce
morale. Whilst NWM N.V. Group has
taken measures seeking to maintain the
health, wellbeing and safety of its
employees, these measures may be
ineffective.
Some of NWM N.V. Group’s employees
are represented by employee
representative bodies, including a works
council. Engagement with its employees
and such bodies is important to NWM
N.V. Group in maintaining good
employee relations. Any breakdown of
these relationships could affect NWM
N.V. Group’s business, reputation, results
of operations and outlook.
NWM N.V. Group’s operations are highly
dependent on its complex IT systems
(including those that enable remote
working), IT infrastructure and cloud
platforms and any IT failure could
adversely affect NWM N.V. Group.
NWM N.V. Group’s operations are highly
dependent on the ability to process a
very large number of transactions
efficiently and accurately while
complying with applicable laws and
regulations. The proper functioning of
NatWest Group’s (including NWM N.V.
Group’s) transactional and payment
systems, financial crime, fraud systems
and controls, risk management, credit
analysis and reporting, accounting,
customer service and other IT systems
(some of which are owned and operated
by other entities in NatWest Group or
third parties), is critical to NWM N.V.
Group’s operations.
Individually or collectively, any critical
system failure, material loss of service
availability or material breach of data
security could cause serious damage to
NWM N.V. Group’s ability to provide
services to its clients, which could result
in reputational damage, significant
compensation costs or regulatory
sanctions (including fines resulting from
regulatory investigations) or a breach of
applicable regulations and could affect its
regulatory approvals, competitive
position, business and brands, which
could undermine its ability to attract and
retain customers. This risk is heightened
as most of NWM N.V. Group’s employees
continue to work remotely, as it
outsources certain functions and as it
continues to innovate and offer new
digital solutions to its clients as a result of
the trend towards online and digital
product offerings (see also ‘
Risks relating
to the COVID-19 pandemic — The
COVID-19 pandemic has heightened
NWM N.V. Group’s operational risks as
many of its employees are working
remotely which may also adversely affect
NWM N.V. Group’s ability to maintain
effective internal controls
’).
Risk factors continued
NatWest Markets N.V.
Annual Report and Accounts 2021 146
In 2021, NWM N.V. Group continued to
make considerable investments to further
simplify, upgrade and improve its IT and
technology capabilities (including
migration of certain services to cloud
platforms). As part of the NWM
Refocusing, NWM Group, including NWM
N.V. Group, also continues to develop
and enhance digital services for its
customers and seeks to improve its
competitive position through enhancing
controls and procedures and
strengthening the resilience of services
including cyber security. Any failure of
these investment and rationalisation
initiatives to achieve the expected
results, due to cost challenges or
otherwise, could negatively affect NWM
Group’s operations, its reputation and
ability to retain or grow its client business
or adversely impact its competitive
position, thereby negatively impacting
NWM N.V. Group. See also, ‘
— NWM
Group (including NWM N.V. Group) has
been in a period of significant structural
and other change, including as a result
of NatWest Group’s purpose-led strategy
(including the NWM Refocusing) and may
continue to be subject to significant
structural and other change
’.
Remote working may adversely affect
NWM N.V. Group’s ability to maintain
effective internal controls.
From March 2020 , many of NWM N.V.
Group’s employees have worked to a
large extent exclusively on a remote
basis. Following changes in local
requirements in the UK and the
jurisdictions NWM N.V. Group operates
in, NWM N.V. Group contemplates
implementing a new hybrid working
policy whereby many employees may
work remotely the majority of the time in
the ordinary course of their roles.
Remote working arrangements for NWM
N.V. Group employees continues to place
heavy reliance on the IT systems that
enable remote working and increased
exposure to fraud, conduct, operational
and other risks and may place additional
pressure on NWM N.V. Group’s ability to
maintain effective internal controls and
governance frameworks. Remote
working arrangements are also subject
to regulatory scrutiny to ensure
adequate recording, surveillance and
supervision of regulated activities, and
compliance with regulatory requirements
and expectations, including requirements
to: meet threshold conditions for
regulated activities; ensure the ability to
oversee functions (including any
outsourced functions); ensure no
detriment is caused to customers; and
ensure no increased risk of financial
crime. See also, ‘
A failure in NWM N.V.
Group’s risk management framework
could adversely affect NWM N.V. Group,
including its ability to achieve its strategic
objectives
.’ Moreover
, t
he IT systems that enable remote working interface with
third-party systems, and NWM N.V.
Group could experience service denials
or disruptions if such systems exceed
capacity or if a third-party system fails or
experiences any interruptions, all of
which could result in business and
customer interruption and related
reputational damage, significant
compensation costs, regulatory sanctions
and/or a breach of applicable
regulations. See also, ‘
NWM N.V. Group’s
operations are highly dependent on its
complex IT systems (including those that
enable remote working), IT infrastructure
and cloud platforms and any IT failure
could adversely affect NWM N.V. Group
’.
Sustained periods of remote working
may also negatively affect workplace
morale. Whilst NWM N.V. Group has
taken measures seeking to maintain the
health, wellbeing and safety of its
employees during the COVID-19
pandemic, these measures may be
ineffective. Operational difficulties as a
result of the COVID-19 pandemic, which
may affect NWM N.V. Group’s external
stakeholders (including clients), may
result in challenges in managing daily
cash and liquidity. As a result of remote
working, compliance and conduct risk
may also be heightened both as a result
of internal and external factors.
Any of the above could impair NWM N.V.
Group’s ability to hire, retain and engage
well-qualified employees, especially at a
senior level, which in turn may adversely
impact NWM N.V. Group’s ability to serve
its clients efficiently, and impact
productivity across NWM N.V. Group.
This could adversely affect NWM N.V.
Group’s reputation and competitive
position and its ability to grow its
business.
A failure in NWM N.V. Group’s risk
management framework could adversely
affect NWM N.V. Group, including its
ability to achieve its strategic objectives.
Risk management is an integral part of
all of NWM N.V. Group’s activities and
includes the definition and monitoring of
NWM N.V. Group’s risk appetite and
reporting on NWM N.V. Group’s risk
exposure and the potential impact
thereof on NWM N.V. Group’s financial
condition. Risk management is highly
dependent on the use and effectiveness
of internal stress tests and models and
ineffective risk management may arise
from a wide variety of factors, including
lack of transparency or incomplete risk
reporting, unidentified conflicts or
misaligned incentives, lack of
accountability control and governance,
incomplete risk monitoring (including
trade surveillance) and failures of
systems to properly process all relevant
data, risks related to unanticipated
behaviour or performance in algorithmic
trading and management or insufficient
challenges or assurance processes.
Failure to manage risks effectively could
adversely impact NWM N.V. Group’s
reputation or its relationship with its
regulators, clients, shareholders or other
stakeholders.
In addition, financial crime risk
management is dependent on the use
and effectiveness of financial crime
assessment, systems and controls. Weak
or ineffective financial crime processes
and controls may risk NatWest Group
inadvertently facilitating financial crime
which may result in regulatory
investigation, sanction, litigation and
reputational damage. Financial crime
continues to evolve, whether through
fraud, scams, cyber-attacks or other
criminal activity. NatWest Group (and
NWM N.V. Group) has made and
continues to make significant, multi-year
investments to strengthen and improve its
overall financial crime control framework
with prevention systems and capabilities.
As part of its ongoing programme of
investment, there is current and future
investment planned to further strengthen
financial crime controls over the coming
years, including investment in new
technologies and capabilities to further
enhance customer due diligence,
transaction monitoring, sanctions and
anti-bribery and corruption systems.
NWM N.V. Group is dependent on some
controls operated by NatWest Group.
NWM N.V. Group’s operations are
inherently exposed to conduct risks,
which include business decisions, actions
or reward mechanisms that are not
responsive to or aligned with NWM N.V.
Group’s regulatory obligations, client
needs or do not reflect NWM N.V.
Group’s customer-focused strategy,
ineffective product management,
unethical or inappropriate use of data,
information asymmetry, implementation
and utilisation of new technologies,
outsourcing of customer service and
product delivery, the possibility of mis-
selling of financial products and
mishandling of customer complaints.
Some of these risks have materialised in
the past and ineffective management
and oversight of conduct risks may lead
to further remediation and regulatory
intervention or enforcement. NWM N.V.
Group’s businesses are also exposed to
risks from employee misconduct
including non-compliance with policies
and regulations, negligence or fraud
(including financial crimes and fraud),
any of which could result in regulatory
fines or sanctions and serious
reputational or financial harm to NWM
N.V. Group.
Risk factors continued
NatWest Markets N.V.
Annual Report and Accounts 2021 147
These risks may be exacerbated as most
of NWM N.V. Group’s employees
continue to work remotely, which places
additional pressure on NWM N.V. Group’s
ability to maintain effective internal
controls and governance frameworks.
NWM N.V. Group is seeking to embed a
strong risk culture across the organisation
and has implemented policies and
allocated new resources across all levels
of the organisation to manage and
mitigate conduct risk and expects to
continue to invest in its risk management
framework. However, such efforts may
not insulate NWM N.V. Group from future
instances of misconduct and no
assurance can be given that NWM N.V.
Group’s strategy and control framework
will be effective. See also, ‘—
NWM Group
has been in a period of significant
structural and other change, including as
a result of NatWest Group’s purpose-led
strategy and the NWM Refocusing and
may continue to be subject to significant
structural and other change
’. Any failure
in NWM N.V. Group’s risk management
framework could negatively affect NWM
N.V. Group and its financial condition
through reputational and financial harm
and may result in the inability to achieve
its strategic objectives for its clients,
employees and wider stakeholders.
There is also the risk that the risk
management frameworks, as developed
by NatWest Group and NWM Group, may
not be properly adapted for NMW N.V.’s
specific circumstances. Furthermore,
NWM N.V. has policies and controls in
place to combat financial crime, and has
made technological and other
investments to detect financial crime.
Although NWM N.V. head office is
located in Amsterdam (where NWM N.V.
risk management function is based), it
also operates branches in France,
Germany, Ireland, Italy, Sweden and
Spain (although the branch in Spain is
due to close in the course of 2022).
Should such risk policies and controls be
inadequate to combat financial crime,
particularly in NWM N.V., branches
(where there is less direct supervision)
there could be an adverse impact on
NWM N.V.
NWM N.V. Group’s operations are
subject to inherent reputational risk.
Reputational risk relates to stakeholder
and public perceptions of NWM N.V.
Group arising from an actual or
perceived failure to meet stakeholder
expectations, including with respect to
the NWM Refocusing and related targets,
due to any events, behaviour, action or
inaction by NWM N.V. Group, its
employees or those with whom NWM
N.V. Group is associated. This includes
brand damage, which may be
detrimental to NWM N.V. Group’s
business, including its ability to build or
sustain business relationships with
clients, and may cause low employee
morale, regulatory censure or reduced
access to, or an increase in the cost of,
funding. Reputational risk may arise
whenever there is a material lapse in
standards of integrity, compliance,
customer or operating efficiency and
may adversely affect NWM N.V. Group’s
ability to attract and retain clients. In
particular, NWM N.V. Group’s ability to
attract and retain clients may be
adversely affected by, amongst others:
negative public opinion resulting from the
actual or perceived manner in which
NWM N.V. Group or any other member
of NatWest Group conducts or modifies
its business activities and operations,
media coverage (whether accurate or
otherwise), employee misconduct, NWM
N.V. Group’s financial performance, IT
systems failures or cyberattacks, data
breaches, financial crime and fraud, the
level of direct and indirect government
support for NatWest Group plc, or the
actual or perceived practices in the
banking and financial industry in general,
or a wide variety of other factors.
Modern technologies, in particular online
social networks and other broadcast
tools that facilitate communication with
large audiences in short timeframes and
with minimal costs, may also significantly
increase and accelerate the impact of
damaging information and allegations.
Although NWM N.V. Group has
implemented a Reputational Risk Policy
to improve the identification, assessment
and management of customers and
clients, transactions, products and issues,
which represent a reputational risk, NWM
N.V. Group cannot be certain that it will
be successful in avoiding damage to its
business from reputational risk.
Legal, regulatory and conduct risk
NWM N.V. Group’s businesses are
subject to substantial regulation and
oversight, which are constantly evolving
and may adversely affect NWM N.V.
Group.
NWM N.V. Group is subject to extensive
laws, regulations, corporate governance
practice and disclosure requirements,
administrative actions and policies in
each jurisdiction in which it operates.
Many of these have been introduced or
amended recently and are subject to
further material changes, which may
increase compliance and conduct risks,
particularly as EU/EEA and UK laws
diverge as a result of Brexit. NWM Group
(NWM N.V. Group’s parent) expects
government and regulatory intervention
in the financial services industry to
remain high for the foreseeable future.
In particular, NWM N.V. Group is subject
to (i) direct prudential supervision by the
DNB and indirect prudential supervision
of the ECB; (ii) direct market conduct
supervision by the AFM and indirect
market conduct supervision by the
European Securities and Markets
Authority (ESMA); and (iii) supervision by
the DNB, as home state supervisor, in
respect of NWM N.V. Group’s branch
offices in France, Germany, Ireland, Italy,
Sweden and Spain (although the branch
in Spain is due to close in the course of
2022), and to supervision by local
regulators in these jurisdictions, as host
state supervisors, in respect of certain
regulatory aspects of NWM N.V. Group’s
branch offices’ operations that are
subject to host state supervision (e.g.
anti-money laundering laws). NWM N.V.
Group expects government and
regulatory intervention in the financial
services industry to remain high for the
foreseeable future.
Prudential regulatory requirements:
In recent years, regulators and
governments have focused on reforming
the prudential regulation of the financial
services industry and the manner in
which the business of financial services is
conducted. Amongst others, measures
have included: enhanced capital, liquidity
and funding requirements,
implementation of the UK ring-fencing
regime, implementation and
strengthening of the recovery and
resolution framework applicable to
financial institutions in the Netherlands,
the UK, the EU and the US, financial
industry reforms (including in respect of
MiFID II), corporate governance
requirements, restrictions on the
compensation of senior management and
other employees, enhanced data
protection and IT resilience
requirements, financial market
infrastructure reforms (including
enhanced regulations in respect of the
provision of ‘investment services and
activities’), enhanced regulations in
respect of the provision of ‘investment
services and activities’, and increased
regulatory focus in certain areas,
including conduct, consumer protection,
competition and disputes regimes, anti-
money laundering, anti-corruption, anti-
bribery, anti-tax evasion, payment
systems, sanctions and anti-terrorism
laws and regulations. This has resulted in
NWM N.V. Group facing greater
regulation and scrutiny in the
Netherlands and the other countries in
which it operates.
Risk factors continued
NatWest Markets N.V.
Annual Report and Accounts 2021 148
In addition, there is significant oversight
by competition authorities of the
jurisdictions in which NWM N.V. Group
operates. The competitive landscape for
banks and other financial institutions in
Europe is rapidly changing. Recent
regulatory and legal changes have and
may continue to result in new market
participants and changed competitive
dynamics in certain key areas.
Competition authorities, including the
CMA, are currently also looking at and
focusing more on how they can support
competition and innovation in digital
markets.
Regulatory requirements:
Recent regulatory changes, proposed or
future developments and heightened
levels of public and regulatory scrutiny in
the EU have resulted in increased capital,
funding and liquidity requirements,
changes in the competitive landscape,
changes in other regulatory
requirements and increased operating
costs, and have impacted, and will
continue to impact, product offerings and
business models. For example, NWM N.V.
Group is required to ensure operational
continuity in resolution; the steps
required to ensure such compliance
entail significant costs, and also impose
significant operational, legal and
execution risk. Material consequences
could arise should NWM N.V. Group be
found to be non-compliant with these
regulatory requirements.
Such changes may also result in an
increased number of regulatory
investigations and proceedings and have
increased the risks relating to NWM N.V.
Group’s ability to comply with the
applicable body of rules and regulations
in the manner and within the timeframes
required.
Other areas in which, and examples of
where, governmental policies, regulatory
and accounting changes and increased
public and regulatory scrutiny could have
an adverse impact (some of which could
be material) on NWM N.V. Group include,
but are not limited to:
general changes in government,
central bank, regulatory or
competition policy, or changes in
regulatory regimes that may
influence investor decisions in the
jurisdictions in which NWM N.V.
Group operates;
rules relating to foreign ownership,
expropriation, nationalisation and
confiscation of assets;
new or increased regulations relating
to customer data protection as well
as IT controls and resilience,
including the EU GDPR, Schrems, the
UK Data Protection Framework and
the impact of the Court of Justice of
the EU (CJEU) decision (known as
Schrems II), in which the CJEU ruled
that the Privacy Shield (an EU/US
data transfer mechanism) is now
invalid, leading to more onerous due
diligence requirements for the Group
prior to sending personal data of its
EU customers and employees to non-
EEA countries, including the UK and
the US;
the introduction of, and changes to,
taxes, levies or fees applicable to
NWM N.V. Group’s operations, such
as the Dutch Withholding Tax Act
2021 (
Wet bronbelasting 2021
), the
imposition of a financial transaction
tax, introduction of global minimum
tax rules, changes in the scope and
administration of the Dutch Bank
Levy (
bankenbelasting
), changes in
tax rates, increases in the bank
corporation tax surcharge in the UK,
restrictions on the tax deductibility of
interest payments or further
restrictions imposed on the treatment
of carry-forward tax losses that
reduce the value of deferred tax
assets and require increased
payments of tax;
increased regulatory focus on
customer protection (such as the
FCA’s consumer duty consultation
paper (CP21/13)) in retail or other
financial markets; and
the potential introduction by the Bank
of England of a Central Bank Digital
Currency which could result in deposit
outflows, higher funding costs, and/or
other implications for banks including
NatWest Group (including impact on
NWM N.V. Group).
These and other recent regulatory
changes, proposed or future
developments and heightened levels of
public and regulatory scrutiny in the UK,
the Netherlands, the EU and the US have
resulted in increased capital, funding and
liquidity requirements, changes in the
competitive landscape, changes in other
regulatory requirements and increased
operating costs, and have impacted, and
will continue to impact, product offerings
and business models. Any of these
developments (including any failure to
comply with new rules and regulations)
could also have a significant impact on
NWM N.V. Group’s authorisations and
licences, the products and services that
NWM N.V. Group may offer, its
reputation and the value of its assets,
NWM N.V. Group’s operations or legal
entity structure, and the manner in which
NWM N.V. Group conducts its business.
Material consequences could arise
should NWM N.V. Group be found to be
non-compliant with these regulatory
requirements. Regulatory developments
may also result in an increased number
of regulatory investigations and
proceedings and have increased the risks
relating to NWM N.V. Group’s ability to
comply with the applicable body of rules
and regulations in the manner and within
the timeframes required.
Changes in laws, rules or regulations, or
in their interpretation or enforcement, or
the implementation of new laws, rules or
regulations, including contradictory or
conflicting laws, rules or regulations by
key regulators or policymakers in
different jurisdictions, or failure by NWM
N.V. Group to comply with such laws,
rules and regulations, may adversely
affect NWM N.V. Group’s business,
results of operations and outlook. In
addition, uncertainty and insufficient
international regulatory coordination as
enhanced supervisory standards are
developed and implemented may
adversely affect NWM N.V. Group’s
ability to engage in effective business,
capital and risk management planning.
NWM N.V. Group and NWM Plc are
exposed to the risks of various litigation
matters, regulatory and governmental
actions and investigations as well as
remedial undertakings, the outcomes of
which are inherently difficult to predict,
and which could have an adverse effect
on NWM N.V. Group.
NWM N.V. Group’s operations are
diverse and complex and it operates in
legal and regulatory environments that
expose it to potentially significant legal
proceedings, and civil and criminal
regulatory and governmental actions.
NWM N.V. Group and NWM Plc have
resolved a number of legal and
regulatory actions over the past several
years but continues to be, and may in
the future be, involved in such actions in
the US, the UK, Europe and other
jurisdictions.
NWM N.V. Group and/or NWM Plc are
currently, have recently been and will
likely be involved in a number of
significant legal and regulatory actions,
including investigations, proceedings and
ongoing reviews (both formal and
informal) by governmental law
enforcement and other agencies and
litigation proceedings, relating to, among
other matters, the offering of securities,
conduct in the foreign exchange market,
the setting of benchmark rates such as
LIBOR and related derivatives trading,
the issuance, underwriting, and sales and
trading of fixed-income securities
(including government securities),
product mis-selling, customer
Risk factors continued
NatWest Markets N.V.
Annual Report and Accounts 2021 149
mistreatment, anti-money laundering,
antitrust, VAT recovery and various other
compliance issues. Legal and regulatory
actions are subject to many
uncertainties, and their outcomes,
including the timing, amount of fines,
damages or settlements or the form of
any settlements, which may be material
and in excess of any related provisions,
are often difficult to predict, particularly
in the early stages of a case or
investigation. NWM N.V. Group’s
expectation for resolution may change
and substantial additional provisions and
costs may be recognised in respect of
any matter.
The resolution of significant
investigations include NWM Plc’s
December 2021 spoofing-related guilty
plea in the United States, which involves
a three-year period of probation, an
independent corporate monitor, and
commitments to compliance programme
reviews and improvements and reporting
obligations, as well as approximately
US$35 million in fines and restitution. For
additional information relating to these
and other legal and regulatory
proceedings and matters to which NWM
Group is currently exposed, see
‘Litigation and regulatory matters’ at
Note 25 to the consolidated accounts.
The recent guilty plea, other recently
resolved matters in the United States,
and adverse outcomes or resolution of
current or future legal or regulatory
actions, could increase the risk of greater
regulatory and third party scrutiny and
could have material collateral
consequences for NWM Group’s
(including NWM N.V. Group’s) business
and result in restrictions or limitations on
NWM Group’s (including NWM N.V.
Group’s) operations.
These may include the effective or actual
disqualification from carrying on certain
regulated activities and consequences
resulting from the need to reapply for
various important licences or obtain
waivers to conduct certain existing
activities of NWM N.V. Group,
particularly but not solely in the US,
which may take a significant period of
time and the results of which are
uncertain. Disqualification from carrying
on any activities, whether automatically
as a result of the resolution of a
particular matter or as a result of the
failure to obtain such licences or waivers
could adversely impact NWM N.V.
Group’s business, in particular in the US.
This in turn and/or any fines, settlement
payments or penalties could adversely
impact NWM N.V. Group’s reported
financial results and condition, capital
position or reputation. Similar
consequences could result from legal or
regulatory actions relating to other parts
of NatWest Group.
Failure to comply with undertakings
made by NWM N.V. Group to its
regulators may result in additional
measures or penalties being taken
against NWM N.V. Group.
NWM N.V. Group may not effectively
manage the transition of LIBOR and
other IBOR rates to alternative risk-free
rates.
UK, Dutch and other European and
international regulators are driving the
transition from the use of interbank offer
rates (‘IBORs’), including LIBOR, to
alternative rates, primarily risk-free rates
(‘RFRs’).
As of 31 December 2021, LIBOR, as
currently determined, has ceased for all
tenors of GBP, JPY, CHF, EUR, and for
the 1 week and 2 month tenors for USD.
The remaining USD LIBOR tenors, as
currently determined, are due to cease
after 30 June 2023. The FCA has used its
powers under the UK Benchmarks
Regulation (‘UK BMR’) to require, for a
limited period of time after 31 December
2021, the ongoing publication of the 1, 3,
and 6 month GBP and JPY LIBOR tenors
using a changed methodology (i.e.,
‘Art23A LIBOR’ on a synthetic basis). The
UK has passed the Critical Benchmarks
(References and Administrators’ Liability)
Act 2021 (‘Critical Benchmarks Act’)
which establishes a framework that
allows the ongoing use of Art23A LIBOR
under certain circumstances where
contracts have not pro-actively
transitioned onto alternative rates.
However, the FCA has been clear that
the solutions provided under UK BMR
and the Critical Benchmarks Act are not
permanent and cannot be guaranteed
after the end of 2022 (and for JPY the
FCA has confirmed that Art23A LIBOR
will no longer be available after the end
of 2022). This framework and its lack of
permanence may expose NatWest
Group, its customers and the financial
services industry more widely to various
risks, including: (i) the FCA further
restricting use of Art23A LIBOR resulting
in proactive transition of contracts onto
alternative rates and, depending on the
notice given for any further restrictions,
this transition may need to be completed
very quickly; and (ii) mis-matches
between positions in cleared derivatives
and the exposures they are hedging
where those exposures are permitted to
make use of Art23A LIBOR as the FCA
has chosen not to permit the use of
Art23A LIBOR for cleared derivatives.
Although the formal cessation date for
the remaining USD LIBOR tenors (as
currently determined) is not until the end
of June 2023, US and UK regulators have
been clear that this is only to support the
rundown of back book USD LIBOR
exposures, and that no new contracts
should reference these USD LIBOR
tenors after 31 December 2021, other
than in a very limited range of
circumstances. NatWest Group will
continue to have ongoing exposure to
the remaining USD LIBOR tenors up until
they cease at the end of June 2023.
Natwest Group had significant exposures
to IBORs and has actively sought to
transition away from these during 2021,
in accordance with regulatory
expectations and milestones. Transition
measures have included the pro-active
development of new products on using
alternative rates, primarily but not
exclusively RFRs rather than LIBOR, pro-
actively restructuring existing LIBOR
exposures so that they cease to
reference LIBOR and instead reference
alterative rates and embedding language
into contracts that allows for the
automatic conversion to alternative rates
when LIBOR ceases to be available. The
main Central Counterparty Clearing
houses (CCPs) conducted mass
conversion exercises in December 2021
covering GBP, JPY, CHF and EUR LIBOR
cleared derivatives to fully transition all
outstanding LIBOR exposure to the
relevant RFR. Key Natwest Group
entities, along with many of their major
counterparties, have already adhered to
the ISDA IBOR fall-backs supplement and
protocol which establishes a clear,
industry accepted, contractual process to
manage the transition from IBORs to
RFRs for non-cleared derivative products.
These transition efforts have involved
extensive engagement with customers,
industry working groups and regulators,
seek to deliver transition in a transparent
and economically appropriate manner.
Any economic impacts will be dependent
on, amongst other things, the
establishment of deep and liquid RFR
markets, the establishment of clear and
consistent market conventions for all
replacement products, as well as
counterparties’ willingness to accept, and
transition to, these conventions.
Furthermore, certain IBOR obligations
may not be able to be pro-actively
changed which could, depending on any
over-arching legislative transition
frameworks, potentially result in
fundamentally different economic
outcomes than originally intended. The
uncertainties around the manner of
transition to RFRs, and the ongoing
broader acceptance and use of RFRs
across the market, expose NWM N.V.
Group, its clients and the financial
services industry more widely to risks.
Risk factors continued
NatWest Markets N.V.
Annual Report and Accounts 2021 150
Examples of these risks may include: (i)
legal (including litigation) risks relating to
documentation for new and the majority
of existing transactions (including, but
not limited to, changes, lack of changes,
unclear contractual provisions, and
disputes in respect of these); (ii) financial
risks from any changes in valuation of
financial instruments linked to impacted
IBORs that may impact NWM N.V.
Group’s performance, including its cost
of funds, and its risk management
related financial models; (iii) pricing,
interest rate or settlement risks, such as
changes to benchmark rates could
impact pricing, interest rate or settlement
mechanisms on certain instruments; (iv)
operational risks due to the requirement
to adapt IT systems, trade reporting
infrastructure and operational processes,
as well as ensuring compliance with
restrictions on new USD LIBOR usage
after December 2021; (v) conduct and
litigation risks arising from
communication regarding the potential
impact on customers, and engagement
with customers during and after the
transition period, or non-acceptance by
customers of replacement rates; and (vi)
different legislative provisions in different
jurisdictions, for example, unlike certain
US states and the EU, the UK has not
provided a clear and robust safe harbour
to protect against litigation and potential
liability arising out of the switch to
‘synthetic LIBOR’.
Notwithstanding all efforts to date, until
the transition away from LIBOR onto
alternative rates has been fully
completed, and there is greater
experience of how RFRs are adopted
across different products and customer
groups, it remains difficult to determine
to what extent the changes will affect
the NWM N.V. Group, or the costs of
implementing any relevant remedial
action. Uncertainty as to the nature and
extent of such potential changes, the
take up of alternative reference rates or
other reforms, may adversely affect
financial instruments originally
referencing LIBOR as their benchmark.
The implementation of any alternative
RFRs may be impossible or impracticable
under the existing terms of certain
financial instruments and could have an
adverse effect on the value of, return on
and trading market for, certain financial
instruments and on the NWM N.V.
Group’s profitability.
Additional information
NatWest Markets N.V.
Annual Report and Accounts 2021 151
Major shareholders
NatWest Markets N.V. is 100% owned by RBS Holdings N.V..
In turn, RBS Holdings N.V. is a 100% subsidiary of NatWest
Markets Plc.
Stock exchange listings
None of the shares in the NatWest Markets N.V. Group are
listed.
Issued share capital
The issued share capital of NWM N.V. consists of 11,112
ordinary shares with a nominal value of €4.50 each.
Dividends
The NatWest Markets N.V. Group's policy is to pay dividends
on ordinary shares taking account the capital position and
prospects. For further information on the payment of
dividends, refer to Note 19 to the consolidated financial
statements.
Off-balance sheet arrangements
NatWest Markets N.V. Group has no off-balance sheet
arrangements that have or are reasonably likely to have an
adverse effect on its financial condition, changes in financial
condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources.
For further information on off-balance sheet commitments
and contingent liabilities see Note 23 to the consolidated
financial statements.
Cautionary statement regarding forward-looking statements
This document contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform
Act of 1995, such as statements that include, without limitation, the words ‘expect’, ‘estimate’, ‘project’, ‘anticipate’, ‘commit’,
‘believe’, ‘should’, ‘intend’, ‘will’, ‘plan’, ‘could’, ‘probability’, ‘risk’, ‘Value-at-Risk (VaR)’, ‘target’, ‘goal’, ‘objective’, ‘may’,
‘endeavour’, ‘outlook’, ‘optimistic’, ‘prospects’ and similar expressions or variations on these expressions. These statements
concern or may affect future matters, such as NWM N.V. Group’s future economic results, business plans and current strategies. In
particular, this document may include forward-looking statements relating to NWM N.V. Group in respect of, but not limited to: the
impact of the COVID-19 pandemic, NWM N.V.’s regulatory capital position and related requirements, its financial position,
profitability and financial performance (including financial, capital, cost savings and operational targets), the NWM Group
refocusing and implementation of NatWest Group’s Purpose-led strategy, its ESG and climate related targets, its access to
adequate sources of liquidity and funding, increasing competition from new incumbents and disruptive technologies, its exposure to
third party risks and ensuring operational continuity in resolution, its credit exposures under certain specified scenarios, substantial
regulation and oversight, ongoing legal, regulatory and governmental actions and investigation, the transition of LIBOR and other
IBOR rates to alternative risk free rates and NWM N.V. Group’s exposure to economic and political risks (including with respect to
Brexit and climate change), operational risk, conduct risk, financial crime risk, cyber, data and IT risk, key person risk and credit
rating risk. Forward-looking statements are subject to a number of risks and uncertainties that might cause actual results and
performance to differ materially from any expected future results or performance expressed or implied by the forward-looking
statements. Factors that could cause or contribute to differences in current expectations include, but are not limited to: the impact
of the COVID-19 pandemic, the outcome of legal, regulatory and governmental actions and investigations, legislative, political,
fiscal and regulatory developments, accounting standards, competitive conditions, technological developments, interest and
exchange rate fluctuations, general economic and political conditions and the impact of climate related risks and the transitioning
to a net zero economy. These and other factors, risks and uncertainties that may impact any forward-looking statement or the
NWM N.V. Group’s actual results are discussed in NWM N.V. Group’s 2021 Annual Report and Accounts (ARA) and other public
filings. The forward-looking statements contained in this document speak only as of the date of this document and NWM N.V.
Group does not assume or undertake any obligation or responsibility to update any of the forward-looking statements contained in
this document, whether as a result of new information, future events or otherwise, except to the extent legally required.