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NatW
est
M
ark
ets Plc
2021 Annual Report
and Accounts
Contents
Strategic report
1
2021 Performance highlights
2
Our purpose framework
4
Chief Executive’s review
5
Outlook
6
Our business model
8
Our strategy
10
Operating environment
12
Risk management
16
Our stakeholders
20
Our colleagues
21
Learning and enterprise
22
Climate-related disclosures
36
Financial review
41
Board of directors and secretary
42
Risk and capital management
89
Report of the directors
93
Statement of directors’
responsibilities
94
Financial statements
179
Risk factors
201
Forward-looking statements
Approval of Strategic report
The Strategic report for the year ended
31 December 2021 set out on pages 1
to 33 was approved by the Board of
Directors on 17 February 2022.
By order of the Board
Company Secretary
Scott Gibson
17 February 2022
Chairman
Frank Dangeard
Executive Directors
Robert Begbie, CEO
David King, CFO
Non-Executive Directors
Vivek Ahuja
Tamsin Rowe
Anne Simpson
Sarah Wilkinson
Presentation of information
NatWest Markets Plc (‘NWM Plc’) is a wholly owned subsidiary of NatWest Group plc or
‘the ultimate holding company’. The NatWest Markets Group (‘NWM Group’) comprises
NWM Plc and its subsidiary and associated undertakings.
The term ‘NatWest Group’ comprises NatWest Group plc and its subsidiary and
associated undertakings.
At natwestgroup.com:
NatWest Group Annual Report and Accounts
Gives an overview of our business and our 2021
financial and non-financial performance. Also
includes our Financial statements and related
notes on our governance and remuneration,
and Risk and capital management reports.
NatWest Group Climate-related
Disclosures Report
Details our progress in 2021 on our climate-related
strategy, scenario analysis, risk management
and metrics.
NatWest Group ESG Supplement
Provides an overview of our purpose in action and
key environmental, social and governance matters
including progress in 2021.
NatWest Group Pillar 3 report
Focuses on our regulatory reporting requirements
and provides an explanation of our risk profile,
including our capital adequacy, risk appetite
and risk management.
2021 Performance highlights
We have supported customers’ evolving needs with innovative solution
s
and continued to deliver an integrated customer proposition across
NatWest Group. We have made good progress on building towards a
sustainable business and creating a platform for growth in its chosen
areas. We have reduced our risk-weighted assets (RWAs) and operating
expenses in the year and, in Q4 2021, introduced changes to Rates
within Fixed income which will improve the strategic alignment with
the rest of the business and drive sustainable income growth.
Please refer to the Chief Executive’s review on page 4 and the
Financial review section on page 36 for further details on the
financial performance for the period.
MREL ratio
(
3)
42.1%
2020: 49.6%
Liquidity coverage ratio
(
3)
205%
2020: 268%
Capital and leverage highlights
CET1 ratio
(
3)
17.9%
2020: 21.7%
CRR leverage
(
3)
4.3%
2020: 5.2%
RWAs
(
3)
£22.7bn
2020: £25.6bn
ESG highlights
Climate and Sustainable Funding and Financing
(4)
£9.7bn
2020: £7.2bn
Financial highlights
Total income
£401m
2020: £1,158m
Income excl. asset
disposals/strategic risk
reduction & OCA
(1)
£459m
2020: £1,265m
Other operating expenses
(
2)
£919m
2020: £1,106m
Operating loss
before tax
£(714)m
2020: £(315)m
We help NatWest Group’s
corporate and institutional
customers manage their
financial risks safely and
achieve their short-term
and long-term sustainable
financial goals. We think
and act as one bank
for our customers,
collaborating with
teams across the
NatWest Group to be
the partner of choice for
our customers and their
financial markets needs.
By focusing on the things
we do best and that
matter most to our
customers, we help
champion their potential.
When people, families and
businesses thrive, we all…
Thrive
Together
(1)
Asset disposals/strategic risk reduction
includes the costs of exiting positions and
the impact of risk reduction transactions
entered into as part of the optimisation
of the entity’s capital usage following
the strategic announcements of
14 February 2020. OCA refers
to own credit adjustments.
(2)
Excludes strategic costs and litigation
and conduct costs.
(3)
These metrics are shown for NWM Plc.
Capital, leverage and RWAs are based
on the PRA transitional arrangements for
NWM Plc. Regulatory capital is monitored
and reported at NWM Plc level.
(4)
Funding and financing for climate and
sustainable finance to support transition
towards a net-zero and climate resilient
economy. NatWest Group use internally
defined Climate and Sustainable Finance
Inclusion Criteria (CSFI criteria) to determine
the assets, activities and companies that
are eligible to be counted towards its
targets for Climate and Sustainable Funding
and Financing.
1
NatWest Markets Plc
2021 Annual Report and Accounts
Our purpose framework
A relationship bank
for a digital world
We champion potential, helping people, families
and businesses to thrive
Read more in the
NatWest Group Annual Report and Accounts 2021
We are guided by
our purpose
…creating a positive
impact through our
areas of focus
Driven to achieve our growth strategy, supporting NatWest Group…
Current
accounts
Lending &
financing
Currencies
Fixed
income
Working
capital
Cards &
payments
Capital
markets
Transaction
banking
Asset
& trade
finance
NatWest Markets
NatWest Group operates as One Bank working across boundaries to serve our customers
Read more on page 16
Delivering long-term sustainable value and
attractive returns, now and for the next generation
Customers
Regulators
Communities
Suppliers
Colleagues
Investors
We are informed
by the needs of
our stakeholders
Read more on page 8
We have four
strategic priorities…
Enterprise
Climate
Learning
Read more on pages 21 and 22
Focused on growth, underpinned by our values
and an intelligent approach to risk:
Supporting
customers at every
stage of their lives
Simple to
deal with
Sharpened capital
allocation
Powered by
innovation and
partnerships
2
NatWest Markets Plc
2021 Annual Report and Accounts
Our purpose
As part of NatWest Group we are aligned under their Purpose,
which is at the heart of everything we do. This helps us ensure
we are the partner of choice to meet the financial markets
needs of NatWest Group’s customers, knowing that when
they thrive, so do we. Our business is focused on operating in
partnership across NatWest Group. We have the products our
customers need, aligning our expertise, global footprint and
talent to drive long-term sustainable returns.
Our stakeholders
As a purpose-led organisation, we balance the different
interests of all our stakeholders – customers, colleagues,
communities and shareholders – in our decision-making,
especially when there are difficult choices to be made.
Our growth strategy
Our purpose-driven strategy for growth ensures that we
are focused on what’s relevant and right for our customers,
society and the environment. It focuses on how we will grow
our business and financial returns to make NatWest Markets
a winning and sustainable business. We will also maintain our
leadership in climate and sustainable financing and continue to
drive innovation in this area. Finally, we will work together as
one team, leveraging our global platform and continuing to
develop our culture.
Our values
Our values are at the heart of how we deliver our purpose
driven strategy. In 2021, responding to feedback from
stakeholders, we have engaged with colleagues, customers
and communities to re-envision a modernized set of values
that fully align with our strategic priorities. These collaborative
and evolved values will be launched in 2022 and will form an
integral part of our company’s cultural identity.
Our positive impact
We recognise the huge responsibilities that our role brings, and
this informs our considered approach. From supporting local
housing to funding initiatives for sustainability-based targets
across our global clients, we continue to have a positive
impact on the environment and wider society.
We contribute to the three focus areas of NatWest Group,
where we can make a meaningful contribution and build
long-term value in our business:
Climate
We will continue to grow our climate and ESG activities to
maintain our leadership in climate and sustainable financing,
supported by our dedicated climate and sustainability teams.
Enterprise
We continue to serve more of our core NatWest Group
customers, removing barriers to enterprise and providing
businesses in the UK with the backing they need to grow.
Learning
As we drive towards winning with purpose, we are creating
the conditions that allow our colleagues to thrive personally
and professionally. We have continued to share our market-
leading insight on a number of initiatives with customers.
We also recognise that to be purpose-led requires a significant
mind-set change and as such we have engaged with thought
leaders on this topic to challenge and develop our strategy.
This new way of thinking has already led to great customer
innovation, colleague development and collaboration across
the bank. We have delivered several initiatives to drive this
cultural shift this year, including purpose workshops for over
800 colleagues and research and training to explore what it is
that colleagues need to thrive. We have also continued to hold
our purpose and engagement forums to provide a platform for
open discussion and to drive sustainable progress.
Our blueprint for better business
Honest and fair
with customers and
suppliers
A responsible and
responsive employer
A good citizen
A guardian for
future generations
Our purpose:
Deliver long-term
sustainable
performance by
championing potential,
helping people, families
and businesses to thrive
3
NatWest Markets Plc
2021 Annual Report and Accounts
Chief Executive’s review
A more
focused business
By simplifying our organisational
structure, prioritising the products
that matter most to our customers
and leveraging the benefits of
a One Bank approach, we are
now well-positioned for growth.
Robert Begbie
CEO, NatWest Markets
Supporting our customers
Our clear growth plans, with increased collaboration across
NatWest Group, have already started to deliver benefits. We
have strengthened our overall foreign exchange (FX) and
international payments proposition so that more customers
can benefit from our market-leading service. We collaborated
across RBSI, NatWest Markets and Commercial Banking to
establish a team to grow our offering to the investment
management sector enabling us to provide a more integrated
experience for our funds and sponsors customer base.
Our business in Europe, which is in collaboration with
Commercial Banking, is strong and primed for growth.
Simplifying our business, innovating and working
with partners
Following the announcement of our plans in February 2020,
the transformation of NatWest Markets is largely complete.
I believe this is a great achievement against the backdrop
of a global pandemic and is testament to the expertise and
dedication of our colleagues. To enable becoming a more
sustainable business, we have leveraged NatWest Group
investment in technology both for colleagues and customers.
I’m pleased that our first API (application programming
interface) product, Indicative FX Rates, has been added to
the NatWest bank of APIs, enhancing our ability to connect
with our customers and partners. We also progressed the
development of our digital bond capability, completing a pilot
trade of a ‘blockchain bond’ in the secondary market. To build
on this progress and support the growth of the business will
require continued significant investment in our technology
transformation. This investment is expected to have an impact
on our 2022 results, as will the incurrence of further costs,
if any, associated with litigation and regulatory matters.
Financial performance
Our total income was £401 million and the operating loss for
the year was £714 million. This reflected a weak performance
in Fixed Income, contrasting with the exceptional levels of
market activity in the prior period caused by the pandemic,
and ongoing strategic costs associated with restructuring the
business and strengthening the balance sheet. We continued to
reduce operating costs in line with the strategic announcement
in February 2020 and progressed in closing legacy matters.
We returned £1 billion capital to NatWest Group via dividends
during the year up to 31 December 2021, with a further
£250 million to be declared and payable to NatWest Group
plc on 18 February. We have also made significant progress in
rightsizing our cost and capital base to support a sustainable
and profitable future business. Our risk-weighted asset (RWA)
reduction is largely complete with a decrease of c£2.9 billion
during the year reflected in a strong CET1 ratio of 17.9%
and leverage ratio of 4.3%. Performance in Capital Markets
and Currencies was in line with expectations, but the under-
performance in Fixed Income was driven by the continued
reshaping of the business as well as an unfavourable
market environment.
4
NatWest Markets Plc
2021 Annual Report and Accounts
Read more about our strategy in
action on pages 8 and 9.
Outlook
(1,5)
Outlook
We aim to generate sustainable and
attractive returns over the medium
term, with efficient capital usage.
2022 outlook
NWM Plc 2022 funding plan targets £4-5 billion of
public benchmark issuance.
Medium-term outlook
Metric
(2)
Estimate
CET1 ratio
(3)
~14%
MREL ratio
(4)
>30%
Leverage ratio
>4%
Notes:
(1)
This supersedes all prior guidance.
(2)
All metrics presented relate to NWM Plc.
(3)
NWM Plc expects to run above the 15% target on a solo basis in 2022.
(4)
Includes total regulatory capital, non-eligible capital plus downstreamed internal MREL.
(5)
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 179 to 200 in
this document. These statements constitute forward-looking statements. Refer to
‘Forward-looking statements’ in this document.
Sharpening our capital allocation
Our Capital Management unit has actively managed capital
allocation and optimisation across our businesses. We have
reduced market-risk RWAs and counterparty-risk RWAs
across the trading businesses, allowing for reallocation
of capital to support our growth priorities and we have
returned capital to NatWest Group via dividends.
Climate and ESG
We’ve had a strong year supporting our customers’
climate and ESG-related finance needs, with product
innovation across bonds, FX, interest rate derivatives and
private finance. In 2021, we completed £9.7 billion of Climate
and Sustainable Funding and Financing, including £3.3 billion
in H2 2021 which will contribute towards the new NatWest
Group target of £100 billion between 1 July 2021 and the
end of 2025. A great example of our support for renewables
is on Vineyard Wind 1, the first commercial scale offshore
wind farm in the US where our regional expertise supported
other NatWest Group teams. And we’ve also been able to
tap into the Asia investor base, supporting Hitachi Capital
(UK) Plc with its first green bond.
With NatWest Group a principal partner for COP26,
I was delighted to attend the conference and be involved in
industry events such as the International Emissions Trading
Association (IETA) CEO Roundtable and Global Financial
Alliance for Zero (GFANZ) events. Our thought leadership in
this area, as well as our commitment to customers, ensures
we remain a leading underwriter for green, social and
sustainability (GSS) bonds issued by UK corporates and
sterling-denominated GSS bonds across all sectors.
Colleagues and ways of working
I’m proud of the way colleagues have adapted to the
changes in ways of working, while also keeping our culture
front of mind. Our purpose is helping to drive our culture and
we’ve been running a dedicated programme for colleagues
to explore and understand the role they play in delivering
Purpose and how it shapes our business. This engagement
and connection to our purpose is vital to the success of
our growth ambition and strategy. This year, we have also
stepped up our focus on developing a culture that champions
diversity and creates an inclusive workplace that gives all of
our people the best opportunity to succeed and grow their
careers. I look forward to seeing more progress in this
crucial area of diversity, equity and inclusion in the
coming months.
As I reflect on the year, I’m delighted by how we’ve
progressed our transformation to a sustainable business.
I believe that the creation of the new Commercial and
Institutional franchise will further enhance our plans
for sustainable growth and enable us to deepen
our relationships with customers and support their
growth ambitions – helping them, as ever, to thrive.
5
NatWest Markets Plc
2021 Annual Report and Accounts
Our business model
How we create
and protect value
As part of NatWest Group,
we support our corporate
and institutional customers,
which includes banks, asset
managers, insurers, pension
funds, sponsors, sovereigns,
supranationals and agencies.
Our customers
1
Our key strengths
and resources
Digitally-led Currencies
business that’s well
connected across
NatWest Group,
operating seamlessly
to deliver for customers.
Innovative Capital Markets
platform with market
leading structuring and
distribution expertise
and climate and
ESG capabilities.
Strong commitment
to climate and ESG and
award-winning innovation
in sustainable financing.
Talented and diverse
workforce with inclusive
and collaborative culture.
Strong capital and
liquidity positions.
We provide liquidity and risk
management in Currencies
and Fixed Income through
a combination of voice
and electronic delivery.
Through our Capital Markets
business, we provide an
integrated proposition
across financing, solutions
and advisory services.
Our products and solutions
Underpinned by our focus on
ESG as a driver of value creation
Our business
Fixed income
We have long-standing
expertise in the fixed income
markets and offer cash
bond, repo and interest rate
derivatives with a focus in
sterling, euros and US dollars
that supports our customers’
financing and hedging needs.
In addition, we provide liquidity
and credit for investment grade
and high yield bonds and loans
for both financial institutions
and corporate issuers.
Currencies
We’re an award-winning
foreign exchange service
provider offering FX spot,
forwards, cross currency
swaps and options well as
an FX prime brokerage
service and FX
digital solutions.
2
We understand the power of
building deep and enduring
relationships and one of
the ways we do this is by
providing relevant market
colour, content and ideas to
customers. Our strategists
and content experts across
Currencies, Fixed Income
and Capital Markets offer
We work in close
collaboration with teams
across NatWest Group to
provide capital markets and
risk management solutions
to its customers and be the
partner of choice for those
customers’ financial
markets needs.
Our purpose
NWM Group will be the partner of choice to meet the financial markets needs of NatWest Group customers.
6
NatWest Markets Plc
2021 Annual Report and Accounts
Our customers
Our products and solutions
Underpinned by our focus on
ESG as a driver of value creation
Our business
Capital markets
We’re a leading partner for our customers,
helping them to access global debt capital
markets across a wide variety of products
and target markets, including bonds, loans,
commercial paper, medium-term notes
(MTNs) and private placements, as well
as bespoke financing solutions and
primary lending products.
We also provide customers with thought
leadership, advice and products to support
their climate and ESG strategies through our
ESG and Climate Capital Markets platform.
Also refer to Board engagement with key stakeholders on page 16
NatWest Group
–
Providing access to financial markets for NatWest Group customers, providing
an integrated proposition and expertise.
–
Consistent return of capital to NatWest Group via dividends throughout 2021
totalling £1 billion.
Customers
Refer to page 9 for further examples of how NatWest Markets creates value for
its customers.
Our support for customers has been recognised by a number of industry awards
including:
–
‘Lead manager of the year, sustainability bonds – local authority/municipality’,
and ‘Lead manager of the year, green bonds – supranational, sub-sovereign
and agency (SSAs), from the Environmental Finance Bond Awards 2021.
–
‘Sterling Bond House of the Year’ from the IFR Awards 2020 (awarded
February 2021).
–
‘Best Agent of International US Private Placements’ from the GlobalCapital
Private Debt Awards 2020 (awarded February 2021).
–
‘Best Bank for ALM and Libor Transition Management’ from the GlobalCapital
Covered Bond Awards 2021.
–
‘#1 bank for Overall FX Service Quality to the UK corporate sector’ from
Coalition Greenwich 2021.
Colleagues
–
We are committed to investing in our workforce and our integrated wellbeing
strategy allows us to support colleagues, customers and communities, and is
a key part of being a purpose-led organisation.
NatWest Markets investors
–
We maintain a strong capital base and liquidity to minimise the risk of
defaulting and provide comfort to existing and future investors on the
stability of NWM Group as a business.
Community and environment
–
We completed £9.7 billion of Climate and Sustainable Funding and Financing
(CSFF) in 2021, including £3.3 billion in H2 2021 which will contribute towards
the new NatWest Group target of £100 billion between 1 July 2021 and the
end of 2025.
Regulators and industry bodies
–
We provide insights via our active participation in trade associations and
industry-wide forums on key topics such as the transition away from LIBOR
and climate-related and ESG financing.
–
For more details on our role in industry-wide climate-related and ESG forums,
refer to the climate-related disclosures on page 22.
We think and act as one bank for our
customers, leveraging NatWest Group’s
expertise and shared services. NWM
Group is centred in the UK with trading
hubs in Amsterdam, London, Singapore
and Stamford (US), with sales offices across
key locations in the UK, EU, US and Asia.
Financial markets access is offered by the
NWM Group across NatWest Markets Plc
(NWM Plc) and its subsidiaries, including
NatWest Markets Securities Inc. and
NatWest Markets N.V. (NWM N.V.).
Our operations
fresh thinking alongside market-leading
economic insights in the key economies
where our customers do business.
We have a sharp focus on digitisation
and automation with our range of digital
FX, fixed income, risk management and
international payments options which
use our applications or APIs (application
programme interfaces), including Agile
Markets and FXmicropay.
3
Value created for our stakeholders
Our purpose
NWM Group will be the partner of choice to meet the financial markets needs of NatWest Group customers.
7
NatWest Markets Plc
2021 Annual Report and Accounts
Our strategy
A strategy to deliver our purpose
and drive sustainable returns
Our execution delivers on our purpose using our strengths to support
customers’ needs.
Strategic priorities
Progress in the year
Our priorities
Supporting
our customers
Work as part of
One Bank to invest
in growth areas that
matter the most to
our customers.
–
Supported customers across Capital Markets with innovative
transactions in public and private finance markets as well as
continued the development of our product offering in sustainable
finance, transition finance and sustainable-linked debt.
–
We collaborated across RBSI, NatWest Markets and Commercial
Banking to establish a team to grow our offering to the investment
management sector and provide a more integrated experience for
our Funds and Sponsors customers.
–
Through close collaboration across NatWest Group, we have
strengthened the overall foreign exchange (FX) and international
payments proposition.
–
Continue delivery of
growth initiatives as part
of our One Bank plans.
–
The delivery of FX and
international payments
features in 2022 are
set to unlock further
opportunities.
Powered by
innovation and
partnerships
Use new technology,
leverage our digital
expertise and partner
with leading external
organisations to
deliver excellent
customer experience.
–
We made significant progress on the implementation of our
agreement with BNP Paribas for the provision of house futures
and associated back-office services and in January 2022 we
successfully went live with the outsourcing of back office
services for our US-based Listed Derivatives business.
–
We developed our sustainability and ESG-linked product
suite for customers across FX, interest rate derivatives and
private financing.
–
By supporting NatWest Group’s collaboration with other
international banks to develop a transparent global marketplace
for carbon offsets with clear and consistent pricing and standards
known as Carbonplace, we advanced product innovation in the
voluntary carbon market.
–
We progressed the development of our digital bond capability,
completing a pilot trade of a ‘blockchain bond” in the
secondary market.
–
Continue innovation to
support customer needs
and explore opportunities
as we develop our Digital
Capital Markets capability.
–
Continue development of
Carbonplace partnership.
Simple to
deal with
Transform how
we operate and
simplify the business
to improve efficiency,
and the customer and
colleague experience.
–
Refined our country footprint and product range over the year to
further align with customers’ needs.
–
Through the introduction of our first API (application programming
interface) product, Indicative FX Rates, onto the Bank of APIs,
we have enhanced our ability to connect with our customers
and partners.
–
We leveraged NatWest Group’s investment in the technology
platform, streamlining the colleague desktop experience to
interface more easily with NatWest Markets colleagues.
–
In line with NatWest Group’s strategy, Other operating expenses
has reduced by £187 million reflecting progress on underlying
cost reductions.
–
Investment in technology
to support a simpler and
more digital business
model for our customers
including further
developing our
API-first approach.
–
Migrating all colleagues
to NatWest Group
technology platform
by end of 2022.
Sharpened
capital
allocation
Demonstrate effective
capital management
by reducing risk-
weighted assets
(RWAs) while
redeploying capital
to our growth areas.
–
Our Capital Management unit has actively managed capital
allocation and optimisation across the businesses.
–
We reduced market risk RWAs and counterparty risk RWAs
across the trading businesses, allowing for reallocation of
capital to support our growth agenda. Total RWAs have
reduced to £22.7 billion from £25.6 billion in 2020.
–
We returned £1 billion capital to NatWest Group via dividends
during the year up to 31 December 2021, with a further £250
million to be declared and payable to NatWest Group plc on
18 February 2022. This has been applied to the year-end
regulatory capital position.
–
Continue dividends/
capital allocations
to NatWest Group.
Underpinned by our commitment to sustainability and climate action.
8
NatWest Markets Plc
2021 Annual Report and Accounts
Our strategy
in action
Supporting the UK Government to tackle climate change
NatWest Markets has a vital role to play in green finance.
Being purpose led is about knowing and fulfilling our
responsibilities. It means delivering on our commitments
to our stakeholders, society and the environment.
One of the most important ways we can do this is by
helping tackle climate change.
To build out the green infrastructure needed to reach
net-zero targets first requires the funding and the market
mechanisms to deliver it. This is where NatWest Markets
has a vital role to play.
Following the UK Government’s announcement of its first-ever
sovereign green bond, we supported the second issuance of
green gilts in October 2021 as joint bookrunner.
The bond, which matures in July 2053, is the longest-dated
sovereign green bond currently outstanding in the market.
Crucially, it will help finance a whole range of climate
projects such as offshore windfarms, zero-emission
transport and schemes to decarbonise homes and buildings.
With these two green issuances, the UK’s Debt Management
Office has become one of the top three largest sovereign
issuers of green bonds in the world.
NatWest Markets is proud to be part of this process, and
to have helped deliver on the government’s commitment
to issue a minimum of £15 billion of green gilts in 2021-22.
Sustainability-linked FX in action
When a long-standing customer wanted to leverage
our expertise to help with its sustainability goals, we
were there to help.
The Co-op – a major food retailer and the UK’s largest
consumer co-operative – is accelerating its action to help
tackle climate change. As part of its ‘Co-operating for a
Fairer World’ vision, the organisation has launched a ten-point
climate plan, laying out how it will reach net zero by
2040 across its business areas.
The company turned to NatWest Market’s FX team to discuss
aligning its FX activities with its emissions targets – a concept
NatWest Markets previously introduced to the Co-op team.
In order to establish a sustainability-linked FX agreement,
Co-op and NatWest Markets settled on slightly adjusted
longer-term green key performance indicators in Co-op’s
revolving credit facility.
The agreement specified that if the Co-op meets its
approved science-based target to reduce operational
emissions by 2025, then it will qualify for a sustainability-linked
rebate. This is to be correlated to the volume of FX trades
booked with NatWest Markets between July 2021 and the
end of the 2021 financial year.
At the same time, the agreement allows the Co-op to continue
to book FX transactions with NatWest with no change to its
daily process.
By adopting this concept, the Co-op is a valuable role model
for other companies in different sectors to link sustainability
performance and financials. For us, it’s another example of
how we collaborate with our customers, using product
innovation to help solve their problems and fulfil their ESG goals.
Supporting EnBW’s climate neutrality plan
Helping our customers achieve their climate ambitions is
fundamental to our purpose. For us, it’s about understanding
their journey and using our expertise to help.
When it came to working with German integrated utility EnBW
Energie Baden-Württemberg AG, we knew it had clear and
long-standing plans for transitioning towards a lower-carbon
operating model.
After investing massively in the expansion of green energy,
EnBW now delivers renewables, electromobility and sustainable
energy solutions for its customers. What’s more, it is developing
smart grids to ensure that electricity networks can continue to
absorb the increasing proportion of decentralised renewable
energy generation. The company also offers access to the
largest electric vehicle charging network in Germany.
Having already supported EnBW in the role of structuring
adviser and global coordinator for its €500 million NC6 hybrid
bond in June 2020, the utility turned to NatWest Markets
for support again.
We were mandated by the company as joint bookrunner
on its first ever hybrid bond transaction, consisting of a
green and a non-green tranche marketed simultaneously.
This demonstrated our expertise in the sustainable debt hybrid
market which is an important pillar of our sustainable finance
offering. The two bonds, with an issue size of €500 million
each, replaced two existing non-green EnBW hybrids, and
will be used for projects such as offshore wind power and
large-scale solar schemes.
This is a great example of NatWest’s strategy in action, building
on our relationship to offer further areas of expertise and
supporting our customer to deliver a climate-positive outcome.
9
NatWest Markets Plc
2021 Annual Report and Accounts
Economy
Overview
NWM Group’s activities primarily relate to the UK, Europe
and the US, with the majority of its income from operations
in the UK. In all of these regions, economies expanded rapidly
in 2021 as the roll-out of vaccination programmes allowed
governments to remove social restrictions introduced to limit
the spread of COVID-19. Governments also maintained
substantial support for firms and consumers through the year
with transfers and loan guarantees, while central banks kept
monetary policy loose and engaged in quantitative easing.
Conditions in the second half of 2021 were more challenging
as demand returned to pre-pandemic levels and supply
constraints emerged. Unemployment remained lower than
forecast in many countries and business investment benefited
from some reduction in uncertainty. Against this backdrop,
inflationary pressure began to build with an increase in energy
prices particularly notable. Asset prices were volatile, reflecting
the varying sentiment towards the outlook.
Our response
NWM Group’s business and financial position correlates to
the economic conditions (in particular, economic growth and
the general level of interest rates and volume of transactions)
prevailing in its primary markets. Despite an uncertain
economic outlook, NatWest Markets remained focused
on meeting the diverse needs of customers across the
UK and internationally.
Regulation
Overview
NWM Group is comprised of NatWest Markets Plc (NWM Plc)
and its operating subsidiaries and associated undertakings. It
is primarily regulated by: the Financial Conduct Authority and
Prudential Regulation Authority in the UK; De Nederlandsche
Bank, Authority for the Financial Markets, and BaFin in Europe;
the Securities and Exchange Commission, Commodity Futures
Trading Commission, Chicago Mercantile Exchange, Federal
Reserve Bank of New York, Office of the Comptroller of the
Currency, and National Futures Association in the US; and
the Monetary Authority of Singapore, Hong Kong Monetary
Authority and Financial Services Agency in Asia.
Both the EU and UK have given significant focus to sustainable
finance regulation, with both jurisdictions having laid out clear
and ambitious roadmaps. With regard to the EU disclosure
regime, the level of firms’ alignment with the EU taxonomy
(which is divided into six climate and environmental categories)
will form the basis of metrics they are required to disclose,
such as the Green Asset Ratio (GAR). The UK will adopt a
similar approach and develop its own taxonomy, with two
of six categories to be defined before the end of 2022.
The environment we operate in is constantly changing. Understanding
the multiple influences on our business enables us to be prepared for change,
to respond quickly, and to create value for the long term.
NWM Group continues to adapt
to evolving market trends
Competitive landscape
Overview
NWM Group offers risk management, trading solutions and
debt financing to financial institutions and UK and European
corporate customers. It competes with large domestic banks,
major international banks and a number of investment banks.
We observed international banks and investment banks have
been hiring to grow their businesses across Fixed Income
and Capital Markets, notably in the US and selected areas in
Europe and APAC. During 2021 investment to build out ESG
and sustainable finance platforms has been a common theme
across corporate and investment banks. Competition is also
increasingly coming from non-bank liquidity providers using
low-latency and algorithmic trading to participate in high-
volume flow markets.
During 2021 there was solid performance across investment
banking divisions in the industry, particularly in mergers and
acquisitions and equities which showed robust performance
on the back of elevated activity. Across Fixed Income, credit
markets outperformed on a relative basis compared to
rates and FX following normalisation from COVID-19, lower
customer activity and challenging market conditions. With
the first signs of recovery from COVID-19, debt capital
markets also saw increased issuance activity.
Our response
During 2021, NWM Group continued to refine and innovate its
products and services to support the needs of corporate and
institutional customers. By doing so, we also looked to preserve
strong market positions in FX and Capital Markets in our areas
of focus, whilst reshaping our offering in Fixed Income to align
with the needs of our customers.
Operating environment
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NatWest Markets Plc
2021 Annual Report and Accounts
Our response
An established prudential programme coordinates the
regulatory changes encompassed by Capital Requirements
Regulation (CRR2) and the Finalised Basel III framework. The
programme oversees required capital model changes, Internal
Models Approach (IMA) eligibility and business readiness for
the revised regulations as well as required changes across
trading, risk, finance and technology and simulates the
capital impact of the revised regulations.
Climate change
Overview
NWM Group recognises that climate change is a global
issue which has significant implications for our customers,
colleagues, suppliers, partners and NWM Group itself.
Our response
Throughout 2021, NWM Group has continued to play a key role
in NatWest Group’s climate ambition and climate-related targets
and commitments, while working to help our customers better
understand the role they can play in tackling climate change.
For further details refer to climate-related disclosures on page
22 and NatWest Group’s Climate-related Disclosures Report
2021 on our corporate website at natwestgroup.com
Technology
Overview
Post COVID-19 market growth has accelerated the need for
digital products that meet the changing needs of customers
and partners. As a result, there is increased investment in
key technologies such as APIs, data analytics and cloud
infrastructure to deliver digital propositions to customers
how and when they want them. These digital propositions
must respond to and anticipate changing customer needs
including growing demand for ESG – and deliver them in
their preferred medium quickly and efficiently.
Our response
In 2021 we invested £213 million in technology across three
of our key areas: customers, colleagues and capability. We are
enhancing the customer experience and generating revenue
growth by designing and delivering the digital products and
services that matter most to them. For colleagues, we’re
modernising our desktop and trading floor to provide the tools
they need to deliver value to customers. And for capability,
we are simplifying and modernising our application and
infrastructure estate, embedding digital capability, and
transforming through innovation. Against this backdrop, we
are also aligning to a consistent technology platform with the
rest of NatWest Group and creating strong partnerships with
our technology suppliers.
Cyber threats
Overview
Cyberattacks pose a constant risk to our operations, both in
relation to our own digital estate and indirectly with regards to
our supply chain, reinforcing the importance of due diligence
with the third parties on which we rely.
Our response
We continue to invest significant resources in the development
and evolution of cybersecurity controls, deploy rigorous due
diligence with regards to third parties and work to protect
and educate our customers on fraud and scam activity.
Human rights and modern slavery
Overview
At NatWest Markets, we understand that businesses have an
important role to play in promoting respect for human rights.
We believe that tackling modern slavery forms an integral part
of our approach to human rights.
Our response
We seek to operate in accordance with the Universal
Declaration of Human Rights and our approach to respecting
human rights is informed by other internationally accepted
standards and principles including the United Nations Guiding
Principles on Business and Human Rights. We are a member
of the human rights steering group, a management group that
brings representatives from across NatWest Group together
to co-ordinate activities, and to make recommendations to
NatWest Group Executive Committee and Board to develop
and strengthen our approach.
We seek to tackle modern slavery through continued
implementation of policies covering our customers, colleagues
and suppliers. For the third year, our colleagues supported the
TRIBE Freedom Foundation and raised over £30,000 to assist
their anti-slavery projects, enabling long-term support for
survivors and helping to prevent modern slavery. Our approach
to tackling modern slavery is outlined in the NatWest Group
annual Modern Slavery and Human Trafficking Statement
which can be found at natwestgroup.com.
11
NatWest Markets Plc
2021 Annual Report and Accounts
Risk management
Risk
overview
Impactful and effective risk
management is a vital part of delivering
NWM Group’s strategy and purpose.
Risk is an inherent part of doing business. Some types of
risk – such as market risk or credit risk for example – are
an integral part of NWM Group’s day-to-day activities and
are a vital part of revenue generation. Other risks, such
as those arising as a result of changes in the economy or
the competitive landscape, are an inescapable part of the
environment in which the Group operates and must also
be managed and mitigated.
Effective risk management is a vital element of ensuring
NWM Group is able to achieve its long-term strategy and
fulfil its purpose.
NWM Group operates within NatWest Group’s enterprise-wide
risk management framework. The framework is aligned to
NatWest Group’s purpose and is designed to support
intelligent risk-taking.
While all colleagues share ownership of risk management, the
three lines of defence model is used to define responsibilities
and accountabilities. This aims to ensure that risks are properly
identified, measured, monitored, controlled and reported.
NatWest Group’s independent Risk function designs and
maintains the framework. The Risk function also provides
oversight and monitoring of all risk management activities.
NatWest Group has identified a number of principal risks.
These are risks that are an inherent part of banking activity
and have the potential to significantly affect the Group’s
performance or prospects. They are categorised as
financial and non-financial principal risks.
Principal financial risks
Principal non-financial risks
Traded Market Risk
Conduct Risk
Non-Traded Market Risk
Financial Crime Risk
Capital Adequacy
Operational Risk
Liquidity & Funding
Regulatory Compliance Risk
Credit Risk
Model Risk
Earnings Stability
Climate Risk
Pension Risk
Reputational Risk
In addition, a regular process identifies top and emerging
risks – specific scenarios of concern that, without appropriate
management and mitigation, could have a significant negative
impact on NWM Group’s ability to meet its strategic objectives.
These are detailed in the Risk & Capital Management section,
beginning on p42.
Risk appetite is a key component of the framework. It defines
the level and types of risk NWM Group is willing to take as part
of its business activities. Risk appetite is set in line with overall
strategy and approved by the Board. It supports the strategic
aim of building a sustainable business by providing colleagues
with a structured approach to risk-taking within agreed
boundaries. Information on the risk profile relative to risk
appetite, as well as details of new and emerging risks, is
reported regularly to the Board and senior risk committees.
Areas of focus in 2021
The global economy continued to grow, though more slowly
than expected. The continuing effects of the pandemic also
intensified uncertainty across a number of markets. Accordingly,
risk management played a critical role throughout the year,
focusing both on striking the correct balance between risk and
opportunity but also in ensuring that supporting processes,
policies and controls were properly optimised.
The traded market risk profile remained broadly stable,
though given the heightened uncertainty, this was an area
of significant risk management focus. The non-traded market
risk profile also remained stable in line with expectations.
Compliance and conduct
While further progress was made on the compliance and
conduct agendas during 2021, in December NWM plc pled
guilty in the United States Federal Court to one count of
wire fraud and one count of securities fraud. This related
to historical spoofing conduct by former employees in US
Treasuries markets between January 2008 and May 2014
as well as, separately, during approximately three months
in 2018. As the result of a plea agreement with the US
Department of Justice and the United States Attorney’s Office,
District of Connecticut, NWM will pay a criminal fine of $25.2
million, approximately $2.8 million of criminal forfeiture and
approximately $6.8 million in restitution. The plea agreement
also imposes an independent corporate monitor. NWM has
also committed to compliance programme reviews and
improvements. Reporting and cooperation obligations
have also been agreed.
Financial crime
As changes in technology, the economy and wider society
take place, risks relating to money-laundering, bribery and
corruption, financial sanctions, tax evasion and terrorist
financing continue to evolve. NatWest Group has invested
significantly in a multi-year transformation programme to
strengthen and improve its overall response to the evolving
threat. This investment continued during 2021 and there
was significant risk management focus on the systems and
processes relating to customer due diligence, transaction
monitoring and automated customer screening. The
embedding of a consistent approach to managing financial
crime risk continued, co-ordinated by the enterprise-wide
Financial Crime Hub, and work to enhance capabilities and
controls remained a focus. Both NatWest Group and NWM
Group itself continue to work with law enforcement agencies,
industry bodies and regulators to develop intelligence and
collaborative solutions to prevent financial crime.
Anti-bribery and corruption (ABC)
NWM Group is committed to ensuring it acts responsibly and
ethically, both when pursuing its own business opportunities
and when awarding business. Consequently, it has embedded
appropriate policies, mandatory procedures and controls to
12
NatWest Markets Plc
2021 Annual Report and Accounts
ensure its employees, and any other parties it does business
with, understand these obligations and abide by them whenever
they act for the Group. ABC training is mandatory for all staff
on an annual basis, with targeted training appropriate for
certain roles. The Group considers ABC risk in its business
processes including, but not limited to, corporate donations,
charitable sponsorships, political activities and commercial
sponsorships. Where appropriate, ABC contract clauses are
required in written agreements.
Internal service management
NWM Group relies on a number of services provided by the
ring-fenced entities within NatWest Group. There continued
to be significant focus on this during 2021 to ensure such
arrangements are managed within the terms of the UK’s
ring-fencing legislation. In addition, there was a strong
emphasis on ensuring the risk management aspects of
such services are optimised for NWM Group’s business
lines, products and customer base.
Climate risk
The impact of climate change on NWM Group and its
customers continued to be a central risk management focus
during the year. This included participation in a number of
working groups – both internally and externally – set up to
address this agenda as well as oversight of programmes
designed to support customers as they tackle the challenges
posed by both the physical and transition risks of climate
change. NatWest Markets also contributed to NatWest
Group’s submission to the Bank of England Climate
Biennial Exploratory Scenario stress test.
LIBOR
Risks relating to the reform of interest-rate benchmarks were a
consistent focus during the year. With the exception of certain
tenors, publication of the London Inter-Bank Offered Rate
(LIBOR), a key benchmark in the global financial markets for
many years, ceased on 31 December 2021. In preparation for
the move to alternative risk-free rates – including the Sterling
Overnight Index Average (SONIA) – NatWest Group stopped
offering Sterling LIBOR for new transactions on 31 March
2021. A Group-wide transition programme co-ordinated work
to help customers smoothly transition from a range of LIBOR-
based products, such as investment-backed lending and
derivatives, to those using alternative benchmarks. Significant
attention was paid to the potential conduct risks arising from
transition activity, as well as related operational risks, in order
to ensure positive customer outcomes. In addition, there was a
strong focus on carefully managing the associated compliance
risk, market risk and counterparty credit risk. The complexity
of the transition, especially in relation to so-called “tough
legacy” contracts that cannot be transitioned to alternative
reference rates, also heightened execution risk. Given
additional challenges experienced by customers during the
pandemic, the FCA has proposed that use of synthetic sterling
LIBOR may be permitted for a number of legacy contracts. It’s
expected that management of related risks will remain a focus
into 2022 as NWM Group continues to support its customers
through the transition.
Information and cyber security
Cybercrime is an ever-present threat across the
digital landscape and continues to evolve rapidly.
Attacks may be from individuals or highly-organised
criminal groups intent on stealing money or
sensitive data, or potentially holding organisations
to ransom. NWM Group takes this threat seriously
and continues to work with industry bodies, peers
and the National Cyber Security Centre to gather
and share intelligence. During 2021, there was
continued risk management focus on ensuring
defences remain optimised for the evolving threat.
Risk culture
NatWest Group’s multi-year programme to enhance
risk management capability at every level of the organisation
continued with an ongoing emphasis on risk culture. This work
aims to embed a generative risk culture across all three lines
of defence – where risk management is an integral part of
the way colleagues work and think. The approach supports
intelligent risk-taking, better customer outcomes, stronger and
more sustainable business as well as an improved cost base.
During 2021, NWM Group focused on a number of risk culture
initiatives, including improvements in risk data and systems
alignment as well as enhancements to risk identification
processes and risk culture management information.
Control
There was significant focus on NWM Group’s control
environment throughout the year. Enhancements were made
to the testing regime in order to ensure assurance protocols
continue to be as robust as possible. Work to review and
strengthen NWM Group’s control environment will continue
in 2022.
Model risk
An effective understanding of likely future outcomes and the
scale of likely hazards is an essential part of forward-looking
risk management. NWM Group is heavily reliant on modelling
across all aspects of its business. Ensuring that its models are
designed effectively – and that associated assumptions, data
inputs and techniques are appropriate – remained a key risk
management focus in 2021. This included activity within NWM
N.V. to review and upgrade certain models to ensure statistical
estimates and outputs remain in line with requirements in the
rapidly-evolving business landscape.
Strategy
Potential execution risks relating to the NWM Group strategy
were also a significant consideration. This included striking a
balance between the risks related to implementation and other
correlated threats as the year progressed, such as the possible
impact of further lockdowns.
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NatWest Markets Plc
2021 Annual Report and Accounts
Risk management
continued
Top and
emerging risks
NWM 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 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 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 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 Group is not able to adapt or compete effectively with the appropriate product offerings and
geography. NWM 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 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.
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 Group
operates a multi-layered approach to its defences and continues to invest in building its resilience and
cyber-security capabilities.
Regulatory,
legal and
conduct risk
NWM 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 and development of capital models in
NWM N.V. The implications of proposed, or potential, regulatory developments are incorporated into business
and financial plans. Conduct and supervisory risks have been heightened by both strategic change and
changing ways of working. NWM 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.
This aims to deliver strong customer and business outcomes, reducing the risk of material staff misconduct
and supporting business sustainability.
UK-EU
divergence
NWM Group has implemented plans to operate in the EU market and continues to monitor the evolving
situation arising from the UK’s withdrawal from the EU for any developments that may adversely affect NWM
Group and its operating environment. NWM continues to monitor the emerging regulatory environment – and
likely associated scenarios – to facilitate continuity of business.
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NatWest Markets Plc
2021 Annual Report and Accounts
Internal
People risk
NWM 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 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 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 Group’s purpose and plays a powerful role in shaping the business as well as the
views of stakeholders.
Strategy
execution
NWM Group’s strategy includes an increased focus on serving NatWest Group’s corporate and institutional
customer base. NWM Group has already simplified its operating model and reduced its cost base, but
challenges still remain to meet income and cost targets in future years. This will entail material execution
risks, commercial risks and operational risks for NWM Group. There is a dependency on NatWest Group’s
strategic decisions which could affect NWM Group’s own strategy. NWM Group’s Board maintains proactive
engagement with NatWest Group to ensure strategic alignment.
Sustainable
control
environment
The internal system of controls is key to NWM 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 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.
15
NatWest Markets Plc
2021 Annual Report and Accounts
What matters to them
How we engaged
Outcome of engagement
Customers
The NWM Plc Board is mindful of the
significance of providing a reliable service to
our customers and supporting them to manage
their financial risks and achieve their short and
long-term financial goals.
–
The NWM Plc Board received regular updates on customer issues via reports
from the NWM Plc CEO and business heads, along with deep dive sessions on
product lines and customer segments.
–
The NWM Plc Board was regularly updated on the nature and extent of ESG
issuances and financing activity provided to customers following COVID-19.
The customer touchpoint rating and client profitability dashboard provided
the NWM Plc Board with regular analytics.
The NWM Plc CEO continued to meet with
customers throughout the year to enhance
relationships and explain the impact of the
refocusing of NWM Group.
Colleagues
The NWM Plc Board appreciates the
importance of a wide range of topics impacting
the workforce including diversity, equity and
inclusion, COVID-19 and talent management.
–
The NWM Plc Board asked colleagues to share thoughts on what it’s like
to work for NatWest Group, including in NWM Plc, by completing colleague
opinion surveys.
–
The NatWest Group-level Colleague Advisory Panel provided a mechanism
for directors to engage directly with colleagues on topics of strategic interest.
–
Colleagues were encouraged to report any concerns relating to wrongdoing
or misconduct using NatWest Group’s whistleblowing service, Speak Up.
–
The 2021 Talent academy provided a purpose-led opportunity to create a
talent pool of colleagues across all business areas, demographics and grades.
The NWM Plc Taskforce continued to support
delivery of NatWest Group’s commitments to
support our Black, Asian and Minority Ethnic
colleagues to create a more diverse and
inclusive culture.
Communications on the new ways of working
and hybrid return to the office were circulated to
colleagues and supporting colleagues’ wellbeing
became increasingly important during the
COVID-19 pandemic and subsequent transition
to the new ways of working.
Community
and environment
The NWM Plc Board recognises the growing
importance of climate change and its potential
impact on our society.
–
The NWM Plc Board received regular updates on the significant progress
made on green finance and the NWM Plc Board supported NatWest Group
as the banking sponsor of COP26.
–
The NWM Plc CEO led a forum which oversaw the response to the risks
posed by climate change as well as exploring the opportunities for growth
in the ESG market.
The NWM Plc Board is committed to managing
the wider social, environmental and economic
impacts of NWM Plc’s operations and there has
been recognition of NWM Group’s strong ESG
credentials and climate initiatives in Europe.
Regulators
The focus of regulatory engagement in 2021
was on the strategic change programme and
go-forward European strategy, front office
changes and trading controls given the new
ways of working and growth initiatives as NWM
Group’s restructuring phase draws to a close.
–
The NWM Plc Board recognised the importance of open and continuous
dialogue with regulators and the NWM Plc Chairman, executive directors
and non-executive directors had regular meetings with the PRA and FCA.
The NWM Plc Board received regular reports on
regulatory matters from the Chief Governance &
Regulatory Officer.
Suppliers
The NWM Plc Board is mindful of the role
suppliers play in ensuring a reliable service is
delivered to customers and of the importance
of our relationships with key suppliers.
–
The NWM Plc Board regularly received analytics as NWM Plc progressed
further through the multi-year transformation programme which included the
transfer of support functions to NatWest Group to improve operating efficiency
and are provided using service level agreements. This allowed NWM Plc to
isolate any issues for remediation.
The NWM Plc Board, through the NWM Plc Board
Risk Committee, approved further key performance
indicators which are used to monitor delivery of the
outsourced services.
Our stakeholders
Board engagement
with key stakeholders
Here we highlight
who our key
stakeholders are
and how the NWM
Plc Board engages
with them to
create value.
16
NatWest Markets Plc
2021 Annual Report and Accounts
What matters to them
How we engaged
Outcome of engagement
Customers
The NWM Plc Board is mindful of the
significance of providing a reliable service to
our customers and supporting them to manage
their financial risks and achieve their short and
long-term financial goals.
–
The NWM Plc Board received regular updates on customer issues via reports
from the NWM Plc CEO and business heads, along with deep dive sessions on
product lines and customer segments.
–
The NWM Plc Board was regularly updated on the nature and extent of ESG
issuances and financing activity provided to customers following COVID-19.
The customer touchpoint rating and client profitability dashboard provided
the NWM Plc Board with regular analytics.
The NWM Plc CEO continued to meet with
customers throughout the year to enhance
relationships and explain the impact of the
refocusing of NWM Group.
Colleagues
The NWM Plc Board appreciates the
importance of a wide range of topics impacting
the workforce including diversity, equity and
inclusion, COVID-19 and talent management.
–
The NWM Plc Board asked colleagues to share thoughts on what it’s like
to work for NatWest Group, including in NWM Plc, by completing colleague
opinion surveys.
–
The NatWest Group-level Colleague Advisory Panel provided a mechanism
for directors to engage directly with colleagues on topics of strategic interest.
–
Colleagues were encouraged to report any concerns relating to wrongdoing
or misconduct using NatWest Group’s whistleblowing service, Speak Up.
–
The 2021 Talent academy provided a purpose-led opportunity to create a
talent pool of colleagues across all business areas, demographics and grades.
The NWM Plc Taskforce continued to support
delivery of NatWest Group’s commitments to
support our Black, Asian and Minority Ethnic
colleagues to create a more diverse and
inclusive culture.
Communications on the new ways of working
and hybrid return to the office were circulated to
colleagues and supporting colleagues’ wellbeing
became increasingly important during the
COVID-19 pandemic and subsequent transition
to the new ways of working.
Community
and environment
The NWM Plc Board recognises the growing
importance of climate change and its potential
impact on our society.
–
The NWM Plc Board received regular updates on the significant progress
made on green finance and the NWM Plc Board supported NatWest Group
as the banking sponsor of COP26.
–
The NWM Plc CEO led a forum which oversaw the response to the risks
posed by climate change as well as exploring the opportunities for growth
in the ESG market.
The NWM Plc Board is committed to managing
the wider social, environmental and economic
impacts of NWM Plc’s operations and there has
been recognition of NWM Group’s strong ESG
credentials and climate initiatives in Europe.
Regulators
The focus of regulatory engagement in 2021
was on the strategic change programme and
go-forward European strategy, front office
changes and trading controls given the new
ways of working and growth initiatives as NWM
Group’s restructuring phase draws to a close.
–
The NWM Plc Board recognised the importance of open and continuous
dialogue with regulators and the NWM Plc Chairman, executive directors
and non-executive directors had regular meetings with the PRA and FCA.
The NWM Plc Board received regular reports on
regulatory matters from the Chief Governance &
Regulatory Officer.
Suppliers
The NWM Plc Board is mindful of the role
suppliers play in ensuring a reliable service is
delivered to customers and of the importance
of our relationships with key suppliers.
–
The NWM Plc Board regularly received analytics as NWM Plc progressed
further through the multi-year transformation programme which included the
transfer of support functions to NatWest Group to improve operating efficiency
and are provided using service level agreements. This allowed NWM Plc to
isolate any issues for remediation.
The NWM Plc Board, through the NWM Plc Board
Risk Committee, approved further key performance
indicators which are used to monitor delivery of the
outsourced services.
17
NatWest Markets Plc
2021 Annual Report and Accounts
In this statement we describe how
our directors have had regard to the
matters set out in section 172(1) (a) to
(f) of the Companies Act 2006 (section
172) when performing their duty to
promote the success of the company.
Board engagement with stakeholders
The NWM Plc Board reviews and confirms its key stakeholder
groups for the purposes of section 172 annually. For 2021, they
remained customers, colleagues, community and environment,
investors, regulators and suppliers. Examples of how the NWM
Plc Board has engaged with key stakeholders, including the
impact of principal decisions, can be found in this statement
and on pages 16 and 17.
Supporting effective NWM Plc Board discussions
and decision-making
Our purpose continues to influence NWM Plc Board discussions
and decision-making.
Our NWM Plc Board and Committee Terms of Reference
reinforce the importance of considering both our purpose
and the matters set out in section 172 in NWM Plc Board
discussions and decision-making. Our NWM Plc Board and
Committee paper template includes a section for paper
authors to explain how the paper aligns with our purpose
and a separate section for them to include an assessment of
the relevant stakeholder impacts for the directors to consider.
Our directors are mindful that it is not always possible to
achieve an outcome which meets the requirements, needs
and/or expectations of all stakeholders who are, or may be,
impacted. For decisions which are particularly challenging
or complex, we introduced an additional page to our paper
template in 2021 which provides directors with further
information to support purposeful decision-making. This
additional page uses the ‘Blueprint for Better Business’
framework as a base and is aligned to our broader
purpose framework.
Principal decisions
Principal decisions are those decisions taken by the NWM Plc
Board that are material, or of strategic importance, to the
company or are significant to NWM Plc’s key stakeholders.
Set out on the next page is an example of the principal
decisions taken by the NWM Plc Board during 2021.
Likely long-term consequences.
Employee interests.
Relationships with customers, suppliers and others.
The impact on community and environment.
Maintaining a reputation for high standards of
business conduct.
Acting fairly between members of the company.
Section 172(1)
statement
Our stakeholders
continued
18
NatWest Markets Plc
2021 Annual Report and Accounts
Factors
considered:
Approving the acceleration
of capital distributions
What was the decision-making process?
As part of the NWM Plc Board’s approval of the
2021 Business Plan and Budget in December 2020,
the NWM Plc three-year funding plan included
a forecast of capital distributions across a
three-year period.
Across 2021 at quarterly intervals in February, June,
and October, the NWM Plc Board approved updates
to the three-year funding plan and accelerated a
total of £1 billion in capital distributions to NatWest
Group plc.
The NWM Plc Board’s decisions were informed
by regular updates on NWM Plc’s financial and
capital positions and a key focus of NWM Plc
Board level discussions was how surplus capital
was being managed.
The NWM Plc Board Risk Committee also reviewed
all capital distribution proposals in advance of the
NWM Plc Board and recommended them to the
NWM Plc Board for approval.
To support the NWM Plc Board in its decision-
making, it received comprehensive papers prepared
by management which updated the NWM Plc Board
on the progress of the three-year funding plan and
sought the NWM Plc Board’s support to accelerate
each capital distribution.
How did the directors fulfil their duties under
section 172? How were stakeholder interests
considered? How did the decision align to
our purpose?
In approving the accelerated capital distributions
throughout 2021, directors were mindful of their
duties under section 172 including the likely long-
term consequences of the decision and whether
the acceleration of the capital distributions would
support the long-term sustainable success of
the company. Each update the NWM Plc Board
received provided an overview of the relevant
stakeholder considerations.
Substantial analysis was completed to evaluate
options and assess the long-term impacts of
accelerated capital distribution on key stakeholder
groups (including colleagues, customers, investors
and the environment), what their concerns were
likely to be and the key messages that would
support engagement. NWM Plc’s accelerated
progress against the strategic plan as the
restructuring phase draws to a close allows
for increased focus on growth initiatives in
areas such as green finance.
There was also extensive engagement with
representatives of NatWest Group to ensure proper
alignment and that the end state would support the
delivery of NatWest Group’s overarching purpose
and promote a high standard of business conduct.
This engagement ensured that the NWM Plc Board
understood the views of NatWest Group and could
balance these with the interests of other
stakeholders in making their decision.
Accelerated capital distributions from NWM Plc
to NatWest Group facilitate NatWest Group’s
management of its double leverage ratio. This
ratio is crucial in how NatWest Group distributes
its capital to support customers and the wider
economy. It also enables NatWest Group to pass
on excess capital to its shareholders and achieve
its purpose of championing the potential of people,
families and businesses.
How was our purpose considered as part of
the decision?
Considering relevant stakeholder interests is key
to purposeful decision-making. The new purposeful
decision-making page referred to previously was
used to provide the NWM Plc Board with a detailed
analysis of stakeholder considerations and impacts
using the five categories in the ‘Blueprint for Better
Business’ framework, specifically: ‘honest and fair
with customers and suppliers’; ‘a responsible and
responsive employer’; ‘a good citizen’; ‘a guardian
for future generations’; ‘and delivering long-term
sustainable performance’.
Actions and outcomes
The NWM Plc Board approved the acceleration of
capital distributions at its meetings throughout 2021
on 18 February 2021, 9 June 2021, and 28 October
2021. The NWM Plc Board continues to receive
updates on the progress of the three-year
funding plan.
19
NatWest Markets Plc
2021 Annual Report and Accounts
Our colleagues
Helping our
colleagues thrive
We aim for NatWest Markets to be
a great place to work. By offering
a fulfilling job, a healthy workplace,
fair rewards, excellent development,
and great leadership, we believe our
colleagues can thrive in what they do.
Our HR policies and procedures are aligned to NatWest Group
wherever possible, and information on Groupwide progress
can be found in the ‘Colleagues’ section in the NatWest Group
Annual Report and Accounts 2021.
Supporting colleagues’ wellbeing
A vital part of being a purpose-led organisation is having a fully
embedded wellbeing strategy. We take a holistic approach to
wellbeing and our proposition covers mental health, physical
health and financial wellbeing. In addition to NatWest
Group activity:
–
NatWest Markets Wellbeing network continued to offer
speaker sessions on topics such as resilience and
mental health.
–
The Analyst and Associates network, which supports and
promotes the development of the Graduate, Apprentice,
Analyst and Associate communities, helped its members
to navigate working from home at the early stage of
their careers.
Ways of Working
In 2021 we have adopted new ways of working as outlined
in NatWest Group’s ’Ways of Working’ framework. This is
designed to be a flexible and dynamic way to both deliver
colleague choice and better meet customer needs. The
regulatory oversight of some roles in NatWest Markets means
some colleagues have been assigned to the Office First model
where people will perform the majority of their work at their
designated hub. The remainder of colleagues align to the
Hybrid model and split their time more evenly between
their designated hub and home. As we’ve transitioned to
the new ways of working we’ve taken a phased test and
learn approach and ensured a focus on colleague wellbeing
and health and safety.
Helping colleagues realise their potential
Participation in NatWest Group initiatives has been strong,
with 1,300 colleagues accessing the NatWest Group Academy.
A further 82 were then selected for the Talent Academy which
supports high-potential colleagues through a programme of
challenging and purposeful development opportunities.
In addition we have supported around 100 senior women
to extend their business networks and to hear from inspiring
speakers through our continued sponsorship of the Reaching
Further initiative.
Diversity, equity and inclusion (DE&I)
We are focused on developing a community that champions
diversity while creating an inclusive workplace which gives our
people the best opportunity to succeed and grow their careers.
Examples of how we have worked towards this in 2021 include:
–
The NatWest Markets Diversity Task Force, which is chaired
by Robert Begbie, was established to regularly discuss and
progress the DE&I agenda in consultation with the senior
leadership team in NatWest Markets. The Task Force also
reviews all senior vacancies to ensure that a diverse
pipeline of candidates are considered for opportunities.
–
The employee-led network, NatWest Markets Women, was
enhanced in 2021 to create a community and voice for all
women in NatWest Markets. In addition to a programme of
events, the network set up a ‘buddy’ system to act as an
informal support system. NatWest Markets Women also
surveyed a number of customer-facing colleagues to
determine the key challenges facing women in
progressing their careers.
–
The ‘Talent to Watch’ global programme, which
provides coaching, support and leadership sponsorship,
was refreshed in 2021 to help it to continue to build and
develop future talent.
–
The target for 2021 was to have female representation
at CEO-3 or above at 25%. As of 31 December 2021 the
representation was 21%. The reported mean gender pay
gap is 38.3% (median: 28.4%) and the mean gender bonus
gap is 59.1% (median: 50.0%). We recognise we have more
to do and continue to focus on the recruitment, retention
and advancement of women to meet our ambition of having
full gender balance in our top three levels globally by 2030.
–
The 2021 target relating to representation of Black, Asian
and Minority Ethnic colleagues in the top four leadership
layers of the organisation was 18% and as of 31 December
2021, representation was 19.4%.
For people risk please refer to Top and emerging risks on page 15.
20
NatWest Markets Plc
2021 Annual Report and Accounts
Learning and
enterprise focus areas
Enterprise:
We continue to work across NatWest to support
initiatives that are removing barriers to enterprise
and providing businesses in the UK the support
they need to grow.
This year we have made progress in several areas and have
focused our attention on upskilling and further developing our
understanding of the issues that enterprises face, in order to
take meaningful action.
NatWest COP26 SMI Action Forum event
Members of the NatWest Markets team, including Robert
Begbie, CEO, and Victoria Cleverley, Chief of Staff, NatWest
Markets, were involved in creating and leading a One Bank
event focused on SMEs, in collaboration with the Sustainable
Markets Initiative, during COP26.
As a principal partner of COP26, NatWest Group convened
over 70 stakeholders in Glasgow to discuss practical and
actionable steps for SMEs to tackle climate change. The
purpose of the session was to bring together business leaders
and owners to establish impactful shared visions that support
SMEs to take action centred on our recent Springboard to
Sustainable Recovery report and how to accelerate SMEs’
journey to net zero. Whilst focused on climate this allowed
the team to hear directly from enterprises about what was
required on issues related to funding and market access,
amongst other topics.
Treasury Training
NatWest Markets worked in collaboration with Corporates &
Institutions to run a successful week-long series of bite-sized
customer seminars presented as the NatWest Treasury
Training boxset.
Hosted by a broad team of subject matter experts from across
the businesses, the programme of 29 sessions was attended by
participants from more than 400 companies and an average of
105 customers per session, with content ranging from capital
markets and risk management, to working capital and
open banking.
Those involved shared a view that supporting customer
education and building financial capability is an important
part of NatWest’s purpose and the event is a great
demonstration of how we can fulfil these ambitions
while deepening customer relationships.
Starting out as in-person, product specific training on a small
scale four years ago, our approach to providing free training to
customers has evolved and grown both in size and quality and
embracing technology has played a huge part in the success.
While seeing customers in person has significant benefits, the
virtual format allowed a broader range of topics to be offered
to a global external and internal audience, as well as providing
a recording and a wealth of data about which topics are of
most interest to which customers.
Learning:
As we continue to drive towards winning
with purpose, we are creating environments to
understand our colleagues’ thoughts and ideas and
importantly, what conditions we need to create for
colleagues to thrive.
We are engaging with colleagues, to help them to connect
their personal purpose to their roles. By doing so we believe
we can unlock the potential within our organisation. Our goal
is to create the conditions that allow our colleagues to thrive
personally and professionally and to ensure our strategy,
operating model, and culture are driven by purpose.
To support this over 800 colleagues have now attended
a purpose workshop.
We have continued to share our market-leading insight with
customers on a number of topics including ESG and the
transition away from LIBOR.
Our subject matter experts supported our customers’ learning
on many ESG themes through events and insight articles. For
colleagues we ran bi-monthly ESG Bitesize webinars covering
a range of case studies and product innovation. Over 300
colleagues globally signed up to the University of Edinburgh’s
Climate Change transformation programme, helping to
integrate our climate ambition across different roles
and functions.
Learning and enterprise
We are guided by our purpose and create a positive impact through our areas of
focus. You can read about our climate focus from page 22.
21
NatWest Markets Plc
2021 Annual Report and Accounts
The table below summarises the ongoing progress NWM Group has made during 2021 with regard to
climate-related risks, opportunities and the areas of future focus.
Climate disclosure themes
Governance
Strategy
Risk management
Metrics and targets
Progress
to date
–
Targeted training for NWM Plc Board
(the “Board”) to build climate knowledge and
support ongoing oversight of management’s
response to climate-related risks
and opportunities.
–
A monthly CEO led forum, the Climate &
Sustainability Committee (CSC) is attended
by members of the NWM Group Executive
team to discuss the business’s progress on
climate matters.
–
Established climate change roles and
responsibilities across the senior
management team.
–
Established a Climate and ESG Capital
Markets team to provide centralised
resource and expertise for customer
facing and product teams.
–
Continued to build climate knowledge with
all stakeholders. Delivered in excess of 180
publications and events throughout 2021
aimed at supporting learning journeys for
customers and colleagues; in excess of 300
NWM Group colleagues globally signed up to
the University of Edinburgh’s Climate Change
training programme.
–
Advanced product innovation in the voluntary
carbon market by supporting NatWest Group
with the launch of Carbonplace.
–
Climate change is monitored and managed as a principal
risk. NWM Group is aligned to the NatWest Group Climate
Risk Policy.
–
Credit risk: NWM 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.
–
Market risk: A monthly climate sector and geography
report was developed to monitor key climate
risk concentrations.
–
Operational risk: Climate change considerations
were incorporated into NWM Group’s operational risk
assessment processes. A dedicated climate change
scenario was developed to assess potential risks.
–
Established quantitative assessments for the
following metrics:
–
NWM Group’s progress against its contribution to the
£100 billion NatWest Group Climate and Sustainable
Funding and Financing target.
–
NWM Group’s loan exposures to high-carbon
sectors identified based on physical and transition
risk assessment.
–
NWM Group’s capital markets transactions
(financing) – lead management activity by sector.
Areas of
future focus
–
Continue to develop operating rhythm for
Board review and oversight of climate-related
risks and opportunities.
–
Continue to enhance management roles and
responsibilities framework to incorporate
management of climate-related risk
and opportunities.
–
Quantify our climate impact across the
balance sheet and consider the impact of our
underwriting business on global emissions.
–
Establish NWM Group-specific
management actions based on
insights from scenario analysis.
–
Further develop technology and data
capabilities to support customer engagement,
business decision-making and governance.
–
NWM Group continues 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
Group portfolio. A more quantitative approach is in plan
to be developed within this methodology as data
becomes available.
–
Market risk: Ongoing engagement with regulators
will continue to ensure NWM Group remains in line with
industry standards. Additional work will be planned as
required – for example if the Bank of England revises its
approach and includes traded market risk in its scope for
the Climate Biennial Exploratory Scenario (CBES) in 2022,
NWM Group will provide further support for the NatWest
Group submission.
–
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.
–
There will be ongoing assessment of the impact of the
European Central Bank (ECB) guidelines on our European
franchise (NWM N.V. Group) on environmental risk.
–
Continue to work with NatWest Group, on developing
NWM Group’s key metrics and targets to assess and
manage own climate-related risks and opportunities.
Climate-related
disclosures overview
Throughout 2021, NWM Group has continued to play a key role in NatWest
Group’s climate ambition, while working to help our customers better
understand the role they can play in addressing climate change.
Climate-related disclosures
22
NatWest Markets Plc
2021 Annual Report and Accounts
The table below summarises the ongoing progress NWM Group has made during 2021 with regard to
climate-related risks, opportunities and the areas of future focus.
Climate disclosure themes
Governance
Strategy
Risk management
Metrics and targets
Progress
to date
–
Targeted training for NWM Plc Board
(the “Board”) to build climate knowledge and
support ongoing oversight of management’s
response to climate-related risks
and opportunities.
–
A monthly CEO led forum, the Climate &
Sustainability Committee (CSC) is attended
by members of the NWM Group Executive
team to discuss the business’s progress on
climate matters.
–
Established climate change roles and
responsibilities across the senior
management team.
–
Established a Climate and ESG Capital
Markets team to provide centralised
resource and expertise for customer
facing and product teams.
–
Continued to build climate knowledge with
all stakeholders. Delivered in excess of 180
publications and events throughout 2021
aimed at supporting learning journeys for
customers and colleagues; in excess of 300
NWM Group colleagues globally signed up to
the University of Edinburgh’s Climate Change
training programme.
–
Advanced product innovation in the voluntary
carbon market by supporting NatWest Group
with the launch of Carbonplace.
–
Climate change is monitored and managed as a principal
risk. NWM Group is aligned to the NatWest Group Climate
Risk Policy.
–
Credit risk: NWM 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.
–
Market risk: A monthly climate sector and geography
report was developed to monitor key climate
risk concentrations.
–
Operational risk: Climate change considerations
were incorporated into NWM Group’s operational risk
assessment processes. A dedicated climate change
scenario was developed to assess potential risks.
–
Established quantitative assessments for the
following metrics:
–
NWM Group’s progress against its contribution to the
£100 billion NatWest Group Climate and Sustainable
Funding and Financing target.
–
NWM Group’s loan exposures to high-carbon
sectors identified based on physical and transition
risk assessment.
–
NWM Group’s capital markets transactions
(financing) – lead management activity by sector.
Areas of
future focus
–
Continue to develop operating rhythm for
Board review and oversight of climate-related
risks and opportunities.
–
Continue to enhance management roles and
responsibilities framework to incorporate
management of climate-related risk
and opportunities.
–
Quantify our climate impact across the
balance sheet and consider the impact of our
underwriting business on global emissions.
–
Establish NWM Group-specific
management actions based on
insights from scenario analysis.
–
Further develop technology and data
capabilities to support customer engagement,
business decision-making and governance.
–
NWM Group continues 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
Group portfolio. A more quantitative approach is in plan
to be developed within this methodology as data
becomes available.
–
Market risk: Ongoing engagement with regulators
will continue to ensure NWM Group remains in line with
industry standards. Additional work will be planned as
required – for example if the Bank of England revises its
approach and includes traded market risk in its scope for
the Climate Biennial Exploratory Scenario (CBES) in 2022,
NWM Group will provide further support for the NatWest
Group submission.
–
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.
–
There will be ongoing assessment of the impact of the
European Central Bank (ECB) guidelines on our European
franchise (NWM N.V. Group) on environmental risk.
–
Continue to work with NatWest Group, on developing
NWM Group’s key metrics and targets to assess and
manage own climate-related risks and opportunities.
23
NatWest Markets Plc
2021 Annual Report and Accounts
Climate-related disclosures
continued
Forum
Role/Responsibility
Board level
governance
NWM Plc Board
The NWM Plc Board approves NWM Group’s strategy and objectives within
the aims of the wider NatWest Group. This includes the progress towards
delivering on NatWest Group’s strategy, including climate ambitions. The
Board has received regular updates on the progress towards climate-
related funding and financing targets and future commitments as part
of NatWest Group ambitions.
NWM Plc Board Risk Committee
The NWM Plc Board Risk Committee (BRC) is responsible for the oversight
of NWM Group’s risk profile. The BRC has been involved in discussion on
the development of NWM Group’s climate risk appetite, including the
quantitative risk appetite measures.
NWM Plc Audit Committee
The NWM Plc Audit Committee is responsible for oversight of the bank’s
material disclosures, including non-financial disclosures as well as climate.
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 supports the NWM Plc CEO discharge
the delegated Senior Management Function (SMF) accountability from
the NatWest Group CEO for identifying and managing financial risks
and opportunities arising from climate change.
Climate-related disclosures:
Governance
The NWM Plc Board and senior management team are committed to ensuring
NWM Group, as part of NatWest Group, plays a leading role in the transition
to a net-zero economy.
Governance framework
During 2021 NWM Group has continued to embed its approach
to climate governance and build on the framework developed
in 2020. A key focus has been to ensure clarity of responsibility
over climate in relation to the NWM Plc Board, Board
Committees, management forums and individuals
across the business.
The Board and senior management intend to continue to
focus on the integration of climate into risk appetite and
the embedding of climate within established governance
operating rhythms.
The chart below provides insight into climate accountabilities
for both forums and individuals within NWM Group.
NWM Plc Board oversight
NWM Plc Board has ultimate oversight of how NWM Group
identifies, measures, manages and mitigates climate-related
risks and opportunities throughout the business. The NWM Plc
Board is assisted by the NWM Plc Board Risk Committee in
setting risk appetite and monitoring the risk management
response to climate change-related physical and transition
risks and opportunities within the business.
The NWM Plc Board Risk Committee has discussed the bank’s
progress towards meeting regulatory requirements as part
of the wider risk response to the financial risks posed by
climate change.
The NWM Plc Audit Committee continues to review disclosures,
including non-financial reporting and NWM Group specific
climate-related disclosures.
Management’s role in assessing and managing
climate-related risks and opportunities
NatWest Group has adopted an integrated climate governance
structure with legal entity boards and accountable individuals
within franchises expected to ensure that climate considerations
are built into day-to-day decision-making. There are a number
of cross-bank forums which support collaboration and
escalation, including the NatWest Group Climate Change
Executive Steering Group (CC ESG). The CC ESG is responsible
for coordinating the NatWest Group response across climate-
related regulations, risks and delivery of strategic climate
ambitions. The CC ESG includes cross-franchise and
functional representatives, including the NWM Plc CEO.
As part of the integrated cross-bank approach the NWM
CEO has been designated to support the NatWest Group
CEO in discharging the Senior Management Function 1
(SMF1) accountability for identifying and managing the risk
and opportunities from climate change, as well as delivery
on NatWest Group’s ambition to be a leading bank in the
UK helping to address the climate challenge.
To support the CEO and accountable individuals with their
responsibilities, and to further enhance the integration of
climate-related issues into the business, NWM Group continues
to operate a NWM Group Climate Programme (NWM CP)
which is overseen by the CEO chaired Climate &
Sustainability Committee (CSC).
24
NatWest Markets Plc
2021 Annual Report and Accounts
Climate-related disclosures:
Strategy
Climate is one of the three focus areas under the NatWest Group purpose.
The NWM Group’s 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 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 the NWM Plc Board on
a regular basis.
NatWest Group’s enterprise-wide risk management framework,
which also applies to NWM Group, sets out a consistent
management approach for all principal risks, including climate
risk. In addition, where appropriate, climate risk considerations
are integrated into management activities for several of NWM
Group’s other principal risks. Climate risk is also considered
within internal risk and control assessments and scenario
analysis activities. This supports an evolving understanding
of climate-related impacts. Climate risk is regularly assessed
at the NWM Climate & Sustainability Committee and
progress was made during 2021 to enhance climate
risk management capabilities.
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 Disclosures Report section 3.2.
The table includes an initial assessment of expected time
horizons, potential impacts and links to different risk types,
where climate is considered to have a relatively significant
impact in the relevant time frame: short (1-5 years),
medium (10 years) and long term (30 years).
Due to the nature of its business, NWM Group would
additionally be affected by changes in the pricing of certain
traded financial instruments and services, affecting market
risk and model risk. NWM Group would be less affected
than NatWest Group by changes to mortgages.
NWM Group continues to leverage NatWest Group’s ongoing
assessment of the transition and physical risks arising from
climate change. NWM Group continues its work to assess the
impact of the most meaningful such events on its strategy,
operating model and risk profile, along the likely timeline
of when such events are expected to occur.
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
Group also connects on opportunities across NatWest Group
in the Green Finance forum – a One Bank collaboration with
NWM Group, Commercial, RBSI and Coutts which aims to
support customers’ ambitions around energy efficiency and
low-carbon generation to accelerate the transition to a
net-zero economy.
The table in the NatWest Group 2021 Climate-related
Disclosures Report section 3.3 illustrates the key climate-
related opportunities which underpin the achievement of
the NatWest Group climate ambition, which NWM Group
is aligned to, along with the potential financial impacts and
timing. Many of NWM Group’s climate opportunities, all of
which have reputational benefits for us along with potentially
increased revenues, impact on strategy and are discussed
further within this section.
In 2021, we have further adapted our business model to
help customers navigate their own journeys to transition to a
net-zero economy, 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
We have established a Centre of Excellence for climate and
ESG in our Capital Markets business as we build out capability
and look to integrate climate into our customer and product
offering across NWM Group. This forms part of an ecosystem
across NWM Group that aims to provide thought leadership
and support our customers with solutions across financing
and risk management to achieve their climate ambitions.
25
NatWest Markets Plc
2021 Annual Report and Accounts
Climate-related disclosures
continued
Climate-related disclosures:
Strategy continued
Championing climate-related product innovation
We are 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, repo, FX and ESG-linked transactions, as well as
solutions to reduce the carbon intensity of portfolios. We
anticipate these enhanced product offerings will help
customers navigate their own transition to net zero.
We have also been active in the voluntary carbon markets.
These markets allow individuals, companies or governments
to purchase greenhouse gas or carbon credits to mitigate or
offset their own emissions. In 2021, we initiated dialogue with
customers, building out our intelligence to determine options
for a specialised role NWM Group can play in this market.
We have supported NatWest Group to play a key role in
establishing Carbonplace, a technology- based exchange
platform for trading high-quality carbon credits, aligned with
the Taskforce for Scaling Voluntary Carbon Markets (TSVCM).
Overall, our performance 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 ranked in the top 2
bookrunners for supporting UK corporate issuers
1
, and in the
top 2 supporting issuers globally in Sterling (GBP) issuance,
with their GSS bonds
1
. NWM Group ranked in the top 5 for
supporting Western Europe corporate issuers, with their
GSS bonds
1
. We were also ranked number 6 for supporting
European financial institutions with their green bond issuance
1
,
as well as number 1 for all GBP-denominated GSS issues
by financial institutions
1
. NWM Group continued to support
financial institutions who were increasing their GSS issuance
as a proportion of their overall funding, acting as bookrunner
on 23 transactions which included 9 customers with their debut
green and social issuance, and a further 6 who accessed a
new currency or asset class within the green and social bond
market. We also supported the corporate and public sector,
as well as housing associations, with ESG structuring.
Many of these transactions are part of the NatWest Group
initial two-year target to provide £20 billion Climate and
Sustainable Funding and Financing which was exceeded
in under 18 months, and the additional £100 billion Climate
and Sustainable Funding and Financing target announced
in October 2021 that NatWest Group is aiming to provide
between 1 July 2021 and the end of 2025. This reflects a
shift in customer preferences and an opportunity for us
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 customers’ learning journeys and bi-monthly
ESG Bitesize webinars to the benefit of NWM Group’s colleagues.
In excess of 300 NWM Group colleagues globally signed up to
the University of Edinburgh’s Climate Change transformation
programme, helping to integrate our climate ambition across
different roles and functions.
We play an active role in industry-wide sustainable finance-
related forums to develop our thought leadership and help to
shape and influence climate-related developments externally.
We are a Board Member of the Global Financial Markets
Association (GFMA), play a role with the International
Capital Market Association (ICMA) and are 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 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.
We have also taken steps to embed climate thought leadership
into our US and APAC teams by expanding our engagement
with institutional investors and building out our investor
intelligence to support product development across our
financing activity. In the US we have also been increasing
the issuer dialogue with regard to ESG – both loans and bonds.
Approach to climate-related risks
We are 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 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. We intend 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.
(1)
Source, Dealogic.
26
NatWest Markets Plc
2021 Annual Report and Accounts
Evolving climate data and analytics
In light of the continued challenges we face in sourcing and
evaluating climate-related data of varied scope and quality we
have 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. We plan to evolve
our capability and enhance NWM Group’s own set of
measurable KPIs for management information purposes
as well as external disclosure. Over time we expect these
enhancements to help us with the incorporation of climate
and ESG factors as part of NWM Group’s capital and
portfolio management; the standardisation of reporting
and measurement in respect of Climate and Sustainable
Funding and Financing products; as well as the enhancement
of our climate risk appetite measures in light of continued
product innovation.
Our own operational footprint
During 2021
(1)
, NatWest Group reduced its direct own
operational
(2)
carbon footprint 46% against 2019 baseline,
and increased renewable electricity consumption to 97%.
For NatWest Group own operations to support the public
commitments to the Net Zero Banking Alliance, they plan
to align to the Science Based Targets initiative (SBTi)’s ‘SBTi
Corporate Net-Zero Standard’ released in October 2021
and account for the wider value chain
(3)
, including suppliers.
NWM Group plan to work with NatWest Group to contribute
to stretching targets for minimum 90% decarbonisation by
2050 for all emissions to achieve net zero (excluding financed
emissions which is covered in more detail in the NatWest
Group 2021 Climate-related Disclosures Report section 5.7).
Climate-related impact on financial planning
and future looking plan
During 2021, we have worked with NatWest Group to
incorporate climate into the financial planning process by
developing the first carbon plan for NatWest Group. This work
progressed alongside the NatWest Group financial planning
process in the second half of the year. This included an
assessment of climate impact of:
–
lending and investment changes incorporated in the
financial plan over the next five years,
–
current and planned climate-related opportunities including,
but not limited to, NatWest Group’s commitment to provide
£100 billion Climate and Sustainable Funding and Financing
and the role that NWM Group will play in that,
–
to acknowledge our dependence on policies, technology
developments and customer behaviour, and the related
risks, we also assessed current and expected policies based
on the Climate Change Committee’s Sixth Carbon Budget
published in 2020 and any potential impacts on our climate
ambition. Refer to NatWest Group 2021 Climate-related
Disclosures Report section 5.7 for details on policy and
technology changes needed to support transition by sector.
During 2022, we plan to continue to work with NatWest Group
to develop capability to measure the impact of climate-related
risks and opportunities arising from NatWest Group actions and
also external factors. Our work on assessing emissions from
our own direct operations and on our lending and investments
is noted in the Natwest Group 2021 Climate-related Disclosures
Report sections 5.6 and 5.7. Section 5.7 also outlines current
estimates of 2030 emissions intensities for sectors analysed
and consequently the level of emissions reductions that may
be required, acknowledging the uncertainties arising from
dependence on customer behaviour changes, their transition
plans as well as policy and technology developments.
In 2022, NatWest Group plan to further enhance carbon
planning capability to support development of transition plans
to measure and track progress towards the NatWest Group
ambition to halve the climate impact of our financing activity
by 2030.
Scenario analysis
In 2021, NWM Group participated in the Climate Biennial
Exploratory Scenario (CBES) within the overall NatWest
Group submission. While the trading book was excluded from
scope under the Bank of England guidance, we have 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, we continue to strengthen our overall climate-
risk scenario capabilities and have explicitly included climate
effects in one of the core scenarios to be used in this year’s
Internal Capital Adequacy Assessment Process (ICAAP). We
remain 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.
(1)
Our own operational footprint reporting year runs from October 2020 to September 2021.
(2)
NatWest Group defines direct own operations as our Scope 1, Scope 2 market-based and Scope 3 (paper, water, waste, business travel, commuting and work from home emissions).
It therefore excludes upstream and downstream emissions from our value chain.
(3)
Upstream operational value chain emissions are all the indirect Scope 3 emissions required for our operations to occur, including emissions from our suppliers, energy creation and
transport to our facilities, and our mail. Downstream operational value chain emissions are all of the indirect Scope 3 emissions associated with our operations during and after serving
our customers, including customer transport to and from our facilities, how our products are used and how they are disposed of.
27
NatWest Markets Plc
2021 Annual Report and Accounts
Climate-related disclosures
continued
Climate-related disclosures:
Risk management
The organisation’s processes
for identifying and assessing
climate-related risks
(1)
.
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 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 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
(2)
. In April 2021, the 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 will be considered
by NWM 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 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. This is overseen by the second line of defence.
At year-end 2021, measured against this scale, NWM
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 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 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 Group is working closely with NatWest Group’s data
teams to evolve capabilities.
Climate Risk Challenges
Climate risk management is an evolving discipline. Climate risk
metrics are complex and require many methodological choices,
judgements 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 Disclosures Report section 5.8.
(1)
For further information on our process for identifying and assessing climate-related risks please refer to 2021 NatWest Group Climate-related Disclosures Report section 4.1.
(2)
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.
28
NatWest Markets Plc
2021 Annual Report and Accounts
Credit risk
NWM 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 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,
an understanding of customer capabilities to manage climate-
related risks, emissions assessments and associated potential
financial impacts.
A methodology was also developed to assess climate-risk
exposure among NatWest Group’s wholesale customers,
including NWM 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. These cover approximately 60% of NWM Group’s
exposure at default (EAD) and 90% of EAD associated with
heightened climate risk sectors.
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, then covering approximately
75% of NWM Group’s EAD. 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 because 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. A monthly climate sector and geography report
has been developed to monitor sector, issuer and country
concentrations across traded bonds, loans and credit
default swaps.
The reporting provides information on the existing climate-risk
profile as well as informing decisions on future profile and
guideline setting.
29
NatWest Markets Plc
2021 Annual Report and Accounts
Climate-related disclosures
continued
Climate-related disclosures:
Risk management continued
Model risk
NWM 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 a net-zero economy.
NWM 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. It receives authority
from the NWM Group Executive Risk Committee and is also
overseen by the NWM Plc Board Risk Committee and the
NatWest Group Reputational Risk Committee. The NWM
Group Climate and Sustainability Committee also has a
focus on environmental, social and ethical issues.
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 Group uses have been enhanced
to incorporate climate change considerations. NWM Group
completed a risk discovery heat map in 2021 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, focused on operations in UK
and India. For full details of the scenario analysis see NatWest
Group 2021 Climate-related Disclosures Report section 4.3.
The impact for NWM Group was:
–
The customer impact from a 1-in-25 years scenario was
categorised as ‘Important’, with a direct cost implication
estimated at approximately £0.2 million.
–
The customer and reputation impact of a 1-in-100 years
scenario was categorised as ‘Significant’, with direct costs
estimated at approximately £2.9 million.
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 Group’s compliance
with the rapid pace of change in climate legislation, regulation
and best practice.
NWM 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 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 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.
30
NatWest Markets Plc
2021 Annual Report and Accounts
Climate-related disclosures:
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 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 Group.
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 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 £1.7 billion during 2021. There is a decrease across the
majority of sectors with the largest decrease, £0.5 billion, in the power utilities sector:
31 December 2021
31 December 2020
Heightened climate-related
risk sectors
Loans
£m
Off-Balance
sheet
£m
Total sector
exposure
£m
Total sector
exposure as
% of Total
NWG
%
Loans
£m
Off-Balance
sheet
£m
Total sector
exposure
£m
Total sector
exposure as
% of Total
NWG
%
Power utilities
88
1,398
1,486
7.3%
161
1,795
1,956
8.6%
Automotive
49
686
735
3.6%
49
863
912
4.0%
Land transport and logistics
75
231
306
1.5%
87
457
544
2.4%
Commercial real estate
97
182
279
1.4%
166
313
479
2.1%
Oil and gas
269
40
309
1.5%
64
377
441
1.9%
Airlines and aerospace
7
207
214
1.1%
33
356
389
1.7%
Chemicals
0
62
62
0.3%
0
164
164
0.7%
Shipping
0
1
1
0.0%
0
96
96
0.4%
Construction
0
76
76
0.4%
0
90
90
0.4%
Building materials
3
12
15
0.1%
0
75
75
0.3%
Agriculture
40
1
41
0.2%
38
1
39
0.2%
Housing associations
23
0
23
0.1%
24
0
24
0.1%
Mining and metals
3
0
3
0.0%
3
0
3
0.0%
Total Heightened climate-related sectors
654
2,896
3,550
17.5%
625
4,587
5,212
23.0%
Total NWM Group all sectors
8,547
11,714
20,261
100.0%
9,536
13,140
22,676
100.0%
(1)
Refer to NatWest Group 2021 Climate-related Disclosures 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.
31
NatWest Markets Plc
2021 Annual Report and Accounts
Climate-related disclosures
continued
Climate-related disclosures:
Metrics and targets continued
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.
NatWest Group uses its Climate and Sustainable Funding and
Financing Inclusion Criteria (CSFI) criteria
1
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 of 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.
In the full year ended December 2021, NatWest Group
completed £17.5 billion of Climate and Sustainable Funding
and Financing. This comprised £9.7 billion in NWM Group
from 71 deals. Of these 53 were green bonds and private
placements totalling a notional amount of £38.7 billion which
accounts for c.16% of the total lead managed transactions
by NWM Group during the period
(2)
.
Climate and Sustainable Funding and Financing
(1)
Full year ended
31 December
2021
£m
Half year ended
31 December
2021
£m
Half year ended
30 June
2021
£m
Full year ended
31 December
2020
£m
Green Public Bonds and Green Private Placements
(2)
8,227
2,777
5,450
5,030
Green Loan Underwriting
(2)
153
–
153
–
Sustainability Linked Loans
(3)
639
347
292
732
Sustainability Linked Bonds and Private Placements
(3)
201
201
–
–
Other financing within the CSFI criteria
(4)
430
–
430
1,395
Total
9,650
3,325
6,325
7,157
(1)
For the full year ended 31 December 2021, the NatWest Group 2021 CSFI criteria published in February 2021 has been used to determine the assets, activities and companies that are
eligible to be counted. The revised CSFI criteria published in October 2021 will be used from 1 January 2022. Full details of the CSFI criteria can be found at natwestgroup.com
(2)
Underwriting of specific use of proceeds debt capital market issuances for project expenditures, as well as green loan commitments when customers meet the CSFI criteria. Amounts
represent the NWM Group share of the notional (total underwriting amount lead managed or placed by NWM Group), based on the number of underwriters within a specific deal.
During the year ended 31 December 2021 53 green bonds and private placements totalling a notional amount of £38.7 billion (36 deals, £22.7 billion during full year 2020), account
for c.16% of the total lead managed or placed transactions by NWM Group during the period (c.4% for full year 2020).
(3)
Sustainability Linked Loans, Bonds and private placements made to customers, in line with Loan Market Association (LMA) Sustainability Linked Loan principles and International Capital
Market Association (ICMA) Sustainability Linked Bond principles where deal targets include green performance indicators, aligned to CSFI criteria.
(4)
In addition to transactions that directly meet CSFI criteria based on use of proceeds for green purposes, the CSFI criteria also includes certain general purpose bonds and private
placements to customers who can evidence (to NatWest Group’s satisfaction through review of the customers’ profit and loss statement) 50% or more of revenues from the categories
and sectors outlined in the criteria. In the year ended 31 December 2021, the £430 million relates to bonds and private placements on this basis.
UK Debt
Management Office
NWM Group acted
as joint lead manager
raising £6 billion for
the Debt Management
Office’s second green
bond; read more on
page 9.
Examples of
green deals
Origin Housing
NWM Group acted as
sole ESG structurer and
agent on Origin Housing’s
inaugural green £120
million private placement.
We thereby helped this
social landlord lock in
long-term financing to
develop affordable and
energy-efficient homes
for its tenants in London
and Hertfordshire.
KfW
NWM Group acted as
joint bookrunner on KfW’s
€4 billion green bond
issuance. This issuance
supported KfW’s two
green loan initiatives:
the ‘Renewable Energies
Programme’, which
mainly funds wind and
photovoltaics projects;
and the ‘Energy-efficient
Construction’ programme
which supports energy-
efficiency in new
residential buildings
in Germany.
32
NatWest Markets Plc
2021 Annual Report and Accounts
Capital markets transactions (financing)
NWM Group also supports customers through capital
markets by providing an integrated proposition across
financing, solutions and advisory services. We are a leading
partner for our customers, helping them to access global debt
capital markets across a wide variety of products, including
bonds, loans, commercial paper, medium-term notes and
private placements as well as bespoke financing solutions
and primary lending products.
As part of capital markets transactions, NWM Group acts as
a facilitator
(1)
to support customers to issue debt instruments.
These transactions are not recorded on the balance sheet
since the climate-related exposure is held by the investor
who places the bonds or private placements in their portfolio.
The chart below shows NWM Group’s lead management
activity during 2021 by sector.
Finance: 42.2%
Gov
ernment: 20.8%
Utility & Energy: 8.0%
Real Es
tate/Pr
operty: 4.9%
Oil & Gas: 1.6%
Construction/Building: 3.3%
Insurance: 1.6%
Prof
essional Services: 3.0%
Computer & Electr
onics: 1.7%
T
elecommunications
: 2.0%
Aut
o/
T
ruck: 1.8%
Mining: 0.1%
T
ransportation: 3.8%
Other: 5.1%
NWM Gr
oup
’
s Underwriting Business b
y Sector in
2021
42.2%
20.8%
8.0%
4.9%
5.1%
1.8%
2.0%
1.7%
3.0%
1.6%
3.3%
1.6%
0.1%
3.8%
The data is sourced from Dealogic, and uses the Dealogic
General and Specific Industry Group classifications. Financing
volumes are reported on a manager-proceeds basis including
bonds and securitised bonds; no modifications have been made
by NWM Group. This data represents a third party view of our
financing and is subject to Dealogic’s league table methodology,
which pro-rates volume across lead-managers.
The table below shows value for financing related to mining,
oil & gas and utility & energy sectors. These are identified
as high risk as they are emissions intensive and therefore
particularly exposed to rising carbon costs; however, those
deals meeting the CSFI criteria have been shown separately
given their decarbonisation scope/trajectory:
Sector
2021
£m
% of
Total
2020
£m
% of
Total
Utility & Energy
5,706
8.0%
5,761
7.4%
Of which fall under the
CSFI criteria
899
2,931
Mining
94
0.1%
270
0.3%
Oil & Gas
1,166
1.6%
589
0.8%
Grand Total of all industries
(NWM Group
apportioned value)
71,210
77,471
As methodologies are developed by the industry, NWM Group
intends to incorporate facilitated emissions into its measuring
and reporting cycle.
(1)
The Partnership for Carbon Accounting Financials (PCAF) discussion paper on Capital Markets, issued in November 2021 defines a facilitator as: ‘An institution (usually large
international banks) that helps an entity (in this paper only corporates are in scope) to issue equity or debt instruments in the capital markets. The facilitator may carry out activities
including advising the issuing entity on structure, pricing, and process; preparing materials for and engaging with investors; and arranging and guiding issuing entities on a roadshow.
Formal roles encompassed by this term include Lead/Active/Passive Bookrunner(s) and Lead/Co-Manager(s).’
33
NatWest Markets Plc
2021 Annual Report and Accounts
34
NatWest Markets Plc
2021 Annual Report and Accounts
36
Financial Review
41
Board of directors and secretary
42
Risk and capital management
89
Report of the directors
93
Statement of directors’ responsibilities
94
Financial statements
179
Risk factors
201
Forward-looking statements
35
NatWest Markets Plc
2021 Annual Report and Accounts
Strategic report
Financial review
Risk and capital management
Report of the directors
Risk factors
Financial statements
Financial rev
iew
NWM Group
Annu
al Report an
d Accounts 202
1
36
Presentation of information
NatWest Markets Plc (‘NWM Plc’) is a wholly-owned su
bsidiary
of NatWest Group plc or ‘the ultimate hol
ding company’. The
term ‘NWM Group’ or ‘we’ refers to NWM Plc
and its subsidiary
and associated undertakings.
The term ‘NatWest Group’ refers to NatWest G
roup plc and its
subsidiary and associated undertakings. The te
rm ‘NWH Group’
refers to NatWest Holdings Limited (‘NWH’) and its su
bsidiary
and associated undertakings.
The term ‘NatWest Bank
Plc’ or
‘NWB Plc’ refers to National We
stminster Bank Plc.
NWM Group publishes its financial statemen
ts in pounds
sterling (‘£’ or ‘sterling’). The abbreviations ‘£m’ and ‘£
bn’
represent millions and thousands of millions of p
ounds sterling,
respectively, and references to
‘pence’ represent pence where
amounts are denominated in pound sterling (‘
GBP’). Reference
to ‘dollars’ or ‘$’ are to United
States of America (‘US’) dollars.
The abbreviations ‘$m’ and ‘$b
n’ represent millions and
thousands of millions of dollars, respectively. T
he abbreviation
‘€’ represents the ‘euro’, and the abbreviations ‘€m’ an
d ‘€bn’
represent millions and thousands of millions of eur
os,
respectively.
NWM Group legal entity disclosures
There is a distinction between the disclosure of the N
atWest
Markets operating segment per
formance in NatWest Group
plc’s 2021 Annual Report and Acc
ounts (ARA), and NWM
Group’s disclosures as presented in this documen
t, with
differences primarily as follows:

NWM Group’s legal entity disclos
ures include the Central
items & other segment,

NatWest Group plc’s 2021 ARA reports the NatWes
t Markets
segment excluding the Central items & othe
r segment.
Non-IFRS financial measures
NWM Group prepares its financial statemen
ts in accordance
with generally accepted accounting pri
nciples (GAAP). This
document contains a number of adjusted or alternati
ve
performance measures, also known as non-
GAAP or non-IFRS
performance measures. These
measures are adjusted for
certain items which management believe are no
t representative
of the underlying performance of the business an
d which
distort period-on-period comparison. These
non-IFRS measures
provide users of the financial statemen
ts with a consistent basis
for comparing business performance between financial pe
riods
and information on elements of performance
that are one-off in
nature. The non-IFRS measures
also include the calculation of
metrics that are used throughout the banking indus
try. These
non-IFRS measures are not measures within the s
cope of IFRS
and are not a substitute for IFRS measures. Re
fer to the
section, ‘Non-IFRS financial measures’, on page 178
for further
information and calculations of
non-IFRS financial measures
included throughout this docu
ment, and, where relevant, the
most directly comparable IFRS financial measures.
Financial review
continued
NWM Group
Annu
al Report an
d Accounts 202
1
37
Performance overview
NWM Group reported a loss for the year ended 31
December
2021 of £491 million compared
with a loss of £327 million for
the year ended 31 December 2020
. Lower income reflected
under-performance in Fixed Income in 2021
and the
exceptional market activity in the prio
r year in response to the
COVID-19 pandemic. Operating expenses f
or the current year
were lower than in 2020, largel
y reflecting lower litigation and
conduct costs and progress on u
nderlying cost reductions.
Financial performance

Income was £401 million in 2021
, compared with £1,158
million in 2020, driven by under-perform
ance in Fixed
Income, in contrast to the prior y
ear which benefitted from
exceptional levels of market ac
tivity generated by the initial
spread of the COVID-19 virus.

Operating expenses of £1,1
50 million were £281 million
lower compared with £1,431 million in 20
20. Litigation and
conduct costs of £17 million credit reflected progress in
closing legacy matters and were £
151 million lower than
£134 million in 2020. Strategic costs were £2
48 million, up
from £191 million in the prior ye
ar, as work continued on the
refocusing of NWM Group. Other operating expenses of
£919 million were £187 million lower than i
n 2020, reflecting
progress on underlying cost reductions.

Impairment releases were £35 million in 2021, la
rgely driven
by credit improvements and releases on individual IFRS 9
Stage 2 and Stage 3 counterpa
rties, compared with losses
of £42 million in the prior year
which were largely due to the
credit deterioration of an individual counterp
arty and the
impact of expected credit losses recognised following
the
COVID-19 pandemic.

NWM Group’s total assets and liabilities dec
reased by £70.1
billion and £68.2 billion to £203.0
billion and £195.6 billion
respectively at 31 December 2021
, compared with the prior
year. The decreases primarily r
eflect lower derivative fair
values, largely driven by increas
es in interest rates across
major currencies during the year.

Total dividends paid to NatWest Group
plc during the year
ended 31 December 2021 amounted to £
1.0 billion. On 17
February 2022, the NWM Plc Board approved
a further
interim dividend of £250 million, to be declared
and payable
to NatWest Group plc on 18 February 2022
. There has been
no adjustment to the year-end statutory financi
al
statements, however a £250 mi
llion foreseeable dividend
deduction has been applied to t
he year-end regulatory
capital position.
Capital and leverage

Total NWM Plc RWAs reduced to £22
.7 billion at 31
December 2021 from £25.6 billion at 31
December 2020,
reflecting lower levels of credit, c
ounterparty credit, market
and operational risk which have trended downwa
rds as the
business seeks to reduce RWAs through the execution of
capital optimisation actions, including strategic risk
reduction transactions and exit activity.

NWM Plc’s Common Equity Tier 1 (CET1) ratio was 17.9
% at
31 December 2021, compared with 21.7% at 31 Decem
ber
2020. The decrease in the year ref
lected the impact of
dividends paid to NatWest Group plc and o
ther reserve
movements, partly offset by the reduction in RWAs. The
CRR
leverage ratio decreased to 4.3% from 5.2
% at 31 December
2020.

Total MREL for NWM Plc at 31 Dece
mber 2021 was £9.6
billion, or 42.1% of RWAs, down from £12.7 billion o
r 49.6%
of RWAs at 31 December 2020. The dec
rease in the year
was largely due to the redemption of a $1.
5 billion internal
instrument issued to NatWest Group plc an
d the reduction in
CET1 capital.
Liquidity and funding

NWM Plc’s liquidity portfolio at
31 December 2021 was £16.1
billion with an LCR of 205%, compared with £19
.4 billion and
an LCR of 268% at 31 December 2020
. Stressed coverage
ratio was 146% at 31 December 202
1, compared with 207%
at 31 December 2020.

NWM Plc issued £4.3 billion of term senior unsecured de
bt
securities during 2021, including two bench
mark
transactions under the US MTN pro
gramme amounting to
$2.55 billion of notes, two benchmark transac
tions under the
EMTN programme amounting to €2
.25 billion of notes, and
other private placements.
Financial review
continued
NWM Group
Annu
al Report an
d Accounts 202
1
38
NWM Group business review
The table below presents a segment
al analysis of key lines of NWM Group’s inc
ome statement. Commentary
refers to the table
below as well as the statutory income statement p
resented on page 105.
2021
2020
Central
Central
NatWest
items &
NatWest
items &
Markets
other
Total
Markets
other
Total
Variance
Income statement
£m
£m
£m
£m
£m
£m
£m
%
Net interest income
8
—
8
(62)
2
(60)
68
(113%)
Non
-
interest income
401
(8)
393
1,180
38
1,218
(825)
(68%)
Total income
409
(8)
401
1,118
40
1,158
(757)
(65%)
Strategic costs
(236)
(12)
(248)
(207)
16
(191)
(57)
30%
Litigation and conduct costs
—
17
17
(4)
(130)
(134)
151
(113%)
Other operating expenses
(921)
2
(919)
(1,106)
—
(1,106)
187
(17%)
Operating
expenses
(1,157)
7
(1,150)
(1,317)
(114)
(1,431)
281
(20%)
Operating loss before impairments
(748)
(1)
(749)
(199)
(74)
(273)
(476)
174%
Impairment releases/(losses)
35
—
35
(40)
(2)
(42)
77
(183%)
Operating loss before tax
(713)
(1)
(714)
(239)
(76)
(315)
(399)
127%
Tax credit/(charge)
223
(12)
235
(1,958%)
Loss for the year
(491)
(327)
(164)
50%
Income
(8)
Fixed Income
(1,2,3,4,5)
(64)
—
(64)
511
—
511
(575)
(113%)
Currencies
(2,4)
427
—
427
583
—
583
(156)
(27%)
Capital Markets
(2,3,4)
336
—
336
384
—
384
(48)
(13%)
Capital Management Unit and other
(1,2,5,6)
(35)
(8)
(43)
(60)
40
(20)
(23)
115%
Income before Revenue share paid, Asset
disposals and OCA
664
(8)
656
1,418
40
1,458
(802)
(55%)
Revenue share with other NatWest Group
segments
(197)
—
(197)
(193)
—
(193)
(4)
2%
Income excluding Asset disposals and OCA
467
(8)
459
1,225
40
1,265
(806)
(64%)
Asset disposals/Strategic risk reduction
(7)
(64)
—
(64)
(83)
—
(83)
19
(23%)
Own credit adjustments (OCA)
6
—
6
(24)
—
(24)
30
(125%)
Total income
409
(8)
401
1,118
40
1,158
(757)
(65%)
(1)
Income of £(12) million reported within Fixed Income relates to business subs
equently reallocated to Capital Management Unit during 2021. Comparatives have not been restated.
The full year equivalent amount for 2020 was £
1 million.
(2)
Income of £(42) million, £(8) million and £
(14) mil
lion reported within Fixed Income, Currencies a
nd Capital Markets respectively in 2020 relates to business that was subsequently
reallocated to Capital Management Unit during 2020.
(3)
Income of £33 million reported within Capital Markets in
2020 relates to business that was subsequently transferred to Fixed Income during 2020.
(4)
Income of £59 million and £8 million reported within Fixed Income in
2020 relates to business that was subsequently transferred to Currencies and Capital Markets respectively
during 2020.
(5)
Fixed Income includes income of £(7) million (2020: £37 million) relating
to miscellaneous balances that from Q2 2021 have been included in Capital Management Unit and other.
(6)
Capital Management Unit was set up in Q3 2020 to manage the capital usage and optimisation across all p
arts of NatWest Markets. The income shown here relates to legacy assets
and other miscellaneous balances. Other relates t
o income booked to the Central items & other operating segment.
(7)
Asset disposals/Strategic risk reduction relates t
o the costs of exiting positions, which includes changes in carrying value to align to the expected exit valuation, and the impact of
risk reduction transactions entered into, in respect of the strategic announcements of 14 Februa
ry 2020.
(8)
Product performance includes gross income earned
on a NatWest group-wide basis, including amounts contributed to other segments.
Financial review
continued
NWM Group
Annu
al Report an
d Accounts 202
1
39
NWM Group business review continued
Income
Net interest income was £8 million for 2021
, compared with net
interest expense of £60 million in 2
020. Net interest income
largely represents interest income from le
nding activity and
capital hedges, offset by interest expense f
rom the funding
costs of the business. The mov
ement in the year primarily
reflected reduced funding costs for the business
driven by the
ongoing repayment of legacy debt.
Non-interest income decreased by £82
5 million to £393 million,
compared with £1,218 million in 2020
. Income from trading
activities decreased to £263 mil
lion from £1,088 million in 2020,
reflecting under-performance in Fixed Income which
was
impacted by the re-shaping of the business
, in contrast to the
prior year which benefitted from the excep
tional market
activity generated by the initial spread of the COVI
D-19 virus.
Asset disposals/Strategic risk reduction was a £64
million loss
for the year, compared with a £
83 million loss in the prior year
following the strategic announcements in Fe
bruary 2020.
Operating expenses
Operating expenses of £1,1
50 million in the current year were
£281 million lower than £1,431
million in 2020. Litigation and
conduct costs credit of £17 milli
on for the year reflected
continued progress in closing legacy matters and we
re down
£151 million from £134 million i
n 2020. Strategic costs were
£248 million in 2021 compared with £191
million in 2020, as
work continued on the refocusing of NWM Group. Othe
r
operating expenses decreased to £919 million from £1,1
06
million in 2020, primarily reflecting ongoing pro
gress on
underlying cost reductions.
Impairments
Impairment releases were £35 million in 2021, la
rgely driven by
credit improvements and releases on individual IFRS 9 S
tage 2
and Stage 3 exposures, compared wi
th losses of £42 million in
2020, which were largely due to the credit dete
rioration of an
individual counterparty and the increased expe
cted credit
losses recognised following the COVID-19 p
andemic.
NatWest Markets segment
The operating loss before tax was £71
3 million compared with
a loss of £239 million in 2020. Income excluding asset
disposals
and own credit adjustments of £4
67 million was £758 million
lower than in 2020, reflecting under-pe
rformance in Fixed
Income which was impacted by the re-sh
aping of the business,
and the increased customer ac
tivity in the prior year as the
market reacted to COVID-19. O
perating expenses of £1,15
7
million were £160 million lower
than £1,317 million in 2020,
largely driven by a decrease in
other operating expenses
reflecting continued progress on underlyin
g cost reductions.
Central items & other segment
The operating loss before tax was £1 million c
ompared with a
loss of £76 million in 2020. Litigation and conduct costs of £1
7
million credit reflected progress in closing leg
acy matters and
were down £147 million from £1
30 million in 2020.
Financial review
continued
NWM Group
Annu
al Report an
d Accounts 202
1
40
NWM Group business review continued
Balance sheet profile as at 31 December 2021
NWM Group’s balance sheet pr
ofile is summarised below. Commentary
refers to the tables below as well
as the consolidated
balance sheet on page 106.
Assets
Liabilities
2021
2020
2021
2020
£bn
£bn
£bn
£bn
Cash and balances at central banks
16.6
15.8
Securities
25.0
29.2
25.0
26.8
Short positions
Reverse repos
(1)
20.7
19.4
19.4
19.0
Repos
(2)
Derivative cash collateral posted
(3)
12.0
18.5
17.6
23.2
Derivative cash collateral received
(4)
Other trading assets
1.4
1.6
2.5
3.3
Other trading liabilities
Total trading assets
59.1
68.7
64.5
72.3
Total trading liabilities
Loans - amortised cost
8.4
9.4
4.1
4.4
Deposits - amortised cost
Settlement balances
2.1
2.3
2.1
2.2
Settlement balances
Amounts due from holding company
Amounts due to holding company
and fellow subsidiaries
1.5
1.6
6.1
8.1
and fellow subsidiaries
Other financial assets
8.8
9.0
19.3
18.2
Other financial liabilities
Other assets
0.9
0.7
1.0
1.3
Other liabilities
Funded assets
97.4
107.5
97.1
106.5
Liabilities excluding derivatives
Derivative assets
105.6
165.6
98.5
157.3
Derivative liabilities
Total assets
203.0
273.1
195.6
263.8
Total liabilities
of which:
21.1
20.6
wholesale funding
(5)
9.2
9.5
short-term wholesale funding
(5)
Net derivative assets
3.6
4.7
2.9
3.6
Net derivative liabilities
(1)
Comprises bank reverse repos of £3.9 billion (2020 - £2.2 billion) and customer reverse
repos of £16.8 billion (2020 - £17.2 billion).
(2)
Comprises bank repos of £0.8 billion (2020 - £1.0 billion) and cust
omer repos of £18.6 billion (2020 - £18.0 billion).
(3)
Comprises derivative cash collateral posted relating to banks of £4
.3 billion (2020 - £7.5 billi
on) and
customers of £7.7 billion (2020 - £11.0 billion).
(4)
Comprises derivative cash collateral received relating t
o banks of £8.1 billion (2020 - £11.8 billion) and customers of £9.5 billion (2020 - £11.4 billion).
(5)
Predominantly comprises bank deposits (excluding repos), debt securities in
issue and third party subordinated liabilities.
Total assets and liabilities
decreased by £70.1 billion a
nd
£68.2 billion to £203.0 billion and £19
5.6 billion respectively at
31 December 2021, compared with £273.1 billion a
nd £263.8
billion at 31 December 2020. The decreases primarily refle
ct
lower derivative fair values, largely driven by increases in
interest rates across major currencies
. Funded assets, which
exclude derivatives, decreased by £1
0.1 billion to £97.4 billion
at 31 December 2021.
Trading assets
, which primarily relate to client-led
activity as
well as derivative cash collater
al posted, decreased to £59.1
billion at 31 December 2021 from £68.7
billion at 31 December
2020, driven by decreases in d
erivative cash collateral posted
and securities, partially offset by
an increase in reverse repos
as the balance sheet was managed within limits.
Trading
liabilities
decreased by £7.8 billion to £64.5 billion
at 31
December 2021 (2020 - £72
.3 billion), driven largely by a
reduction in derivative cash coll
ateral received.
Derivative assets and derivative liabilities
were down £60.0
billion to £105.6 billion and £58.8
billion to £98.5 billion
respectively compared with year end 202
0. The decreases in
mark-to-market were largely driven by increases in in
terest
rates across major currencies during the ye
ar.
Other financial liabilities
in
creased to £19.3 billion from £18.2
billion at 31 December 2020, driven by new iss
uance partially
offset by maturities, and include
s £12.4 billion of medium term
notes issued.
Board of dir
ectors and s
ecretary
NWM Group
Annu
al Report an
d Accounts 202
1
41
Board and committees
Chairman
Frank Dangeard
Chairman of the Board and Chairman of the No
minations and
Governance Committee
Executive directors
Robert Begbie
Chief Executive Officer
David King
Chief Financial Officer
Independent non-executive directors
Vivek Ahuja
Chairman of Board Risk Committee
Anne Simpson
Chairman of Audit Committee
Tamsin Rowe
Chairman of the Performance and Remuneration Com
mittee
Sarah Wilkinson
Board changes in 2021
Brendan Nelson (non-executive director) resigned o
n 30 June
2021.
Auditors
Ernst & Young LLP
Chartered Accountants and Statutory Audi
tor
25 Churchill Place
London E14 5EY
Registered office
36 St Andrew Square
Edinburgh EH2 2YB
Principal office
NatWest Markets Plc
250 Bishopsgate
London EC2M 4AA
NatWest Markets N.V.
Claude Debussylaan 94
1082 MD Amsterdam
The Netherlands
NatWest Markets Holdings USA Inc
.
600 Washington Blvd
Stamford
CT 06901 USA
NatWest Markets Plc
Registered in Scotland No. SC0
90312
Risk and ca
pital managem
ent
NWM Group
Annu
al Report an
d Accounts 202
1
42
Presentation of information
Where marked as audited in the se
ction header, certain
information in the Risk and cap
ital management section (pages
42 to 88) is within the scope of the Independen
t auditor’s
report. Risk and capital management is generally c
onducted on
an overall basis within NatWest Group such that com
mon
policies, procedures, frameworks
and models apply across
NatWest Group. Therefore, for the most p
art, discussion on
these qualitative aspects reflects those in NatWest
Group as
relevant for the businesses and operations in NWM
Group.
Update on COVID-19
While the immediate disruption diminished duri
ng the year, the
ongoing impacts of the global p
andemic remained a significant
focus for risk management in 20
21 and uncertainty in the
operating environment continued. NWM Group
remained
committed to supporting its cus
tomers while operating safely
and soundly in line with its strategic objecti
ves.
Against the backdrop of a slowly
-recovering economy, the
credit risk profile remains heightened and there is an
expectation that the impacts of the pandemic
will continue to
be seen in the performance of NWM G
roup’s portfolios for
some time.
While the direct impact on NWM Group’s ope
rational risk profile
reduced, NWM Group continued to closely mo
nitor the second-
order impacts on its transformation agen
da, with a significant
focus on managing resource to protect key regulato
ry
deliveries. The continued evolution of NWM
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 she
et
and prudent approach to risk manageme
nt, NWM Group
remains well placed to withstand these aftershocks as well
as
providing support to customers when they need i
t most.
Risk management framework
Introduction
NWM Group operates under NatWest G
roup’s enterprise-wide
risk management framework, which is cent
red around the
embedding of a strong risk culture. T
he framework ensures the
governance, capabilities and methods are in place to f
acilitate
risk management and decision-making ac
ross the organisation.
The framework ensures that NWM G
roup’s principal risks –
which are detailed in this section – are appropri
ately controlled
and managed. It sets out the standards and objec
tives for risk
management as well as defining the division of role
s and
responsibilities.
This seeks to ensure a consistent app
roach to risk management
across NWM Group. It aligns ris
k management with NWM
Group’s overall strategic object
ives.
The framework, which is designed and m
aintained by NatWest
Group’s independent Risk funct
ion, is owned by the NatWest
Group Chief Risk Officer. It is reviewed and approve
d annually
by the NatWest Group Board. The
framework incorporates risk
governance, NatWest Group’s t
hree lines of defence operating
model and the Risk function’s mandate.
Risk appetite, supported by a robust set of p
rinciples, policies
and practices, defines the levels
of tolerance for a variety of
risks and provides a structured approach to risk-takin
g within
agreed boundaries.
While all NWM Group colleague
s are responsible for managing
risk, the Risk function provides oversight and
monitoring of risk
management activities, including the implemen
tation of the
framework and adherence to its
supporting policies, standards
and operational procedures. The Chie
f Risk Officer plays an
integral role in providing the Bo
ard with advice on NWM
Group’s risk profile, the perfor
mance of its controls and in
providing challenge where a proposed business strate
gy may
exceed risk tolerance.
In addition, there is a process to identify and man
age top risks,
which are those that could hav
e a significant negative impact
on NWM Group’s ability to mee
t 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
Risk management framework
Introduction
42
Culture
43
Governance
44
Risk appetite
46
Identification and measurement
47
Mitigation
47
Stress testing
47
Market risk
Traded market risk
51
Non-traded market risk
54
Capital, liquidity and funding r
isk
Definitions and sources
57
Key developments in 2021
58
Capital management
58
Liquidity and funding management
58
Minimum requirements
59
Measurement
59
Credit risk
Key developments
63
Impairment, provisioning and write-offs
64
Economic loss drivers and ECL s
ensitivity
67
Trading activities and banking activities
73
Pension risk
83
Compliance & conduct risk
83
Financial crime risk
84
Climate risk
85
Operational risk
86
Model risk
87
Reputational risk
88
Risk and capital m
anageme
nt continued
NWM Group
Annu
al Report an
d Accounts 202
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43
Risk management framework continu
ed
Culture
Risk culture is at the heart of NWM G
roup’s risk management
framework and its risk management practice. T
he 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 e
mployees 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 pl
ays in daily work.

Understand the risks associated with individual
roles.

Align decision-making to NWM Group’s risk appeti
te.

Consider risk in all actions and
decisions.

Escalate risks and issues early; taking action t
o 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 embedde
d in NatWest
Group’s Critical People Capabilities and are clea
rly aligned to
the core values of “serving cust
omers”, “working together”,
“doing the right thing” and “thinking long te
rm”. These act as
an effective basis for a strong risk culture because the C
ritical
People Capabilities form the ba
sis of all recruitment and
selection processes.
Training
Enabling employees to have th
e capabilities and confidence to
manage risk is core to NatWest Group’s le
arning strategy.
NatWest Group offers a wide r
ange of learning, both technical
and behavioural, across the ris
k disciplines. This training can be
mandatory, role-specific or for personal develop
ment.
Mandatory learning for all staff is f
ocused on keeping
employees, customers and NatWest Group safe. This is e
asily
accessed online and is assigned to each perso
n 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 st
andards of
conduct that support the values
. The code explains the effect of
decisions that are taken and describes the p
rinciples 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 wit
h commercial
strategy and actions. The emb
edding of these principles
facilitates sound decision-making and a clear focus on
good
customer outcomes.
Where appropriate, if conduct falls short of Na
tWest Group’s
required standards, the accoun
tability review process is used to
assess how this should be reflec
ted in pay outcomes for the
individuals concerned. The NatWest Group remune
ration policy
ensures that the remuneration arrangements for
all employees
reflect the principles and standards prescribed by the PRA
rulebook and the FCA handbook. Any e
mployee falling short of
the expected standards would also be subject
to internal
disciplinary policies and procedures. If appro
priate, the relevant
authority would be notified.
Risk and capital m
anageme
nt continued
NWM Group
Annu
al Report an
d Accounts 202
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44
Risk management framework continu
ed
Governance
Committee structure
The diagram shows NWM Plc’s risk com
mittee structure in 2021 and the main purposes of ea
ch committee.
(1)
The Executive Committee is chaired by the NWM
Chief Executive Officer and supports him in discharging his individual accountabilities in accordance with the authority delegated
to him by the NWM Plc Board of Directors.
(2)
The Executive Risk Committee is chaired by the NWM Ch
ief Risk Officer and supports him in discharging his risk management accountabilities.
(3)
The Operating Committee is chaired by the NWM Ch
ief Operating Officer and supports him in discharging his individual accountabilities in accordance with the authority delegated
to him by the NWM Chief Executive Officer.
(4)
The Climate & Sustainability Committee is chaired
by the NWM Chief Executive Officer and supports him in discharging his climate risk accountab
ilities.
(5)
The Assets & Liabilities Committee is chaired by the NWM Chief Financial Off
icer and supports him in discharging his individual accountabilities relating to treasury and balance
sheet management.
(6)
The Pension Committee is chaired by the NWM Ch
ief Financial Officer and supports him in discharging his individual accountabilities relating to the management of NatW
est
Markets’ pension schemes.
(7)
The Financial Crime Risk Committee, the E-Trading Oversight Committee, the Reput
ational Risk Committee, the Valuations Committee, the Enterprise Wide Risk Committee, the
Policy Approval Committee, the Model Risk Committee, the Provisions
Committee and the Credit Risk Committee are not shown here. They support the Executive Risk Committee in
discharging its risk management responsibilities.
Ass
et
s &
Lia
bil
iti
es
Committe
e
(5)
Ex
ecut
iv
e R
isk
Committe
e
(2)
Ex
ecut
iv
e
Committe
e
(1)
Pen
si
on
Committe
e
(6)
NW
M
Pl
c B
oar
d
of
Di
rec
tors
Boa
rd
Ri
sk
Committe
e
Aud
it
Committee
Cli
ma
te &
Su
sta
inab
il
ity
Committe
e
(4)
NW
M S
ecu
riti
es
Ja
pan
Lim
it
ed
Boa
rd
NW
M N
.V.
Sup
erv
is
ory
Boa
rd
NW
M S
ecu
riti
es
Inc
B
oard
Considers the
financial risks posed
by climate change as
well as the progress
against NWM’s
regulatory and
strategic climate
commitments.
Reviews, challenges
and debates all
material and
enterprise-wide risk
and control matters.
M
an
a
ge
s
a
nd
ov
e
r
se
e
s
t
he
NW
M
Gr
o
up
o
t
he
r
t
ha
n
t
h
os
e
a
s
pe
ct
s
r
es
er
v
ed
t
o
t
he
Na
t
W
es
t
G
r
ou
p
p
l
c
Bo
a
rd
or
a
n
a
pp
r
op
r
ia
t
e
Bo
a
rd
C
om
m
it
t
ee
.
Oversees
management of
NWM Group’s
current and future
balance sheet
aligned with chosen
business strategy
and approved risk
appetite
.
Considers the financial
strategy, risk
management and policy
implications
of NatWest Markets’
pension schemes.
Pr
o
v
id
e
s
ov
e
r
si
g
ht
an
d
ch
a
l
l
eng
e
o
n
cu
rr
e
nt
a
nd
p
o
t
en
t
ia
l
f
ut
u
r
e
r
i
sk
e
xp
o
su
r
e
s,
fu
t
ur
e
r
i
sk
s
tr
a
t
eg
y
a
nd
th
e
ef
f
ec
t
i
v
en
es
s
o
f
t
h
e
r
is
k
ma
n
ag
e
m
en
t
fr
a
m
ew
or
k
.
M
on
it
o
r
s
t
h
e
in
t
eg
r
it
y
o
f
f
in
a
nc
ia
l
st
a
t
em
en
t
s
a
nd
f
o
rm
a
l
a
nn
o
un
c
em
e
nt
s
r
el
at
i
ng
t
o
a
ct
ua
l
an
d
fo
r
e
ca
st
p
er
f
or
ma
n
c
e.
Ope
ra
tin
g
Committe
e
(3)
Oversees all aspects of
NWM Group’s control
environment, and
delivers the adoption of
Group-wide risk
frameworks.
Risk and capital m
anageme
nt continued
NWM Group
Annu
al Report an
d Accounts 202
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45
Risk management framework continu
ed
Governance
Risk management structure
The diagram shows NWM Group’s risk man
agement structure in 2021.
(1)
The NWM Chief Risk Officer reports directly to the NWM Chief Executive Off
icer and the NatWest Group Chief Risk Officer. The NWM Chief Risk Officer also has an additional
reporting line to the chair of the NWM Board Risk
Committee, and a right of access to the committee.
(2)
The NWM 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. Chief Risk Officer, the US Head of Risk and the Chief Risk
Offic
er Asia Pacific to ensure consistency across th
e international businesses.
(3)
The NWH Group Risk function provides services a
cross NatWest Group, including – where agreed – to the NWM Chief Risk Officer. These services are managed, as app
licable,
through service level agreements and resource augmentation agreements
.
NatWest
Group Chi
ef
Risk Offi
cer
NWM Chief
Ri
sk
O
f
fi
c
e
r
NWM Chief
Execut
ive
Officer
Head of Compliance,
Conduct & Financial Crime
Head of Credit Risk
Head of Traded Market
Risk
Risk Chief Operating
Officer and Head of
Operational Risk
Head of Model Risk and
eTrading Oversight
NatWest Group
Chief
Executive
Officer
NWM N.V
.
Chief Ri
sk Of
ficer
Asia Pac
ific
Chief Ri
sk Of
ficer
US Head of Risk
Head of Capital
Optimisation Risk
Risk and capital m
anageme
nt continued
NWM Group
Annu
al Report an
d Accounts 202
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46
Risk management framework continu
ed
Three lines of defence
NatWest Group uses the industry-standard th
ree lines of
defence model to articulate accountabilities a
nd responsibilities
for managing risk. This supports the embedding of eff
ective risk
management throughout the organisation.
First line of defence
The first line of defence incorporates most roles in N
atWest
Group, including those in the customer-facing f
ranchises,
Technology and Services as well as support func
tions such as
Human Resources, Legal and Finance.
The first line of defence is emp
owered to take risks within the
constraints of the risk management framework and policie
s as
well as the risk appetite stateme
nts set by NatWest Group and
measures set by the Board.
The first line of defence is responsible for managing its di
rect
risks. With the support of specialist functio
ns 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 con
tinuous
monitoring activities to confirm that NatWest Group eng
ages in
permissible and sustainable risk-taking activities.
The second line of defence advis
es on, monitors, challenges,
approves, escalates and reports
on the risk-taking activities of
the first line, ensuring that thes
e are within the constraints of
the risk management framework and policies as well
a
s the risk
appetite statements set by NatWes
t Group and measures set by
the Board.
Third line of defence
The third line of defence is the Internal Audi
t function and is
independent of the first and se
cond lines.
The third line of defence is responsible for providing
independent and objective assu
rance to the Board, its
subsidiary legal entity boards and executive
management on
the adequacy and effectiveness of ke
y internal controls,
governance and the risk management in place
to monitor,
manage and mitigate the key ris
ks to NatWest Group and its
subsidiary companies achieving their objectives.
The third line of defence executes its duties freel
y and
objectively in accordance with the Charte
red Institute of
Internal Auditors’ Code of Ethics and Internation
al Standards.
Risk appetite
Risk appetite defines the type and aggregate level of
risk NWM
Group is willing to accept in pursuit of its s
trategic objectives
and business plans. Risk appetite supports sound risk t
aking,
the promotion of robust risk practices and risk beh
aviours, and
is calibrated annually.
For certain principal risks, risk
capacity defines the maximum
level of risk NWM Group can as
sume before breaching
constraints determined by regulatory capital
and liquidity
requirements, the operational environment, and fr
om a conduct
perspective. Establishing risk capacity helps dete
rmine where
risk appetite should be set, ensuring there is a
buffer between
internal risk appetite and NWM Group’s ulti
mate capacity to
absorb losses.
Risk appetite framework
The risk appetite framework supports eff
ective risk
management by promoting sound risk-taking t
hrough a
structured approach, within agreed bounda
ries. It also ensures
emerging risks and risk-taking activities that
might be out of
appetite are identified, assessed, es
calated and addressed in a
timely manner.
To facilitate this, a detailed annu
al review of the framework is
carried out. The review includes:

Assessing the adequacy of the f
ramework when compared
to internal and external expectations.

Ensuring the framework remains ef
fective and acts as a
strong control environment for
risk appetite.

Assessing the level of embedding of risk
appetite across the
organisation.
The Board approves the risk appe
tite framework annually.
Establishing risk appetite
In line with NatWest Group’s risk appetite framewo
rk, risk
appetite is maintained across NWM Group th
rough risk appetite
statements. These are in place for all princi
pal risks and
describe the extent and type of activi
ties that can be
undertaken.
Risk appetite statements consist of quali
tative statements of
appetite supported by risk limits and triggers tha
t operate as a
defence against excessive risk-taking. Risk
measures and their
associated limits are an integral part of the risk a
ppetite
approach and a key part of embedding risk a
ppetite in day-to-
day risk management decisions. A cle
ar tolerance for each
principal risk is set in alignment with busi
ness activities.
The annual process of reviewing and upd
ating risk appetite
statements is completed alongside the business an
d financial
planning process. This ensures that plans and risk
appetite are
appropriately aligned.
The Board sets risk appetite for
all principal risks to help ensure
NWM Group is well placed to meet its priorities and long-
term
targets even in challenging economic environ
ments. This
supports NWM Group in remaining resilient
and secure as it
pursues its strategic business objec
tives.
NWM Group’s risk profile is frequently reviewed an
d monitored.
Management focus is concentrated on all p
rincipal risks as well
as the top and emerging risk issue
s which may correlate to
them. Risk profile relative to risk appetite is reporte
d regularly
to senior management and the Board.
NatWest Group policies directly support the quali
tative aspects
of risk appetite. They define the qualitative ex
pectations,
guidance and standards that stipulate the nature
and extent of
permissible risk taking and are consistently a
pplied across
NatWest Group and its subsidiaries.
Risk and capital m
anageme
nt continued
NWM Group
Annu
al Report an
d Accounts 202
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47
Risk management framework continu
ed
Identification and measuremen
t
Identification and measurement
within the risk management
process comprise:

Regular assessment of the overall risk profile, inco
rporating
market developments and trends, as well as ex
ternal and
internal factors.

Monitoring of the risks associat
ed 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 unusu
al
business transactions.
The financial and non-financial risks that NWM G
roup faces are
detailed in its Risk Directory. This provides a common risk
language to ensure consistent terminology is use
d across NWM
Group. The Risk Directory is subject to annu
al review to ensure
it continues to fully reflect the risk
s that NWM Group faces.
Mitigation
Mitigation is a critical aspect of ensuring that risk
profile
remains within risk appetite. Risk mitigation st
rategies are
discussed and agreed within NWM G
roup.
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 t
o
evaluate results. Early identification, an
d effective management
of changes in legislation and regulation are cri
tical to the
successful mitigation of compliance an
d conduct risk. The
effects of all changes are managed to ensure the timely
achievement of compliance. Those c
hanges assessed as having
a high or medium-high impact are managed mo
re 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 an
alysis, including
the stress testing of exposures, is
also carried out.
Stress testing
Stress testing – capital management
Stress testing is a key risk managemen
t tool and a fundamental
component of NatWest Group’s approach to c
apital
management. It is used to quan
tify and evaluate the potential
impact of specified changes to risk factors on the fina
ncial
strength of NWM Group, including its capit
al position.
Stress testing includes:

Scenario testing, which examines
the impact of a
hypothetical future state to define changes in risk f
actors.

Sensitivity testing, which exami
nes the impact of an
incremental change to one or more risk factors.
The process for stress testing consists of four bro
ad stages:
Define
scenarios

Identify macro and NWM Group spec
ific
vulnerabilities and risks.

Define and calibrate scenarios to examine
risks and vulnerabilities.

Formal governance process to
agree
scenarios.
Assess
impact

Translate scenarios into risk drivers.

Assess impact to current and projected
P&L and balance sheet across NWM
Group.
Calculate
results and
assess
implications

Aggregate impacts into overall results.

Results form part of the risk management
process.

Scenario results are used to inf
orm NWM
Group’s business and capital plans.
Develop and
agree
management
actions

Scenario results are analysed by su
bject
matter experts. Appropriate management
actions are then developed.

Scenario results and manageme
nt actions
are reviewed by the relevant E
xecutive
Risk Committees and Board Risk
Committees, and agreed by the rele
vant
Boards.
Stress testing is used widely across NatWest Grou
p, including at
NWM Group level. The diagram
below summarises key areas of
focus.
Specific areas that involve capi
tal management include:

Strategic financial and capital planning
– by assessing the
impact of sensitivities and scenarios on the capital pl
an and
capital ratios.

Risk appetite
– by gaining a be
tter understanding of the
drivers of, and the underlying risks
associated with, risk
appetite.

Risk monitoring
– by monitoring the risks and horizon
scanning events that could potentially affect NatWest
Group’s financial strength and capital posi
tion.

Risk mitigation
– by identifying actions to mitigate risks, or
those that could be taken, in the e
vent of adverse changes
to the business or economic environment. Key
risk-
mitigating actions are documented in NWM G
roup’s
recovery plan.
Risk and capital m
anageme
nt continued
NWM Group
Annu
al Report an
d Accounts 202
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48
Risk management framework continu
ed
Reverse stress testing is also ca
rried out in order to identify
circumstances that may lead to
specific, defined outcomes such
as business failure. Reverse stres
s testing allows potential
vulnerabilities in the business model to be exami
ned more fully.
Capital sufficiency – going concern forward-looking view
Going concern capital requireme
nts are examined on a
forward-looking basis – including as part of t
he annual
budgeting process – by assessing the resilience
of capital
adequacy and leverage ratios under hypothe
tical future states.
These assessments include assumptions about regula
tory and
accounting factors (such as IFRS 9). The
y incorporate
economic variables and key ass
umptions on balance sheet and
P&L drivers, such as impairmen
ts, to demonstrate that NWM
Group and its operating subsidiaries main
tain sufficient capital.
A range of future states are tested. In pa
rticular, capital
requirements are assessed:

Based on a forecast of future busines
s performance, given
expectations of economic and market conditio
ns over the
forecast period.

Based on a forecast of future busines
s performance under
adverse economic and market conditions over
the forecast
period. Scenarios of different severity may be exa
mined.
The examination of capital requirements under
both normal
and adverse economic and market conditions enables Na
tWest
Group to determine whether its projected
business
performance meets internal plans and regulato
ry capital
requirements.
The potential impact of normal and
adverse economic and
market conditions on capital requirements is asse
ssed through
stress testing, the results of which are not only us
ed widely
across NatWest Group but also by the regulators to se
t specific
capital buffers. NatWest Group takes part in st
ress tests run by
regulatory authorities to test industry-wide vulne
r
abilities under
crystallising global and domestic sy
stemic risks.
Under stress testing, the peak-t
o-trough change in CET1 may
be affected by the transitions from Stage 1 to St
age 2 in stress
conditions. Stress and peak-to-trough movemen
ts are used to
help assess the amount of capital NWM
Group needs to hold in
stress conditions in accordance with the capital risk a
ppetite
framework.
Internal assessment of capital adequacy
An internal assessment of material risks is c
arried out annually
to enable an evaluation of the
amount, type and distribution of
capital required to cover these risks. T
his is referred to as the
Internal Capital Adequacy Assess
ment Process (ICAAP). The
ICAAP consists of a point-in-time assess
ment of exposures and
risks at the end of the financial y
ear together with a forward-
looking stress capital assessment. The ICAAP is a
pproved by
the Board and submitted to the PRA.
The ICAAP is used to form a vie
w of capital adequacy
separately to the minimum regulatory requiremen
ts. The ICAAP
is used by the PRA to assess NWM Group’s specific ca
pital
requirements through the Pillar 2 f
ramework.
Capital allocation
NWM Group has mechanisms to allocate capi
tal across its
businesses. These
aim to optimise the use of capital resources
taking into account applicable regulatory requi
rements,
strategic and business objectives
and risk appetite. The
framework for allocating capital is
approved by the CFO with
support from the Assets & Liabi
lities Committee.
Governance
Capital management is subject to substantial
review and
governance. The Board approves the capital pl
ans, including
those for key legal entities and busines
ses as well as the results
of the stress tests relating to those
capital plans.
Stress testing – liquidity
Liquidity risk monitoring and contingency planning
A suite of tools is used to monitor, limit and st
ress test the risks
on the balance sheet. Limit frameworks are in place t
o control
the level of liquidity risk, asset and liability mism
atches and
funding concentrations. Liquidity
risks are reviewed at
significant legal entity and business
levels daily, with
performance reported to the A
ssets & Liabilities Committee on
a regular basis. Liquidity Condition Indicators
are monitored
daily. This ensures any build-up of stress is detected ea
rly and
the response escalated approp
riately through recovery
planning.
Internal assessment of liquidity
Under the liquidity risk management fra
mework, NWM Group
maintains the Internal Liquidity Adequacy As
sessment Process.
This includes assessment of net stressed liquidi
ty outflows
under a range of extreme but plausible stress scena
rios
detailed in the following table.
Type
Description
Idiosyncratic
scenario
The market perceives NWM Group to
be
suffering from a severe stress event, which
results in an immediate assump
tion of
increased credit risk or concerns over
solvency.
Market-wide
scenario
A market stress event affecting
all
participants in a market through contagion,
potential counterparty failure and other
market risks. NWM Group is affected under
this scenario but no more severely than
any other participants with equivalent
exposure.
Combined
scenario
This scenario models the combined impact
of an idiosyncratic and market s
tress
occurring at once, severely affec
ting
funding markets and the liquidity of some
assets.
NWM Group uses the most severe outcome to set
the internal
stress testing scenario which u
nderpins its internal liquidity risk
appetite. This complements the regula
tory liquidity coverage
ratio requirement.
Stress testing – recovery and resolution plan
ning
Within NWM Group, both NWM Plc and NWM N.V. e
a
ch have a
recovery plan explaining how they would identify
and respond
to a financial stress event and res
tore their financial position so
that they remain viable on an ongoing basis.
The recovery plan ensures risks that could del
ay the
implementation of a recovery strategy are highligh
ted and
preparations are made to minimise the impac
t of these risks.
Preparations include:

Developing a series of recovery indica
tors to provide early
warning of potential stress eve
nts.

Clarifying roles, responsibilities and escal
ation routes to
minimise uncertainty or delay.

Developing a recovery playbook to provide a concise
description of the actions required during recovery.

Detailing a range of options to address diff
erent stress
conditions.

Appointing dedicated option owners to reduce the risk of
delay and capacity concerns.
Risk and capital m
anageme
nt continued
NWM Group
Annu
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49
Risk management framework continu
ed
The plan is intended to enable critical services an
d products to
be maintained, as well as core business
lines while operating
within risk appetite and restoring financial con
dition. It is
assessed for appropriateness on an ongoin
g basis and is
updated annually. The NWM Plc
plan is reviewed and approved
by the Board prior to submission to the PRA each
year.
Fire drill simulations of possible recovery even
ts are used to
test the effectiveness of the recovery plans. T
he fire drills are
designed to replicate possible financial s
tress conditions and
allow senior management to rehearse the
responses and
decisions that may be required in an actual stress event.
The
results and lessons learnt from the fire drills a
re used to
enhance the overall approach to recovery pl
anning.
Under the resolution assessment part of the
PRA rulebook,
NatWest Group is required to carry out an assess
ment of its
preparations for resolution, sub
mit a report of the assessment
to the PRA and publish a summary of this repo
rt.
Resolution would be implement
ed if NatWest Group was
assessed by the UK authorities to have failed a
nd the
appropriate regulator put it into resolution. T
he process of
resolution is owned and implemented by the B
ank of England
(as the UK resolution authority). A multi-year program
me is in
place to further develop resolution capability in line wit
h
regulatory requirements.
Stress testing – market risk
Non-traded market risk
Non-traded exposures are reported to the PRA on
a quarterly
basis. This provides the regulator with an ove
rview of NatWest
Group’s banking book interest rate exposu
re. The report
includes detailed product information analysed by in
terest rate
driver and other characteristics, including
accounting
classification, currency and counterparty type.
Scenario analysis based on hypothetic
al adverse scenarios is
performed on non-traded exposures as part of
the Bank of
England and European Banking
Authority stress test exercises.
NatWest Group also produces an in
ternal scenario analysis as
part of its financial planning cycles
.
Non-traded exposures are capitalised through
the ICAAP. This
covers gap risk, basis risk, credit spread risk, pipeline risk,
structural foreign exchange risk, prepayment risk, e
quity risk
and accounting volatility risk. The ICAA
P is completed with a
combination of value and earni
ngs measures. The total non-
traded market risk capital requirement is
determined by adding
the different charges for each sub risk type. The ICAAP
methodology captures at least ten years of his
torical volatility,
produced with a 99% confidence
level. Methodologies are
reviewed by NatWest Group Model Risk and the
results are
approved by the NatWest Group T
echnical Asset & Liability
Management Committee.
Non-traded market risk stress res
ults are combined with those
for other risks into the capital plan p
resented to the Board. The
cross-risk capital planning proce
ss is conducted once a year,
with a planning horizon of five
years. The scenario narratives
cover both regulatory scenarios and macroecono
mic scenarios
identified by NatWest Group.
Vulnerability-based stress testing begins
with the analysis of a
portfolio and expresses its key vulnerabilities in
terms of
plausible, vulnerability scenarios
under which the portfolio
would suffer material losses. These
scenarios can be historical,
macroeconomic or forward-looking/hypothetical. Vulner
ability-
based stress testing is used for internal man
agement
information and is not subject to limits. The resul
t
s for relevant
scenarios are reported to senio
r management.
Traded market risk
NatWest Markets carries out regular market risk s
tress testing
to identify vulnerabilities and potential losses in e
xcess of, or
not captured in, value-at-risk. T
he calculated stresses measure
the impact of changes in risk factors on the fair v
alues of the
trading portfolios.
NatWest Markets conducts historical, macroeconomic
and
vulnerability-based stress testing. Historical s
tress testing is a
measure that is used for intern
al management. Using the
historical simulation framework e
mployed for value-at-risk, the
current portfolio is stressed usi
ng historical data since 1
January 2005. This methodology
simulates the impact of the
99.9 percentile loss that would be incur
red by historical risk
factor movements over the period, assuming variable hol
ding
periods specific to the risk factors and the busine
sses.
Historical stress tests form part of the m
arket risk limit
framework and their results are reported re
gularly to senior
management. Macroeconomic stress tests are ca
rried out
periodically as part of the bank-wide, cross-risk ca
pital
planning process. The scenario narratives are tra
nslated into
risk factor shocks using historical events a
nd insights by
economists, risk managers and the first line.
Market risk stress results are combined wit
h those for other
risks into the capital plan presented to the Boa
rd. The cross-
risk capital planning process is
conducted once a year, with a
planning horizon of five years. The sc
enario narratives cover
both regulatory scenarios and
macroeconomic scenarios.
Vulnerability-based stress testing begins
with the analysis of a
portfolio and expresses its key vulnerabilities in
terms of
plausible, vulnerability scenarios
under which the portfolio
would suffer material losses. These
scenarios can be historical,
macroeconomic or forward-looking/hypothetical. Vulner
ability-
based stress testing is used for internal man
agement
information and is not subject to limits. The resul
t
s for relevant
scenarios are reported to senio
r management.
Risk and capital m
anageme
nt continued
NWM Group
Annu
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50
Risk management framework continu
ed
Internal scenarios
During 2021, NWM Group continued to review a
nd refine its
internal scenarios where appropriate.
In addition, NWM Group vulnerabilities are conside
red as part
of the development of all NatWes
t Group-wide integrated
scenarios and exercises.
Regulatory stress testing
In 2021, NWM Group contributed to NatWest Group’s
submission to the regulatory stress
tests conducted by the Bank
of England. The scenario was hypothetical in n
ature and does
not represent a forecast of NatWest G
roup’s future business or
profitability. The results of regulatory stress tests
are carefully
assessed and form part of the wider risk management of
NatWest Group. Following the UK’s exit from the Eu
ropean
Union on 31 December 2020, o
nly relevant European
subsidiaries of NatWest Group will take part in
the European
Banking Authority stress tests going forwa
rd. NatWest Group
itself will not participate.
NWM Group also contributed to NatWest G
roup’s submission to
the Bank of England’s Climate Biennial Explo
ratory Scenario
(CBES). This exercise was designed to assess the resilience
of
the largest UK banks and insurers to the physical
and transition
risks associated with climate change. The CBES used
three 30-
year scenarios to explore the risks – Early Action (in whic
h the
transition to a net-zero emissions e
conomy gets underway with
carbon taxes and associated policie
s intensifying gradually),
Late Action (in which the transition is delayed u
ntil 2031, with a
sudden increase in the intensity of c
arbon taxes and climate
policy leading to a recession) and No Addi
tional Action (in
which no new climate policies are introduced a
nd the physical
impacts of climate change are most severe). The Ba
nk of
England is expected to publish aggregate findings in 20
22
though, given the exploratory nature of the exercise, it
will not
use CBES to set capital requirements.
In addition to its participation in NatWest G
roup’s stress testing
programme, NWM Group has a fu
rther regulatory commitment
in relation to its traded risk model approvals for ma
rket risk
(IMA) and counterparty credit ris
k (IMM). A robust stress
testing framework is a regulatory requi
rement.
The purpose of this stress testing framework includes
the
identification of possible causes of large losses, a
n estimation of
their size and potential impact on capital adequ
acy together
with the identification of steps that could be taken t
o manage
those exposures as required. Such risk managemen
t-led stress
testing covers both traded marke
t risk and counterparty credit
risk and is used to monitor and
set risk appetite.
The requirements of NWM Gro
up’s stress testing programme
are codified in NWM Group’s stress testing
policy and
associated mandatory procedures.
Risk and capital m
anageme
nt continued
NWM Group
Annu
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Market
risk
(audited)
NWM Group is exposed to traded market risk throug
h its
trading activities and to non-traded
market risk through its
banking activities. Traded and non-traded ma
rket risk
exposures are managed and discuss
ed separately. The traded
market risk section begins below. T
he non-traded market risk
section begins on page 54.
Pension-related activities also g
ive rise to market risk. Refer to
page 83 for more information on risk related to pensio
ns.
Traded market risk
Definition
(audited)
Traded market risk is the risk arising from ch
anges in fair value
on positions, assets, liabilities or commitmen
ts in trading
portfolios as a result of fluctuations in market prices.
Sources of risk
(audited)
Traded market risk mainly aris
es from NWM Group’s trading
activities. These activities provide a range of fin
ancing, risk
management and investment se
rvices to clients – including
corporations and financial instit
utions – around the world. From
a market risk perspective, activities are focused on
rates;
currencies; and traded credit.
NWM Group undertakes transactions in fin
ancial instruments
including debt securities, as well as se
curities financing and
derivatives.
The key categories of traded market risk are inte
rest rate risk,
credit spread risk and foreign currency price risk.
Trading activities may also give rise to coun
terparty credit risk.
For further detail, refer to the C
redit risk section.
Key developments in 2021

The UK, US and Eurozone economies rebou
nded strongly in
2021 following the rollout of COVID-19 v
accines. However,
inflation rose in H2 2021, in part due to global supply
disruptions. This led to further market volatili
ty, particularly
in Rates, due to significant shifts
in inflation expectations.

Traded VaR remained within appetite,
with an average-
basis year-on-year reduction d
riven by de-risking activity in
line with the strategic focus on RWA reduc
tion.
Governance
(audited)
Market risk policy statements set out the gove
rnance and risk
management framework. Responsibility for identifying,
measuring, monitoring and controlling market risk
arising from
trading activities lies with the re
levant trading business. The
Market Risk function independently advises
on, monitors and
challenges the risk-taking activi
ties undertaken by the trading
business ensuring these are within the co
nstraints of the
market risk framework, policies, and
risk appetite statements
and measures.
Risk appetite
NWM Group’s qualitative appetite for traded m
arket risk is set
out in the traded market risk appetite statement. Qua
ntitative
appetite is expressed in terms of
exposure limits. The limits at
NWM Group level comprise value-at-risk (VaR) a
nd stressed
value-at-risk (SVaR). More details
on these are provided on the
following pages.
For each trading business, a document known
as a dealing
authority compiles details of all applicable limits an
d trading
restrictions. The desk-level mandates
comprise qualitative limits
related to the product types wit
hin the scope of each desk, as
well as quantitative metrics spec
ific to the desk’s market risk
exposures. These additional limits and metrics ai
m to control
various risk dimensions such as exposure size, aged in
ventory,
currency and tenor.
The limits are reviewed to reflect changes i
n risk appetite,
business plans, portfolio composition and the
market and
economic environments and rec
alibrated to ensure that they
remain aligned to NWM Group RWA targe
ts. Limit reviews
focus on optimising the alignment between t
raded market risk
exposure and capital usage.
To ensure approved limits are not breached an
d that NWM
Group remains within its risk appetite, tri
ggers have been set
such that if exposures exceed a specified le
vel, action plans are
developed by the relevant business and the Ma
rket Risk
function and implemented.
For more detail on risk appetite, refer to page 46.
Monitoring and mitigation
Traded market risk is identified and asse
ssed by gathering,
analysing, monitoring and reporting market risk info
rmation at
desk, business and NWM Group-wide levels. In
dustry expertise,
continued system developments and techniques suc
h as stress
testing are also used to enhance the eff
ectiveness of the
identification and assessment of all materi
al market risks.
Traded market risk exposures are monitored ag
ainst limits and
analysed daily. A daily report summarising the
position of
exposures against limits at desk, business and NWM G
roup
levels is provided to senior management and marke
t risk
managers across the function. Li
mit reporting is supplemented
with regulatory capital and stres
s testing information as well as
ad-hoc reporting.
A risk review of trading busines
ses 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 trigge
rs which, if breached, require
a remedial action plan to be agreed between
the Market Risk
function and the business. The loss triggers are se
t using both a
fall-from-peak approach and an absolu
te loss level. In addition,
regular updates on traded market risk positions a
re provided to
NWM Group’s Executive Risk Committee and Boa
rd Risk
Committee.
Risk and capital m
anageme
nt continued
NWM Group
Annu
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52
Traded market risk continued
Measurement
(audited)
NWM Group uses VaR, SVaR and the incremental
risk charge
to measure traded market risk. Risks
that are not adequately
captured by VaR or SVaR are captured by
the Risks Not In VaR
(RNIV) framework to ensure that NWM Group is
adequately
capitalised for market risk. In addition, st
ress testing is used to
identify any vulnerabilities and poten
tial losses.
The key inputs into these measurement met
hods are market
data and risk factor sensitivities. Sensitivities ref
er to the
changes in trade or portfolio value that result f
rom small
changes in market parameters that are subject t
o the market
risk limit framework. Revaluatio
n ladders are used in place of
sensitivities to capture the impact of la
rge moves in risk factors
or the joint impact of two risk factors.
The suite of internal metrics use
d for risk management
purposes at NWM Group level have been desig
ned to capture
correlation effects and to allow f
or an aggregated view of
traded market risk across risk types
, markets and business lines
while also taking into account the characte
ristics of each risk
type.
Value-at-risk
For internal risk management purposes, VaR assu
mes a time
horizon of one trading day and
a confidence level of 99%.
The internal VaR model – which captures all tradin
g book
positions including those products approved by the
regulator –
is based on a historical simulation, utilising m
arket data from
the previous 500 days on an equ
ally-weighted basis.
The model also captures the potential imp
act of interest rate
risk, credit spread risk, foreign currency price risk, equi
ty price
risk and commodity price risk.
When simulating potential move
ments in such risk factors, a
combination of absolute, relativ
e and rescaled returns is used.
The performance and adequacy of the VaR model
are tested
regularly through the following processes:

Back-testing: Internal and regul
atory back-testing is
conducted on a daily basis. For f
urther information on
back-testing, refer to the following page.

Ongoing model validation: VaR
model performance is
assessed both regularly and on an ad-hoc basis if m
arket
conditions or portfolio profile change sig
nificantly.

Model Risk Management revie
w: 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 po
rtfolio
profile. For further detail on the
independent model
validation carried out by Model
Risk Management, refer to
page 87. More information relating to pricing
and market
risk models is presented in the NatWest G
roup Pillar 3
Report.
One-day 99% traded internal VaR
(audited)
The table below shows one-day 9
9% internal VaR for the trading portfolios of NWM G
roup, split by exposure type.
2021
2020
Period
Period
Average
Maximum
Minimum
end
Average
Maximum
Minimum
end
Traded internal VaR (1-day 99%)
£m
£m
£m
£m
£m
£m
£m
£m
Interest rate
10.4
25.3
4.5
8.9
8.7
20.2
4.8
6.3
Credit spread
11.3
13.4
9.4
10.7
15.3
27.2
9.1
10.3
Currency
3.4
9.4
1.7
2.2
4.2
8.4
2.1
3.0
Equity
0.4
0.8
—
0.2
0.6
2.0
0.2
0.7
Commodity
0.1
0.5
—
—
0.1
0.6
—
0.2
Diversification
(1)
(12.3)
(10.5)
(12.8)
(10.3)
Total
13.3
23.9
9.3
11.5
16.1
25.7
10.1
10.2
(1)
NWM Group benefits from diversification across various finan
cial instrument types, currencies and markets. The extent of the diversification benefit depends on the correlation
between the assets and risk factors in the portfolio at a part
icular time. The diversification factor is the sum of the VaR on individual risk types less the total portfolio VaR.

Traded VaR increase
d in the first half
of 2021 reflecti
ng a rise
in tenor basis
risk in sterling flow t
rading. This related
to the
transition from LIBOR to alternative risk-free r
ates.

A regulator-approved update to the VaR mo
del was applied
in the second
half of the year, to
address the impa
ct of this
transition.

On an average basis, traded VaR decreased in 202
1
compared to 2020. This was driven by de-risking ac
tivity in
line with the strategic focus on RWA reduc
tion.
Risk and capital m
anageme
nt continued
NWM Group
Annu
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Traded market risk continued
VaR back-testing
The main approach employed to asses
s the VaR model’s ongoing performance is b
ack-testing, which counts the number of d
ays
when a loss exceeds the corresponding daily VaR esti
mate, measured at a 99% confidence lev
el.
Two types of profit and loss (P&L) are used in back-testi
ng comparisons: Actual P&L and Hyp
othetical P&L. For more details on the
back-testing approach and the
differences between internal and regulatory VaR,
refer to the Market risk section of the NatW
est
Group Pillar 3 Report.
The table below shows regulat
ory back-testing exceptions in NWM Plc fo
r the 250-business-day period to 31
December 2021 for
one-day 99% traded regulatory VaR compared with Ac
tual and Hypothetical (Hypo) P&L.
Back-testing
exceptions
Actual
Hypo
NWM Plc
1
3

In the 250-day rolling window to 3
1 December 2021, NWM
Plc experienced one Actual and three Hypothetical
VaR P&L
back-testing exceptions.

The Actual exception and two of the Hypo
thetical
exceptions occurred in October 2
021, driven by market
moves in sterling rates and inflation.

The third Hypothetical exception occurred in
December
2021, driven by market moves in sterling and US d
ollar
rates.
The table below shows internal back-tes
ting exceptions in the major NWM business
es for the 250-business-day period to 31
December 2021. Internal back-testing co
mpares one-day 99% traded internal V
aR with Actual and Hypo P&L.
Back
-
testing except
ions
Actual
Hypo
Rates
1
2
Currencies
1
1
Credit
—
—
xVA
—
—

The exceptions in the Rates bu
siness were mainly driven by
market moves in sterling, euro and US doll
ar rates.

The exceptions in the Currenci
es business were mainly
driven by market moves related to the Turkish li
ra.
Stressed VaR (SVaR)
As with VaR, the SVaR methodology produces e
stimates of the potential change in the marke
t value of a portfolio, over a specified
time horizon, at a given confide
nce level. SVaR is a VaR-based measure using histo
rical data from a one-year period of s
tressed
market conditions. A simulation of 99
% VaR is run on the current portfolio for each 25
0-day period from 2005 to the cur
rent VaR
date, moving forward one day at a time. T
he SVaR is the worst VaR outcome of the simul
ated results.
This is in contrast with VaR, which is based on
a rolling 500-day historical data se
t. A time horizon of ten trading days is assu
med
with a confidence level of 99%. NWM G
roup’s internal traded SVaR model captures all tra
ding book positions.
The table below analyses 10
-day 99% internal SVaR for the trading portfolios of NW
M Group.
2021
2020
Average
Maximum
Minimum
Period end
Average
Maximum
Minimum
Period end
£m
£m
£m
£m
£m
£m
£m
£m
Total internal traded SVaR
95
175
46
66
97
196
59
87

Traded SVaR increased in the first half of 2
021, reflecting a
rise in tenor basis risk in sterling flow trading. This
related
to the transition from LIBOR to alterna
tive risk-free rates.

Traded SVaR subsequently decreased in
the second half of
the year following changes to the treatment of tenor
basis
risk in the VaR model.
Risk and capital m
anageme
nt continued
NWM Group
Annu
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54
Traded market risk continued
Risks Not In VaR (RNIVs)
The RNIV framework is used to identify and quantify m
arket
risks that are not fully captured by the intern
al VaR and SVaR
models.
RNIV calculations form an integral part of ongoin
g model and
data improvement efforts to capture all marke
t risks in scope
for model approval in VaR and
SVaR.
For further qualitative and quantitative disclos
ures on RNIVs,
refer to the Market risk section of the NatWest Grou
p Pillar 3
Report.
Stress testing
For information on stress testing, refer to pa
ge 47.
Incremental risk charge (IRC)
The IRC model quantifies the impact of r
ating migration and
default events on the market value of instruments with
embedded credit risk (in particular, bonds and c
redit default
swaps) held in the trading book
. It further captures basis risk
between different instruments, ma
turities and reference
entities. For further qualitative and quan
titative disclosures on
the IRC, refer to the Market risk s
ection of the NatWest Group
Pillar 3 Report.
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 suc
h as interest rates,
foreign exchange rates and eq
uity prices, or from changes in
managed rates.
Sources of risk
(audited)
The key sources of non-traded market risk are interest
rate
risk, credit spread risk, foreign exchange risk and equity
risk.
For detailed qualitative and quantitative info
rmation on each of
these risk types, refer to the separate sub-se
ctions starting on
the following page.
Key developments in 2021

NWM Plc’s non-traded internal VaR expe
rienced less
volatility compared to 2020. O
n an average basis, it
decreased driven by the foreign exchange componen
t,
mainly due to the strategic focus on RWA reduction.
NWM Plc continued to maintain a foreign exchange hedgi
ng
programme to mitigate the downside risk to its solo C
ET1
capital ratio from movements in foreign exchange r
ates.
Ahead of a revised regulatory permission th
at came into
effect in the UK on 31 Decembe
r 2021, increased hedging
of some exposures was carried
out. However, the aim of
the programme remains uncha
nged and the impact of the
change was managed within risk appetite.

NWM Plc maintains a structural hedge of its co
mmon equity
and reserves. At 31 December 20
21, the notional amount of
the structural hedge in place w
as £3.9 billion (£4.8 billion at
31 December 2020). NWM policy is to align the notion
al of
the hedge to its business strate
gy.

During the year, the structural hedging program
me fully
transitioned to SONIA-linked swaps, instead of
LIBOR.
Governance
(audited)
Responsibility for identifying, measuring, monito
ring and
controlling market risk arising from non-tradi
ng activities lies
with the relevant business. Oversight is provided
by NWM
Group’s Non-Traded Market Risk f
unction.
Risk positions are reported regularly to NWM
Group’s Executive
Risk Committee and the Board Ris
k Committee, as well as to
the Assets & Liabilities Committee
(ALCo). Non-traded market
risk policy statements set out the governance a
nd risk
management framework.
Non-traded market risk is managed separately on bo
th sides of
the ring-fence. It is aggregated and monitored ag
ainst risk
appetite at both NWM Plc and NatWest G
roup levels.
Risk appetite
NWM Group’s qualitative appetite is s
et out in the non-traded
market risk appetite statement.
Its quantitative appetite is expresse
d in terms of exposure
limits. At NWM Plc level, the Bo
ard limit comprises a VaR
measure. This is supplemented with SVaR, sensi
tivities
(including to the CET1 ratio), earnings-at-risk and econo
mic-
value-of-equity measures monit
ored at Executive governance
level.
To ensure limits are not breached and that NWM Plc
remains
within its risk appetite, triggers have been set such
that if
exposures exceed a specified leve
l, action plans are developed
by the business, Non-Traded Market Risk
and Finance for
implementation. Limits are revi
ewed regularly to reflect
changes in risk appetite, busine
ss plans, portfolio composition
and the external environment. For furthe
r information on risk
appetite, refer to page 46.
Risk and capital m
anageme
nt continued
NWM Group
Annu
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55
Non-traded market risk continued
Non-traded internal VaR (one-day 99%)
(audited)
The market risk exposures arisi
ng as a result of banking activitie
s are measured using a combination of value-based
metrics (VaR
and sensitivities) and earnings-based me
trics. The following table shows NWM
Plc’s one-day internal banking book V
aR at a 99%
confidence level, split by risk ty
pe. VaR values for each year are calcula
ted based on one-day values for each of the 12
month-end
reporting dates. For NWM N.V., refe
r to the appropriate key point below the table.
2021
2020
Average
Maximum
Minimum
Period end
Average
Maximum
Minimum
Period end
NWM Plc
£m
£m
£m
£m
£m
£m
£m
£m
Interest rate
2.8
3.4
2.1
2.6
2.9
3.4
2.3
2.3
Credit spread
5.8
7.8
4.4
4.9
7.0
8.5
3.8
7.6
Foreign exchange rate
4.8
5.9
4.3
4.4
11.5
14.3
7.7
7.7
Equity risk
2.8
3.1
2.5
2.6
2.3
3.0
1.0
3.0
Diversification
(1)
(7.8)
(7.0)
(7.7)
(8.9)
Total
8.4
10.9
6.4
7.5
16.0
19.7
11.8
11.8
(1)
NWM Plc benefits from diversification across various financial instrument types,
currencies and markets. The extent of the diversification benefit depends on th
e correlation between
the assets and risk factors in the portfolio at a particular t
ime. The diversification factor is the sum of the VaR on individual risk types less the total portfolio VaR.

In NWM Plc, non-traded interna
l VaR decreased on an
average basis.

This was driven by a decrease in the foreign e
xchange VaR,
mainly due to the strategic focus on RWA reduction. C
redit
spread VaR also decreased, mainly
reflecting a reduction in
risk sensitivities in FVOCI loan portfolios.

In NWM N.V., non-traded VaR
was £0.9 million on an
average basis (2020 - £1.3
million) and £0.5 million on a
period end basis (2020 - £1.4 mill
ion).
Interest rate risk
Non-traded interest rate risk (NT
IRR) mainly arises from capital
hedges, in portfolios held for liq
uidity purposes and from interes
t
rate repricing mismatches betwe
en assets and liabilities in other
portfolios. When aggregated, thes
e products form portfolios of
assets and liabilities with varying degrees of s
ensitivity to
changes in market interest rate
s. Mismatches can give rise to
volatility in net interest income
as interest rates vary.
NTIRR comprises the following three primary risk types:

Gap risk: arises from the timing of
rate changes in non-
trading book instruments. The extent of gap risk depen
ds on
whether changes to the term structure of interes
t rates
occur consistently across the yie
ld curve (parallel risk) or
differentially by period (non-parallel risk).

Basis risk: captures the impact of relative chan
ges in interest
rates for financial instruments t
hat have similar tenors but
are priced using different interest rate indices, o
r on the
same interest rate indices but with different tenors.

Option risk: arises from option derivative p
ositions or from
optional elements embedded in asse
ts, liabilities and/or off-
balance sheet items, where NWM Group or its cust
omer can
alter the level and timing of their cash flows.
To manage exposures within appetite, NWM Grou
p aggregates
its interest rate positions and hedges these externally us
ing cash
and derivatives (primarily intere
st rate swaps).
Credit spread risk
Credit spread risk arises from the potential
adverse economic
impact of a change in the spread betwee
n bond (or other
credit-sensitive instrument) yiel
ds and swap rates, where the
portfolios are accounted at fair value. Credi
t risk also arises on
loan portfolios classified at fair value.
To ensure NWM Group can con
tinue to meet its obligations in
the event that access to wholesale f
unding markets is restricted,
it maintains a liquidity buffer in the for
m of bond portfolios –
comprising primarily high-quality securities – and cent
ral bank
cash. Credit spread risk is monitored daily through sensiti
vities
and VaR measures. The dealing authorities in pl
ace for the bond
portfolios further mitigate the risk by imposing const
raints by
duration, asset class and credit rating. Exposures a
nd limit
utilisations are reported to senior managemen
t on a daily basis.
Risk and capital m
anageme
nt continued
NWM Group
Annu
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56
Non-traded market risk continued
Foreign exchange risk
Non-traded foreign exchange risk arises from two m
ain
sources:

Structural foreign exchange rat
e risk: arises from the
capital deployed in foreign curr
ency operations (mainly
overseas subsidiaries and bran
ches) net of related currency
hedging.

Transactional foreign exchange rate risk: a
rises mainly
from non-sterling denominated transac
tions and associated
gains and losses.
Structural foreign exchange rat
e risk is assessed and managed
by NWM Plc Treasury, with the aim of reducing NWM Plc’s sol
o
CET1 ratio sensitivity to unexpe
cted movements in spot foreign
exchange rates.
The position is managed within
risk appetite levels under
delegated authority from NWM Plc ALCo. T
he sensitivity of the
CET1 ratio to exchange rates is repo
rted to NWM Plc senior
management monthly.
Gains or losses arising from the
retranslation of net investments
in overseas operations are reco
gnised in equity reserves and
reduce the sensitivity of capital ratios to foreign exc
hange rate
movements primarily arising from the retra
nslation of non-
sterling denominated RWAs.
Foreign exchange exposures ari
sing from customer
transactions are sold down by businesse
s on a regular basis in
line with NatWest Group policy.
Foreign exchange exposures
(audited)
The table below shows NWM Group’s structural fo
reign currency e
xposures.
Residual
Net
Structural
structural
investments in
Net
foreign
foreign
foreign
investment
currency
Economic
currency
operations
hedges
exposures
hedges
exposures
2021
£m
£m
£m
£m
£m
US dollar
(1)
1,250
(
260)
990
(
853)
137
Euro
2,400
(
221)
2,179
—
2,179
Swiss franc
171
(
171)
—
—
—
Other non
-
sterling
392
(69)
323
—
323
4,213
(
721)
3,492
(853)
2,639
2020
US dollar
(1)
1,300
—
1,300
(842)
458
Euro
2,349
(
236)
2,113
—
2,113
Swiss franc
184
(
174)
10
—
10
Other non
-
sterling
404
—
404
—
404
4,237
(
410)
3,827
(842)
2,985
(1)
Economic hedges of US dollar net investments
in foreign operations represent US dollar equity securities that do not qualify as net investment hedges for accounting p
urposes.

Against the euro, sterling strengthened
to 1.19 at 31
December 2021 compared to 1.11
at 31 December 2020.
Against the dollar, sterling weakened slightly to 1.35 a
t 31
December 2021 compared to 1.37
at 31 December 2020.

During the year, NWM Plc incre
ased net investment
hedging in US dollars and other non-ste
rling currencies to
reduce the potential impact on RWAs of changes
to its
regulatory FX hedging permission.

Changes in foreign currency exchange rates aff
ect equity in
proportion to structural foreign currency exposure. Fo
r
example, a 5% strengthening or weakening in fo
reign
currencies against sterling would result in a gain o
r loss of
£0.2 billion in equity, respectivel
y.
Risk and capital m
anageme
nt continued
NWM Group
Annu
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57
Capital, liquidity and fundin
g risk
NWM Group continually ensures
a comprehensive approach is
taken to the management of capital, liquidi
ty and funding,
underpinned by frameworks, ris
k appetite and policies, to
manage and mitigate capital, liquidity & fundin
g risks. The
framework ensures the tools and capability a
re in place to
facilitate the management and mitigation of risk ensu
ring the
Group operates within its regulatory requirements an
d risk
appetite.
Definitions
(audited)
Regulatory capital consists of r
eserves and instruments issued
that are available, have a degree
of permanency and are
capable of absorbing losses. A number of strict con
ditions are
set by applicable regulations to
determine capital eligibility.
Capital adequacy risk is the risk that there is or
will be
insufficient capital and loss abs
orbing debt instruments to
operate effectively including me
eting minimum regulatory
requirements for capital, leverage and MREL, oper
ating within
Board approved NWM Group ri
sk appetite and supporting
strategic goals.
Liquidity consists of assets that can be readily con
verted to
cash within a short timeframe and with a reli
able value.
Liquidity risk is the risk of being u
nable to meet financial
obligations as and when they fall due.
Funding consists of on-balance shee
t liabilities that are used to
provide cash to finance assets.
Funding risk is the risk of not
maintaining a diversified, stable and cost-effe
ctive funding
base.
Liquidity and funding risks arise in a nu
mber 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;

Credit ratings;

Wholesale market conditions; a
nd

Depositor and investor behaviour.
Sources
(audited)
Capital
The eligibility of instruments and financial resou
rces as
regulatory capital is laid down by applic
able regulation. Capital
is categorised by applicable regulation under two
tiers (Tier 1
and Tier 2) according to the ability to absorb losses
on either a
going or gone concern basis, d
egree of permanency and the
ranking of loss absorption. There are three broad c
ategories of
capital across these two tiers:

CET1 capital - CET1 capital must be perpetual
and capable
of unrestricted and immediate use
to cover risks or losses
as soon as these occur. This includes ordinary sh
ares issued
and retained earnings.

Additional Tier 1 (AT1) capital - T
his is the second type of
loss absorbing capital and must be capable of abso
rbing
losses on a going concern basis. The
se instruments are
perpetual in nature, with an initial call period of
at least five
years from issue and are written off
or converted into CET1
capital if a pre-specified CET1 ratio is reac
hed. The sum of
CET1 and AT1 capital is referred to as Tier 1 ca
pital.

Tier 2 capital - Tier 2 capital is the bank entities
’
supplementary capital and provides loss abso
rption on a
gone concern basis. Gone concern refers to the si
tuation in
which resources must be available to enable an o
rderly
resolution, in the event that the Bank of Englan
d (BoE)
deems that NWM Plc has failed. T
ier 2 capital absorbs
losses after Tier 1 capital. It typic
ally consists of
subordinated debt securities with a minimum i
nitial maturity
of five years.
Minimum requirement for own funds and eligible
liabilities (MREL)
In addition to capital, other spec
ific loss absorbing instruments,
including senior notes with a residual maturity of
at least one
year issued by NWM Plc, may be
used to cover certain gone
concern capital requirements.
Liquidity
NWM Group maintains a prudent approach to
the definition of
liquidity resources. Liquidity resources are divided i
nto primary
and secondary liquidity as follows:

Primary liquid assets include cash and bal
ances at central
banks, Treasury bills and other high-quality gover
nment
and US agency bonds.

Secondary liquid assets are elig
ible as collateral for local
central bank liquidity facilities. T
hese assets may include
lower-quality bonds and eligible
loans that are retained on
balance sheet and pre-positione
d with a central bank so
that they may be converted into additional sources of
liquidity at very short notice.
Funding
NWM Group’s primary funding
sources are as follows:
Type
Description
Wholesale
markets
Includes:

Short-term (less than 1 year)
unsecured money market funding.

Commercial paper and certificates
of deposit.

Secured repo market funding.
Term debt
Includes:

Long-term (typically more than 1
year) senior unsecured and secu
red
debt securities.

Long-term subordinated liabilities.
Internal capital
and MREL
Includes:

Equity, AT1, Tier 2 capital
instruments and MREL issued to
NatWest Group plc (under the
Single Point of Entry regime).
Managing capital, liquidity and funding requirements:
regulated entities
In line with paragraph 135 of I
AS 1 ‘Presentation of Financial
Statements’, NWM Group manages capital havi
ng regard to
regulatory requirements. Regulatory capital, MREL,
RWA and
leverage is monitored and reported on an individual
regulated
bank legal entity basis (‘bank entity’), which is
the CRR
transitional basis as relevant in the UK and
EU.
Liquidity metrics including the L
CR are presented for the solo
legal entity as regulated by the PRA. Funding sou
rces and
Notes issued disclosures are prese
nted for NWM Group rather
than for NatWest Markets Plc.
Risk and capital m
anageme
nt continued
NWM Group
Annu
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58
Capital, liquidity and fundin
g risk continued
Key developments in 2021

NWM Plc’s CET1 ratio decreased by 38
0 basis points to
17.9% at 31 December 2021, from 21.7% at 31 Decembe
r
2020, primarily driven by the de
crease in CET1 capital,
partially offset by impact of lower RWAs. The decrease in
CET1 capital reflected the impact of dividends pai
d to
NatWest Group plc, including a £2
50 million foreseeable
ordinary dividend deduction, a
nd other reserve movements.

NWM Plc’s RWAs decreased by £2
.9 billion to £22.7 billion
at 31 December 2021, reflecting lower levels of
credit,
counterparty credit and market risk which have
trended
downwards as the business seeks
to reduce RWAs including
through the execution of capital optimisation ac
tions and
exit activity. Operational risk RWAs reduced followi
ng the
annual recalculation.

CRR leverage exposure for NWM Plc decreased
to £110.6
billion compared with £123.9 billion at 31 December 2020
.

The leverage ratio on a CRR ba
sis, using PRA transitional
capital, was 4.3% at 31 December 202
1 compared with
5.2% at the prior year end. The decrease was
driven by a
reduction in Tier 1 capital, offset partially by the dec
rease in
leverage exposure.

Following the Financial Policy Committee’s planned
review
of the UK’s leverage ratio framework, the PRA h
as
introduced changes to the fram
ework. As per the new
framework, NWM Plc is required to implement ch
anges to
the definition of leverage exposure measu
re and to
reporting and disclosure requirements with effe
ct from 1
January 2022. The UK leverage ratio of 4.8
% for 2021 has
been calculated under the exist
ing CRR as well as the
existing PRA UK leverage framework.

NWM Plc’s MREL at 31 December 202
1 was £9.6 billion, or
42.1% of RWAs, down from £12.7 billion and 49
.6%
respectively at 31 December 2020
. The decrease in the
year was largely due to the redemption of a $1.5 billion
internal instrument issued to NatWest G
roup and the
reduction in CET1 capital.

The NWM Plc liquidity portfolio was £16.1
billion at 31
December 2021, a decrease of
£3.3 billion from £19.4 billion
at the prior year end.

The LCR for NWM Plc was 205% at 31 Decembe
r 2021,
compared with 268% at year end 20
20.
Capital management
Capital management is the process
by which banks ensure that
they have sufficient capital and other loss
absorbing
instruments to operate effec
tively. This includes meeting
minimum regulatory requireme
nts, operating within Board-
approved risk appetite, maintaining cre
dit ratings and
supporting strategic goals. Capital managemen
t is critical in
supporting banks businesses. Capital man
agement within NWM
Group is executed in accordan
ce with the NatWest Group-wide
framework.
NWM Plc’s capital plans are produced and updated by the b
ank
on a monthly basis. This proces
s includes integration into
NatWest Group’s wider annual
budgeting process and is
summarised below. Other elem
ents of capital management,
including risk appetite and stress
testing, are set out on pages
46 and 47.
Produce
capital
plans

A capital plan is produced for NWM Plc
using a five year planning horizon under
expected and stress conditions. Stressed
capital plans are produced to su
pport
internal stress testing through the ICAAP
or for regulatory purposes.

A shorter term (rolling 12 month) forecas
t
is updated frequently in respon
se to actual
performance, changes in internal and
external business environment and to
manage risks and opportunities.
Assess
capital
adequacy

Capital plans are developed to ensure that
capital of sufficient quantity and quality is
planned to be available to support NWM
Group’s business and strategic
plans over
the planning horizon within approved risk
appetite, as determined via stress testing,
and minimum regulatory requir
ements.

Impact assessment captures input from
across NWM Group including from
businesses.
Inform
capital
actions

Capital planning informs potent
ial capital
actions including managing capital through
new issuance, redemptions or i
nternal
transactions.

Decisions on capital actions will be
influenced by strategic and regulatory
requirements, the cost and prevailing
market conditions.

As part of capital planning, NWM Group
will monitor its portfolio of capital
securiti
es and assess the optimal blend.
Capital planning is one of the tools that NW
M Group uses to
monitor and manage capital adequacy risk on
a going and
gone concern basis, including the risk of e
xcessive leverage.
Liquidity and funding managemen
t
Liquidity and funding management follows a simila
r process to
that outlined above for capital.
Liquidity portfolio management
The size of the portfolio is determined by reference t
o NWM
Group’s liquidity risk appetite.
Consistent with NatWest Group,
NWM Group retains a prudent approach to settin
g the
composition of the liquidity portfolio, which is subject
to internal
policies and limits over quality of counterpa
rty, maturity mix
and currency mix. NWM Group categorises its liquidi
ty portfolio,
including its locally managed liquidity por
tfolios, into primary
and secondary liquid assets. The majority of the N
WM Plc
portfolio is managed by NatWest Holdings Treasu
ry on behalf
of NWM Plc, for which the NatWest Markets Treasu
rer is
responsible.
NatWest Markets Securities Inc. and NatWes
t Markets N.V.,
both of which are significant ope
rating subsidiaries of NWM Plc,
hold locally managed liquidity portfolios
to comply with local
regulations that differ from PRA
rules.
The liquidity value of the portfolio is deter
mined by taking
current market prices and applying a discount o
r haircut, to
give a liquidity value that represe
nts the amount of cash that
can be generated by the asset.
Funding risk management
NWM Group manages funding risk through a co
mprehensive
framework which measures and monito
rs the funding risk on
the balance sheet.
The long term obligations of NWM Group must
be met with
diverse and stable funding sources
, the behavioural maturity of
these liabilities must at a minimum equal
those of the assets.
Risk and capital m
anageme
nt continued
NWM Group
Annu
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59
Capital, liquidity and fundin
g risk continued
Minimum requirements
Capital ratios
The Bank entities are subject to
minimum capital requirements relative to R
WAs. The table below summarises the CRR end
-point
minimum requirements of capital to RWAs that
the UK bank entities are expected to meet.
Type
CET1
Total
Tier 1
Total capital
Minimum capita
l requirements
4.5%
6.0%
8.0%
Capital conservatio
n buffer
(1)
2.5%
2.5%
2.5%
Countercyclical capi
tal buffer
(1)
0.0%
0.0%
0.0%
Total
(2)
7.0%
8.5%
10.5%
(1)
The institution specific countercyclical capital buffer
requirement is based on the weighted average of geographical exposures. The Financial Policy Committee (FPC) sets the
UK
countercyclical capital buffer. In December 2021, the FPC announced an increase in th
e UK CCyB rate from 0% to 1%. This rate will come into effect from December 2022 in line
with the 12 month implementation period. Foreign exposures
may be subject to different countercyclical capital buffer rates dependent on the rate set in those jurisdictions. NWM
Plc’s main relevant exposures are to the UK (54%) and the
US (19%). The capital conservation buffer and the countercyclical capital buffer are required to be met with CET1 capital
only.
(2)
In addition, NWM Plc is subject to Pillar 2A requirements which are not disclosed p
ublicly.
Leverage ratio
At present, NWM Plc only has a le
verage ratio reporting requirement, and not
a regulatory minimum leverage requiremen
t.
Following the publication of the new UK lever
age ratio framework on 8 October 2021
, NWM Plc will be subject to the minimum
leverage requirement from 1 Ja
nuary 2023.
Measurement
Capital, RWAs and leverage
Capital resources, RWAs and le
verage based on the PRA transitional arrange
ments for NWM Plc are set out below. Regulato
ry
capital is monitored and reported at legal enti
ty level for large subsidiaries of NatWest G
roup.
2021
2020
Capital adequacy ratios
%
%
CET1
17.9
21.7
Tier 1
21.0
25.2
Total
25.9
30.3
Total MREL
42.1
49.6
Capital
(1)
£m
£m
CET1
4,072
5,547
Tier 1
4,755
6,433
Total
5,870
7,753
Total MREL
(2)
9,555
12,679
RWAs
Credit risk
6,878
6,902
Counterparty credit risk
6,854
8,130
Market risk
6,934
8,150
Operational risk
2,020
2,382
Total RWAs
22,686
25,564
Leverage
(3)
CRR leverage exposure (£m)
110,603
123,927
Tier 1 capital (£m)
4,755
6,433
CRR leverage ratio (%)
(4)
4.3
5.2
(1)
CRR end-point for UK banks set by the PRA is 10.5% minimum total capital ratio, with a minimum CET1
ratio of 7.0%.
(2)
Includes senior internal debt instruments issued to
NatWest Group plc with a regulatory value of £3.7 billion (2020 - £4.9 billion).
(3)
Leverage exposure is broadly aligned to the accounting
value of on and off-balance sheet exposures, subject to specific adjustments for derivatives, securities financing positions
and off-balance sheet exposures.
(4)
CRR leverage exposure includes netting of regular wa
y deals pending settlement in line with CRR amendments that came into effect in June 2020.
(5)
Following the Financial Policy Committee’s planned review of the
UK’s leverage ratio fram
ework, the PRA has introduced chang
es to the framework. As per the new framework,
NWM Plc is required to implement changes to the def
inition of leverage exposure measure and to reporting and disclosure requirements with effect from 1 January 2022. The UK
leverage ratio of 4.8% for 2021 has been calculated under the existing CRR as well as the existing
PRA UK leverage framework.
Risk and capital m
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Capital, liquidity and fundin
g risk continued
Leverage exposure
The leverage exposure is based on the CRR Deleg
ated Act.
2021
2020
Leverage
£m
£m
Cash and balances at central banks
12,294
11,736
Trading assets
41,222
52,169
Derivatives
103,042
164,104
Net loans to customers
21,988
23,827
Other assets
4,008
4,246
Total assets
182,554
256,082
Derivatives
-
netting
(106,317)
(169,152)
- potential future exposures
32,235
35,654
Securities financing transactions gross up
1,298
999
Undrawn commitments
4,993
5,037
Regulatory deductions and other adjustmen
ts
(3,186)
(2,977)
Exclusion of core UK-group exposures
(974)
(1,716)
Leverage exposure
110,603
123,927
Liquidity portfolio
(audited)
The table below shows the liquidity po
rtfolio by LCR product, with the inco
rporation of discounts (or haircuts
) used within the
internal stressed outflow coverage. Secondary li
quidity comprises asse
ts eligible for discount at central banks, which do no
t form
part of the liquid asset portfolio for LCR or stressed ou
tflow coverage purposes.
Liquidity va
lue
(1)
2021
2020
NatWest Markets Plc
£m
£m
Cash and balances at central banks
12,277
11,773
AAA to AA- rated governments
3,457
7,207
A+ and
lower rated governments
18
79
Government guaranteed issuers, public sector entities
and government sponsored entities
13
—
International organisations and multil
ateral development banks
140
144
LCR level 1 bonds
3,628
7,430
LCR level 1 assets
15,905
19,203
LCR level 2 assets
—
—
Non-LCR eligible assets
—
—
Primary liquidity
15,905
19,203
Secondary liquidity
(2)
190
224
Total liquidity value
16,095
19,427
The table below shows the liquidity value of
the liquidity portfolio by currency.
GBP
USD
EUR
Other
Total
Total liquidity portfolio
£m
£m
£m
£m
£m
2021
7,947
3,010
5,120
18
16,095
2020
8,838
3,793
6,716
80
19,427
(1)
Liquidity value is aligned to the internal stressed outflow coverage, which is stated after discounts
(or haircuts) are applied to the instruments.
(2)
Comprises assets eligible for discounting at the Bank
of England and other central banks.
Risk and capital m
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Capital, liquidity and fundin
g risk continued
Funding sources
(audited)
The table below shows NWM Group’s car
rying values of the principal funding sou
rces based on contractual maturity.
2021
2020
Short
-
term
Long
-
term
Short
-
term
Long
-
term
less than
more than
less than
more than
1 year
1 year
Total
1 year
1 year
Total
£m
£m
£m
£m
£m
£m
Bank deposits
1,244
564
1,808
1,294
514
1,808
of which: repos (amortised co
st)
522
—
522
200
—
200
Customer deposits
2,161
107
2,268
2,526
92
2,618
of which: repos (amortised co
st)
—
—
—
—
—
—
Trading liabilities
(1)
Repos
(2)
19,389
—
19,389
19,036
—
19,036
Derivative cash collateral received
17,619
—
17,619
23,226
—
23,226
Other bank and customer deposits
832
704
1,536
818
985
1,803
Debt securities in issue
178
796
974
527
881
1,408
38,018
1,500
39,518
43,607
1
,866
45,473
Other financial liabilities
Customer deposits (designated at fair value)
568
—
568
616
180
796
Debt securities in issue
commercial paper and certificates of deposits
5,179
115
5,294
3,253
168
3,421
medium term notes (MTNs)
2,693
9,737
12,430
4,441
8,407
12,848
Subordinated liabilities
275
688
963
—
1,105
1,105
8,715
10,540
19,255
8,310
9,860
18,170
Amounts due to holding company and fellow subsi
diaries
(3)
Internal MREL
939
2,919
3,858
—
5,181
5,181
Other bank and customer deposits
623
—
623
925
—
925
Subordinated liabilities
—
1,464
1,464
—
1,753
1,753
1,562
4,383
5,945
925
6,934
7,859
Total funding
51,700
17,094
68,794
56,662
19,266
75,928
Of which: available in resolutio
n
(4)
6,010
8,039
(1)
Funding sources excludes short positions of £24,964 million (2020 - £26,779 million) reflected
as trading liabilities on the balance sheet.
(2)
Comprises Central and other bank repos of £827 million (2020 - £1
,048 million), other financial institution repos of £16,935 million (2020 - £15,973 million) and other corporate repos
of £1,627 million (2020 - £2,015 million).
(3)
Amounts due to holding company and fellow subsidiaries relating t
o non-financial instruments of £181 millio
n (2020
- £275 million) have been excluded from the table.
(4)
Eligible liabilities (as defined in the Banking Act 2009 as a
mended from time to time) that meet the eligibility criteria set out in the regulations, rules, policies, guidelines, or
statements of the Bank of England including the Statement of Policy published in June
2018.
Risk and capital m
anageme
nt continued
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Capital, liquidity and fundin
g risk continued
Senior notes and subordinated liabilities - residual ma
turity profile by instrument type
(audited)
The table below shows NWM Group’s debt securi
ties in issue, subordinated liabilities an
d internal resolution instruments by re
sidual
maturity.
Trading
Amounts due t
o holding
liabilities
Other finan
cial liabilities
company and fellow
Debt
Debt securities in iss
ue
subsidiaries
securities
Commercial
in issue
paper
Subordinated
Subordinated
Total notes
MTNs
and CDs
MTNs
liabilities
Total
Internal MREL
liabilities
in issue
2021
£m
£m
£m
£m
£m
£m
£m
£m
Less than 1 year
178
5,179
2,693
275
8,147
939
—
9,264
1-3 years
335
105
4,907
222
5,234
2,919
824
9,312
3
-
5 years
112
10
4,425
21
4,456
—
—
4,568
More than 5 years
349
—
405
445
850
—
640
1,839
Total
974
5,294
12,430
963
18,687
3,858
1,464
24,983
2020
Less than 1 year
527
3,253
4,441
—
7,694
—
—
8,221
1-3 years
169
165
4,444
549
5,158
5,181
—
10,508
3-5 years
240
3
3,356
—
3,359
—
889
4,488
More than 5 years
472
—
607
556
1,163
—
864
2,499
Total
1,408
3,421
12,848
1,105
17,374
5,181
1,753
25,716
The table below shows the curr
ency breakdown of total notes in issue.
GBP
USD
EUR
Other
Total
2021
£m
£m
£m
£m
£m
Commercial paper and CDs
257
1,801
3,236
—
5,294
MTNs
552
4,439
6,906
1,507
13,404
External subordinated liabilities
44
216
703
—
963
Internal MREL due to NatWest Group plc
—
2,060
1,798
—
3,858
Subordinated liabilities due to NatWest G
roup plc
—
640
824
—
1,464
Total
853
9,156
13,467
1,507
24,983
2020 Total
724
8,029
14,588
2,375
25,716
Risk and capital m
anageme
nt continued
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Credit risk
Definition
(audited)
Credit risk is the risk that custo
mers and counterparties fail to
meet their contractual obligatio
n to settle outstanding amounts.
Sources of risk
(audited)
The principal sources of credit risk for NWM G
roup are lending,
off-balance sheet products, derivatives
and securities financing,
debt securities, and settlement risk th
rough trading activities.
Key developments in 2021
(audited)

The outlook for credit risk and asset quality imp
roved
during 2021 with the economic recovery from
the disruption
caused by COVID-19 being faster than initially forec
ast.

NWM Group continues to monitor sector and coun
try
impact closely and adjust limits
as necessary.

Stage 1 and Stage 2 expected credit loss (ECL)
reduced
due to the improved economic outlook, which led
to a
reduction in underlying PDs and LGDs. The S
tage 2
population in particular saw a marked reduc
tion, due to the
strategic exit of some positions and the improved e
conomic
outlook leading to migration of asse
ts into Stage 1.

Qualitative assessment of climate risk was made m
andatory
for the majority of the wholesal
e 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 fo
r all other TAS
documents.
Governance
(audited)
The Credit Risk function provid
es oversight and challenge of
frontline credit risk management activities. Autho
rity is
delegated to credit risk officers who operate within design
ated
limits set at a customer level an
d a portfolio level.
Governance activities include:

Defining credit risk appetite me
asures 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 mitiga
te them.

Approving and monitoring operational limits for busine
ss
segments and credit limits for c
ustomers.

Oversight of the first line of defence to ensure that credi
t
risk remains within the appetite
set by the Board and that
controls are being operated ade
quately and effectively.

Assessing the adequacy of ECL provisions i
ncluding
approving key IFRS 9 inputs (su
ch as significant increase in
credit risk (SICR) thresholds) an
d any necessary in-model
and post model adjustments through pr
ovisions and model
committees.

Development and approval of credit gr
ading models.
A Credit Risk Committee provid
es oversight of the overall credit
risk profile and sector/product/asse
t class concentrations.
Risk appetite
Credit risk appetite aligns to th
e strategic risk appetite set by
the Board and is set and monit
ored through a risk appetite
framework.
The framework has been designed to refle
ct factors that
influence the ability to operate within risk a
ppetite. Tools such
as stress testing and economic capital are use
d to measure
credit risk volatility and develop links between t
he framework
and risk appetite limits.
Four formal frameworks are use
d, classifying, measuring and
monitoring credit risk exposure across single na
me, sector and
country concentrations and product and asset cl
asses with
heightened risk characteristics.
The framework is supported by a suite of t
ransactional
acceptance standards that set out the risk par
ameters within
which businesses should operate
.
Credit policy standards are in p
lace and are expressed as a set
of mandatory controls.
Identification and measuremen
t
Credit stewardship
(audited)
Risks are identified through relationship man
agement and
credit stewardship of customers
and portfolios. Credit risk
stewardship takes place throughout the custo
mer relationship,
beginning with the initial approval. It includes the ap
plication of
credit assessment standards, c
redit risk mitigation and
collateral, ensuring that credit documen
tation is complete and
appropriate, carrying out regular portfolio o
r customer reviews
and problem debt identification and ma
nagement.
Asset quality
(audited)
All credit grades map to an ass
et quality (AQ) scale, used for
financial reporting. This AQ scale is based on Basel p
robability
of defaults. Performing loans are de
fined 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 defaul
ted when the
payment status becomes 90 day
s 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 obli
gations of
customers under derivative and secu
rities financing
transactions. It is a material pa
rt of NWM Group’s credit risk.
NWM Group mitigates counterparty credit risk t
hrough
collateralisation and netting agreements, w
hich allow amounts
owed by NWM Group to a counterp
arty to be netted against
amounts the counterparty owe
s NWM Group.
Mitigation
Mitigation techniques, as set out in the ap
propriate credit
policies and transactional acceptance s
tandards, are used in
the management of credit portfolios across N
WM Group. These
techniques mitigate credit concentrations in rel
ation to an
individual customer, a borrower g
roup or a collection of related
borrowers. Where possible, customer credit balances a
re
netted against obligations. Mitigation tools can i
nclude
structuring a security interest in a physical
or financial asset,
the use of credit derivatives including credit default sw
aps,
credit-linked debt instruments and securi
tisation structures, and
the use of guarantees and similar ins
truments (for example,
credit insurance) from related and third parties
.
Assessment and monitoring
Customers – including corporat
es, banks and other financial
institutions – are grouped by industry secto
rs 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 t
ransaction. Credit
approvals are subject to environmental, social
and governance
risk policies which restrict expos
ure to certain highly carbon
intensive industries as well as those with poten
tially heightened
reputational impacts. Customer specif
ic climate risk
commentary is now mandatory
.
Risk and capital m
anageme
nt continued
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Credit risk continued
In response to COVID-19, a new framework was int
roduced to
categorise clients in a consistent manne
r across the portfolio,
based on the effect of COVID-19 on their financi
al position and
outlook in relation to the sector risk appetite. This fr
amework
has been retained and updated to consider vi
ability impacts
beyond those directly related to COVID-19 and classific
ation via
the framework is now mandatory and must be refreshed
annually. The framework extends to all bo
rrowing customers
and supplements the Risk of Credit Loss framewo
rk in
assessing whether customers exhibit a S
ICR, if support is
considered to be granting forbearance and the time i
t would
take for customers to return to operating
within transactional
acceptance standards.
For lower risk transactions below spec
ific thresholds, credit
decisions can be approved through self
-sanctioning within the
business. This process is facilitated through sys
tems, strategies
and policy rules.
For all other transactions, credit is only g
ranted to customers
following joint approval by an approver f
rom the business and
the credit risk function, or by t
wo credit officers. The joint
business and credit approvers act wi
thin a delegated approval
authority under the Wholesale Credit Authorities F
ramework
Policy. The level of delegated a
uthority 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 acc
ountable
for the quality of each decision taken, although
the credit risk
approver holds ultimate sanctioning authority.
Transactional acceptance standards provide de
tailed
transactional lending and risk a
cceptance 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, includi
ng reconfirmation or adjustment
of risk parameter estimates; th
e adequacy of security;
compliance with terms and conditions; and refinancing
risk.
Problem debt management
Early problem identification
Each sector has defined early warning i
ndicators to identify
customers experiencing financial difficulty, and to incre
ase
monitoring if needed. Early warning in
dicators may be internal,
such as a customer’s bank account activi
ty, or external, such
as a publicly-listed customer’s share price. If ea
rly warning
indicators show a customer is experiencing potenti
al or actual
difficulty, or if relationship managers or credit office
rs identify
other signs of financial difficulty, they may
decide to classify the
customer within the Risk of Cre
dit Loss framework.
Risk of Credit Loss framework
The Risk of Credit Loss framework is used whe
re the credit
profile of a customer has deteriorated mate
rially since
origination. Experienced credit risk off
icers apply expert
judgment to classify cases into categories th
at reflect
progressively deteriorating credit risk. The
re are two
classifications in the framework that apply to non-
defaulted
customers – Heightened Monitoring and Risk of C
redit Loss. For
the purposes of provisioning, all exposures subject
to the
framework are categorised as Stage 2 and subjec
t to a lifetime
loss assessment. The framewor
k also applies to those
customers that have met NWM Group’s default crite
ria (AQ10
exposures). Defaulted exposures are catego
rised as Stage 3
impaired for provisioning purposes.
Customers classified in the Heightened Monitoring ca
tegory are
those who are still performing but have certain ch
aracteristics
– such as trading issues, covenant breaches, ma
terial PD
downgrades and past due facilities – that may
affect the ability
to meet repayment obligations. Heightened Moni
toring
customers require pre-emptive actions to return or m
aintain
their facilities within risk appetite prior to ma
turity.
Risk of Credit Loss customers a
re performing customers that
have met the criteria for Heighte
ned Monitoring and also pose
a risk of credit loss to NWM Group in the next 12 mont
hs
should mitigating action not be taken or not be succ
essful.
Once classified as either Heightened Monitoring o
r Risk of
Credit Loss, a number of mandatory actions a
re taken in
accordance with policies. Actions include
a review of the
customer’s credit grade, facility
and security documentation
and the valuation of security. De
pending on the severity of the
financial difficulty and the size of the exposu
re, the customer
relationship strategy is reassesse
d by credit officers, by
specialist credit risk or relationship m
anagement units in the
relevant business, or by Restructuring.
Restructuring
Where customers are categoris
ed as Risk of Credit Loss,
relationships are mainly managed by the Rest
ructuring team in
NatWest Bank Plc as a service to NWM Group. The tea
m
protects NWM Group’s capital by
working with corporate and
commercial customers to supp
ort their turnaround and
recovery strategies and enable them to return to
mainstream
banking.
Forbearance
(audited)
Forbearance takes place when a conces
sion is made on the
contractual terms of a loan/debt in response to
a customer’s
financial difficulties. The aim of f
orbearance is to support and
restore the customer to financi
al health while minimising risk.
The type of forbearance offered is tailored
to the customer’s
individual circumstances and may involve cove
nant waivers,
amendments to margins, payment concessions and loa
n
rescheduling (including extensions in con
tractual maturity),
capitalisation of arrears, and de
bt forgiveness or debt-for-
equity swaps.
Credit grading models
Credit grading models is the colle
ctive term used to describe all
models, frameworks and methodologies used to c
alculate 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 cha
racteristics.

A meaningful differentiation of
credit risk.

Accurate internal default rate, loss and exposure es
timates
that are used in the capital calc
ulation or wider risk
management purposes.
Impairment, provisioning and write-offs
(audited)
In the overall assessment of cre
dit risk, impairment provisioning
and write-offs are used as key indica
tors of credit quality.
NWM Group’s IFRS 9 provisioning models, which use e
xisting
Basel models as a starting point, inco
rporate term structures
and forward-looking information. Regulatory conse
rvatism
within the Basel models has been removed as app
ropriate to
comply with the IFRS 9 requirement fo
r unbiased ECL
estimates.
Risk and capital m
anageme
nt continued
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Credit risk continued
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 indica
tors that have most
influence on credit loss for each portfolio
and the severity of
impact (this leverages existing s
tress testing models which
are reviewed annually).

The build of term structures to extend the deter
mination of
the risk of loss beyond 12 mont
hs that will influence the
impact of lifetime loss for exposures in Stage 2.
Model application:

The assessment of the SICR an
d the formation of a
framework capable of consistent application.

The determination of asset lifetimes that refl
ect behavioural
characteristics while also repre
senting management actions
and processes (using historical data and expe
rience).

The choice of forward-looking economic scenarios a
nd 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 conventio
nal approach
to divide the estimation of credit losse
s into its component parts
of PD, LGD and EAD.
To meet IFRS 9 requirements, the PD, LGD and EA
D
parameters differ from their Pillar 1 in
ternal 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 reflec
t actual economic
conditions at the reporting date instead of lo
ng-run average
or downturn conditions.

Forward-looking – IFRS 9 PD e
stimates and, where
appropriate, EAD and LGD estimates refle
ct forward-
looking economic conditions.

Lifetime measurement – IFRS 9 PD, L
GD and EAD are
provided as multi-period term structures up
to exposure
lifetimes instead of over a fixed one-ye
ar horizon.
IFRS 9 requires that at each repor
ting date, an entity shall
assess whether the credit risk on an accoun
t has increased
significantly since initial recognition. Part of this asse
ssment
requires a comparison to be made between the cur
rent lifetime
PD (i.e. the PD over the remaining life
time at the reporting
date) and the equivalent lifetime PD as de
termined at the date
of initial recognition.
For assets originated before IFRS 9 was introduced,
comparable lifetime origination PDs did no
t exist. These have
been retrospectively created using the relevan
t model inputs
applicable at initial recognition.
PD estimates
PD models use a point-in-time/through-the-cyc
le framework to
convert one-year regulatory PDs into point-in-ti
me estimates
that reflect economic conditions
at the reporting date. The
framework utilises credit cycle indices
(CCIs) for a
comprehensive set of region/industry seg
ments. Further detail
on CCIs is provided in the Economic loss d
rivers section.
One-year point-in-time PDs are extended to forwa
rd-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 adjust
ments to
ensure estimates are unbiased and, where
relevant, forward-
looking.
Forward-looking economic information is inco
rporated into
LGD estimates using the existing CCI framewo
rk. For low-
default portfolios, including sovereigns and b
anks, loss data is
too scarce to substantiate estimates
that vary with economic
conditions. Consequently, for th
ese portfolios, LGD estimates
are assumed to be constant throughout the p
rojection horizon.
EAD estimates
EAD values are projected using product specific credi
t
conversion factors (CCFs), clos
ely following the product
segmentation and approach of the respective B
asel model.
However, the CCFs are estimate
d over multi-year time horizons
and contain no regulatory conse
rvatism or downturn
assumptions.
No explicit forward-looking information is inco
rporated, on the
basis of analysis showing the temporal varia
tion in CCFs is
mainly attributable to changes in exposure ma
nagement
practices rather than economic conditions.
Risk and capital m
anageme
nt continued
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Credit risk continued
Governance and post model adjustm
ents
(audited)
The IFRS 9 PD, EAD and LGD models are subject to NWM
Group’s model risk policy that stipulates
periodic model
monitoring, periodic re-validation and define
s approval
procedures and authorities according to mo
del materiality.
Various post model adjustments were applied whe
re
management judged they were
necessary to ensure an
adequate level of overall ECL p
rovision. All post model
adjustments were subject to formal approval throu
gh
provisioning governance, and
were categorised as follows:

Deferred model calibrations – EC
L adjustments where PD
model monitoring indicated that actual defaul
ts 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 ret
ained on the
balance sheet.

Economic uncertainty – ECL adjustments primarily a
rising
from uncertainties associated with multiple economic
scenarios (also for 2020) and credit outco
mes 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 furthe
r credit
performance data became available on the behaviou
ral and
loss consequences of COVID-19
.

Other adjustments – ECL adjustments where it w
as judged
that the modelled ECL required to be amended.
Post model adjustments will re
main a focus area of NWM
Group’s ongoing ECL adequacy asse
ssment process. A holistic
framework has been established including reviewi
ng a range of
economic data, external benchmark inform
ation and portfolio
performance trends, particularl
y with more observable
outcomes from the unwinding
of COVID-19 support schemes.
A
key part of the assessment is also understandi
ng the current
levels of ECL coverage (portfolio by portfolio) ag
ainst pre-
COVID-19 levels, recognising changes in portfolio/se
ctor mix.
ECL post model adjustments
(audited)
The table below shows ECL post model adjust
ments.
2021
2020
£m
£m
Deferred model calibrations
—
—
Economic uncertainty
2
2
Other adjustments
—
—
Total
2
2
Of which:
- Stage 1
—
—
- Stage 2
2
2
-
Stage 3
—
—
Risk and capital m
anageme
nt continued
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Credit risk continued
Significant increase in credit risk (SICR)
(audited)
Exposures that are considered significantly c
redit deteriorated
since initial recognition are classifie
d in Stage 2 and assessed
for lifetime ECL measurement (e
xposures not considered
deteriorated carry a 12-month ECL). NWM Group h
as adopted
a framework to identify deterioration based p
rimarily on
relative movements in lifetime PD suppor
ted by additional
qualitative backstops. The princ
iples applied are consistent
across NWM Group and align to credit risk m
anagement
practices, where appropriate.
The framework comprises the following elements:

IFRS 9 lifetime PD assessment (
the primary driver)
– on
modelled portfolios, the assessment is base
d on the relative
deterioration in forward-lookin
g lifetime PD and is assessed
monthly. To assess whether credit dete
rioration has
occurred, the residual lifetime PD at balance she
et date
(which PD is established at date of initial recogni
tion) is
compared to the current PD. If the current lifetime P
D
exceeds the residual origination PD by mo
re than a
threshold amount, deterioration is assu
med to have
occurred and the exposure transferred into Stage 2 fo
r a
lifetime loss assessment. In broad terms,
a doubling of PD
would indicate a SICR. However, the PD uplift mus
t be at
least 0.1%.

Qualitative high-risk backstops
– the PD assessmen
t is
complemented with the use of qualitative high-risk
backstops to further inform whe
ther significant
deterioration in lifetime risk of default has occur
red. The
qualitative high-risk backstop ass
essment includes the use
of the mandatory 30+ days past due backstop, as
prescribed by IFRS 9 guidance, and other featu
res such as
forbearance support and expos
ures managed within the
Risk of Credit Loss framework.
The criteria are based on a significant amount of e
mpirical
analysis and seek to meet thre
e key objectives:

Criteria effectiveness – the criteria should be e
ffective in
identifying significant credit deterioration and
prospective default population.

Stage 2 stability – the criteria should not in
troduce
unnecessary volatility in the Stage 2 popul
ation.

Portfolio analysis – the criteria should produce results
which are intuitive when report
ed as part of the wider
credit portfolio.
Provisioning for forbearance
Provisions for forborne loans are
assessed in accordance with
normal provisioning policies. Th
e customer’s financial position
and prospects – as well as the likely
effect of the forbearance,
including any concessions granted, and revised PD or L
GD
gradings – are considered in or
der to establish whether an
impairment provision increase i
s required.
Loans granted forbearance are individually credi
t assessed in
most cases. Performing loans subject to forbeara
nce treatment
are categorised as Stage 2 and subject to a life
time loss
assessment.
Forbearance may result in the value of the outst
anding debt
exceeding the present value of the es
timated future cash flows.
This difference will lead to a cus
tomer being classified as non-
performing.
In the case of non-performing f
orborne loans, an individual loan
impairment provision assessment generally t
akes place prior to
forbearance being granted. The amount of the
loan impairment
provision may change once the terms of the forbea
rance are
known, resulting in an addition
al provision charge or a release
of the provision in the period the f
orbearance is granted.
The transfer of loans from impaired to performing s
tatus
follows assessment by relationship manage
rs and credit. When
no further losses are anticipate
d 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 ti
me period and
follows the credit risk manager’s asse
ssment.
Customers seeking COVID-19 related support, includi
ng
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 consi
dered to have been granted
forbearance.
Asset lifetimes
(audited)
The choice of initial recognition and asse
t duration is another
critical judgment in determining the quantu
m of lifetime losses
that apply.

The date of initial recognition re
flects the date that a
transaction (or account) was firs
t recognised on the
balance sheet; the PD recorded
at that time provides
the baseline used for subsequent determination of S
ICR
as detailed above.

For asset duration, the approach applied in line wi
th
IFRS 9 requirements is:

Term lending – the contractual maturity date, reduced
for behavioural trends where a
ppropriate (such as,
expected prepayment and amo
rtisation).

Revolving facilities – asset duration is b
ased on annual
customer review schedules and will be se
t to the next
review date.
Economic loss drivers
(audited)
Introduction
The portfolio segmentation and se
lection of economic loss
drivers for IFRS 9 follow closely the approach used in
stress
testing. To enable robust modelling the fo
recasting models for
each portfolio segment (defined by pro
duct or asset class and
where relevant, industry sector
and region) are based on a
selected, small number of econ
omic factors, (typically three to
four) that best explain the temporal varia
tions in portfolio loss
rates. The process to select economic loss d
rivers involves
empirical analysis and expert judgment.
The most material economic loss drivers for the UK po
rtfolios
include UK gross domestic product (GDP), wo
rld GDP, the
unemployment rate, the house price index, an
d the Bank of
England base rate. Similar metrics are used fo
r other key
country exposures in NWM Group.
Economic scenarios
At 31 December 2021, the range
of anticipated future
economic conditions was defined by a set of four i
nternally
developed scenarios and their r
espective probabilities. In
addition to the base case, they comprised upside, d
ownside
and extreme downside scenarios. The s
cenarios primarily
reflected a range of outcomes for the path of COVI
D-19 as well
as recovery, and the associated eff
ects on labour and asset
markets.
Risk and capital m
anageme
nt continued
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Credit risk continued
Economic loss drivers
(audited)
The four scenarios were deemed appropriate in ca
pturing the
uncertainty in economic forecasts and the no
n-linearity in
outcomes under different scen
arios. The scenarios were
developed to provide sufficient coverage acr
oss potential
changes in unemployment, asset price and the deg
ree of
permanent damage to the economy, aroun
d which there are
pronounced levels of uncertainty
at this stage.
Upside
– This scenario assumes a very stron
g 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-COVI
D-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 pe
rformance.
Base case
– COVID-19 related risks remain con
tained. After a
strong recovery in 2021, the gr
owth moderates in 2022. Most
of the furloughed workers can go back to
their existing job or
find a new job very quickly, with the unemploymen
t rate
reaching 4.1% by the end of 2022. Inflation initially increases
but retreats over 2022. Interest rates are raised, s
tarting in
early 2022. There is a gradual cool down in the housing
market
but activity is still at healthy lev
els.
Downside
– This scenario assumes a reversal in recove
ry as
inflation build up leads to a less
ening 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 wi
th
declines in consumer spending
and business investment.
Interest rates are reduced into negative territory to -0.5
%.
There is wide-spread job shedding in the labou
r 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 s
imilar to that as at 31
December 2020. Previously, NWM Group used five disc
rete
scenarios to characterise the dis
tribution of risks in the
economic outlook. For 2021, the f
our scenarios were deemed
appropriate in capturing the uncertainty in econo
mic forecasts
and the non-linearity in outcom
es under different scenarios.
These four scenarios were deve
loped to provide sufficient
coverage across potential rises in unemployment, inf
lation,
asset price falls and the degree of permanent damage to
the
economy, around which there remains pronounce
d levels of
uncertainty.
The tables and commentary be
low provide details of the key
economic loss drivers under the f
our scenarios.
The main macroeconomic variables for each of the fou
r
scenarios used for ECL modelling are se
t out in the main
macroeconomic variables table
below. The compound annual
growth rate (CAGR) for GDP is s
hown. It also shows the five-
year average for unemployment and the Bank of En
gland base
rate. The house price index and commercial real est
ate figures
show the total change in each asse
t over five years.
Main macroeconomic variables
2021
2020
Extreme
Extreme
Upside
Base case
Downside
downside
Upside
Base case
Downside
downside
Five-year summary
%
%
%
%
%
%
%
%
UK
GDP - CAGR
2.4
1.7
1.4
0.6
3.6
3.1
2.8
1.3
Unemployment - average
3.5
4.2
4.8
6.7
4.4
5.7
7.1
9.7
House price index
-
total change
22.7
12.1
4.3
(5.3)
12.5
7.6
4.4
(19.0)
Bank of England base rate - av
erage
1.5
0.8
0.7
(0.5)
0.2
—
(0.1)
(0.5)
Commercial real estate price - total cha
nge
18.2
7.2
5.5
(6.4)
4.3
0.7
(12.0)
(31.5)
World GDP
-
CAGR
3.5
3.2
2.6
0.6
3.5
3.4
2.9
2.8
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 Group’s approach to IFRS 9
multiple economic scenarios
(MES) involves selecting a suitable se
t of discrete scenarios to
characterise the distribution of risks in the economic ou
tlook
and assigning appropriate prob
ability weights. The scale of the
economic impact of COVID-19 and the range of recovery p
aths
necessitates a change of approach to assigning p
robability
weights from that used in recent updates. Prio
r to 2020, GDP
paths for NWM Group’s scenarios were compa
red against a set
of 1,000 model runs, following which a percen
tile in the
distribution was established tha
t most closely corresponded to
the scenario.
Instead, NWM Group has subje
ctively applied probability
weights, reflecting expert views
within NWM Group. The
probability weight assignment was judged
to present good
coverage to the central scenarios and the po
tential for a robust
recovery on the upside and exceptionally challenging ou
tcomes
on the downside. A 30% weighting was applied to the upside
scenario, a 45% weighting applie
d to the base case scenario, a
20% weighting applied to the downside sce
nario and a 5%
weighting applied to the extreme downside sce
nario. NWM
Group assessed the downside r
isk posed by COVID-19 to be
diminishing over the course of 2
021, with the vaccination roll-
out and positive economic data being observed since t
he
gradual relaxing of lockdown res
trictions. NWM Group therefore
judged it was appropriate to apply a higher prob
ability to
upside-biased scenarios than at 31 December 2020
. However,
compared to 31 December 2020, the base case h
as a higher
weight reflecting reduction in uncertainty
as the path of
economy recovery became clearer.
The 25% weighting to the two downside scena
rios gives
appropriate consideration to the threats posed to the recove
r
y,
including inflation, supply and COVID-19-rel
ated risks. Balanced
against that is the adaptability of the UK economy to succe
ssive
waves of COVID-19, and the re
silience of labour and asset
markets. The potential for further better than e
xpected
outcomes is reflected in the 30% p
robability weighting applied to
the upside scenario.
Risk and capital m
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nt continued
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Credit risk continued
Economic loss drivers
75
80
85
90
95
100
105
110
115
Q4 2019
Q4 2020
Q4 2021
Q4 2022
Q4 2023
Q4 2024
Q4 2025
Q4 2026
UK gross domestic product
Upside
Base
Downside
Extreme downside
-0.75
-0.50
-0.25
0.00
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
Q4 2019
Q4 20
20
Q4 2021
Q4 2022
Q4 2023
Q4 2
024
Q4 2025
Q4 2026
%
Bank of England base rate
Upside
Base
Downsid
e
Extreme downside
Risk and capital m
anageme
nt continued
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Credit risk continued
Economic loss drivers
(audited)
Annual figures
Extreme
Upside
Base case
Downside
downside
GDP - annual growth
%
%
%
%
2021
7.0
7.0
7.0
7.0
2022
8.1
5.0
1.5
(3.6)
2023
2.1
1.6
2.4
4.1
2024
1.2
0.9
1.6
1.2
2025
1.2
1.3
1.4
1.4
2026
1.2
1.5
1.6
1.5
Extreme
Upside
Base case
Downside
downside
Unemployment rate
-
annual average
%
%
%
%
2021
4.6
4.6
4.6
4.6
2022
3.5
4.1
5.1
8.3
2023
3.3
4.0
5.2
8.8
2024
3.4
4.1
4.7
6.6
2025
3.4
4.2
4.5
5.2
2026
3.6
4.2
4.5
4.9
Extreme
Upside
Base case
Downside
downside
House price index - four quarter growth
%
%
%
%
2021
6.9
6.9
6.9
6.9
2022
7.9
1.6
(2.9)
(20.4)
2023
4.2
1.6
(0.2)
(
2.6)
2024
3.1
2.9
1.7
13.0
2025
3.0
2.7
3.0
4.7
2026
3.0
2.7
3.0
3.6
Extreme
Upside
Base case
Downside
downside
Commercial real estate price - f
our quarter growth
%
%
%
%
2021
8.4
8.4
8.4
8.4
2022
10.2
4.4
(
2.7)
(29.8)
2023
3.4
1.9
4.2
17.2
2024
1.7
0.2
1.7
5.2
2025
0.6
(0.8)
0.3
3.5
2026
(0.8)
(0.8)
(
0.2)
3.2
Extreme
Upside
Base case
Downside
downside
Bank of England base rate - an
nual average
%
%
%
%
2021
0.10
0.10
0.10
0.10
2022
1.02
0.63
1.06
(0.40)
2023
1.58
1.00
1.06
(0.50)
2024
1.75
1.00
0.50
(0.50)
2025
1.75
0.90
0.50
(0.50)
2026
1.75
0.75
0.50
(0.50)
Worst points
31 December 2021
31 December 2020
Extreme
Extreme
Downside
downside
Downside
downside
%
Quarter
%
Quarter
%
Quarter
%
Quarter
GDP
(1.8)
Q1 2022
(7.9)
Q1 2022
(5.1)
Q1 2021
(10.4)
Q1 2021
Unemployment rate (peak)
5.4
Q1 2023
9.4
Q4 2022
9.4
Q4 2021
13.9
Q3 2021
House price index
(3.0)
Q3 2023
(
26.0)
Q2 2023
(11.2)
Q2 2021
(32.0)
Q4 2021
Commercial real estate price
(2.5)
Q1 2022
(
29.8)
Q3 2022
(28.9)
Q2 2021
(40.4)
Q2 2021
Bank of England base rate
1.5
Q4 2022
(0.5)
Q2 2022
(0.1)
Q3 2021
(0.5)
Q1 2021
(1)
For the unemployment rate, the figures show the peak levels. For the
Bank of England base rate, the figures show highest or lowest levels. For other parameters, 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 m
anageme
nt continued
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Credit risk continued
Economic loss drivers
(audited)
Use of the scenarios in lending
The lending ECL methodology is based on the concep
t of credit
cycle indices (CCIs). The CCIs re
present all relevant economic
loss drivers for a region/industry s
egment 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 lo
ss rates at long-run average
levels, a positive CCI value corresponds to loss rates
below
long-run average levels and a negative CC
I value corresponds
to loss rates above long-run av
erage levels.
The four economic scenarios a
re translated into forward-
looking projections of CCIs using a set of econo
metric models.
Subsequently the CCI projections for the indivi
dual scenarios
are averaged into a single central CCI projec
tion according to
the given scenario probabilities. T
he central CCI projection is
then overlaid with an additional mean reversion
assumption i.e.
that after reaching their worst forecast positio
n the CCIs start
to gradually revert to their long-run aver
age of zero.
Finally, ECL is calculated using a Monte Carlo a
pproach by
averaging PD and LGD values arising from many CCI p
aths
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 Group to enrich the range and de
pth of future
economic conditions embedded i
n the final ECL beyond what
would be obtained from using the discrete m
acro-economic
scenarios alone.
UK economic uncertainty
Treatment of COVID-19 relief mechanisms
Use of COVID-19 relief mechan
isms does not automatically
merit identification of SICR and trigger a Stage 2 classific
ation
in isolation.
NWM Group continues to provide support, where a
ppropriate,
to existing customers. Those who are deemed eithe
r (a) to
require a prolonged timescale to retu
rn to within NWM Group’s
risk appetite, (b) not to have bee
n viable pre-COVID-19, or (c)
not to be able to sustain their d
ebt once COVID-19 is over, will
trigger a SICR and, if concessions are sought, be categ
orised
as forborne, in line with regulatory guidance. P
ayment holiday
extensions beyond an aggregate of
12 months in an 18 month
period to cover continuing COVID-19 business inte
rruption are
categorised as forbearance, inc
luding for customers where no
other SICR triggers are present.
Model monitoring and enhancement
The severe economic impact from COVI
D-19 and the ensuing
government support schemes have disru
pted the normal
relationships between key economic loss drivers
and credit
outcomes. While most governm
ent support schemes have now
been phased out and economic conditions a
re 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 moni
toring shows general
overprediction across all key portfolios, i.e., obse
rved default
rates still at or even below pre-CO
VID-19 levels despite
increased PD estimates from a deteriora
tion in several key
economic variables. Model rec
alibrations to adjust for this
overprediction have been deferred base
d on the judgment that
default rate actuals are distorted due to
government support.
In addition, to account for residual model unce
rtainty and the
risk of eventual default emergence hitherto sup
ressed by
government support, lag assumptions of up to 12 m
onths are
applied in the models. These assumptions are consistent
with
and unchanged from previous disclosures in 2
021, although
their effective impact gradually reduces over time.
Industry sector detail
The economic impact of COVID-19 is highly diff
erentiated by
industry sector, with hospitality and other contact
-based
leisure, service, travel and pass
enger transport activities
significantly more affected than the overall econo
my. On the
other hand, the corporate and commercial econo
metric
forecasting models used in Wholesale are secto
r agnostic.
Sector performance was monitored throughou
t the year and
additional post model adjustments were
recognised where a
risk of higher than expected future default levels, includi
ng their
timing and value, was identified.
Risk and capital m
anageme
nt continued
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Credit risk continued
Measurement uncertainty and ECL sensitivity an
alysis
(audited)
The recognition and measurement of ECL is co
mplex and
involves the use of significant judgment and esti
mation,
particularly in times of economi
c volatility and uncertainty. This
includes the formulation and inc
orporation of multiple forward-
looking economic conditions into ECL to meet the measu
rement
objective of IFRS 9. The ECL provision is sensi
tive to the model
inputs and economic assumptions u
nderlying the estimate.
The focus of the simulations is
on ECL provisioning
requirements on performing exposures in S
tage 1 and Stage 2.
The simulations are run on a stand-alone basis and a
re
independent of each other; the potential
ECL impacts reflect
the simulated impact at 31 Dece
mber 2021. Scenario impacts
on SICR should be considered when evaluating t
he ECL
movements of Stage 1 and Stage 2. In all scenarios
the total
exposure was the same but exposure by st
age varied in each
scenario.
Stage 3 provisions are not subje
ct to the same level of
measurement uncertainty – default is an observed eve
nt as at
the balance sheet date. Stage 3 provisions therefo
re have not
been considered in this analysis.
The impact arising from the bas
e case, upside, downside and
extreme downside scenarios has bee
n simulated. In the
simulations, NWM Group has assumed that
the economic
macro variables associated with these sc
enarios replace the
existing base case economic ass
umptions, giving them a 100%
probability weighting and therefore serving as a sin
gle
economic scenario.
These scenarios have been applied to all modelled
portfolios in
the analysis below, with the simulation impacting both P
Ds and
LGDs. Modelled post model adjustments present i
n the
underlying ECL estimates are also sens
itised in line with the
modelled ECL movements, but those that were judg
mental in
nature, primarily those for deferred model c
alibrations and
economic uncertainty, were not (refer to the Go
vernance and
post model adjustments section). As expected, the s
cenarios
create differing impacts on EC
L 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 f
actors would also
have an impact, for example, potential custo
mer behaviour
changes and policy changes by lenders that might i
mpact on
the wider availability of credit.
NWM Group’s core criterion to identify a SICR is f
ounded on PD
deterioration, as discussed abo
ve. Under the simulations, PDs
change and result in exposures moving bet
ween Stage 1 and
Stage 2 contributing to the ECL impact.
Extreme
31 December 2021
Actual
Base case
Upside
Downside
downside
Stage 1 modelled exposure (£m)
7,723
7,723
7,723
7,723
7,225
Stage 1 modelled ECL (£m)
6
6
6
6
6
Stage 1 coverage (%)
0.08%
0.08%
0.08%
0.08%
0.08%
Stage 2 modelled exposure (£m)
137
137
137
137
635
Stage 2 modelled ECL (£m)
3
3
3
3
11
Stage 2 coverage (%)
2.19%
2.19%
2.19%
2.19%
1.73%
Stage 1 and Stage 2 modelled exposure (£m)
7,860
7,860
7,860
7,860
7,860
Stage 1 and Stage 2 modelled ECL (£m)
9
9
9
9
17
Stage 1 and Stage 2 coverage (%)
0.11%
0.11%
0.11%
0.11%
0.22%
Variance – (lower)/higher to actual tot
al Stage 1 and Stage 2 ECL
—
—
—
—
8
(1)
Variations in future undrawn exposure values across the s
cenarios 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 f
uture undrawn exposure values.
(2)
Reflects ECL for all modelled exposure in s
cope 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 ind
ependent 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 Group 2020 Annual Report and Accounts for 2020 comparatives.
Measurement uncertainty and ECL adequacy
(audited)
The improvement in the economic outlook an
d scenarios used in
the IFRS 9 MES framework in 202
1 resulted in a release of
modelled ECL. Given that continued uncertain
ty remains due to
COVID-19 despite the improve
d economic outlook, NWM Group
utilised a framework of quantitative and qualitative
measures to
support the directional change
and levels of ECL coverage,
including economic data, credit performance i
nsights and
problem debt trends. This was
particularly important for
consideration of post model adjustments.
As government support schem
es continued to conclude during
2021, NWM Group anticipates further credit dete
rioration 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 202
1.
There are a number of key factors that could d
rive further
downside to impairments, through deteriorating econo
mic and
credit metrics and increased stage migr
ation as credit risk
increases for more customers.
A key factor would be a more
adverse deterioration in GDP a
nd unemployment in the
economies in which NWM Grou
p operates, but also, among
others:

The ongoing trajectory of lockdown restric
tions within the
UK 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 governmen
t support
schemes in terms of their ability to defray cust
omer defaults
is yet to be proven over an ext
ended period.

The impact on customer afford
ability in the event of
sustained inflationary pressures.

The level of revenues lost by co
rporate clients and pace of
recovery of those revenues may
affect NWM Group’s clients’
ability to service their borrowin
g, especially in those sectors
most exposed to the effects of COVID-19.
Risk and capital m
anageme
nt continued
NWM Group
Annu
al Report an
d Accounts 202
1
73
Credit risk – Trading activities
This section details the credit risk profile of NWM
Group's trading activities.
Securities financing transactions and collateral
(audited)
The table below shows securiti
es financing transactions in NWM Group. B
alance sheet captions include balances held a
t all
classifications under IFRS.
Reverse repos
Repos
Outside
Outside
Of which:
netting
Of which:
netting
Total
can be
offset
arrangements
Total
can be offset
arrangements
2021
£m
£m
£m
£m
£m
£m
Gross
45,511
44,861
650
44,333
43,186
1,147
IFRS offset
(24,422)
(24,422)
—
(24,422)
(24,422)
—
Carrying value
21,089
20,439
650
19,911
18,764
1,147
Master
netting arrangements
(900)
(900)
—
(900)
(900)
—
Securities collateral
(19,467)
(19,467)
—
(17,863)
(17,863)
—
Potential for offset not recognised under IFRS
(20,367)
(20,367)
—
(18,763)
(18,763)
—
Net
722
72
650
1,148
1
1,147
2020
Gross
46,169
45,806
363
44,102
42,402
1,700
IFRS offset
(24,866)
(24,866)
—
(24,866)
(24,866)
—
Carrying value
21,303
20,940
363
19,236
17,536
1,700
Master netting arrangements
(929)
(929)
—
(929)
(929)
—
Securities collateral
(19,938)
(19,938)
—
(16,607)
(16,607)
—
Potential for offset not recognised under IFRS
(20,867)
(20,867)
—
(17,536)
(17,536)
—
Net
436
73
363
1,700
—
1,700
Debt securities
(audited)
The table below shows debt securities held at manda
tory fair value through profit or loss by i
ssuer as well as ratings based on the
lowest of Standard & Poor’s, Moody’s and Fi
tch.
Central and local g
overnment
Financial
UK
US
Other
institutions
Corporate
Total
2021
£m
£m
£m
£m
£m
£m
AAA
—
—
2,011
838
—
2,849
AA to AA+
—
3,329
3,145
1,401
62
7,937
A to AA-
6,919
—
1,950
308
57
9,234
BBB- to A-
—
—
3,792
346
513
4,651
Non
-
investment grade
—
—
31
163
82
276
Unrated
—
—
—
3
3
6
Total
6,919
3,329
10,929
3,059
717
24,953
Short positions
(9,790)
(
56)
(12,907)
(2,074)
(137)
(24,964)
2020
AAA
—
—
3,114
1,113
—
4,227
AA to AA+
—
5,149
3,651
576
49
9,425
A to AA-
4,184
—
1,358
272
81
5,895
BBB
-
to A
-
—
—
8,277
444
656
9,377
Non-investment grade
—
—
36
127
53
216
Unrated
—
—
—
150
1
151
Total
4,184
5,149
16,436
2,682
840
29,291
Short positions
(5,704)
(1,123)
(18,135)
(1,761)
(56)
(26,779)
Risk and capital m
anageme
nt continued
NWM Group
Annu
al Report an
d Accounts 202
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74
Credit risk – Trading activities contin
ued
Derivatives
(audited)
The table below shows third party derivatives by type of co
ntract. The master netting
agreements and collateral shown do
not
result in a net presentation on t
he 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
104,614
97,500
164,252
155,787
IFRS offset
—
—
—
—
Carrying value
3,227
3,220
4,047
1,224
11,718
104,614
97,500
13,697
164,252
155,787
Of which:
Interest rate
(1)
2,907
1,844
3,493
314
8,558
66,091
57,955
10,371
111,879
100,632
Exchange rate
318
1,372
546
910
3,146
38,369
39,202
3,310
52,204
54,771
Credit
2
4
8
—
14
154
343
15
161
376
Equity and commodity
—
—
—
—
—
—
—
1
8
8
Carrying value
11,718
104,614
97,500
13,697
164,252
155,787
Counterparty mark
-
to
-
market
netting
(83,633)
(83,633)
(134,913)
(
134,913)
Cash collateral
(14,938)
(9,902)
(19,606)
(14,778)
Securities collateral
(2,428)
(1,070)
(5,053)
(2,487)
Net exposure
3,615
2,895
4,680
3,609
Banks
(2)
314
404
206
532
Other financial institutions
(3)
1,549
1,515
1,416
1,939
Corporate
(4)
1,683
905
2,921
1,046
Government
(5)
69
71
137
92
Net exposure
3,615
2,895
4,680
3,609
UK
1,940
1,030
2,833
1,516
Europe
709
1,008
1,076
1,192
US
645
653
470
644
RoW
321
204
301
257
Net exposure
3,615
2,895
4,680
3,609
Asset quality of uncollateralised
derivative assets
AQ1-AQ4
2,909
3,388
AQ5
-
AQ8
649
1,263
AQ9-AQ10
57
29
Net exposure
3,615
4,680
(1)
The notional amount of interest rate derivatives includes £5,830 b
illion (2020 – £7,074 billion) in respect of contracts cleared through central clearing counterparties.
(2)
Transactions with certain counterparties with which
NWM 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; derivat
ive 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 wh
ere collateral posting is contingent on NWM Group’s external rating.
(4)
Mainly large corporates with which NWM Group may ha
ve netting arrangements in place, but operational capability does not support collateral posting.
(5)
Sovereigns and supranational entities with no collateral arrangements, collatera
l arrangements that are not considered enforceable, or one-way collateral agreements in their
favour.
Risk and capital m
anageme
nt continued
NWM Group
Annu
al Report an
d Accounts 202
1
75
Credit risk – Trading activities contin
ued
Derivatives: settlement basis and central coun
terparties
(audited)
The table below shows the third party de
rivative notional and fair value by trading
and settlement method.
Notional
Asset
Liability
Traded over th
e counter
Traded on
Settled
Not settled
Traded on
Traded
Traded on
Traded
recognised
by central
by central
recognised
over th
e
recognised
over th
e
2021
exchanges
counterparties
count
erparties
Total
exchanges
counter
exchanges
counter
£bn
£bn
£bn
£bn
£m
£m
£m
£m
Interest rate
723
5,830
2,005
8,558
—
66,091
—
57,955
Exchange rate
2
—
3,144
3,146
—
38,369
—
39,202
Credit
—
—
14
14
—
154
—
343
Equity and commodity
—
—
—
—
—
—
—
—
Total
725
5,830
5,163
11,718
—
104,614
—
97,500
2020
Interest rate
1,032
7,074
2,265
10,371
—
111,879
—
100,632
Exchange rate
2
—
3,308
3,310
—
52,203
—
54,771
Credit
—
—
15
15
—
162
—
376
Equity and commodity
—
—
1
1
—
8
—
8
Total
1,034
7,074
5,589
13,697
—
164,252
—
155,787
Credit risk – Net credit exposures for banking and trading activi
ties
Asset quality
(audited)
The table below shows the curr
ent and potential exposure by high-level asset cl
ass and asset quality. It represents
total credit risk
for assets held in the banking book in addition to
counterparty credit risk for traded products.
Refer to page 79 for a mapping
of
AQ band to probability of default range and indica
tive external credit rating.
Cash &
Sovereign
Loans
Collateralised
Uncollateralised
balances at
debt
and other
Other debt
rate risk
rate risk
Repo and
Off-
balance
central ban
ks
securities
lending
securities
management
management
reverse repo
sheet items
Leasing
Total
2021
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
AQ1-AQ4
16,645
5,176
6,998
3,060
2,355
1,520
510
669
49
36,982
AQ5-AQ8
—
—
534
238
327
428
10
29
—
1,566
AQ9
—
—
23
—
2
52
—
—
—
77
AQ10
—
—
21
1
—
2
—
—
—
24
Current exposure
16,645
5,176
7,576
3,299
2,684
2,002
520
698
49
38,649
Potential exposure
16,645
5,176
18,065
3,299
10,493
3,865
1,590
2,014
49
61,196
2020
AQ1-AQ4
15,771
5,968
6,687
1,432
2,399
2,109
351
815
55
35,587
AQ5-AQ8
—
—
1,183
58
479
985
—
59
—
2,764
AQ9
—
—
168
—
2
3
—
1
—
174
AQ10
—
—
30
1
1
8
—
1
4
45
Current exposure
15,771
5,968
8,068
1,491
2,881
3,105
351
876
59
38,570
Potential exposure
15,771
5,968
20,119
1,491
11,969
4,764
1,306
1,811
59
63,258

Measured against NWM Group’s asset quality s
cale, 96%
(2020 – 92%) of total current ex
posure was rated in the
AQ1-AQ4 bands, which in the c
ontext of external credit
ratings was equivalent to an inves
tment grade rating of
BBB- or better and a PD range
of 0-0.381%.

The decrease in total exposure primarily refle
cted lower
levels of credit and counterparty c
redit risk, due to risk
reduction following the strategic decisi
ons made in 2020.

Non-investment grade exposures
were proportionally lower
than the prior year and concentrated withi
n loans and other
lending, collateralised and uncollateralised rate
risk
management.
Risk and capital m
anageme
nt continued
NWM Group
Annu
al Report an
d Accounts 202
1
76
Credit risk – Banking activities
Introduction
This section details the credit risk profile of NWM
Group’s banking activities. Refer to Accoun
ting policies note 9 and Note 14
to the
financial statements for policies and c
ritical judgments relating to impairment loss dete
rmination.
Financial instruments within the scope of the IFRS 9 ECL framework
(audited)
Refer to Note 9 to the financial
statements for balance sheet a
nalysis of financial assets that are classified as amor
tised cost or fair
value through other comprehensive income (FVOCI),
the starting point for IFRS 9 ECL f
ramework assessment.
Financial assets
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
36.0
36.6
In scope of IFRS 9 ECL framework
33.6
33.9
% in scope
93%
93%
Loans to customers - in scope -
amortised cost
7.5
0.1
7.4
8.5
0.2
8.3
Loans to customers - in scope -
FVOCI
0.1
—
0.1
—
—
—
Loans to banks - in scope - amortised cost
0.9
—
0.9
1.0
—
1.0
Total loans - in scope
8.5
0.1
8.4
9.5
0.2
9.3
Stage 1
8.3
—
8.3
7.8
—
7.8
Stage 2
0.1
—
0.1
1.6
0.1
1.5
Stage 3
0.1
0.1
—
0.1
0.1
—
Other financial assets - in scope - amortised cost
19.8
—
19.8
18.3
—
18.3
Other financial assets - in scope - FVOCI
5.3
—
5.3
6.1
—
6.1
Total other financial assets - in scope
25.1
—
25.1
24.4
—
24.4
Stage 1
25.0
—
25.0
24.4
—
24.4
Stage 2
0.1
—
0.1
—
—
—
Stage 3
—
—
—
—
—
—
Out of scope of IFRS 9 ECL framework
2.4
na
2.4
2.7
n
a
2.7
Loans to customers - out of sco
pe - amortised cost
—
na
—
0.1
n
a
0.1
Loans to banks - out of scope - amortised cos
t
—
na
—
—
n
a
—
Other financial assets
-
out of scope
-
amortised cost
2.2
na
2.2
2.3
n
a
2.3
Other financial assets - out of scope - FVOCI
0.2
na
0.2
0.3
n
a
0.3
na = not applicable
The assets outside the scope of IFRS 9 ECL framewo
rk were as
follows:

Settlement balances, items in t
he course of collection, cash
balances and other non-credit risk asse
ts of £2.2 billion
(2020 – £2.4 billion). These we
re assessed as having no ECL
unless there was evidence that they were defaul
ted.

Equity shares of £0.1 billion (202
0 – £0.1 billion) as not
within the IFRS 9 ECL framework by definition.

Fair value adjustments on loans and debt securities he
dged
by interest rate swaps, where the u
nderlying loan was
within the IFRS 9 ECL scope of
£0.1 billion (2020 – £0.2
billion).
In scope assets also include an addition
al £0.7 billion (2020 –
£0.8 billion) of inter-Group assets not shown in the
table above.
Contingent liabilities and commitments
In addition to contingent liabilitie
s and commitments disclosed
in Note 25 to the financial statements,
reputationally-committed
limits are also included in the sc
ope of the IFRS 9 ECL
framework. These were offset by £
0.2 billion (2020 – £0.2
billion) out of scope balances primarily related to facili
ties that,
if drawn, would not be classifie
d as amortised cost or FVOCI, or
undrawn limits relating to financ
ial assets exclusions. Total
contingent liabilities (including financial guarantees
) and
commitments within IFRS 9 ECL s
cope of £11.7 billion (2020 –
£13.1 billion) comprised Stage 1 £1
1.4 billion (2020 – £10.8
billion); Stage 2 £0.3 billion (2020 – £2
.3 billion); and Stage 3 nil
(2020 – nil).
The ECL relating to off balance s
heet exposures was nil (2020 –
nil billion). The total ECL in the remainder of the cre
dit risk
section of £0.1 billion included ECL for both on and off b
alance
sheet exposures.
Risk and capital m
anageme
nt continued
NWM Group
Annu
al Report an
d Accounts 202
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77
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 f
ramework.
2021
2020
£m
£m
Loans - amortised cost and FV
OCI
Stage 1
8,301
7,799
Stage 2
147
1,566
Stage 3
99
171
Of which: individual
91
162
Of which: collective
8
9
Inter-Group
(1)
731
755
Total
9,278
10,291
ECL provisions
Stage 1
6
12
Stage 2
3
49
Stage 3
75
132
Of which: individual
68
124
Of which: collective
7
8
Inter-Group
—
1
Total
84
194
ECL provisions coverage
(2)
Stage 1 (%)
0.07
0.15
Stage 2 (%)
2.04
3.13
Stage 3 (%)
75.76
77.19
Inter
-
Group (%)
—
0.13
Total
0.98
2.02
Impairment (releases)/losses
ECL
(release)/charge
Stage 1
(14)
(2)
Stage 2
(11)
55
Stage 3
(9)
(12)
Of which: individual
(6)
(3)
Of which: collective
(3)
(9)
Third party
(34)
41
Inter-Group
(1)
1
Total
(35)
42
Amounts written
-
off
67
11
Of which: individual
43
11
(1)
NWM Group’s intercompany assets were classified in Stag
e 1. The ECL for these loans was £0.2 million (2020 – £1.2 million).
(2)
ECL provisions coverage is calculated as ECL p
rovisions divided by loans - amortised cost and FVOCI. It is calculated on third party loans and total ECL provisions
.
(3)
The
t
able
shows
gross
loans
only
and
excludes
a
mounts
that
are
outside
t
he
scope
of
the
ECL
framework.
R
efer
to
the
Financial
instruments
within
the
s
cope
of
the
IFR
S
9
ECL
framework
section
f
or
further
details.
Other
financial
assets
within
t
he
scope
of
the
IFRS
9
ECL
framework
were
cash
and
balances
at
central
banks
totalling
£16.6
billion
(2020
–
£15.8 billion) and debt securities of £8.4 b
illion (2020 – £8.7 billion).
(4)
The stage allocation of the ECL charge was aligned to the stag
e transition approach that underpins the analysis in the Flow statement section.
Risk and capital m
anageme
nt continued
NWM Group
Annu
al Report an
d Accounts 202
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78
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, impairmen
t by
sector, asset quality and geographic
al region based on the country of operation
of the customer. The tables below report only
third
party exposures and related E
CL provisions, charges and write-offs.
Property
Corporate
FI (1)
Sovereign
Total
2021
£m
£m
£m
£m
£m
Loans by geography
122
773
7,353
299
8,547
- UK
43
172
2,780
54
3,049
-
Other Europe
78
447
1,374
174
2,073
- RoW
1
154
3,199
71
3,425
Loans by stage
122
773
7,353
299
8,547
- Stage 1
107
614
7,284
296
8,301
- Stage 2
—
81
66
—
147
-
Stage 3
15
78
3
3
99
of which: individual
12
73
3
3
91
of which: collective
3
5
—
—
8
Weighted average life*
- ECL measurement (years)
1
4
4
1
3
Weighted average 12 months PDs*
- IFRS 9 (%)
0.20
0.97
0.12
0.02
0.18
-
Basel (%)
0.66
1.83
0.15
0.02
0.28
ECL provisions by geography
9
65
7
3
84
- UK
6
10
3
1
20
- Other Europe
3
5
2
—
10
- RoW
—
50
2
2
54
ECL provisions by stage
9
65
7
3
84
- Stage 1
—
—
5
1
6
-
Stage 2
—
1
2
—
3
- Stage 3
9
64
—
2
75
of which: individual
7
59
—
2
68
of which: collective
2
5
—
—
7
ECL provisions coverage (%)
7.38
8.41
0.10
1.00
0.98
-
Stage 1 (%)
—
—
0.07
0.34
0.07
- Stage 2 (%)
—
1.23
3.03
—
2.04
- Stage 3 (%)
60.00
82.05
—
66.67
75.76
ECL (release)/charge - Third party
—
(8)
(25)
(1)
(34)
Amounts written
-
off
—
39
28
—
67
Other
financial assets by asset
quality
(2)
55
—
3,563
21,465
25,083
- AQ1-AQ4
—
—
3,181
21,465
24,646
- AQ5-AQ8
55
—
382
—
437
- AQ9
—
—
—
—
—
Off-balance sheet
270
4,954
6,453
37
11,714
-
Loan commitments
251
4,857
5,864
37
11,009
- Financial guarantees
19
97
589
—
705
Off-balance sheet by asset quality
(2)
270
4,954
6,453
37
11,714
- AQ1-AQ4
190
4,204
6,102
37
10,533
- AQ5-AQ8
78
737
348
—
1,163
-
AQ9
—
—
—
—
—
- AQ10
2
13
3
—
18
*Not within audit scope.
For the notes to this table refer to the following pa
ge.
Risk and capital m
anageme
nt continued
NWM Group
Annu
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Credit risk – Banking activities continued
Sector analysis – portfolio summary
(audited)
Property
Corporate
FI (1)
Sovereign
Total
2020
£m
£m
£m
£m
£m
Loans by geography
190
958
8,208
180
9,536
- UK
50
167
3,726
66
4,009
-
Other Europe
140
577
1,573
44
2,334
- RoW
—
214
2,909
70
3,193
Loans by stage
190
958
8,208
180
9,536
- Stage 1
127
629
6,933
110
7,799
- Stage 2
45
182
1,272
67
1,566
-
Stage 3
18
147
3
3
171
of which: individual
15
141
3
3
162
of which: collective
3
6
—
—
9
Weighted average life*
- ECL measurement (years)
2
4
4
—
3
Weighted average 12 months PDs*
- IFRS 9 (%)
0.61
2.22
1.29
0.98
1.34
- Basel (%)
0.75
2.08
1.04
0.03
1.10
ECL provisions by geography
11
124
55
3
193
-
UK
7
5
7
1
20
- Other Europe
4
62
42
—
108
- RoW
—
57
6
2
65
ECL provisions by stage
11
124
55
3
193
- Stage 1
1
1
9
1
12
-
Stage 2
—
6
43
—
49
- Stage 3
10
117
3
2
132
of which: individual
7
112
3
2
124
of which: collective
3
5
—
—
8
ECL provisions coverage (%)
5.79
12.94
0.67
1.67
2.02
- Stage 1 (%)
0.79
0.16
0.13
0.91
0.15
-
Stage 2 (%)
—
3.30
3.38
—
3.13
- Stage 3 (%)
55.56
79.59
100.00
66.67
77.19
ECL (release)/charge - Third party
(1)
(2)
43
1
41
Amounts written-off
1
9
1
—
11
Other financial assets by asset quality
(2)
98
107
2,905
21,251
24,361
- AQ1-AQ4
—
107
2,648
21,231
23,986
- AQ5-AQ8
98
—
257
20
375
- AQ9
—
—
—
—
—
Off-balance sheet
478
6,421
6,204
37
13,140
- Loan commitments
446
6,291
5,591
37
12,365
-
Financial guarantees
32
130
613
—
775
Off-balance sheet by asset quality
(2)
478
6,421
6,204
37
13,140
- AQ1-AQ4
420
5,288
5,766
37
11,511
- AQ5-AQ8
52
1,101
432
—
1,585
-
AQ9
1
—
—
—
1
- AQ10
5
32
6
—
43
*Not within audit scope.
(1)
Financial institutions (FI) includes transactions, such as securitisations, where the und
erlying assets may be in other sectors.
(2)
AQ bandings are based on Basel PDs and mapp
ing 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
Risk and capital m
anageme
nt continued
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Annu
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Credit risk – Banking activities continued
Sector analysis – portfolio summary
(audited)
The table below shows ECL by stage, for key s
ectors that continue to be affected by COVID-19
.
Loans - amortised cos
t and FVOCI
Off-balance sh
eet
ECL provisions
Stage 1
Stage 2
Stage 3
Total
Loan
Contingent
Stage 1
Sta
ge 2
Stage
3
Total
2021
£m
£m
£m
£m
commitment
s
l
iabilities
£m
£m
£m
£m
Property
107
—
15
122
251
19
—
—
9
9
Financial institutions
7,284
66
3
7,353
5,864
589
5
2
—
7
Sovereign
296
—
3
299
37
—
1
—
2
3
Corporate
614
81
78
773
4,857
97
—
1
64
65
Of which:
Airlines and aerospace
—
—
7
7
163
44
—
—
6
6
Automotive
10
39
—
49
686
—
—
1
—
1
Health
27
—
2
29
150
—
—
—
1
1
Land transport and logistics
74
1
—
75
230
1
—
—
—
—
Leisure
—
3
—
3
304
—
—
—
—
—
Oil and gas
252
—
17
269
39
1
—
—
4
4
Retail
—
—
—
—
289
4
—
—
—
—
Total
8,301
147
99
8,547
11,009
705
6
3
75
84
2020
Property
127
45
18
190
446
32
1
—
10
11
Financial institutions
6,933
1,272
3
8,208
5,591
613
9
43
3
55
Sovereign
110
67
3
180
37
—
1
—
2
3
Corporate
629
182
147
958
6,291
130
1
6
117
1
24
Of which:
Airlines and aerospace
—
23
10
33
312
44
—
—
9
9
Automotive
11
38
—
49
863
—
—
1
—
1
Health
22
—
2
24
—
—
—
—
1
1
Land transport and logistics
85
1
1
87
451
6
—
—
—
—
Leisure
—
50
—
50
472
—
—
1
—
1
Oil and gas
11
3
50
64
374
3
—
—
35
35
Retail
—
—
10
10
342
5
—
—
10
10
Total
7,799
1,566
171
9,536
12,365
775
12
49
132
193
Risk and capital m
anageme
nt continued
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Annu
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d Accounts 202
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Credit risk – Banking activities continued
Sector analysis – portfolio summary
(audited)
Forbearance
The table below shows forbearance, Heigh
tened Monitoring and Risk of Credi
t Loss by sector. This table show current exp
osure
but reflects risk transfers where there is a gu
arantee by another customer.
FI
Property
Sovereign
Other corporate
Total
2021
£m
£m
£m
£m
£m
Forbearance (flow)
1
5
—
5
11
Forbearance (stock)
1
5
—
62
68
Heightened Monitoring and Risk of Credit Loss
15
22
—
5
42
2020
Forbearance (flow)
—
8
—
114
121
Forbearance (stock)
—
8
—
155
163
Heightened Monitoring and Risk of Credit Loss
—
29
—
295
324
Credit risk enhancement and mitigat
ion
(audited)
The table below shows exposures
of modelled portfolios within the scope of the
ECL framework and related credit risk
enhancement and mitigation (CREM).
Gross
Maximum credit risk
CREM by type
CREM coverage
Exposure post
CREM
exposure
ECL
Total
Stage 3
Financial (1)
Property
Other (2)
Total
St
age 3
Total
Stage 3
2021
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
Financial assets
Cash and balances at central
banks
16.6
—
16.6
—
—
—
—
—
—
16.6
—
Loans - amortised cost
(3)
8.5
0.1
8.4
—
0.7
—
—
0.7
—
7.7
—
Debt securities
8.4
—
8.4
—
—
—
—
—
—
8.4
—
Total financial assets
33.5
0.1
33.4
—
0.7
—
—
0.7
—
32.7
—
Contingent liabilities
and commitments
11.7
—
11.7
—
1.3
—
—
1.3
—
10.4
—
Total off-balance sheet
11.7
—
11.7
—
1.3
—
—
1.3
—
10.4
—
Total exposure
45.2
0.1
45.1
—
2.0
—
—
2.0
—
43.1
—
2020
Financial assets
Cash and balances at central banks
15.8
—
15.8
—
—
—
—
—
—
15.8
—
Loans - amortised cost
(3)
9.5
0.2
9.3
—
2.2
—
—
2.2
—
7.1
—
Debt securities
8.6
—
8.6
—
—
—
—
—
—
8.6
—
Total financial assets
33.9
0.2
33.7
—
2.2
—
—
2.2
—
31.5
—
Contingent liabilities
and commitments
13.1
—
13.1
—
2.0
—
—
2.0
—
11.1
—
Total off-balance sheet
13.1
—
13.1
—
2.0
—
—
2.0
—
11.1
—
Total exposure
47.0
0.2
46.8
—
4.2
—
—
4.2
—
42.6
—
(1)
Includes cash and securities collateral.
(2)
Includes guarantees and charges over trade debt
ors.
(3)
NWM Group holds collateral in respect of individual loans – amortised cost to banks and customers. Th
is collateral includes mortgages over property; charges over business assets
such as plant and equipment, inventories and trade debt
ors; and guarantees of lending from parties other than the borrower. NWM Group obtains collateral in the form of securities
in reverse repurchase agreements. Collateral values a
re capped at the value of the loan.
Risk and capital m
anageme
nt continued
NWM Group
Annu
al Report an
d Accounts 202
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82
Credit risk – Banking activities continued
Flow statement
(audited)
The flow statement that follows shows the main ECL a
nd
related income statement movements. It also shows t
he
changes in ECL as well as the changes in rela
ted financial
assets used in determining ECL. Due to diffe
rences in scope,
exposures may differ from those
reported in other tables,
principally in relation to exposures in Stage 1 an
d Stage 2.
These differences do not have a material ECL impact. Ot
her
points to note:

Financial assets include treasury liquidity portfolios,
comprising balances at central banks and deb
t securities,
as well as loans. Both modelled and non-modelled p
ortfolios
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 t
ransitioning to a
worse stage being a primary driver of income s
tatement
charges. Similarly, there is an ECL benef
it for accounts
improving stage.

Changes in risk parameters shows the
reassessment of the
ECL within a given stage, including any ECL ove
rlays and
residual income statement gains or losses
at the point of
write-off or accounting write-d
own.

Other (P&L only items) includes any subsequent changes in
the value of written-down assets
along with other direct
write-off items such as direct rec
overy costs. Other (P&L
only items) affects the income statement but does not
affect
balance sheet ECL movements.

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
asset
s
ECL
a
ssets
ECL
NWM Group
£m
£m
£m
£m
£m
£m
£m
£m
At 1 January 2021
33,327
12
1,671
49
167
132
35,165
193
Currency translation and other adjustments
(799)
—
(38)
(1)
(3)
(9)
(840)
(10)
Inter-group transfers
(105)
—
—
—
—
—
(105)
—
Transfers from Stage 1 to Stage 2
(881)
(1)
881
1
—
—
—
—
Transfers from Stage 2 to Stage 1
1,762
9
(1,762)
(9)
—
—
—
—
Transfers to Stage 3
—
—
(1)
—
1
—
—
—
Net re-measurement of ECL on stage transfer
(7)
4
—
(3)
Changes in risk parameters
(7)
(9)
(2)
(18)
Other changes in net exposure
79
—
(530)
(8)
(27)
(3)
(478)
(11)
Other (P&L only items)
—
2
(4)
(2)
Income statement (releases)/charges
(14)
(11)
(9)
(34)
Amounts written-off
—
—
(24)
(24)
(43)
(43)
(67)
(67)
At 31 December 2021
33,383
6
197
3
95
75
33,675
84
Net carrying amount
33,377
194
20
33,591
At 1 January 2020
32,877
10
188
4
184
132
33,249
146
2020 movements
450
2
1,483
45
(17)
—
1,916
47
At 31 December 2020
33,327
12
1,671
49
167
132
35,165
193
Net carrying amount
33,315
1,622
35
34,972

Consistent with other Wholesale portfolios, Stage 1 an
d
Stage 2 ECL reduced due to the
improved economic
outlook which led to a reductio
n in underlying PDs and
LGDs.

The Stage 2 population reduce
d materially with the
improved economic outlook improving c
redit metrics and
resulting in migration of assets into Sta
ge 1.
Risk and capital m
anageme
nt continued
NWM Group
Annu
al Report an
d Accounts 202
1
83
Pension risk
Definition
Pension risk is the risk to NWM Group caused by i
ts contractual
or other liabilities to, or with respect to, a pension sche
me
(whether established for its employee
s or those of a related
company or otherwise). It is also the risk that NW
M Group will
make payments or other contributions to, o
r with respect to, a
pension scheme because of a
moral obligation or because
NatWest Group considers that it needs to
do so for some other
reason.
Sources of risk
NWM Group has exposure to pe
nsion risk through its defined
benefit schemes worldwide. The two largest NWM G
roup
schemes are the AA and the NatWest Ma
rkets sections of The
NatWest Group Pension Fund with a combined £1
.4 billion of
assets and £1.1 billion of liabilitie
s at 31 December 2021 (2020
–
£1.5 billion of assets and £1.1 billion of liabilities). Ref
er to Note
5 to the financial statements, for further details on N
WM
Group’s pension obligations, inclu
ding sensitivities to the main
risk factors.
Pension scheme liabilities vary with changes in l
ong-term
interest rates and inflation as we
ll as with pensionable salaries,
the longevity of scheme members and legisl
ation. Pension
scheme assets vary with changes
in interest rates, inflation
expectations, credit spreads, exchange rates, a
nd equity and
property prices. NWM Group is e
xposed to the risk that the
schemes’ assets, together with future returns and addi
tional
future contributions, are estimated to be insuff
icient to meet
liabilities as they fall due. In such circumstances, NWM G
roup
could be obliged (or might choose
) to make additional
contributions to the schemes, or be required
to hold additional
capital to mitigate this risk.
Key developments in 2021

There were no material changes to NWM Group’s exposu
re
to pension risk during the year,
and the overall positions of
the main defined benefit scheme
s that NWM Group
sponsors remained broadly stable or improved.

The triennial actuarial valuations for the two l
argest NWM
Group schemes, with an effective date of 31 Decem
ber
2020, were completed on 14 De
cember 2021.
As both
schemes were in surplus at this date, no defici
t repair
contributions were required, although there remain ong
oing
contributions due in respect of f
uture service benefits and
scheme expenses.
Governance
The Pension Committee, chaired by the Chief Fi
nancial Officer,
reviews and monitors risk managemen
t, asset and liability
strategy and financing issues on behalf of NW
M Group. As part
of its remit, the Committee:

Considers the financial strategy, risk managemen
t and
policy implications of NWM Group pension schemes.

Reviews and recommends NW
M Group pension risk
appetite to the NWM Group Executive Risk C
ommittee and
the NWM Group Board Risk Committee.

Reviews the pension impact on the capi
tal plan for NWM
Group and escalates any concerns to the NW
M Group
Assets & Liabilities Committee.
The performance of NatWest Group’s
material pension funds
(including those sponsored by
NWM Group) is reviewed by
NatWest Group’s Assets & Liabilities Committee.
For further information on governance
, refer to page 44.
Risk appetite
NWM Group maintains an independent
view of the risk inherent
in its pension funds. NWM Group has an annually
reviewed
pension risk appetite statement, incorpor
ating defined metrics
against which risk is measured.
Policies and standards are in place to provide for
mal controls
for pension risk reporting, modelling, governance and s
tress
testing. A pension risk policy, which sits wi
thin the NWM Group
enterprise-wide risk management fr
amework, is also in place
and is subject to associated framework controls.
Monitoring and measurement
Pension risk is monitored by the NWM Group
Executive Risk
Committee and the NWM Group Board Risk Commit
tee by way
of the monthly Risk Management Report.
Stress tests are carried out each y
ear on NWM Group’s
material defined benefit pension schemes. The
se tests are also
used to satisfy the requests of r
egulatory bodies such as the
Bank of England.
The stress testing framework inclu
des pension risk capital
calculations for the purposes of
the Internal Capital Adequacy
Assessment Process as well as
additional stress tests for a
number of internal management pu
rposes. The results of the
stress tests and their consequential impact on NWM
Group’s
balance sheet, income statement and ca
pital position are
incorporated into NWM Group’
s and overall NatWest Group
stress test results.
Mitigation
Following risk mitigation measures taken
by the Trustee in
recent years, the AA and the NatWest Markets sections of
the
NatWest Group Pension Fund are now well protected
against
interest rate and inflation risks and are being run on
a low
investment risk basis with relatively s
mall equity risk
exposure.
The AA and the NatWest Markets se
ctions of the
NatWest Group Pension Fund also use
derivatives to manage
the allocation of the portfolio to
different asset classes and to
manage risk within asset classes.
The potential impact of climate change is one of
the factors
considered in managing the asse
ts of the pension schemes. The
Trustee monitors the risk to its investments fro
m changes in the
global economy and invests, where return justifies t
he risk, in
sectors that reduce the world’s reliance on fossil f
uels, or that
may otherwise promote environmental benefits.
Further details
regarding the Trustee’s approac
h to managing climate change
risk can be found in its Responsible O
wnership Policy and its
net zero commitment. The Trustee has reported in line wi
th the
Task Force on Climate-related Financial Disclosures in its
Annual Report and Accounts.
Compliance & conduct risk
Definition
Compliance risk is the risk that
the behaviour of NWM Group
towards customers fails to comply with laws,
regulations, rules,
standards and codes of conduc
t. Such a failure may lead to
breaches of regulatory requirements, organisa
tional standards
or customer expectations and could result in legal o
r regulatory
sanctions, material financial loss or reputation
al damage.
Conduct risk is the risk that the c
onduct of NWM Group and its
subsidiaries and its staff towards cus
tomers – or in the markets
in which it operates – leads to u
nfair or inappropriate customer
outcomes and results in reputa
tional damage, financial loss or
both.
Risk and capital m
anageme
nt continued
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Compliance & conduct risk continued
Sources of risk
Compliance and conduct risks exist ac
ross all stages of NWM
Group’s relationships with its customers and a
rise from a
variety of activities including product desig
n, marketing and
sales, complaint handling, staff training, an
d handling of
confidential inside information.
As set out in Note 25 to the
financial statements, members of
NatWest Group are party to
legal proceedings and are subject to inves
tigation and other
regulatory action in the UK, the US and other jurisdictions.
Key developments in 2021

There was significant focus on a programme of work
to
enhance first and second line surveillance func
tionality.

Risk appetite statements and measures were updated
with
an enhanced focus to provide better visibility of key
risks
across NWM Group.

Strategic oversight and advice was provided to N
atWest
Group’s LIBOR transition programme.
Governance
NWM Group defines appropriate
standards of compliance and
conduct and ensures adherence
to those standards through its
risk management framework. Re
levant compliance and
conduct matters are escalated through Executive Ris
k
Committee and Board Risk Committee.
Risk appetite
Risk appetite for compliance an
d conduct risks is set at Board
level. Risk appetite statements articulate the levels of risk t
hat
legal entities, businesses and fu
nctions work within when
pursuing their strategic objectives and business plans.
A range of controls is operated to ensure t
he 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 Group including
policies relating to
customers in vulnerable situations, cross-border ac
tivities and
market abuse. Continuous mon
itoring and targeted assurance
is carried out as appropriate.
Monitoring and measurement
Compliance and conduct risks are measured
and managed
through continuous assessment and repo
rting to NWM Group’s
senior risk committees and at B
oard level. The compliance and
conduct risk framework facilitates the consisten
t monitoring
and measurement of compliance
with laws and regulations and
the delivery of consistently goo
d customer outcomes. The first
line of defence is responsible for effec
tive risk identification,
reporting and monitoring, with oversight, ch
allenge and review
by the second line. Compliance
and conduct risk management
is also integrated into NWM Group’s s
trategic planning cycle.
Mitigation
Activity to mitigate the most-material compliance
and conduct
risks is carried out across NWM Group with specif
ic areas of
focus in the customer-facing business
es and legal entities.
Examples of mitigation include consideration of
customer needs
in business and product planni
ng, targeted training, complaints
management, as well as independent monitoring
activity.
Internal policies help support a strong custo
mer focus across
NWM Group. Independent assessments of compliance
with
applicable regulations are also carried out at a leg
al entity
level.
Financial crime risk
Definition
Financial crime risk is presented by cri
minal activity in the form
of money laundering, terrorist financing, b
ribery and
corruption, sanctions and tax evasion, as well as fr
aud risk
management.
Sources of risk
Financial crime risk may be prese
nted if NWM Group’s
customers, employees or third parties under
take or facilitate
financial crime, or if NWM Group’s products o
r services are
used to facilitate such crime. Fi
nancial crime risk is an inherent
risk across all lines of business.
Key developments in 2021

There was a significant focus o
n the financial crime control
environment – including activity
designed to strengthen
customer due diligence standards and controls – across
NatWest Group in 2021.

NWM Group is fully engaged with NatWest Group’s mul
ti-
year transformation plan. The plan has bee
n developed to
ensure that, as the financial crime th
reat evolves with
changes in technology, the economy and wi
der society,
risks relating to money-laundering, terrorist-financin
g, tax
evasion, bribery and corruption and financial s
anctions are
managed, mitigated and control
led as effectively as
possible. As part of this, NWM Group implemented the firs
t
two phases of a new external contextual transac
tion
monitoring system. A final phas
e is scheduled for
implementation.

NWM Group is represented on the new NatWest
Group-
wide Financial Crime Executive Steering Committee
to
provide oversight of the transformation plan and its
implementation, and is part of NatWest G
roup’s
Transformation Committee, Financial Crime Pe
rformance
Committee and Customer Due Diligence E
xecutive Steering
Group.
Governance
The Financial Crime Risk Committee (FCRC),
which is chaired
by the Head of Compliance & Financial Crime, is N
WM Group’s
principal financial crime risk management foru
m. The
committee reviews and, where appropriate, escala
tes material
financial crime risks and issues across NW
M Group to the NWM
Executive Risk Committee and NWM Boa
rd Risk Committee.
Additionally, NWM Group is represe
nted on NatWest Group’s
Financial Crime Executive Steering Group, which ove
rsees
financial crime risk management, ope
rational performance, and
transformation matters across NatWest Group.
Risk appetite
There is no appetite to operate in an environmen
t where
systems and controls do not enable the identifica
tion,
assessment, monitoring, management
and mitigation of
financial crime risk. NWM Group’s systems and controls
must
be comprehensive and proporti
onate to the nature, scale and
complexity of its businesses. There is no tole
rance to
systematically or repeatedly breach relevant financial c
rime
regulations and laws.
NWM Group operates a framework of preventa
tive and
detective controls designed to mitigate
the risk that it could
facilitate financial crime. These cont
rols are supported by a
suite of policies, procedures and guidance to ensu
re they
operate effectively.
Risk and capital m
anageme
nt continued
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Financial crime risk continued
Monitoring and measurement
Financial crime risks are identifi
ed and reported through
continuous risk management and regular repo
rting to NWM
Group’s senior risk committees and the NatWest
Group Board.
Quantitative and qualitative data is reviewed
and assessed to
measure whether financial crime risk is within
risk appetite.
Mitigation
Through the financial crime framework, releva
nt policies,
systems, processes and controls are used to miti
gate and
manage financial crime risk. This includes the use
of dedicated
screening and monitoring syste
ms and controls to identify
people, organisations, transactions and behaviours
that may
require further investigation or other actio
ns. Centralised
expertise within NatWest Group is available
to detect and
disrupt threats to NWM Group
and its customers. Intelligence is
shared with law enforcement, regulators and govern
ment
bodies to strengthen national and internation
al defences
against those who would misuse the financial sy
stem for
criminal motives.
Climate risk
Definition
Climate risk is the threat of fina
ncial loss or adverse non-
financial impacts associated with clim
ate change and the
political, economic and environmental respo
nses to it.
Sources of risk
Physical risks may arise from cl
imate and weather-related
events such as heatwaves, droughts, floo
ds, storms and sea
level rises. They can potentially result in fin
ancial losses,
impairing asset values and the creditworthiness of bo
rrowers.
NWM Group could be exposed
to physical risks directly by the
effects on its property portfolio and, indirec
tly, by the impacts
on the wider economy as well as on the proper
ty and business
interests of its customers.
Transition risks may arise from the proce
ss of adjustment
towards a low-carbon economy. Changes in policy
, technology
and sentiment could prompt reasses
sment of customers’
financial risk and may lead to falls in the v
alue of a large range
of assets. NWM Group could be exposed to transi
tion risks
directly through the costs of adaptation wi
thin economic
sectors and markets as well as supply chain disrup
tion leading
to financial impacts on it and its customers. Poten
tial indirect
effects include the erosion of NWM Group’s co
mpetitiveness,
profitability, or reputation damage.
Key developments in 2021

NWM Group adopted the NatWes
t Group’s principles-based
climate risk policy, approved in A
pril 2021.

A number of first-generation quantitative clim
ate risk
appetite measures were approved by Na
tWest 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 prio
rities.

NWM Group contributed to NatWest Group’s sub
mission to
the Bank of England’s Climate Biennial Explo
ratory
Scenario (CBES) exercise. This helped to strengthen cli
mate
scenario analysis capabilities with inc
reased coverage
across the balance sheet.

A new Climate Centre of Excellence
was established to
provide strategic horizon scanning, guidance and specialis
t
climate expertise across NatWest Group.

Qualitative assessment of climate risk was made m
andatory
for the majority of the wholesal
e credit risk portfolio. This
was supported by enhancements to Transaction
Acceptance Standards (TAS) criteria, with the inclusion of
sector-specific climate considerations fo
r the heightened
risk sectors and generic climate considerations fo
r all other
TAS documents.
Risk governance
The Board is responsible for monitoring and oversee
ing
climate-related risk within NWM Group’s ove
rall business
strategy and risk appetite. The poten
tial impact, likelihood and
preparedness of climate-related risk is reported regul
arly to
NatWest Group’s Board Risk Committee and NatWest
Group
Board.
The Chief Risk Off
icer shares accountability with the CEO
under the Senior Managers & Certification Regi
me for
identifying and managing the financial risks a
rising from
climate change. This includes ensuring th
at the financial risks
from climate change are adequately reflected in
risk
management frameworks, and that the Group can iden
tify,
measure, monitor, manage, and report on its exposure
to these
risks.
A Climate Change Executive Stee
ring Group is in place at
NatWest Group and is responsible f
or overseeing the direction
of and progress against climate-rela
ted commitments, including
activities in NWM Group. During 2021
, the Executive Steering
Group focused on overseeing the Group Climate Ch
ange
Programme (GCCP), which wa
s tasked with continuing to
deliver both the Group-wide climate strategy
and the climate-
related mandatory change agenda before the
activity
transitions into business-as-usual operations. T
he NatWest
Group Climate Centre of Excellence s
upports the Executive
Steering Group as it supervises strategic implemen
tation and
delivery, including within NWM Group.
Risk appetite
NWM Group’s climate ambition is
underpinned by activity to
reduce the climate impact of its financing activity by a
t least
50% by 2030 and to do what is neces
sary to achieve alignment
with the 2015 Paris Agreement.
Work continued in 2021 to integrate climate-
related risk into
the risk management framework, includin
g the development of
appropriate risk appetite metrics. In Decembe
r 2021, the
NatWest Group Board approved the adoption of th
ree first-
generation climate risk appetite measures into the e
nterprise-
wide risk management framework, for integration i
nto
business-as-usual risk management.
Risk monitoring and measuremen
t
NWM Group has focused on developing the capabili
ties to use
scenario analysis to identify the most material clim
ate risks and
opportunities for its customers, s
eeking to harness insights to
inform risk management practic
es and maximise the
opportunities arising from a transition to a low-carb
on
economy.
Scenario analysis allows NWM Group to
test a range of possible
future climate pathways and understand the n
ature and
magnitude of the risks they prese
nt. The purpose of scenario
analysis is not to forecast the fu
ture but to understand and
prepare to manage risks that c
ould arise.
NWM Group participated in NatWes
t Group’s submission to the
Bank of England’s 2021 CB
ES exercise.
Risk and capital m
anageme
nt continued
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Climate risk continued
NWM Group regularly considers
existing and emerging
regulatory requirements related to climate chan
ge. It continues
to participate in several industry-wide initiatives
to develop
consistent risk measurement methodologies including
the
Securities Industry & Financial Markets Associ
ation and Asia
Securities Industry & Financial Markets Associ
ation Sustainable
Finance working groups.
Operational risk
Definition
Operational risk is the risk of los
s resulting from inadequate or
failed internal processes, people and systems, o
r external
events. It arises from day-to-da
y 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. T
his can take
the form of human error, an inability to deliver cha
nge
adequately or on time, the non-availability of
technology
services, or the loss of customer data. Systems failu
re, theft of
NatWest Group property, information loss and
the impact of
natural, or man-made, disasters – as well as the threa
t of
cyber-attacks – are sources of operation
al risk. Operational risk
can also arise from a failure to account for ch
anges in law or
regulations or to take appropriate measures to
protect assets.
Key developments in 2021

Aligned to the implementation of the enterprise-wi
de risk
management framework, a new operational
risk policy was
approved in April 2021. T
he new policy sets out the
qualitative expectations, guidanc
e and standards that
stipulate the nature and extent of
permissible risk-taking for
operational risk.

There was also a continued focus on oper
ational resilience
to ensure planning, controls and operational activities
remained robust and appropriate, with conti
nuing attention
on the potential operational risks arising fro
m changes in
working practices.

The security threat and the pote
ntial for cyber-attacks on
NWM Group and its supply chain continue
d to be closely
monitored. During 2021, NatWe
st Group further invested in
its defences in response to the evolving th
reat. There was
also continued focus on assuring the securi
ty 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 en
hancements
to the effective use of data across NatWest Group.
Governance
The governance arrangements in place for oper
ational risk are
aligned to the requirements set out in the Board-
approved
enterprise-wide risk management fr
amework and are
consistent with achieving safety
, soundness and sustainable
risk outcomes. The Operating Committee discusse
s operational
risk matters relating to the control envi
ronment, NWM’s
implementation of the enterprise-wide risk man
agement
framework, risk identification and oversight of retu
rn-to-
appetite plans. Significant issues are escala
ted to the Board
Risk Committee.
Risk appetite
Operational risk appetite supports effec
tive 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. N
atWest Group’s operational risk
appetite statement encompasses
the full range of operational
risks faced by its legal entities, businesse
s and functions.
Mitigation
The Control Environment Certification (CEC) pr
ocess is a half-
yearly self-assessment by the CEOs of NatWes
t Markets as well
as the senior executives of NatWes
t Group’s other principal
businesses, functions and legal entities. I
t provides a consistent
and comparable view on the adequacy an
d effectiveness of the
internal control environment.
CEC covers material risks and the underlying key con
trols,
including financial, operational and compliance con
trols, as well
as supporting risk management frameworks. The CEC
outcomes are reported to Group Audit Co
mmittee 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-O
xley 404 requirements
concerning internal control over financial reporting, an
d certain
requirements of the UK Corporate Govern
ance Code.
Risks are mitigated by applying ke
y preventative and detective
controls, an integral step in the
risk assessment methodology
which determines residual risk e
xposure. Control owners are
accountable for the design, exe
cution, performance and
maintenance of key controls. Ke
y controls are regularly
assessed for adequacy and tested for eff
ectiveness. The results
are monitored and, where a material change in
performance is
identified, the associated risk is re-evalu
ated.
Monitoring and measurement
Risk and control assessments are use
d 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 Group’s Ris
k Directory. Risk
assessments are refreshed at least annually t
o ensure they
remain relevant and capture a
ny emerging risks and also
ensure risks are reassessed.
The process is designed to conf
irm that risks are effectively
managed in line with risk appet
ite. Controls are tested at the
appropriate frequency to verify
that they remain fit-for-purpose
and operate effectively to reduce identified risks.
NWM Group uses the standardise
d approach to calculate its
Pillar 1 operational risk capital requirement. This is b
ased on
multiplying three years’ average historical g
ross income by
coefficients set by the regulator based on
business line. As part
of the wider Internal Capital Ade
quacy Assessment Process an
operational risk economic capital model is use
d 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-looki
ng
scenario analysis to provide a risk-se
nsitive view of NatWest
Group’s Pillar 2A capital require
ment.
Scenario analysis is used to asse
ss how severe but plausible
operational risks will affect NWM Group. It p
rovides a forward-
looking basis for evaluating and managing o
perational risk
exposures.
Risk and capital m
anageme
nt continued
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Operational risk continued
Refer to the Capital, liquidity and fu
nding risk section for
operational risk capital requirement figures.
Operational resilience
NWM Group manages and monitors operational
resilience
through its risk and control asse
ssment methodology. This is
underpinned by setting and monitoring risk indic
ators and
performance metrics for key busi
ness services. Progress
continues on the response to regulator expectations o
n
operational resilience, with invol
vement in a number of
industry-wide operational resilie
nce forums. This enables a
more holistic view of the operati
onal resilience risk profile and
the pace of ongoing innovation and change, bot
h internally and
externally.
Event and loss data management
The operational risk event and l
oss data management process
ensures NatWest Group captures
and records operational risk
financial and non-financial events that meet defined c
riteria.
Loss data is used for regulatory and indust
ry reporting and is
included in capital modelling w
hen calculating economic capital
for operational risk. The most s
erious events are escalated in a
simple, standardised process to
all senior management, by way
of a Group Notifiable Event Proc
ess. All financial impacts
associated with an operational risk event are re
ported in
NatWest Group’s Annual Report and Accounts.
Model risk
Definition
Model risk is the potential for adverse consequences a
rising
from inaccurate financial assessments o
r decisions made as a
result of incorrect or misused model ou
tputs and reports. NWM
Group defines a model as a quantitative me
thod, system, or
approach that applies statistical, economic, fin
ancial,
accounting, mathematical or data science
theories, techniques
and assumptions to process input data into
quantitative
estimates.
Sources of risk
NWM Group uses a variety of models in
the course of its
business activities. Examples include the use of model ou
tputs
to support measuring and assessing risk exposures (includin
g
credit and market risk), as well as for valuation of posi
tions and
for calculating regulatory capital and liquidi
ty requirements.
The models used for stress-testing purposes also pl
ay a key
role in ensuring NWM Group hol
ds sufficient capital, even in
stressed market scenarios.
Key developments in 2021

A number of model improvements were made to ensure
the
model portfolio was operating within ap
petite.
Enhancement work remains a ke
y focus.

There was further embedding and enhancemen
t of
frameworks and governance re
lating to model risk.
Governance
A governance framework is in place to ensure policies
and
processes relating to models ar
e appropriate and effective.
Two roles are key to this – Model Risk O
wners and Model Risk
Officers. Model Risk Owners ar
e responsible for model approval
and ongoing performance monitoring. Model Ris
k Officers, in
the second line, are responsible f
or oversight, including
ensuring that models are independently valida
ted prior to use
and on an ongoing basis aligned to the model’s risk rati
ng.
Escalations are made to senior
management through the NWM
Group Model Risk Committee. T
he committee also considers
whether a model can be approved for use. Models
used for
regulatory reporting may additionally require regul
atory
approval before implementation. Further es
calation 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 Group is willing to acce
pt in the course of its
business activities. NWM Group has defined limits and t
riggers
that align with the NatWest Group’s model risk ap
petite
statement. The first line is responsible for
monitoring
performance against appetite, reporting on
the model
population and carrying out any
necessary remediation for
positions outside appetite.
Risk controls
Policies and procedures related to the develop
ment, validation,
approval, implementation and use
and ongoing monitoring of
models are in place to ensure adequate co
ntrol across the
lifecycle of an individual model. Validation of m
aterial models is
conducted by an independent risk function comprised
of skilled,
well-informed subject matter experts. This is c
ompleted for new
models or amendments to existing models and as p
art of an
ongoing periodic programme to asse
ss model performance.
The frequency of periodic validation is aligned to
the risk rating
of the model. The independent valid
ation focuses on a variety
of model features, including mo
delling 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 asse
ssed
through a model risk rating that is based on the model’s
materiality and validation rating. This appro
ach provides the
basis for model risk appetite me
asures and enables model risk
to be robustly monitored and managed across NWM
Group.
Ongoing performance monitoring is conduc
ted 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 bein
g used
consistently with their intended purpose. This allows ti
mely
action to be taken to remediate poor mo
del performance
and/or any control gaps or weaknesse
s.
Mitigation
Model risk is inherent in the use
of models. It is managed by
refining or redeveloping models where app
ropriate – either due
to changes in market condition
s, 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 proces
s within which the model
output is used in order to furthe
r limit risk levels.
Risk and capital m
anageme
nt continued
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Reputational risk
Definition
Reputational risk is defined as the risk of da
mage to
stakeholder trust due to negative consequence
s arising from
internal actions or external events.
Sources of risk
Reputational risks originate fro
m internal actions and external
events. The three primary drivers of reputation
al risk have
been identified as: failure in inte
rnal execution; a conflict
between NWM Group’s values and the public agenda;
and
contagion (when NWM Group’s reputation is dama
ged by
failures in the wider financial sector).
Key developments in 2021

Reputation risk registers were introduced at NatWest
Group
level in order to enhance monit
oring of the most material
reputational risks.

An updated reputational risk appetite state
ment was
introduced with a specific focus on public
trust.

The correlation between reputational risk and cli
mate
change issues remained a significant area of f
ocus during
2021. Enhancements were made to the Environment
al,
Social & Ethical risk management framework
to mitigate
reputational risk arising from exposure
to carbon-intensive
sectors and to support the trans
ition to a lower carbon
economy.
Governance
A reputational risk policy supports reputational
risk
management across NWM Group. The
NWM Reputational Risk
Committee reviews relevant issu
es at an individual business or
entity level, while the NatWest Group Reputati
onal Risk
Committee – which has delegate
d authority from the NatWest
Group Executive Risk Committee
– opines on cases, issues,
sectors and themes that represent a material repu
tational risk.
The NatWest Group Board Risk Committee ove
rsees the
identification and reporting of reputational risk. The Na
tWest
Group Sustainable Banking Committee has
a specific focus on
environmental, social and ethical issue
s.
Risk appetite
NWM Group manages and articu
lates its appetite for
reputational risk through a qualitative repu
tational risk appetite
statement and quantitative measures. NWM
Group seeks to
identify, measure and manage
risk exposures arising from
internal actions and external events. This
is designed to ensure
that stakeholder trust is retained. Howeve
r, reputational risk is
inherent in NWM Group’s operating envi
ronment and public
trust is a specific factor in setting reputa
tional risk appetite.
Monitoring and measurement
Relevant internal and external facto
rs are monitored through
regular reporting to NWM Group Reput
ational Risk Committee
and escalated, where appropriate, to Na
tWest Group’s
Reputational Risk Committee, Board Risk Commit
tee or
Sustainable Banking Committee
.
Mitigation
Standards of conduct are in place across NatWest
Group
requiring strict adherence to p
olicies, procedures and ways of
working to ensure business is transacted in a way
that meets –
or exceeds – stakeholder expectations.
External events that could caus
e reputational damage are
identified and mitigated through NatWest Group’s
top and
emerging risks process as well as through the N
atWest Group
and franchise-level risk registers
.
R
ep
ort of the dir
ec
t
ors
NWM Group
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The directors present their report together with the au
dited
accounts for the year ended 31 December 2021
.
Other information incorporated into this rep
ort by reference
can be found at:
Page
Financial review
36
Board of directors and secretar
y
41
Segmental
analysis
117
Share capital and reserves
162
Post balance sheet events
174
Risk factors
179
Group structure
NatWest Markets Plc (‘NWM Plc’) is a wholly-owned su
bsidiary
of NatWest Group plc (‘NWG plc’ or ‘the holdi
ng company’).
The NatWest Markets Group (‘
NWM Group’) comprises NWM
Plc and its subsidiary and associated undertakings. The
term
‘NatWest Group’ comprises NWG plc and its su
bsidiary and
associated undertakings. NWG plc is
incorporated in the UK
and has its registered office at 36
St Andrew Square,
Edinburgh, EH2 2YB.
Details of NWM Plc’s principal subsidia
ry undertakings and their
activities are shown in Note 31 on the accounts. A full list of
related undertakings of NWM Plc
is shown in Note 34 on the
accounts.
The financial statements of NatWes
t Group plc can be obtained
from NatWest Group Legal, Go
vernance and Regulatory Affairs,
Gogarburn, Edinburgh, EH12 1
HQ, the Registrar of Companies
or at natwestgroup.com.
Activities
NWM Group is engaged principally in providi
ng financing, risk
management and trading solutions to customers.
Results and dividends
The loss attributable to the ordinary shareholders of NW
M
Group for the year ended 31 Dec
ember 2021 was £593 million
compared with a loss of £328 million fo
r the year ended 31
December 2020, as set out in the consolidated income
statement on page 105.
Total dividends paid to NatWest Group
plc during the year
amounted to £1 billion.
On 17 February 2022, the Board approved an inte
rim dividend
of £250 million, declared and payable to Na
tWest Group plc on
18 February 2022.
Employees
At 31 December 2021, NWM Group employe
d 1,600 people
(excluding temporary staff). Details of all rela
ted costs are
included in Note 3 to the consolidated accoun
ts.
Corporate Governance statement
The Companies (Miscellaneous Re
porting) Regulations 2018
introduced new statutory reporting require
ments for financial
years beginning on or after 1 January 201
9. As a result of these
new requirements, the directors of
the company are required
to provide a statement in the Directors’ report stating
which
corporate governance code, if any, the co
mpany followed
during the year; how it applied the code and any pa
rt of the
code it did not follow. For the fi
nancial year ended 31
December 2021, the company has chosen t
o report against the
Wates Corporate Governance Principles fo
r Large Companies
(the Wates Principles) and the disclos
ures below explain how
the company has applied the Wates P
rinciples in the context of
its corporate governance arrangements.
1. Purpose and leadership
Purpose
NatWest Group’s purpose is established by
the NWG plc Board,
promoted across NatWest Group and cascaded to su
bsidiaries
including NWM Group. Further i
nformation on NatWest Group’s
purpose can be found in the NatWest Grou
p plc 2021 Annual
Report and Accounts.
Strategy
NatWest Group’s strategy is set and
approved by the NWG plc
Board. The NWM Plc Board (the B
oard) reviews and sets the
strategic direction of NWM Plc
and, as appropriate, the
strategies for each of its businesse
s within the parameters set
by the NWG plc Board. It subsequently oversees
the execution
of the strategy and holds management to acc
ount for its
delivery.
Culture
The NWG plc Board is supporte
d in monitoring culture across
NatWest Group by the Group Su
stainable Banking Committee
and the Group Board Risk Committee. NatWes
t Group is on a
journey towards a generative ris
k culture whereby risk is simply
part of the way people work and think.
Building a healthy culture that e
mbodies Our Values is a core
priority for NatWest Group.
Our Values, which guide the way NatWes
t Group identifies the
right people to serve customers well, and how
to manage,
engage and reward colleagues,
are at the heart of Our Code
(the NatWest Group-wide Code of
Conduct).
There is regular reporting to the
Board on culture, so as to
provide appropriate oversight of cul
ture matters. More
specifically, with regards to risk culture, signific
ant progress
has been made towards addres
sing historical conduct issues,
including risk appetite enhancements, increased
monitoring of
conduct risk, and a new risk appetite me
asure for Golden Rule
breaches. This supports our ambition to create
a positive
culture and strengthen ‘good conduct’ outco
mes for clients.
2. Board Composition
The Board
The Board has seven directors comprising; the Chai
rman, two
executive directors (being the C
hief Executive Officer and Chief
Financial Officer) and four independent
non-executive
directors. The size of the Board is considered app
ropriate,
taking into account the size and scale of NWM Plc’s
business.
The Chairman
The role of Chairman is to lead the Boa
rd and ensure its overall
effectiveness. This is
distinct and separate from that of the
Chief Executive Officer who manages the business
day-to-day.
The Chairman is also a member of the NWG plc Bo
ard which
provides an appropriate linkage
to the wider NatWest Group
and ensures alignment and awareness in respec
t of NatWest
Group-wide matters.
Non-Executive Directors
The majority of the Board comprises independent no
n-
executive Directors. Their role is to challenge an
d scrutinise the
performance of management and to help develop
proposals on
strategy. They also review the performance
of management in
meeting agreed goals and objectives and mo
nitor the firm’s risk
profile. The non-executive directors combine broad
business
and commercial expertise and bring experience from
a wealth
of areas including audit, banking, finance, hu
man resources,
technology, and telecommunications.
Report of the direct
ors continued
NWM Group
Annu
al Report an
d Accounts 202
1
90
The Board periodically undertakes an independence
assessment of the non-executive
directors. With the exception
of the Chairman, who is a member of the NWG
plc Board, all
non-executive directors are considered to be indepen
dent and
there are no relationships or circ
umstances that are likely to
affect their judgment.
Induction Training
All new directors undergo a formal inductio
n programme upon
joining the Board which is coordina
ted by the Company
Secretary and tailored to their individual needs. This includes
meetings with other directors, senior executives
and business
heads. Meetings with the external auditor, leg
al counsel and
other key stakeholders are arranged as ap
propriate. Directors
also receive comprehensive gui
dance from the Company
Secretary on NWM Plc’s corporate govern
ance framework and
associated policies, including their duties as directors.
Continuous Development.
Non-executive directors discuss
their professional development
annually with the Chairman. Directors maintain
their
knowledge and familiarity with NWM Plc through
regular
meetings with senior management (including
representatives of
NatWest Group) and participate
in scheduled Board training
and other external sessions as appropriate.
During 2021, climate and teach-in sessions on the in
tegration of
NatWest’s purpose-led strategy as well as on Capi
tal Markets
and Large Corporates was arranged for the
directors. Directors
may also request individual in-depth briefings from
time to time
on areas of particular interest.
Board Diversity
The Board is committed to promoting diversity a
nd inclusion in
the boardroom and aims to meet industry t
argets and
recommendations wherever possible. T
he Board has agreed a
Boardroom Inclusion Policy whic
h aims to promote diversity
and inclusion in the composition of the Board of
Directors and
in the nomination and appointment process. T
he Policy reflects
the values of the wider NatWest Group, its Inclusio
n Policy and
relevant legal, regulatory or best practice require
ments.
Committees
The responsibilities of the Board are executed, in part,
through
its committees (namely, the Audit Co
mmittee, the Board Risk
Committee, the Performance and Remuneration Co
mmittee
and the Nominations and Governance Com
mittee). All matters
that the Board has specifically delegated to the
se committees
are set out in their terms of reference (ToRs). All othe
r matters,
including responsibility for the day-to-d
ay operation of NWM
Plc (that are not specifically reserved for the Boa
rd or
delegated to a committee) are delegated to the NWM
Plc Chief
Executive Officer (CEO) in accordance with such policies a
nd
directions as the Board determines appropria
te, including the
NWM Plc CEO’s role profile.
Succession
The Board is responsible for ensuring that NWM Plc h
as in
place succession plans for the Board and senior
management
so as to maintain an appropriate balance of skills and
experience. The NatWest Group Nominations an
d Governance
Committee is also required to approve all
appointments to the
Board, reflecting the company’s position as a subsidiary of
NatWest Group
Board Effectiveness
The effectiveness of
the Board, including the Chairman,
individual directors and Board committees, is asse
ssed
periodically. The Board considers such asse
ssments to play an
important role in the identification of areas for fu
rther
improvement, focus and for strengthening its overall
performance.
The Company Secretary
In fulfilling its role, the Board is
supported by the Company
Secretary. The Company Secretary is responsible fo
r ensuring
good information flows between the Board and its com
mittees
and between senior management and no
n-executive directors,
as well as facilitating induction
and assisting with professional
development of non-executive directors, as require
d. The
directors may also seek independent, professional
advice,
where necessary, at NWM Plc’s e
xpense.
3. Director Responsibilities
Policy & Framework
NatWest Group has in place a Corporate Gove
rnance
Framework, including a Corpor
ate Governance Policy. All
directors of NWM Plc are required to ensure that
they are
familiar with the Corporate Governance Fra
mework and that
NWM Plc complies with it. NWM Plc also p
roduces and
maintains a document called ‘Our Governance’ which sets
out
the high-level governance frame
work for NWM plc at both
regional and global levels.
The Board has a programme of
seven scheduled meetings
every year. The Board’s ToRs i
nclude a formal schedule of
matters specifically reserved for the Bo
ard which are reviewed
at least annually. Each director has a role p
rofile which clearly
articulates their responsibilities and accountabilities
. Similarly,
any additional regulatory responsibilities an
d accountabilities
where any of the directors undertake a Senio
r Manager
Function (as defined under the Prudential Re
gulation
Authority’s and Financial Conduct Authority’s ‘Senior M
anager
Regimes’) are set out in their St
atement of Responsibilities.
To support them in the discharge of their duties, all
directors
receive regular and timely information on all key aspects of
the
business including financial performance, st
rategy, key risks,
and market conditions.
Conflicts of Interest
The Board follows NatWest Group’s guidance rela
ting to
directors’ conflicts of interest.
The Board has the power to au
thorise any actual or potential
conflicts of interest in accordance with the Companies A
ct
2006 and NWM Plc’s Articles of
Association. The company
maintains a register of directors’ interests and
appointments
and there is discussion of directors’ conflicts in B
oard meetings,
as required. During the year, none of the di
rectors declared
any material interest, directly or indirectly, in any con
tract of
significance with any company within Nat
West Group.
All directors were reminded of their obligations i
n respect of
transacting in NWM Plc securities
(Personal Account Dealing)
and all directors have confirmed that they have complied
with
their obligations.
Report of the direct
ors continued
NWM Group
Annu
al Report an
d Accounts 202
1
91
Board Committees
In order to provide effective ov
ersight and leadership, the
Board has established a number of Board committees wit
h
particular responsibilities:
The Audit Committee
comprises at least two independen
t
non-executive directors, one of whom is the Ch
airman of the
Board Risk Committee. The Committee assists
the Board in
discharging its responsibilities for monitorin
g the integrity of the
financial statements. It reviews the accoun
ting policies,
financial reporting and regulatory compliance p
ractices of
NWM Plc, its system and standards of internal co
ntrols, and
monitors the processes for internal audi
t and external audit.
The Board Risk Committee
comprises at least two
independent non-executive dire
ctors, one of whom is the
Chairman of the Audit Committee
. The Committee provides
oversight and advice to the Board in rel
ation to current and
potential future risk exposures and futu
re risk profile, including
determination of risk appetite, the e
ffectiveness of the risk
management framework and (in conjuncti
on with the Audit
Committee) internal controls required
to manage risk. The
Committee also reviews compliance with Na
tWest Group Policy
Framework and reviews the performance of NWM Plc
relative
to risk appetite.
The Performance and Remuneration Committee (RemCo)
comprises at least four independent non-executive
directors
and assists the NatWest Group Performance and
Remuneration
Committee with the oversight and im
plementation of NatWest
Group’s remuneration policy. It also considers
and makes
recommendations on remuneration ar
rangements for senior
executives of NWM Plc.
The Nominations and Governance Committee
comprises the
Chairman and at least two other independent non-executi
ve
directors. It is responsible for a
ssisting the Board in the formal
selection and appointment of directo
rs. It reviews the structure,
size and composition of the Board an
d membership and
chairmanship of Board committe
es.
4. Opportunity and risk
The role of the Board is to promote
the long-term sustainable
success of NWM Plc.
The Board reviews and approves
risk appetite for strategic and
material risks in accordance with NatWest Group’s risk
appetite
framework; monitors performance
against risk appetite for
NWM Plc; and considers any material risks
and approves (as
appropriate) recommended actions es
calated by the NWM Plc
Board Risk Committee.
NWM Plc’s risk strategy is informed and sha
ped by an
understanding of the risk landscape includin
g a range of
significant risks and uncertainties
in the external economic,
political and regulatory environments.
NWM Plc complies with NatWest G
roup’s risk appetite
framework, which is approved annually by the NWG plc Boa
rd,
in line with NatWest Group’s risk appetite sta
tements,
frameworks and policies. NatWe
st Group risk appetite is set in
line with overall strategy.
NatWest Group operates an integrated risk
management
framework, which is centred on the embedding of a st
rong risk
culture. The framework ensures the tools
and capability are in
place to facilitate sound risk management and decis
ion-making
across the organisation.
NWM Plc also complies with the NatWest Group Policy
Framework, the purpose of which is to ensure
that NatWest
Group establishes and maintains N
atWest Group-wide policies
that adequately address the material inherent risks it faces in
its business activities.
Further information on NWM Plc’s risk management f
ramework
including risk culture, risk governance, risk appetite, risk
controls and limits, and risk identification and
measurement
can be found in the capital and risk management sec
tion of this
report.
5. Remuneration
NatWest Group Remuneration Policy
provides a consistent
policy across all companies in NatWest Group and ensu
res
compliance with regulatory req
uirements. The policy is aligned
with the business strategy, obje
ctives, values and long-term
interests of the company. The policy s
upports a culture where
individuals are rewarded for delivering sustained
performance
in line with risk appetite and fo
r demonstrating the right
conduct and behaviours.
The Performance and Remuneration Committee
(RemCo)
reviews remuneration for executives of the co
mpany and
considers reports on the wider workfo
rce including annual pay
outcomes and diversity information. The RemCo
helps to
ensure that the remuneration policie
s, procedures and
practices being applied are appropriate at NWM Plc level.
Executive remuneration structures incentivise individu
als to
deliver sustainable performance
based on strategic objectives
for NatWest Group and the relevant business a
rea.
Performance is assessed against a balanced scoreca
rd of
financial and non-financial measures and va
riable pay is
subject to deferral as well as malus and cl
awback provisions to
ensure rewards are justified in
the long-term.
The approach to performance management provides
clarity for
employees on how their contribution links to Na
tWest Group’s
ambition and all employees have goals set ac
ross a balanced
scorecard of measures. NatWes
t Group continues to ensure
employees are paid fairly for the
work they do and are
supported by simple and transparen
t pay structures in line with
industry best practices. This clarity and certainty on
how pay is
delivered is also helping to improve employees’ f
inancial
wellbeing, which is a priority. Employee
s are provided with
flexibility in terms of how they wish to receive
pay to suit their
circumstances. Pay is benchmarked agains
t the external
market so that pay and benefits
are competitive.
NatWest Group is a fully accredited Livin
g Wage Employer in
the UK with rates of pay that c
ontinue to exceed the Living
Wage Foundation Benchmarks.
NatWest Group ensures colleague
s have a common awareness
of the financial and economic f
actors affecting its performance
through quarterly ‘Results Expl
ained’ communications and
Workplace Live events with the Group Chief
Executive Officer
and Chief Financial Officer.
Further information on the remuneration policy
can be found in
the Directors’ remuneration report (DRR) of
the NatWest Group
plc 2021 Annual Report and Accounts along wi
th the steps
being taken to build an inclusive and engaged
workforce. The
DRR also contains details of pay
ratios for NatWest Group.
Gender and Ethnicity Pay Gap information can be f
ound in the
Strategic report section of the NatWest Group plc 2021
Annual
Report and Accounts.
6. Stakeholder relationships and engagement
NWM Plc is committed to managing the wide
r social,
environmental and economic impacts of its o
perations which
includes the way it deals with its
customers and manages the
sustainability of its supply chain
.
Report of the direct
ors continued
NWM Group
Annu
al Report an
d Accounts 202
1
92
The Board recognises the importance of engaging
with
stakeholders and discussions at B
oard meetings are focused
around the impact that NWM Plc’s activities
may have on key
stakeholder groups. A new Board
reporting style has also been
introduced with a specific section focussing on
the stakeholder
impacts to support decision-making.
For further details on the Board’s e
ngagement with employees,
customers, suppliers and others, and how these
stakeholders’
interests have influenced one of the Board’s p
rincipal decisions,
see page 18 of the Strategic report.
Internal control over financial reporting
The internal controls over financi
al reporting for NWM Group
are consistent with those at NatWest Group leve
l. NWM Group
has designed and assessed the e
ffectiveness of its internal
control over financial reporting as of 31 Dece
mber 2021 based
on the criteria set forth by the Committee of Sp
onsoring
Organizations of the Treadway Commission in t
he 2013
publication of ‘Internal Control – Integrated Frame
work’. As
part of the assessment, management have conside
red the
additional activities required for its internal co
ntrol over
financial reporting during the ye
ar, such as oversight on
controls performed on NWM Group’s behalf,
to better reflect
the size, scale and overall mate
riality of the business profile
compared to the NatWest Group framework. Any def
iciencies
identified are reported to NWM Group Audit C
ommittee along
with management’s remediation plans
Directors’ interests
Where directors of NWM Plc ar
e also directors of NWG plc,
their interests in the shares of the ultimate holding co
mpany at
31 December 2021 are shown in the Annu
al report on
remuneration section of the NatWest Group plc 202
1 Annual
Report and Accounts.
None of the directors held an interest in the lo
an capital of the
ultimate holding company or in the sha
res or loan capital of
NWM Plc or any of its subsidiaries
, during the period from 1
January 2021 to 17 February 20
22.
Directors' indemnities
In terms of section 236 of the Companies Act 200
6 (the
‘Companies Act’), Qualifying Third Party Indemni
ty Provisions
have been issued by the ultimate holding com
pany to its
directors, members of NWM Plc’s Executive Commi
ttee,
individuals authorised by the P
RA/FCA and certain directors
and/or officers of NatWest Group’s subsidiaries and all t
rustees
of NatWest Group’s pension scheme.
Going concern
NWM Plc’s business activities a
nd financial position, the factors
likely to affect its future development an
d performance and its
objectives and policies in managing the financi
al risks to which
it is exposed, and its capital are discuss
ed in the Financial
review. NWM Plc’s regulatory capital resou
rces and significant
developments in 2021, and anticipated future develo
pments are
detailed in the Capital, liquidity and fundi
ng sections. These
sections also describe NWM Plc’s funding and liquidity p
rofile,
including changes in key metrics and the build-up of liquidi
ty
reserves.
Having reviewed NWM Plc’s pri
ncipal risks, forecasts,
projections, the potential impac
t of COVID-19 and other
relevant evidence, the directors have a reasonable ex
pectation
that NWM Plc will continue in operational existence for
a period
of 12 months from the date of this report. Accordingly
, the
financial statements of NWM Plc have been prepa
red on a
going concern basis.
Political donations
During 2021, no political donations were m
ade in the UK or EU,
nor any political expenditure incurred in the U
K or EU.
Directors’ disclosure to auditors
Each of the directors at the date of approval of this
report
confirms that:
(a)
so far as the director is aware, there is no relevant au
dit
information of which NWM Plc’s
auditors are unaware; and
(b)
the director has taken all the steps that he/she ough
t to
have taken as a director to make himself/he
rself aware of
any relevant audit information and to establish tha
t NWM
Plc’s auditors are aware of that information. This
confirmation is given and should be inte
rpreted in
accordance with the provisions of se
ction 418 of the
Companies Act.
Auditors
Ernst & Young LLP (EY LLP) are the auditors and
have
indicated their willingness to continue in office. A resolutio
n to
re-appoint EY LLP as NWM Plc’
s auditors will be proposed at
the forthcoming NatWest Group Annual Gener
al Meeting.
By order of the Board
Scott Gibson
Company Secretary
17 February 2022
NatWest Markets Plc
is registered in Scotland No. SC09
0312
St
at
eme
nt of dir
ect
ors
’
responsib
ilities
NWM Group
Annu
al Report an
d Accounts 202
1
93
This statement should be read in conjunction wi
th the responsibilities of the auditor set ou
t in their report on pages 95 to 104.
The directors are responsible for the preparati
on of the Annual Report and Accounts. T
he directors are required to prepare
Group
financial statements, and as permitted by the Co
mpanies Act 20
06 have elected to prepare company financial st
atements, for each
financial year in accordance with UK adopted Inte
rnational Accounting Standards, Interna
tional Financial Reporting Standard
s
(IFRS) as issued by the International Accounting St
andards Board and IFRS as adopted Europe
an Union. They are responsible f
or
preparing financial statements that prese
nt fairly the financial position, financial performance
and cash flows of NWM Group
and
NWM Plc. In preparing those financial sta
tements, the directors are required to:

select suitable accounting policies
and then apply them consistently;

make judgments and estimates that are reas
onable, relevant and reliable; an
d

state whether applicable accounting standa
rds have been followed, subject to any
material departures disclosed and explai
ned
in the financial statements.

prepare the financial statements
on a going concern basis unless
it is inappropriate to presume that the comp
any and Group
will continue in business
The directors are responsible for keeping pro
per accounting records which disclose
with reasonable accuracy at any time t
he
financial position of NWM Group and to enable them to e
nsure that the Annual Report and Ac
counts complies with the Comp
anies
Act 2006. They are also responsible for safegua
rding the assets of NWM Plc and NWM G
roup and hence for taking reasonable
steps for the prevention and de
tection of fraud and other irregularities.
Under applicable law and regulations, the directo
rs are also responsible for preparing a Strat
egic report and Report of the
directors, that comply with that law and those regul
ations. The directors are responsible for
the maintenance and integrity of the
corporate and financial information include
d on the company’s website.
The directors confirm that to the bes
t of their knowledge:

the financial statements, prepared in accordance wi
th UK adopted International Accounti
ng Standards, International Financial
Reporting Standards as issued by the International Accou
nting Standards Board and I
FRS as adopted European Union, give
a
true and fair view of the assets, liabilities, fin
ancial position and profit or loss of N
WM Plc and the undertakings included in
the
consolidation taken as a whole;
and

the Strategic report and Report
of the directors (incorporating the Financial review) include
s a fair review of the development
and performance of the business and the positio
n of NWM Plc and the undert
akings included in the consolidation
taken as a
whole, together with a description of the principal
risks and uncertainties that they face.
By order of the Board
Frank Dangeard
Robert Begbie
David King
Chairman
Chief Executive Officer
Chief Financial Officer
17 February 2022
Board of directors
Chairman
Executive directors
Non
-
executive directors
Frank Dangeard
Rober
t Begbie
David King
Vivek Ahuja
Tamsin Rowe
Anne Simpson
Sarah Wilkinson
Financial statements
NWM Group
Annual Report and Accounts 2021
94
Page
Independent auditor’s report
95
Consolidated income statement
105
Consolidated statement of comprehensive income
105
Balance sheet
106
Statement of changes in equity
107
Cash flow statement
108
Accounting policies
110
Notes to the accounts
1
Net interest income
115
2
Non-interest income
115
3
Operating expenses
116
4
Segmental analysis
117
5
Pensions
119
6
Auditor’s remuneration
123
7
Tax
123
8
Profit/loss dealt with in the accounts of NWM Plc
125
9
Financial instruments - classification
126
10
Financial instruments - valuation
135
11
Financial instruments - maturity analysis
146
12
Trading assets and liabilities
149
13
Derivatives
150
14
Loan impairment provisions
156
15
Other financial assets
158
16
Investment in group undertakings
159
17
Other assets
159
18
Other financial liabilities
159
19
Subordinated liabilities
160
20
Other liabilities
161
21
Share capital and reserves
162
22
Structured entities
163
23
Asset transfers
164
24
Capital resources
165
25
Memorandum items
166
26
Analysis of the net investment in business interests
171
27
Analysis of changes in financing during the year
172
28
Analysis of cash and cash equivalents
172
29
Directors’ and key management remuneration
173
30
Transactions with directors and key management
173
31
Related parties
174
32
Ultimate holding company
174
33
Post balance sheet events
174
34
Related undertakings
175
Independent
auditor’s
report to
the members of
NatWest Ma
rkets Plc
NWM Group
Annu
al Report an
d Accounts 202
1
95
Opinion
In our opinion:

The financial statements of NatWes
t Markets Plc (the ‘Bank’) and its subsidiaries (toge
ther, the ‘Group’) give a true and fair
view of the state of the Group’s and of the Bank’s
affairs as at 31 December 2021 and of
the Group’s loss for the year then
ended;

The Group financial statements
have been properly prepared in accordance
with UK adopted international accoun
ting
standards and International Financial Reporting St
andards (‘IFRS’) as adopted by the Eu
ropean Union and IFRS as issued by the
International Accounting Standards Board (‘IA
SB’);

The Bank’s financial statements have been prope
rly prepared in accordance with UK a
dopted international accounting
standards as applied in accordance with sec
tion 408 of the Companies Act 2006
; and

The financial statements have bee
n prepared in accordance with the requiremen
ts of the Companies Act 2006
.
W
e hav
e audited the financial statemen
ts (see t
able below) of
the Group
and the Bank for the
year ended 31 D
ecember 2
021 which
comprise:
Group
Bank

Consolidated balance sheet as
at 31 December 2021;

Consolidated income statement f
or the year then ended;

Consolidated statement of comprehensive inco
me for the
year then ended;

Consolidated statement of changes i
n equity for the year then
ended;

Consolidated cash flow statement for the year then ende
d;

Accounting Policies;

Related notes 1 to 34 to the financial s
tatements; and

Risk and capital management se
ction identified as ‘audited’.

Balance sheet as at 31 Decembe
r 2021;

Statement of changes in equity for the yea
r then
ended;

Cash flow statement for the year
then ended;

Accounting Policies; and

Related notes 1 to 34 to the financial s
tatements.
The financial reporting framework that has
been applied in their preparation is a
pplicable law and UK adopted Interna
tional
Accounting Standards, and as regard to the gr
oup financial st
atements
, IFRS as adopted b
y the European Union and IFRS as
issued b
y the IA
S
B, and as r
egards the parent c
ompany fi
nancial statemen
ts, as ap
plied in acc
ordance wi
th section 408 o
f the
Companies Act 2006
.
Basis for opinion
We conducted our audit in accordance with Inter
national Standards on Auditing (UK) (ISAs
(UK)) and applicable law. Our
responsibilities under those sta
ndards are further described in the Auditor’s responsibili
ties for the audit of the financial statements
section of our report. We are in
dependent of the Group and Bank in accordance with
the ethical requirements that are relevant to
our audit of the financial statements in the UK, i
ncluding the FRC’s Ethical Standard as a
pplied to listed public interest entitie
s, and
we have fulfilled our other ethical responsibilities in
accordance with these requirements.
We believe that the audit evidence
we have obtained is sufficient and approp
riate to provide a basis for our opinion.
Conclusions relating to going concern
In auditing the financial statements, we have c
oncluded that the directors’ use of the going c
oncern basis of accounting in the
preparation of the financial stat
ements is appropriate. Our evaluation of the directo
rs’ assessment of the Group and Bank’s
ability
to continue to adopt the going concern basis of
accounting included:

In conjunction with our walkthrough of the Group’s fina
ncial close process, we confirmed ou
r understanding of the director’s
going concern assessment proce
ss. We engaged with management early to ensure ke
y factors were considered in the
assessment;

We evaluated the directors’ going concer
n assessment which included reviewing
their evaluation of long-term business a
nd
strategic plans on the future capital adequ
acy, liquidity and funding positions of the Grou
p and Bank. Management also
assessed these positions consid
ering internal stress tests which included considera
tion of top and emerging risks. The Group’s
risk profile and risk management prac
tices were considered including credit risk, m
arket risk, climate risk, compliance and
conduct risk, and operational risk;

We further evaluated their assessment by consi
dering the Group and Bank’s ability to continu
e as a going concern under
different scenarios considering the continued econo
mic impact of COVID-19. We use
d economic specialists in assessing the
macroeconomic assumptions in the forecas
t through benchmarking to institutional forecasts,
HMT consensus and peer
comparative economic forecasts; and

We reviewed the Group’s going concern disclosu
res included in the Annual Report and Accou
nts in order to assess that the
disclosures were appropriate and in confo
rmity with the reporting standards.
Independent a
uditor’s report to t
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s Plc continue
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96
Based on the work we have performed, we have no
t identified any material unce
rtainties relating to events or conditi
ons that,
individually or collectively, may cast significant doub
t on the Group and Bank’s ability
to continue as a going concern over the
twelve months from the date
when the financial state
ments are authorised for issue.
Our r
esponsibilities and the responsibilities o
f the direct
ors with r
espect to going concern ar
e described in the r
elev
ant sections of
this report. H
o
we
ver
, because not all future e
v
ents or c
onditions can be pr
edicted, this st
atement is not a guarant
ee as to the
Group
’
s or Bank’
s ability to c
ontinue as a going conce
rn.
An overview of the scope of NatWest Markets Plc and Group audits
Tailoring the scope
Our assessment of audit risk, our evaluation of m
ateriality and our allocation of performance
materiality determine our audit scope
for each component within the Group. Taken to
gether, this enables us to form an opinion on
the consolidated financial state
ments.
We take into account size, risk profile, the org
anisation of the Group and effe
ctiveness of Group wide controls, changes in the
business environment and other factors such
as the results from internal audits when asse
ssing the level of work to be perfo
rmed
at each component.
In assessing the risk of material misstatemen
t to the Group financial statements, and
to ensure we had adequate quanti
tative
coverage of significant accounts in the financial st
atements, we identified five components ba
sed on size and risk which represe
nt
the principal reporting legal entities within the
Group and the Group’s central functions.
Of the five components listed b
elow, we performed an audit of the complete financial info
rmation of two components (“full s
cop
e
components”) which were sele
cted based on their size or risk characteristics. For two co
mponents (“specific scope compone
nt”),
we performed audit procedures on spec
ific accounts within those
components that we considered had the poten
tial for the
greatest impact on the significant accounts in the fina
ncial statements either because of the si
ze of these accounts or their risk
profile. We also instructed one location to perfo
rm specified procedures over certain as
pects of selected accounts.
Component
Sc
ope
K
ey l
ocations
Nat
W
est Mark
ets Plc
Full
Un
ited Kingdom, United
State
s, Indi
a and Poland
Nat
W
est Mark
ets N.
V
.
Full
Un
ited Kingdom, India, P
oland
and the Nether
lands
Nat
W
est Mark
ets Securities Inc.
Specific
United State
s
Nat
W
est Mark
ets Securities
Japan
Limited
Centr
al Functions*
Specified procedur
es
Specific
Japan
United Kingdom
*Centr
a
l functions compri
se EY f
unctional component teams f
ocused on the audit of specific
balances across in sc
o
pe legal e
ntity
components.
The table below illustrates the coverage obtained f
rom the work performed by our audi
t teams. We considered total assets,
total
equity and the total income to verify we had ap
propriate overall coverage.
Full scope
Specific sc
ope
Specified
procedur
es
Other
procedur
es*
T
otal
T
otal assets
90%
9%
<1%
1%
100%
T
otal equity
99%
-
-
1%
100%
T
otal income (absolute
)
78%
18%
-
4%
100%
*Other procedur
es: consider
ed in analytical pr
o
cedur
es.
As a result of the continued impact of the COVI
D-19 pandemic and resulting lockdown restri
ctions for part of the year in countries
where full or specific scope audit procedures h
ave been performed, we modified ou
r audit strategy to allow for the audit to
be
performed remotely at both the Group and co
mponent locations. This approach was suppo
rted through remote user access
to the
Group’s financial systems and t
he use of EY software collaboration platforms for
the secure and timely delivery of requeste
d audit
evidence.
Involvement with component teams
In establishing our overall approach to the Group au
dit, we determined the type of work that
needed to be undertaken at each of
the components by us, as the primary
audit engagement team, or by compo
nent auditors from other EY glob
al network firms
operating under our instruction.
The primary audit engagement team interacted regul
arly with the component audit teams wh
ere appropriate throughout the
course of the audit, which included holding planni
ng meetings, maintaining regular commu
nications on the status of the audit,
reviewing key working papers and taking respo
nsibility for the scope and direction of the
audit process. The primary audit te
am
continued to follow a programme of oversight visi
ts that has been designed to ensure that
the Senior Statutory Auditor, or another
Group audit partner, visits all full scope and specific scope loc
ation
s. During the current ye
ar’s audit cycle, due to continued
COVID-19 restrictions, the visits undertaken by t
he primary audit team were necessarily vi
rtual visits. These visits involved video
call meetings with local management and discussions o
n the audit approach with the co
mponent team and any issue
s arising from
their work. The primary team inter
acted regularly with the component teams and mai
ntained a continuous and open di
alogue with
component teams, as well as holding formal closing mee
tings quarterly, to ensure that the primary tea
m were fully aware of their
progress and results of their procedures. The
primary team also reviewed key working pape
rs and were responsible for the
scope
and direction of the audit process. T
his, together with the additional procedures at Group level
, g
ave us appropriate evidence
for
our opinion on the Group finan
cial statements.
Independent a
uditor’s report to t
he member
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s Plc continue
d
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d Accounts 202
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97
Climate change
There has been increasing interest from st
akeholders as to how climate change will i
mpact companies. The Group has deter
mined
that the most significant future impacts from climate ch
ange on its operations will be from cre
dit risk, operational risk, reputational
risk, conduct risk and regulatory
compliance risk. These are explained in t
he Climate Risk section in the Strategic Repor
t and in the
Climate Risk section within the Ris
k and capital management sec
tion, which form part of the “Other information”. O
ur procedures
on these disclosures consisted s
olely of considering whether they are mate
rially inconsistent with the financial statements o
r our
knowledge obtained in the course of the audit or othe
rwise appear to be materially misstated.
As explained in the Accounting Policy note, the G
roup makes use of reasonable and suppo
rtable information to make accou
nting
judgments and estimates, including the observable eff
ect of the physical and transition risks o
f climate change on the current
creditworthiness of borrowers, asset values and
market indicators, as well as their effe
ct on the Group’s competitiveness
and
profitability. Many of the matters arising will be longe
r term in nature, with an inherent level
of uncertainty, and have limited eff
ect
on accounting judgments and estimates f
or the current period under the requi
rements of UK adopted international
accounting
standards, IFRS as adopted by
the European Union and IFRS as
issued by the IASB. In the Accounting Policy no
te, explanation of
the impact of certain transition
and physical risks were provided for the key
assumptions and significant judgements a
nd estimates.
Our audit effort in considering climate change
was focused on ensuring that the eff
ects of material climate risks as disclosed
in the
Accounting Policy note have been appropriately refle
cted in the asset and liability valu
ations and the nature and timing of future
cash flows. Details of our proce
dures and results on valuation of f
inancial instruments with higher risk charac
teristics and expected
credit loss provisions are included in our key au
dit matters below. We also challenged the dir
ectors’ considerations of climat
e
change in their assessment of going concern
and associated disclosures.
Whilst NatWest Group Plc has stated its co
mmitment to the aspirations of the Paris Agreeme
nt to achieve net zero emissions
by
2050, as stated above the impacts arising will
be longer term in nature, and there is a
n inherent level of uncertain
ty in determining
the full future economic impact
on the Group’s business model, operational plans and custo
mers.
Key audit matters
K
ey audi
t matters ar
e th
ose m
atters that, in our
prof
essional judgment, w
er
e of most signific
ance
in our audit of the financial
state
ments of the curr
ent p
eriod and include the most signific
ant a
ssess
ed risks o
f mater
ial misstate
ment (whether or not due t
o
fraud
) that we iden
tified. These matt
ers included those
which had the great
est e
ffect on the o
ver
all audit strat
egy, the allocat
ion of
resour
ces in the audit and dire
cting the effor
ts of the engagement tea
m. These matters
wer
e add
res
sed in the co
nte
x
t of our
audit
of the financial st
a
tements as a whole, and in our opi
nion ther
eon, and we d
o not pro
vid
e a s
eparate opinion on
these matter
s.
Independent a
uditor’s report to t
he member
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d
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Risk
Our response to the
risk
V
a
luation of financial ins
truments with higher risk char
acteris
tics including r
elated inc
ome fr
om tr
ading activities
At 31 December 2021 the company held
financial instruments with higher risk
characteristics, including (but not limited to)
reported level 3 assets of £2.0 billion (2020:
£1.7 billion) and level 3 liabilities of £
0.6
billion (2020: £0.9 billion) whose value is
dependent upon unobservable inputs, as
reported in note 10 of the financial
statements
The valuation of those financial i
nstruments
with higher risk characteristics can include
both significant judgement and the risk of
inappropriate revenue recognition through
incorrect pricing as outlined below. The
fair
value of these instruments can
involve
complex valuation models and significant fair
value adjustments, both of whi
ch may be
reliant on inputs where there is limited
market observability.
Management’s estimates which
required
significant judgement include:

Complex models
: Complex model-
dependent valuations of financial
instruments, which include interest rate
swaps linked to pre-payment be
haviour
and interest rate and foreign exchange
options with exotic features;

Illiquid inputs
: Pricing inputs and
calibrations for illiquid instruments,
including debt securities and loans.
Additionally, the valuation of derivative
instruments is dependent on discount
rates associated with complex collateral
arrangements;

Fair value adjustments
: The
appropriateness and completene
ss of fair
value adjustments made to derivatives
valuations including Funding Valuation
Adjustments (FVA), Credit Valuation
Adjustments (CVA), and material product
and deal specific adjustments o
n long
dated derivative portfolios; and

The manipulation of revenue re
cognition
is most likely to arise through t
he
inappropriate valuation of these
instruments given the level of judgment
involved.
Controls testing
: We evaluated the design and oper
ating effectiveness of
controls relating to financial ins
trument valuation and related income st
atement
measurement including independent price verific
a
tion, valuation models
governance, collateral management, income st
atement analysis, and the
associated controls over relevant info
rmation technology systems. We also
observed the Valuation Commit
tees where valuation inputs, assumptions and
adjustments were discussed and approved.
We involved our financial instru
ment valuation and modelling specialists to
assist
us in performing procedures including the following
:

Complex models
: Testing complex model-dependen
t valuations by
performing independent revaluation to asse
ss the appropriateness of models
and the adequacy of assumptions and inputs used
by the Group.

Illiquid inputs
: Independently re-pricing instrume
nts that had been valued
using illiquid pricing inputs, using alte
rnative pricing sources where available,
to evaluate management’s valuation.

Fair value adjustments
: Comparing fair v
alue adjustment methodologies to
current market practice and as
sessing the appropriateness and adequ
acy of
the valuation adjustment framework in light of e
merging market practice and
changes in the risk profile of th
e underlying portfolio; and revaluing a sample
of counterparty level FVA and CVA, comparing fundi
ng spreads to third
party data and independently challenging illiquid CVA i
nputs.
Throughout our audit procedure
s we considered the appropriateness of
modelling changes in relation to IBOR transiti
on and impact of climate change
on the valuation of financial ins
truments, particularly in relation to long-d
ated
illiquid positions.
In addition, we asse
ssed wheth
er ther
e we
re an
y indicators of aggreg
ate bias in
financial instrument marking a
nd methodology assumptions.
W
e performed back-testing ana
lysis o
f r
ecent tr
ade activity and asset disposals
to ev
alua
te
the driver
s of signific
ant differ
ences betw
een bo
ok value and tr
ade
value and to
assess the impact on the
fair v
alue of similar instr
um
ents within the
portfolio. W
e performed an analy
sis of significant collater
al discr
epancies with
counter
parties to assess the pote
ntial impact on the fair value
of the underlying
(and similar) financial instrume
nts.
Key observations communicated to the
Group Audit Committee
We are satisfied that the assum
ptions used by management to reflec
t the fair value of financial instruments with higher risk
characteristics and the recognition of related income is
reasonable and in accordance with IF
RS. We highlighted the following
matters to the Group Audit Committee:

Complex-model dependent valuations were approp
riate based on the output of our indepen
dent revaluations, analysis of
trade activity, assessment of the
output of the independent price verification proces
s, inspection of collateral disagreemen
ts
and peer benchmarking;

The fair value estimates of hard-to-price fin
ancial instruments appropriately reflected p
ricing information available at 31
December 2021; and

Valuation adjustments applied to derivative
portfolios for credit, funding
and other risks were recorded in accorda
nce with
the requirements of IFRS considering trade activi
ty for positions with common risk charac
teristics, analysis of market data
and peer benchmarking.
Relevant references in the A
nnual Report and Accounts
Report of the Group Audit Committee
Accounting policies
Note 10 on the financial stateme
nts
Independent a
uditor’s report to t
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s Plc continue
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Risk
Our response to the
risk
Provisions for conduct, litigation and regulatory m
atters
A
t 31 Dece
mber 2021, the Group has
report
ed £0.26 billion (2020: £0.33 billion) of
pro
v
isions for c
onduct, litigation and other
regulator
y matters
, as detailed
in Note 20
of
the financial state
m
ents.
Re
gulatory scrutin
y a
nd the co
ntinued
litigious envir
onment give rise t
o a high lev
el
of management judgement in d
etermining
appropriate pr
ovisions and disc
losures
.
Management judgement is nee
d
ed to
determine whether a pr
esent obligation
e
xisted, and a pr
ovision s
h
ould be r
ecor
d
ed
as at 31 December 2
021 in acc
ordance wi
th
the accoun
ting criteria se
t out under IA
S 37.
Management’s estimates which
required
significant judgement include:

Assumptions:
The
selection and use of
assumptions in the estimation o
f
material pro
visions. Ther
e is a risk of
management bias in the deter
mination
of whether an outflo
w in respect of
identified material conduc
t or legal
matters is pr
obable and can be
estimated r
eliably;
and

Disclosur
e
: The assessment of
the
adequacy of discl
osur
es of pr
o
vision for
contingent liabilities giv
en the
underlying estimation unce
rtainty in the
pro
v
isions.
Controls testing:
W
e evaluat
ed the design and opera
ting effect
ive
ness of k
ey
controls o
ver the identificati
on, estimation, monitor
ing and disc
losure
of
pro
v
isions considering t
he potential for managemen
t ov
erride of controls
. The
controls t
este
d included those d
esigned and operate
d by mana
gement to
identify and monitor clai
ms, and t
o ensure the c
ompletenes
s and accur
acy o
f
data used t
o estimate
pro
v
isions
.
Ex
amination
of
r
egula
tory
and
legal
corr
espond
ence
:
W
e
examined
rele
van
t
regulator
y and
legal corr
espondence to assess dev
elopments in certain matters
.
For
m
atters
which
w
ere
settled
during
the
per
iod,
we
compar
ed
the
actual
outflow
s
with
the
p
ro
vision
that
had
been
r
ecor
ded
and
c
onsidered
whether
further risk e
xisted.
Inquiry of legal counse
l
: For le
gal matters t
hat we identified as
having a hig
her
lik
elihood of material misst
atem
ent,
‘significan
t legal matters
’
, we
rec
eived
confirmations fr
om the Group
’
s e
xternal legal coun
sel to assist
us in ev
aluat
ing
the exis
tence of an obligation and in asse
ssing management
’
s estimate o
f the
outflow at y
ear-end. W
e also co
n
ducted inquiries with inte
rnal legal counsel
in
respec
t of the e
xistence
of an
y legal obligations and r
elated pr
ovisions. W
e
performed proce
dures t
o identify unr
ecorded pr
ovisions t
o deter
mine if there
we
re an
y cases not considered
in the pro
v
ision by
assessing ag
ainst e
xternal
legal confirmations
,
discussing
with internal counse
l and analy
sing legal costs.
T
esting of assumptions
:
For the
pro
visions related to signific
a
nt legal matters
we
underst
oo
d and asses
sed the pr
ovisioning methodology. W
e teste
d the
underlying data and assump
tions used in the dete
rmination of the pr
o
visions
rec
o
rded, legal c
osts,
and the timing of se
ttlement. W
e conside
red the accu
racy
of management
’
s historic
al estimates b
y comparing the actual
settlement to the
pro
v
ision and consider
ed p
eer bank settlement in simil
ar case
s where
appropriate. W
e assesse
d management
’
s conclusion by
ev
a
luating the
underlying information used i
n estimating the
pro
v
isions including the
consider
ation of alter
nate sour
ces.
Disclosur
e
: W
e evaluated t
he disclosur
es of
contingent liabilities
and provisio
n
s
for litigation and other r
egulatory pro
visions to assess whether they c
o
mplied
with accountin
g standar
ds
.
Key observations communicated to the
Group Audit Committee
W
e are sa
tisfied that the pro
visions for conduct, litiga
tion and other re
gulatory matters ar
e r
easonable
and rec
ognised in
accor
da
nce with
IFRS. W
e concur with the lev
el of disclosur
e in the financial state
ments. W
e did not identify any mater
ial
unrec
orded pr
o
visions.
Relevant references in the A
nnual Report and Accounts
Report of the Group Audit Committee
Accounting policies
Notes 20 and 25 to the financial statements
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uditor’s report to t
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s Plc continue
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Risk
Our response to the risk
Expected Credit L
osses (‘ECL
’) pr
o
visions under IFRS 9
A
t 31 Dece
mber 2021 the Group
report
ed total gross
loans of £9.3
billion (2020: £10.3 billion) and £84
million of e
xpected cr
edit loss
pro
v
isions under IFRS 9 (2020
: £194
million) as detailed in note 14
of
the
financial stat
ements.
Management
’
s judgements and
estimates ar
e especially subjectiv
e due
to significant unc
ertainty ass
o
ciated
with the assumptions used.
Uncert
ainty related
with the path to
rec
overy fr
om COVID-19 a
nd the
impact of climate change w
a
s
consider
ed in our risk assess
ment.
Aspects with increased complexity in
respect of the timing and
measurement of ECL include:

Staging
:
Allo
cation of
a
ssets to
stage 1, 2, or
3 using criter
ia in
accor
da
nce with
IFRS 9;

Model estimations
:
Acc
ounting
interpr
etations, m
odelling
assumptions and data used t
o
build and run the Probability o
f
Default
(‘PD’), L
oss Given De
fault
(‘LGD
’)
and Exposure
at Def
a
ult
(‘EAD’)
models that calculate t
he
ECL;

Economic sc
enarios
: Inputs,
assumptions and weigh
tings use
d
to estimate
the impact of multiple
economic sce
narios particularly
those impacted b
y C
O
VID-19
including any c
hange to sce
narios
requir
ed t
hroug
h 31 Dec
ember
2021; and

Individual pro
visions
:
Measur
ement of individually
assessed pro
visions including the
assessment of
multiple scenario
s
considering the impact of C
OVID-
19 on e
xit stra
tegies and time t
o
collect.
Controls testing
: We evaluated the design and operating ef
fectiveness of controls across
the processes relevant to ECL,
including the judgements and estimates note
d, involving
specialists to assist us in performing our procedu
res where appropriate. These included,
among others, controls over:

the allocation of assets into stage
s including management’s monitoring of
stage
effectiveness;

model governance including m
onitoring 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 Com
mittee
and Metrics Oversight Committ
ee meetings where the inputs, assumptions a
nd
adjustments to the ECL were di
scussed and approved.
Overall assessment
: We performed an overall asses
sment of the ECL provision levels by
stage to determine if they were reason
able by considering the overall credit quali
ty of
the Group’s portfolio, risk profile, credit risk m
anagement practices and the impact of
COVID-19 and climate change on customers.
Staging
: We evaluated the criteria used to allocate
a financial asset to stage 1, 2 o
r 3 in
accordance with IFRS 9. We recalculated the assets i
n
stage 1, 2 and 3, and asses
sed if
they were allocated to the appropriate stage and pe
rformed sensitivity analysis to
assess the impact of different criteria on
the ECL. To test credit monito
ring, which
drives the probability of default e
stimates used in the staging calculation, we
recalculated the risk ratings for a sample of perfo
rming loans, focussing our testing on
high risk industries. We also assess
ed whether the credit reviews performed by
management appropriately cons
idered risk factors by considering independent publicly
available information.
Model estimations
:
We performe
d a risk assessment on all models
used in the
calculation of ECL to select a sample of models t
o test. We involved modelling
specialists to assist us to test thi
s sample of ECL models by testing the assumptions,
inputs and formulae used. This included a combinati
on of assessing the appropriatenes
s
of model design and formulae, alternative mo
delling techniques, recalculating the P
D,
LGD and EAD, and model implementation. We also consi
dered the results of the intern
al
model validation results. To evaluate data quality, we a
greed a sample of ECL
calculation data points to source s
ystems, including balance shee
t date data used to
run the models and historic loss
data to monitor models. We also tested the ECL d
ata
points from the calculation engine through
to the general ledger and disclosures.
Economic scenarios
: We involve
d EY economic specialists to assist us to evaluate the
base case and alternative economic scenarios, includi
ng evaluating probability weights
and considered contrary evidence
by comparing these to other sce
narios from a variety
of external sources. This assessment included the
latest developments related to
COVID-19 as at 31 December 20
21. We assessed whether forecasted macroecono
mic
variables were appropriate, such as G
DP, unemployment rate and interest
rates. With
the support of our EY modelling s
pecialists we assessed the correlation and the
overall
impact of the macroeconomic factors to
the ECL.
Individual provisions
: We recalcu
lated and challenged the scenarios, assump
tions and
cash flows for a sample of individual p
rovisions including the alternative scena
rios and
evaluating probability weights assigned. T
he sample was based on a num
ber of factors,
including higher risk sectors and materiality.
Disclosure
:
We tested the data flows us
ed to populate the disclosures and assess
ed the
adequacy of disclosures for compliance with the
accounting standards and regula
tory
considerations.
Key observations communicated to the
Group Audit Committee
We are satisfied that
provisions for the impairment of loans we
re reasonable and
rec
o
gnised i
n accor
dance
with IFRS 9. We
highlighted the following matters to the Group Audit Co
mmittee:

Our testing on the staging criteria did not iden
tify material differences and overall, we conclu
ded that the stage allocation
at 31 December 2021 was reasonable;

Our testing of models and mod
el assumptions did not highlight material diffe
rences; and

Our
testing of individually asses
sed impairments did not highlight any materi
al differences
Relevant references in the A
nnual Report and Accounts
Report of the Group Audit Committee
Credit Risk section of the Risk a
nd capital management section
Accounting policies
Note
14
to the financial statements
Independent a
uditor’s report to t
he member
s of NatWest Market
s Plc continue
d
NWM Group
Annu
al Report an
d Accounts 202
1
101
Risk
Our response to the
risk
IT systems and controls impacting financi
al reporting
The IT environment is complex and
pervasive to the operations of the Group
due to the large volume of transactions
processed in numerous locations on a daily
basis with extensive reliance on automated
controls.
This risk is also impacte
d by the
greater dependency on third-parties,
increasing use of cloud platforms,
decommissioning of legacy systems, and
migration to new systems. 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 applic
ations
and data.
Controls testing
:
We evaluated the design and oper
ating effectiveness of IT
general controls over the applications, operating sy
stems and databases that
are relevant to financial reporting. During our planning
and test of design
phases, we performed procedures to de
termine whether changes in restrictions
in different global locations as a result of the on
going COVID-19 pandemic had
caused material changes in IT processes or con
trols.
We tested user access by assess
ing the controls in place for in-scope
applications, in particular those pertaining to the a
ddition and periodic
recertification of users’ access. We tested ch
ange management controls in
relation to amendments to applic
ations. We tested IT application and controls
over data interfaces between applica
tions.
As part of our user access testing, we assesse
d the core access management
processes. We tested controls ove
r approvals, user entitlement reviews, and
managements approval process over role combina
tions.
For relevant external cloud and sys
tem migrations completed in 2021
, we
performed procedures to evalu
ate the governance structure and key controls in
place to manage the key risks associated with these mi
grations.
Where control deficiencies wer
e identified, we tested remediation activities
performed by management and compens
ating controls in place
and assessed
what additional testing procedu
res were necessary to mitigate any residu
al risk.
Key observations communicated to the
Group Audit Committee
We are satisfied that IT controls impacting financi
al reporting are designed and ope
rating effectively. The following matters were
reported to the Group Audit Committee:

Where control issues were noted in relation to
access management, these were re
mediated by 31 December 2021 or
mitigated by compensating con
trols. We performed additional testing in response to
deficiencies identified, where required.
Independent a
uditor’s report to t
he member
s of NatWest Market
s Plc continue
d
NWM Group
Annu
al Report an
d Accounts 202
1
102
Our application o
f materiality
W
e apply the conc
ept of materi
ality in planning and performing the audit, in e
v
aluating the effe
ct of identified misst
a
tements
on the
audit and in forming our audit opinion.
Materiality
The magnitude o
f an omission or misst
atement that
, individually or in the aggr
e
gat
e, could reas
onably be e
xpected t
o influence the
economic decisions o
f the
users
of the financial
st
atement
s. Mat
er
ialit
y provid
es a basis for d
et
ermining the nat
ure and e
xtent o
f our
audit proc
edures
.
We determined materiality for the
Group and the Bank to be £73 million (2020: £
91 million), which is 1% (2020: 1%) of shareholder’s
equity of the Bank.
Per
formance materiality
The application o
f mat
er
ialit
y at the individual ac
count or balanc
e lev
el. It is se
t at an amount t
o r
educe t
o an appr
opriately lo
w lev
el
the probabilit
y that the aggregat
e of uncorr
ect
e
d and unde
tect
ed misst
at
ement
s e
xc
eeds material
it
y.
On the basis of our
risk assessments, t
ogether with our asses
sment of the Gr
oup
’
s ov
er
all control en
vironment, our judgement w
as
that performance mater
iality w
as 50% (2020:
50%) of our planning materiality, n
amely £36 million (2020
: £46 million). W
e hav
e set
performance materiali
ty at this per
centage (which is at the lo
west end of t
he acce
ptable r
ange o
f our audit methodology) based on
various c
on
siderations i
ncluding the past history
of miss
tatem
ents, the ef
fective
ness of the c
ontrol e
nvir
onment
and other f
actors
affecting the entity and its fina
ncial reporting.
A
udit work at co
mponent locations for the
purpose of obtaini
ng audit co
ver
age ov
er significant financial statement ac
counts is
undertak
en based on a per
centage of total perfor
mance mate
riality. The performanc
e mater
iality set for each c
omponent is based
on the relativ
e scale and risk of the c
omponent to the Grou
p
as a whole and our asse
ssment of the ris
k of misstate
m
ent at that
component. In the curr
ent year
, the range o
f performance mat
eriality allo
cate
d to co
mponents was betw
een £15.5
million and £36
million (2020: £8 million and £46
million).
Re
porting threshold
An amount below which id
entified misst
atement
s are consider
ed as being clearly trivial.
W
e agreed with the
Group
Audit C
ommittee th
at we w
o
uld report to the
m all uncorr
ected audit differenc
es in e
xcess o
f £4 million
(2020: £4 million), which is set
at 5% of planning mater
iality, as
wel
l as differe
nces belo
w t
hat threshold that, in our
view, w
arranted
reporting on qualita
tive gr
o
unds.
W
e ev
a
luate an
y uncorr
ected misstate
ments against both the quantitativ
e measur
es of materiality discusse
d abov
e and
in light of
other rele
vant qualitative
consider
at
ions in for
ming our opinion.
Other information
The other information c
omprises the infor
mation included in the
Ann
ual Re
port and
A
cc
ounts (including the Str
ategic R
eport,
Financial R
evie
w,
Repor
t of the dir
ectors
, State
ment of dir
ector
s
’
res
ponsibilities, Risk F
actors and Forw
ard-looking state
m
ents and
Non-IFRS financi
al measures
) other than the financial st
atements and our audit
or’
s report ther
eon. The directors ar
e re
sponsible for
the other information co
ntained within the a
nnual report.
Our opinion on the financial st
atements does not co
ver the other infor
mation and, e
xc
ept
to t
he e
xtent otherwise e
xplicitly stat
ed in
this report, w
e do not e
x
press
a
ny
form of assur
ance c
onclusion ther
eon.
Our responsibility is to read the other infor
mation and, in doing so, consider whet
her the other information is materially
inconsistent with the financial statements or ou
r knowledge obtained in the course of the
audit or otherwise appears to be
materially misstated. If we identify
such material inconsistencies or apparent materi
al misstatements, we are required to determine
whether this gives rise to a material misstatement in the fin
ancial statements themselves
. If, based on the work we have
performed, we conclude that there is a material
misstatement of the other info
rmation, we are required to report tha
t fact.
We have nothing to report in th
is regard.
Opinions on other matters pr
escribed by
the Companies
A
ct 2006
In our opinion, based on the w
ork under
tak
en in the cours
e of the
audit:

the information give
n in the Str
a
tegic r
eport and the Re
port of the dir
ectors for
the financial y
ear for which the financial
state
ments are pr
epa
red is c
o
nsist
ent with the financial st
ateme
nts; and

the Strategic r
eport and the Report of
the directors
hav
e been pr
epared in accord
ance with applicable legal requirements.
Independent a
uditor’s report to t
he member
s of NatWest Market
s Plc continue
d
NWM Group
Annu
al Report an
d Accounts 202
1
103
Matters o
n which we are
required t
o re
port by e
xc
epti
on
In the light of the kno
w
ledge and underst
and
ing of t
he Group a
nd the Bank and its en
viron
ment obtained in the c
ourse o
f t
he audit,
we
hav
e not
identified material misst
atements in the Strate
gic r
eport or the Re
port of the direct
ors.
We have nothing to report in respect of the followi
ng matters in relation to which the Compa
nies Act 2006 requires us to report to
you if, in our opinion:

adequate acc
ounting re
cor
ds ha
ve
not been kept b
y the Gr
oup and the Bank, or r
eturns adequate
for our audit ha
ve
not been
rec
eived from br
anches not visi
ted b
y us; or

the Group
’
s and Bank’
s financial state
ment
s ar
e not in agr
eement with the ac
counting r
ecor
ds and returns; or

cert
ain disclosures o
f dire
ctors
’
remuneration specifie
d by la
w a
re not
made; or

we
hav
e not
rec
eived all the information and explanations we require fo
r our audit.
Re
sponsi
bilities of dir
ecto
rs
As explained more fully in the Statemen
t of directors’ responsibilities, the directors a
re responsible for the preparation of th
e
financial statements and for being satisfied
that they give a true and fair view, and for such in
ternal control as the directors
determine is necessary to enable the preparation of f
inancial statements that are free fro
m material misstatement, whether due to
fraud or error.
In preparing the financial statements, the di
rectors are responsible for assessing the Group and Bank’s a
bility to continue as a
going concern, disclosing, as applicable, matte
rs related to going concern and using the goi
ng concern basis of accounting
unless
the directors either intend to liquidate the Group or Bank
or to cease operations, or have no
realistic alternative but to do so.
Auditor’s responsibilities for the audit of the fi
nancial statements
Our objectiv
es are t
o obtain r
easonable assur
a
nce about whether the financi
al state
m
ents as a whole are
fre
e fro
m
material
misstatemen
t, whether due to f
raud or er
ror
, and to issue an auditor’
s repor
t that includes our opinion. R
easonable assur
ance is a
high lev
el of assur
an
ce bu
t is not a guar
antee that an audit co
nducted in ac
cor
dance with IS
As (UK) will alway
s detect a mater
ial
misstatemen
t when it e
xists.
Misstate
ments can arise
from
fr
a
ud or err
or and are co
n
sidere
d material if
, individually or in the aggr
egate, the
y could reaso
n
ably
be e
xpected to influenc
e the economic decisions of
users tak
en on the basis of these financial
state
ments.
Explanation as to what ext
ent the audit was co
nsidered capable of detec
ting irregularities, including fr
aud
Irregularities
, in
cluding fr
aud,
ar
e instances o
f non-compliance
with law
s a
nd r
egulations
. W
e design procedur
es in line with
our
responsibilities
, outlined abov
e, to detect irre
gularities, inclu
ding frau
d. The risk o
f not detecting a material
misstatemen
t due to
fraud is hi
gher than the risk o
f not detecting one r
esulting from err
or, as fr
aud may in
volv
e deliberate
conce
alment by, f
or e
xa
mple,
forger
y or intentional misr
epre
sent
ations, or thr
ough
collusio
n. The e
xtent to which our pr
ocedur
es are
capable of dete
cting
irre
gularities, including fr
a
ud is
detailed belo
w.
Ho
wev
er, the primary r
esponsibility for the pre
vention and dete
ction of fr
aud re
sts with both those cha
rged with go
vernance
of the
Group
, the Bank and
management.

W
e obtained an underst
an
ding o
f the legal and regul
atory fr
amew
orks that are
applicable t
o the Grou
p and determined th
at
the most signific
ant are the r
egulations, licenc
e conditions and supervisory r
equirements of the Prudential R
egulation A
uthority
(PRA), the Financial Co
nduct
A
uthority (FCA) and the C
ompanies
Act 20
06.

W
e understood how
the Group i
s complying with thos
e fr
a
mew
orks by
making inquiries of management, in
ternal audit and
those responsible f
or legal and c
ompliance matter
s. W
e also re
viewe
d corr
espondence betw
ee
n the Group and r
egulatory
bodies; re
view
ed minutes of the B
oard and Risk C
ommittees
; and gained an unders
tanding of the Group
’
s go
ve
rnance
fra
mew
ork.

W
e assessed the sus
ceptibility o
f the G
roup
’
s financial statemen
ts to materi
al misstat
ement, including ho
w fr
aud might occur b
y
considering the con
trols est
ablished to address r
isks identified
to pre
vent or detect fr
a
ud. W
e also identified the risk
s of fraud in
our k
ey audit m
atters as descr
ibed abov
e. Other areas of risk that w
e identified included manual o
verride o
f controls
,
unauthorised tr
ading and the appr
opriateness o
f sourc
es used when performing confirmation
testing on
accounts such
as
cash, loans and securities
.

Based on this unders
tanding w
e designed our audit procedure
s to identify non-c
ompliance with such la
ws and re
gulations. O
ur
procedur
es in
volved inquiries
of legal counsel, e
xecutiv
e management and internal audit. W
e also te
sted c
ontrols a
nd
performed proce
dures t
o respond to
the fr
aud risks as iden
tified in our k
ey au
dit matters
. Thes
e procedur
es wer
e performed
by both the primary t
eam and component teams wi
th ov
ersight from the primary t
eam.

The Group oper
ates in the banking indus
try which is a highly r
egulated en
v
iron
ment.
As such,
the Senior Statutory
Auditor
consider
ed the e
xperience and e
xpertise of the engagement team to
ensur
e that the team had the appr
opriate c
om
petence
and capabilities, in
volving specialists wher
e appropriat
e.
Independent a
uditor’s report to t
he member
s of NatWest Market
s Plc continue
d
NWM Group
Annu
al Report an
d Accounts 202
1
104
A further description of our responsibilities fo
r the audit of the financial statements is loc
ated on the Financial Reporting Council’s
website at https://www.frc.org.uk/auditorsresponsibilities. T
his description forms part of our a
uditor’s report.
Other matters we are required to address

Follo
wing
the rec
ommendation
from the N
atW
est Holdings
Audit Co
mmittee w
e were
appointed by the Group
at its annual
general meeting on 4 M
ay 2
016 to audit the
financial state
ments of the Gr
oup and the Bank fo
r the ye
ar ended 31 Dec
ember
2016 and subsequent financial
periods. The period of t
otal uninterr
upted engagement includi
ng previ
ous re
new
a
ls and
reappointments is six ye
ars, co
ve
ring periods from our appointment thr
ough 31 Dece
mber 2021.

The non-audit servic
es pr
ohibited b
y the FRC
’
s Ethical Standar
d were not pr
ovided
to the Gr
oup or Bank and w
e r
emain
independent of the Group
and Bank in conducting
the audit.
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.
Use of our r
ep
ort
This re
port is made solely to the Gr
o
up
’
s and the Bank’
s members, as a body, in acc
o
rdanc
e wit
h Chapter 3 o
f P
art 16 of the
Companies
Act 2006. Our
audit wor
k has been undertak
en so
that we might
state t
o the Gr
oup
’
s and the Bank’
s members those
matters w
e are requir
ed to s
tate t
o them in an auditor’
s r
eport and for no other purpose. T
o the fullest exte
nt permitted b
y law
, w
e
do not accept or
assume res
ponsibility to an
yone other
than the Group and
the Bank and the Gr
oup
’
s and the Bank’
s members as a
body, for our audit work,
for this r
eport, or for the opinions we ha
ve
formed.

The audit opinion is consis
tent
with the additional report to
the Group
Audi
t Commi
ttee.
European Single Electronic Reporting Format
The
Group 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 the Group, complies in all
material respects with the RTS on ESEF.
Management 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.
Manprit Dos
anjh (Senior Statut
ory
Auditor
)
for and on behalf of Erns
t & Y
oung LLP, St
at
utory
Auditor
London, United
Kingdom
02
March
2022
Consolidate
d income st
atement f
or the year e
nded
31 Decemb
er 2021
NWM Group
Annu
al Report an
d Accounts 202
1
105
2021
2020
Note
£m
£m
Interest receivable
343
531
Interest payable
(335)
(591)
Net interest income
1
8
(60)
Fees and commissions receivable
262
386
Fees and commissions payable
(104)
(287)
Income from trading activities
263
1,088
Other operating income
(28)
31
Non-interest income
2
393
1,218
Total income
401
1,158
Staff costs
(498)
(670)
Premises and equipment
(110)
(107)
Other administrative expenses
(522)
(629)
Depreciation and amortisation
(20)
(25)
Operating expenses
3
(1,150)
(1,431)
Loss before impairment releases/(losses
)
(749)
(273)
Impairment releases/(losses)
14
35
(42)
Operating loss before tax
(714)
(315)
Tax credit/(charge)
7
223
(12)
Loss for the year
(491)
(327)
Attributable to:
Ordinary shareholders
(593)
(328)
Paid-in equity holders
63
68
Non
-
controlling interests
39
(67)
(491)
(327)
C
onsolidat
e
d st
at
ement of c
o
mpr
eh
ensiv
e income
f
or the year ended 31 December 20
21
2021
2020
£m
£
m
Loss for the year
(491)
(327)
Items that do not qualify for rec
lassification
Remeasurement of retirement benefit schemes
36
(21)
(Loss) on fair value of credit in f
inancial liabilities designated as at fair value th
rough profit or loss
(FVTPL) due to own credit risk
(29)
(52)
FVOCI financial assets
2
(210)
Tax
(10)
42
(1)
(241)
Items that do qualify for reclassif
ication
FVOCI financial assets
(2)
2
Cash flow hedges
(206)
92
Currency translation
(124)
62
Tax
45
(28)
(287)
128
Other comprehensive loss after tax
(288)
(113)
Total comprehensive loss for the
year
(779)
(440)
Attributable to:
Ordinary shareholders
(885)
(459)
Paid
-
in equity holders
63
68
Non-controlling interests
43
(49)
(779)
(440)
The accompanying notes on pages 11
5 to 177, the accounting policies on pages 11
0 to 114 and the audited sections of the
Financial review and Risk and capital man
agement on pages 37 to 88 form an in
tegral part of these financial statemen
ts.
Balance shee
t as at 31
Dec
em
ber
2021
NWM Group
Annu
al Report an
d Accounts 202
1
106
NWM Group
NWM Plc
2021
2020
2021
2020
Note
£m
£m
£m
£m
Assets
Cash and balances at central banks
9
16,645
15,771
12,294
11,736
Trading assets
12
59,101
68,689
41,222
52,169
Derivatives
13
105,550
165,619
103,042
164,104
Settlement balances
9
2,139
2,296
795
1,084
Loans to banks - amortised cost
9
962
1,003
712
701
Loans to customers - amortised cost
9
7,471
8,444
6,810
7,477
Amounts due from holding company and fe
llow subsidiaries
9
1,479
1,587
6,723
7,606
Other financial assets
15
8,786
9,041
7,743
8,043
Investment in group undertakings
16
—
—
2,481
2,600
Other assets
17
878
688
732
562
Total assets
203,011
273,138
182,554
256,082
Liabilities
Bank deposits
9
1,808
1,808
1,808
1,762
Customer deposits
9
2,268
2,618
1,510
1,469
Amounts due to holding company and fellow subsi
diaries
9
6,126
8,134
10,978
16,189
Settlement balances
9
2,068
2,248
1,028
604
Trading liabilities
12
64,482
72,252
47,119
56,916
Derivatives
13
98,497
157,332
95,096
153,754
Other financial liabilities
18
19,255
18,170
16,877
15,370
Other liabilities
20
1,055
1,234
789
866
Total liabilities
195,559
263,796
175,205
246,930
Owners’ equity
21
7,455
9,388
7,349
9,152
Non-controlling interests
(3)
(46)
—
—
Total equity
7,452
9,342
7,349
9,152
Total liabilities and equity
203,011
273,138
182,554
256,082
Owners’ equity of NWM Plc as at 31 December 202
1 includes the loss for the year of £527 mi
llion (2020 loss - £212
million).
The accompanying notes on pages 11
5 to 177, the accounting policies on pages 11
0 to 114 and the audited sections of the
Financial review and Risk and capital man
agement on pages 37 to 88 form an in
tegral part of these financial statemen
ts.
The accounts were approved by the Board of di
rectors on 17 February 2022 and signed on it
s behalf by:
Frank Dangeard
Robert Begbie
Da
vid King
NatWest Markets Plc
Chairman
Chief Executive Officer
Chief Fina
ncial Office
r
Registration No. SC090312
St
at
eme
nt of changes in equ
it
y f
or the y
e
ar end
ed
31 Dec
em
b
er 2021
NWM Group
Annu
al Report an
d Accounts 202
1
107
NWM Group
NWM Plc
2021
2020
2021
2020
£m
£m
£m
£m
Called-up share capital - at 1 January and 31
December
400
400
400
400
Share premium - at 1 January
1,759
1,759
1,759
1,759
Redemption of preference shar
es
187
—
187
—
At 31 December
1,946
1,759
1,946
1,759
Paid-in equity - at 1 January and 31 December
904
904
904
904
FVOCI reserve - at 1 January
34
(134)
14
(149)
Unrealised (losses)/gains
(1)
(221)
3
(221)
Realised losses
(1)
1
389
2
385
Tax
(1)
—
(1)
(1)
At 31 December
33
34
18
14
Cash flow hedging reserve - at 1 January
201
137
201
137
Amount
recognised in equity
(207)
18
(208)
18
Amount transferred from equity
to earnings
1
74
1
74
Tax
52
(28)
52
(28)
At 31 December
47
201
46
201
Foreign exchange reserve - at 1
January
121
77
(192)
(168)
Retranslation of net assets
(158)
98
(27)
(29)
Foreign currency gains/(losses) on hedges of net asse
ts
20
(31)
1
—
Tax
(6)
—
—
—
Recycled to profit or loss on disposal of businesse
s
10
(23)
—
5
At 31 December
(13)
121
(218)
(192)
Retained earnings - at 1 January
5,969
6,764
6,066
6,748
Loss attributable to ordinary shareholders and o
ther equity holders
(530)
(260)
(527)
(212)
Ordinary dividends paid
(1,000)
—
(1,000)
—
Paid-in equity dividends paid
(63)
(68)
(63)
(68)
Redemption of preference shar
es
(188)
—
(188)
Realised losses on FVOCI equity
shares
(1)
-
gross
—
(376)
(2)
(373)
- tax
—
35
—
35
Remeasurement of retirement benefit schemes
- gross
36
(21)
35
(21)
- tax
(13)
(1)
(13)
(1)
Changes in fair value of credit in fi
nancial liabilities designated at FVTPL
- gross
(29)
(52)
(11)
(30)
- tax
3
8
3
8
Share based payments
(2)
(47)
(42)
(47)
(42)
Distribution
—
(40)
—
—
Capital contribution
—
22
—
22
At 31
December
4,138
5,969
4,253
6,066
Owners’ equity at 31 December
7,455
9,388
7,349
9,152
Non
-
controlling interests
-
at 1 January
(46)
3
—
—
Currency translation adjustments and othe
r movements
4
18
—
—
Profit/(loss) attributable to non-controlling i
nterests
39
(67)
—
—
At 31 December
(3)
(46)
—
—
Total equity at 31 December
7,452
9,342
7,349
9,152
Attributable to:
Ordinary shareholders
6,551
8,484
6,445
8,248
Paid-in equity holders
904
904
904
904
Non-controlling interests
(3)
(46)
—
—
7,452
9,342
7,349
9,152
(1)
During 2020 NWM Plc sold its entire equity holding in Saudi British Ban
k (SABB) leading to a realised loss of £337 million after tax which was recognised through other
comprehensive income and reclassified to retained earnings.
(2)
Share-based payments includes a tax credit of £4 million.
The accompanying notes on pages 11
5 to 177, the accounting policies on pages 11
0 to 114 and the audited sections of the
Financial review and Risk and capital man
agement on pages 37 to 88 form an in
tegral part of these financial statemen
ts.
C
ash flow s
t
at
ement
f
o
r the y
e
ar en
ded
31 Dec
em
b
er 2021
NWM Group
Annu
al Report an
d Accounts 202
1
108
NWM Group
NWM Plc
2021
2020
2021
2020
Note
£m
£m
£m
£m
Cash flows from operating activities
Operating loss
before tax
(714)
(315)
(702)
(205)
Adjustments for:
Impairment (releases)/losses
(35)
42
(36)
17
Amortisation of discounts and premiums of othe
r financial assets
4
17
4
16
Depreciation and amortisation
20
25
9
11
Write
-
down of
investments in subsidiaries
—
—
95
347
Change in fair value taken to profit or loss of ot
her financial asse
ts
80
(43)
80
(43)
Change in fair value taken to profit or loss on o
ther financial liabilities
and subordinated liabilities
(180)
132
(147)
80
Elimination of foreign exchange diff
erences
738
(841)
529
(713)
Other non-cash items
(1)
99
5
69
Income receivable on other financial asse
ts
(130)
(198)
(146)
(216)
Loss on sale of other financial assets
2
13
—
12
Dividends receivable from subsi
diaries
—
—
(65)
(529)
Profit on sale of subsidiaries and associa
tes
—
(64)
—
—
Loss on sale of other assets and net assets/li
abilities
—
3
5
3
Interest payable on MRELs and subordina
ted
liabilities
204
329
166
307
Loss on sale of MRELs and subordinated liabilities
26
16
26
16
Charges and release on provisions
(7)
106
43
33
Defined benefit pension schemes
4
10
4
5
Net cash flows from trading act
ivities
11
(669)
(130)
(790)
Decrease in trading assets
7,664
4,127
8,117
1,601
Decrease/(increase) in derivative assets
59,861
(16,905)
60,854
(16,628)
Decrease in settlement balance asse
ts
157
2,043
289
2,269
Increase in net loans to banks
(122)
(137)
(122)
(125)
Decrease/(increase) in net loans
to customers
1,003
(152)
688
(599)
Decrease)/(increase) in amounts due from holding com
pany and subsidiaries
351
(179)
1,366
(307)
Decrease in other financial asse
ts
41
212
37
203
(Increase)/decrease in other asse
ts
(10)
40
(14)
37
(Decrease)/increase in bank deposits
—
(281)
46
(276)
(Decrease)/increase in customers deposits
(350)
(1,085)
41
(778)
(Decrease)/increase in amounts due to holding co
mpany and fellow
subsidiaries
(394)
40
(3,597)
(464)
(Decrease)/increase in settlement balance li
abilities
(180)
(1,774)
424
(2,044)
(Decrease)/increase in trading liabilities
(7,771)
(1,584)
(9,797)
3,340
(Decrease)/increase in derivatives liabilities
(58,835)
13,190
(58,658)
11,364
Increase/(decrease) in other financial li
abilities
1,199
(297)
1,597
(2,057)
Decrease in other liabilities
(154)
(506)
(141)
(323)
Changes in operating assets and liabili
ties
2,460
(3,248)
1,130
(4,787)
Income taxes received/(paid)
28
(73)
55
(12)
Net cash flows from operating activi
ties
(1)
2,499
(3,990)
1,055
(5,589)
For notes to this table refer to the f
ollowing page.
Cash flow statement
for the
year ended 31 D
ecember
2021 continued
NWM Group
Annu
al Report an
d Accounts 202
1
109
NWM Group
NWM Plc
2021
2020
2021
2020
Note
£m
£m
£m
£m
Cash flows from investing activities
Sale and maturity of other financial assets
4,523
10,735
3,842
10,354
Purchase of other financial assets
(4,617)
(8,020)
(3,822)
(7,337)
Income received on other financial assets
130
198
146
216
Net movement in business interests
26
4
358
4
269
Dividends received from subsidiaries
—
—
65
529
Sale of property, plant and equipment
1
2
(4)
2
Purchase of property, plant and equipmen
t
(1)
(2)
—
(1)
Net cash flows from investing activities
40
3,271
231
4,032
Cash flows from financing activities
Movement in MRELs
(1,234)
(191)
(1,234)
(191)
Movement in subordinated liabilities
(378)
(548)
(339)
(515)
Dividends paid
(1,063)
(68)
(1,063)
(68)
Capital contribution
—
22
—
22
Net cash flows from financing
activities
(2,675)
(785)
(2,636)
(752)
Effects of exchange rate on cas
h & cash equivalents
(994)
841
(721)
636
Net decrease in cash and cash equivalents
(1,130)
(663)
(2,071)
(1,673)
Cash and cash equivalents at 1 January
26,380
27,043
21,285
22,958
Cash and cash equivalents at 31 December
28
25,250
26,380
19,214
21,285
(1)
NWM Group includes interest received of £419 million (2020 - £671
million) and interest paid of £330 million (2020 - £632 million), and NWM Plc includes interest received of £
438
million (2020 - £693 million) and interest paid of £353 million (2020 - £635 million).
The accompanying notes on pages 11
5 to 177, the accounting policies on pages 11
0 to 114 and the audited sections of the
Financial review and Risk and capital man
agement on pages 37 to 88 form an in
tegral part of these financial statemen
ts.
Accounting
policies
NWM Group
Annu
al Report an
d Accounts 202
1
110
1. Presentation of financial statements
NatWest Markets Plc (NWM Plc) is incorporated in the U
K and
registered in Scotland. The financial statemen
ts are presented
in the functional currency, pounds sterlin
g.
NWM Plc consolidated financial statements inco
rporate the
results of NWM Plc and the enti
ties it controls. Control arises
when NWM Plc has the power t
o direct the activities of an
entity so as to affect the return from the entity. Cont
rol is
assessed by reference to our ability to enfo
rce our will on the
other entity, typically through voting rights.
On acquisition of a subsidiary, its identifiable assets, lia
bilities
and contingent liabilities are included in the consolid
ated
financial statements at their fai
r value. A subsidiary is included
in the consolidated financial statements f
rom the date it is
controlled by NWM Group until the date NWM
Group ceases to
control it through a sale or a significant change in
circumstances. Changes in NWM Group’s interest in
a
subsidiary that do not result in NWM Group ceasing to con
trol
that subsidiary are accounted for as equity t
ransactions.
The consolidated financial statements are p
repared under
consistent accounting policies.
Transactions and balances betwee
n Group companies are
eliminated in the consolidated financial statemen
ts to show only
those transactions and balances e
xternal to the NWM Group.
The audited financial statements are set out on pages 10
5 to
177 and the audited sections of the Risk an
d capital
management on pages 42 to 88. T
he directors have prepared
the financial statements on a going conce
rn basis after
assessing the principal risks, forecasts, projecti
ons and other
relevant evidence over the twelve mon
ths from the date the
financial statements are approved (see the Repo
rt of the
directors, page 89) and in acco
rdance with UK adopted
International Accounting Standards (IAS), In
ternational
Financial Reporting Standards (
IFRS) as issued by the
International Accounting Standards Board (IASB)
and IFRS as
adopted by the European Union. The significant accoun
ting
policies and related judgments are set out below.
Except for certain financial instruments as described in
Accounting policies 8 and 11, t
he financial statements are
presented on a historical cost basis.
Accounting policy changes effective 1 January 202
1.
The IASB amended IFRS 16 Leases with “COVI
D-19
amendments on lease modifications – A
mendments to IFRS 16
– Leases (IFRS 16)” The eff
ect of the amendment on NWM
Group’s financial statements is i
mmaterial.
2. 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 th
rough other
comprehensive income and the ef
fective part of any related
accounting hedging instrument
s. Negative interest on financial
assets is presented in interest payable and neg
ative interest on
financial liabilities is presented in interest receiva
ble.
Other interest relating to financial instruments measu
red at fair
value is recognised as part of the movement in f
air value and is
reported in income from trading activities or other ope
rating
income as relevant.
Fees in respect of services are recognised
as the right to
consideration accrues through the performance of e
ach distinct
service obligation to the customer. The arrange
ments are
generally contractual and the cost of providing the s
ervice is
incurred as the service is rendered. The price is usually f
ixed
and always determinable.
3. Held for sale and Disposal group
An asset or disposal group (assets and liabilities
) is classified as
held for sale if NWM Group will recover its carryin
g amount
principally through a sale transaction rathe
r than through
continuing use. These are measured at the lower of its c
arrying
amount or fair value less cost to s
ell unless scoped out of IFRS
5 in which case the existing measurement p
rovisions of IFRS
apply.
4. Staff costs
Employee costs, such as salaries, paid absence
s, and other
benefits are recognised over the
period in which the employees
provide the related services to NWM Group. Employe
es may
receive variable compensation in cash, in defe
rred cash or debt
instruments of NWM Group or in ordinary sha
res of NatWest
Group plc. NWM Group operates
a number of share-based
compensation schemes (which
NWM Group employees are
eligible to) under which it grants
awards of NatWest Group plc
shares and share options to its employees. Such aw
ards are
subject to vesting conditions.
Variable compensation that is se
ttled in cash or debt
instruments is charged to the income statemen
t on a straight-
line basis over the period
during which services are
provided,
taking account of forfeiture an
d clawback criteria. The value of
employee services received in exchange fo
r NatWest Group plc
shares and share options is recognised as an expense o
ver the
vesting period
,
subject to deferral. clawback an
d forfeiture
criteria with a corresponding increase in equity. The fai
r value
of the instruments granted is based on ma
rket prices at the
grant date.
Defined contribution pension scheme
A scheme where NatWest Grou
p pays fixed contributions and
there is no legal or constructive obligation to pay furthe
r
contributions or benefits. Contributions are
recognised in the
income statement as employee service costs acc
rue.
Defined benefit pension scheme
A scheme that defines the ben
efit an employee will receive on
retirement and is dependent on one or more f
actors such as
age, salary, and years of service
. The net of the recognisable
scheme assets and obligations is
reported on the balance sheet
in other assets or other liabilities. T
he defined benefit obligation
is measured on an actuarial bas
is. The charge to the income
statement for pension costs (m
ainly the service cost and the
net interest on the net defined
benefit asset or liability) is
recognised in operating expenses
.
Actuarial gains and losses (i.e.
gains and/or losses on re-
measuring the net defined ben
efit asset or liability
due to
changes in actuarial measurement assumptions) a
re recognised
in other comprehensive income in full in the pe
riod in which
they arise, and not subject to re
cycling to the income
statement. The difference betwe
en scheme assets and scheme
liabilities, the net defined benefit asset or liability, is reco
gnised
on the balance sheet if the crite
ria the asset celling test are
met. This requires the net define
d benefit surplus to be limited
to the present value of any economic benefits av
ailable to NWM
Group in the form of refunds fr
om the plan or reduced
contributions to it.
NWM Group will recognise a liability where a minimu
m funding
requirement exists for any of its def
ined benefit pension
schemes. This reflects agreed minimum funding and
the
availability of a net surplus as d
etermined as described above.
When estimating the liability for minimum fundi
ng requirements
NWM Group only include contributions that are subst
antively or
contractually agreed and do not include disc
retionary features,
including dividend-linked contri
butions.
Accounting polici
es continued
NWM Group
Annu
al Report an
d Accounts 202
1
111
5. Foreign currencies
Foreign exchange differences arising on the set
tlement of
foreign currency transactions and from the transla
tion of
monetary assets and liabilities are reported in income fr
om
trading activities except for differences
arising on cash flow
hedges and hedges of net investments in foreign ope
rations.
Non-monetary items denominated in foreign currencies
that
are stated at fair value are translated into the fu
nctional
currency at the foreign exchange rates ruling at the d
ates the
values are determined. Translation differences are recog
nised
in the income statement except for differences arisi
ng on non-
monetary financial assets classif
ied as fair value through other
comprehensive income.
Income and expenses of foreign subsidia
ries and branches are
translated into sterling at avera
ge exchange rates unless these
do not approximate the foreign e
xchange rates ruling at the
dates of the transactions. Foreign exchange differences a
rising
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 st
atement on
disposal of a foreign operation.
6. Provisions and contingent liabilities
NWM Group recognises a provis
ion 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 restructuri
ng costs, including the costs of
redundancy, when NWM Group has a co
nstructive obligation.
An obligation exists when NWM Group has a det
ailed formal
plan for the restructuring and h
as raised a valid expectation in
those affected either by starting to implemen
t the plan or by
announcing its main features.
NWM Group recognises any one
rous cost of the present
obligation under a contract as
a provision. An onerous cost is
the unavoidable cost of meeting its contractu
al obligations that
exceed the expected economic benefits. When NW
M Group
intends to vacate a leasehold property o
r right of use asset, the
asset would be tested for impairment and a provisi
on may be
recognised for the ancillary contractual occupa
ncy costs, such
as rates.
Contingent liabilities are possible obligations arising f
rom past
events, whose existence will be
confirmed only by uncertain
future events, or present obligations arising from pas
t events
that are not recognised because e
ither an outflow of economic
benefits is not probable, or the
amount of the obligation cannot
be reliably measured. Continge
nt liabilities are not recognised
but information about them is d
isclosed unless the possibility of
any outflow of economic benefits in settle
ment is remote.
7. Tax
Tax encompassing current tax
and deferred tax is recognised
the income statement except w
hen taxable items are
recognised in other comprehensive income or equity. T
ax
consequences arising from servicing financial inst
ruments
classified as equity are recogni
sed in the income statement in
line with IAS 12.
Current tax is tax payable or re
coverable in respect of the
taxable profit or loss for the year arisin
g in the income
statement, other comprehensive income or equity. P
rovision is
made for current tax at rates enacted, or subs
tantively
enacted, at the balance sheet date.
Deferred tax is the tax expected to be
payable or recoverable
in respect of temporary difference
s between the carrying
amount of an asset or liability for accountin
g purposes and the
carrying amount for tax purposes. Defe
rred tax liabilities are
generally recognised for all taxable temporary diff
erences and
deferred tax assets are recogni
sed 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 busines
s combination) that at the time
of the transaction affects neither accounting nor taxa
ble profit
or loss. Deferred tax is calculat
ed using tax rates expected to
apply in the periods when the a
ssets will be realised or the
liabilities settled, based on tax rates and la
ws enacted, or
substantively enacted, at the b
alance sheet date.
Deferred tax assets and liabilities are offse
t where NWM Group
has a legally enforceable right t
o offset and where they relate
to income taxes levied by the same taxation au
thority either on
an individual NatWest Group company or o
n NatWest Group
companies in the same tax group that intend, in future
periods,
to settle current tax liabilities and assets on a net basis o
r on a
gross basis simultaneously.
Accounting for taxes is judgmental and c
arries a degree of
uncertainty because tax law is subject to inter
pretation, which
might be questioned by the rele
vant tax authority. NWM Group
recognises the most likely curre
nt and deferred tax liability or
asset, assessed for uncertainty us
ing consistent judgments and
estimates. Current and deferre
d tax assets are only recognised
where their recovery is deemed probable, an
d current and
deferred tax liabilities are reco
gnised 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 meas
ured at fair value on initial
recognition on the balance sheet.
Monetary financial assets are classifie
d into one of the following
subsequent measurement categories (subject to busi
ness model
assessment and review of contractual cash flow for the
purposes of sole payments of p
rincipal and interest where
applicable):

amortised cost
measured at cost using the effective
interest rate method, less any impairment allow
ance;

fair value through other comprehensive income (FVOCI
)
measured at fair value, using the e
ffective interest rate
method and changes in fair valu
e through other
comprehensive income;

mandatory fair value through profit or loss (MFVTPL)
measured at fair value and cha
nges in fair value reported in
the income statement; or

designated at fair value through profit or loss (DFV)
measured at fair value and cha
nges in fair value reported in
the income statement.
Classification by business model refle
cts how NWM Group
manages its financial assets to generate cash flows. A busi
ness
model assessment helps to asce
rtain the measurement
approach depending on whethe
r cash flows result from holding
financial assets to collect the contractual cash f
lows, from
selling those financial assets, or both.
Accounting polici
es continued
NWM Group
Annu
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112
Business model assessment of asse
ts is made at portfolio level,
being the level at which they are managed to achie
ve a
predefined business objective. T
his is expected to result in the
most consistent classification of assets because it aligns wi
th
the stated objectives for the portfolio, its risk
management,
manager’s remuneration and the ability to monit
or sales of
assets from a portfolio.
The contractual terms of a financial asset;
any leverage
features; prepayment and exte
nsion 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 designa
ted at fair value
through profit or loss (DFV) upon initial recognition if s
uch
designation eliminates, or significantly reduces
, accounting
mismatch
.
Equity shares are measured at fair value throug
h profit or loss
unless specifically ele
cted 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 asse
ts and non-monetary
assets (equity shares) the cumulative gains o
r losses are
transferred directly to retained e
arnings.
Regular way purchases of financ
ial assets classified as
amortised cost are recognised on the set
tlement date; all other
regular way transactions in fin
ancial assets are recognised on
the trade date.
Financial liabilities are classified
into one of following
measurement categories:

amortised cost
measured at cost using the ef
fective interest
rate method;

held for trading
measured at fair value and c
hanges 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 repo
rted in the income
statement except changes in fair value attributable to
the
credit risk component recognis
ed in other comprehensive
income when no accounting mismatch occurs.
9. Impairment: expected credit losses (ECL)
At each balance sheet date eac
h financial asset or portfolio of
financial assets measured at amortised cost or
at fair value
through other comprehensive income, issued fi
nancial
guarantee and loan commitment (other than those cl
assified as
held for trading) is assessed for impair
ment. Any change in
impairment is reported in the income statemen
t. Loss
allowances are forward-looking
, based on 12-month ECL
where there has not been a significant increase in c
redit risk
rating, otherwise allowances are
based on lifetime expected
losses.
ECL are a probability-weighted e
stimate of credit losses. The
probability is determined by the risk of def
ault 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 a
re adjusted from 12
months to lifetime. This will lead to a higher impai
rment charge.
Judgment is exercised as follows:

Models
– in certain low default portfolios, Base
l 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 signific
ant
increase in credit risk. Benchmark PDs,
EADs and LGDs are
reviewed annually for appropri
ateness. The ECL calculation
is based on expected future cash flows, which is
typically
applied at a portfolio level.

Multiple economic scenarios (MES)
– the centr
al, or base,
scenario is most critical to the ECL calcula
tion, independent
of the method used to generate a range of
alternative
outcomes and their probabilities
.

Significant increase in credit risk
- IFRS 9 requi
res that at
each reporting date, an entity s
hall assess whether the
credit risk on an account has increased significa
ntly since
initial recognition. Part of this asse
ssment 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 d
ate of
initial recognition.
On restructuring where a financial asset is no
t derecognised,
the revised cash flows are used
in re-estimating the credit loss.
Where restructuring causes derecognition of the o
riginal
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 orde
rly realisation of a loan, it is
exchanged for equity shares or property, the exch
ange is
accounted for as the sale of the
loan and the acquisition of
equity securities or investment property. Where NWM
Group ’s
acquired interest is in equity shares, relevant polices
for
control, associates and joint ventures apply.
Impaired financial assets are written off and the
refore
derecognised from the balance shee
t when NWM Group
concludes that there is no longer any
realistic prospect of
recovery of part, or all, of the loan. For fin
ancial assets that are
individually assessed for impairment,
the timing of the write-off
is determined on a case-by-cas
e basis. Such financial assets
are reviewed regularly and write
-off will be prompted by
bankruptcy, insolvency, re-neg
otiation, and similar events.
Business loans are generally written off wi
thin five years.
10. Financial guarantee contracts
Under a financial guarantee contract, NWM
Group, in return for
a fee, undertakes to meet a customer’s obligatio
ns under the
terms of a debt instrument if th
e customer fails to do so. A
financial guarantee is recognised as a liability; ini
tially at fair
value and, if not designated as
at fair value through profit or
loss, subsequently at the higher of its initi
al value less
cumulative amortisation and any provision under
the contract
measured in accordance with ECL Acc
ounting policy.
Amortisation is calculated to recognise fee
s receivable in profit
or loss over the period of the guarantee.
11. Derecognition
A financial asset is derecognised (removed f
rom the balance
sheet) when the contractual right to receive cash flows f
rom
the asset has expired or when it has been transfer
red and the
transfer qualifies for derecognition. Conve
rsely, an asset is not
derecognised in a contract under which N
WM Group retains
substantially all the risks and rewards of owne
rship.
A financial liability is removed from the balance s
heet when the
obligation is paid, or is cancelled, or expires. Cance
llation
includes the issuance of a substitute inst
rument on substantially
different terms.
Accounting polici
es continued
NWM Group
Annu
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113
12. Netting
Financial assets and financial li
abilities are offset, and the net
amount presented on the balance
sheet when, and only when,
NWM Group currently has a legally e
nforceable right to set off
the recognised amounts and it intends eithe
r to settle on a net
basis or to realise the asset and settle the liabili
ty
simultaneously. NWM Group is party to a number of
arrangements, including master netting
agreements, that give it
the right to offset financial assets and financi
al liabilities, but
where it does not intend to settle
the amounts net or
simultaneously, the assets and liabilities conce
rned are
presented separately on the ba
lance sheet.
13. Capital instruments
NWM Group classifies a financial instrumen
t that it issues as a
liability if it is a contractual obligation to deliver c
ash or another
financial asset, or to exchange
financial assets or financial
liabilities on potentially unfavourable ter
ms and as equity if it
evidences a residual interest in the assets of NWM
Group after
the deduction of liabilities. Increment
al costs and related tax
that are directly attributable to
an equity transaction are
deducted from equity.
The consideration for any ordin
ary shares of NWM Plc
purchased by NWM Group (known as treasu
ry shares or own
shares held) is deducted from equity. On the c
ancellation of
treasury shares their nominal v
alue is removed from equity and
any excess of consideration over nominal
value is treated in
accordance with the capital maintenance p
rovisions of the
Companies Act 2006.
On the sale or re-issue of treasu
ry shares the consideration
received and related tax are cre
dited to equity, net of any
directly attributable incremental costs.
14. Derivatives and hedging
Derivatives are reported on the balance she
et at fair value.
NWM Group uses derivatives as part of its
trading activities or
to manage its own risk such as i
nterest rate, foreign exchange,
or credit risk. Not all derivative
s used to manage risk are in
hedge accounting relationships (an IFRS method
to reduce
accounting mismatch from changes in the fai
r value of
derivatives reported in the income statement.
Gains and losses arising from changes in the fai
r value of
derivatives that are not in hedge relationships are reco
gnised in
the income statement in Income f
rom trading activities except
for gains and losses on those d
erivatives that are managed
together with financial instruments designated a
t fair value;
these gains and losses are included in Othe
r operating income.
Hedge accounting
NWM Group enters into three types of
hedge accounting
relationships (see later). Hedge accounting
relationships are
designated and documented at inception in line with t
he
requirements of IAS 39
Financi
al instruments – Recognition and
Measurement
. The documentat
ion identifies the hedged item,
the hedging instrument and details of the risk
that is being
hedged and the way in which eff
ectiveness will be assessed at
inception and during the period of
the hedge
Fair value hedge
-
the gain or loss on the hedging i
nstrument
and the hedged item attributable to the hedged risk is
recognised in the income statement.
Where the hedged item is
measured at amortised cost, the balance sheet
amount of the
hedged item is also adjusted.
Cash flow hedge
- the effective portion of the design
ated hedge
relationship is recognised in other comprehensive inco
me and
the ineffective portion in the in
come statement. When the
hedged item (forecasted cash flows) results in the
recognition
of a financial asset or financial liability, the cumul
ative gain or
loss is reclassified from equity to the income s
tatement in the
same periods in which the hedged forecas
ted cash flows affect
the income statement.
Hedge of net investment in a foreign operation
-
In the hedge
of a net investment in a foreign
operation, the effective portion
of the designated hedge relationship is recognise
d in other
comprehensive income. Any ine
ffective portion is recognised in
profit or loss. Non-derivative financial li
abilities as well as
derivatives may be designated as a hedging instrument
in a net
investment hedge.
Discontinuation of hedge accounting
- Hedge accounting is
discontinued if the hedge no longer mee
ts the criteria for hedge
accounting
i.e. the hedge is not
highly effective in offsetting
changes in fair value or cash flows attribut
able to the hedged
risk, consistent with the documented risk manage
ment
strategy; the hedging instrument expires or is sol
d, terminated
or exercised; or if hedge designation is revoked.
For fair value hedging any cumulative adjust
ment is amortised
to the income statement over t
he life of the hedged item.
Where the hedge item is no longer on the balance sheet
the
adjustment to the hedged item is reported in
the income
statement.
For cash flow hedging the cum
ulative unrealised gain or loss is
reclassified from equity to the income statemen
t when the
hedged cash flows occur or, if the forecast transac
tion results
in the recognition of a financial
asset or financial liability, when
the hedged forecast cash flows affec
t the income statement.
Where a forecast transaction is no longer expected to occu
r,
the cumulative unrealised gain or loss is reclassified fro
m equity
to the income statement immediately.
For net investment hedging on disposal or partial disposal
of a
foreign operation, the amount accumulated in equi
ty is
reclassified from equity to the income statemen
t.
15. Investment in Group undertakings
NWM Plc’s investments in its Group undertakings (subsidi
aries)
are stated at cost less any impairment.
Critical accounting policies and key sources of estimation
uncertainty
The reported results of NWM Group are sensitive to the
accounting policies, assumptions and esti
mates that underlie
the preparation of its financial s
tatements. The accounting
standards used in the preparati
on of the financial statements
(see presentation of financial statemen
ts above) require the
directors, in preparing NWM Gr
oup's financial statements, to
select suitable accounting policies
, apply them consistently and
make judgements and estimates
that are reasonable and
prudent. In the absence of accounting guid
ance, standards
used in the preparation of the fi
nancial statements require the
directors to develop and apply an accounting policy
that
results in relevant and reliable i
nformation in the light of the
requirements and guidance in IFRS de
aling with similar and
related issues and the IASB's ’Conceptual F
ramework for
Financial Reporting’.
Accounting polici
es continued
NWM Group
Annu
al Report an
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114
The judgments and assumptions involved in NWM
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 o
r models that
differ from those adopted by NWM Group would
affect its
reported results. Estimation unce
rtainty continues to be
affected by the COVID-19 pandemic. The
COVID-19 pandemic
continued to cause significant economic and soci
al disruption
during 2021. Key financial estimates are b
ased on
management's latest five-year revenue an
d cost forecasts.
Measurement of deferred tax a
nd expected credit losses are
highly sensitive to reasonably pos
sible changes in those
anticipated conditions. Other reasonably possible assum
ptions
about the future include a prolonged fina
ncial effect of the
COVID-19 pandemic on the economy of the UK and o
ther
countries or greater economic e
ffect as countries and
companies implement plans to counter cli
mate risks.
How Climate risk affects our accounting judgments and
estimates
NWM Group makes use of reasonable and suppor
table
information to make accounting judg
ments and estimates. This
includes information about the observable ef
fects of the
physical and transition risks of c
limate change on the current
creditworthiness of borrowers, asset values and
market
indicators. It also includes the eff
ect on NWM Group’s
competitiveness and profitability. Many of the effe
cts arising
from climate change will be longer term in nature, with
an
inherent level of uncertainty,
and
have limited
effe
ct on
accounting judgments and estimates
for the current period.
Some physical and transition risk
s can manifest in the shorter
term. The following items represe
nt the most significant effects:

The classification of financial instruments linked to clim
ate,
or other sustainability indicators: consideration is given t
o
whether the effect of climate related terms preven
t the
instrument cashflows being sole
ly payments of principal and
interest.

The measurement of expected
credit loss considers the
ability of borrowers to make pay
ments as they fall due.
Future cashflows are discounte
d, so long dated cashflows
are less likely to affect current expectations on credi
t loss.
NWM Group’s assessment of se
ctor specific risks, and
whether additional adjustments are required, inclu
de
expectations on the ability of those
sectors to meet their
financing needs in the market. Changes in c
redit
stewardship and credit risk appetite that s
tem from climate
considerations, such as oil and gas, will directly
affect our
positions
.

The assessment of asset impairment
and deferred tax are
based upon value in use. This represents the value of f
uture
cashflows and uses the NWM Group’s five-yea
r forecast
and the expectation of long term economic growth beyond
this period. The five-year forecast takes account of
management’s current expectations on co
mpetitiveness
and profitability, including near term effects on cli
mate
transition risk. The long term growth rate refle
cts external
indicators which will include market expectations o
n climate
risk. NWM Group did not consider any
additional
adjustments to this indicator.

The use of market indicators as i
nputs to fair value is
assumed to include current information an
d knowledge
regarding the effect of climate risk.
Changes in judgments and assumptions could
result in a
material adjustment to those es
timates in the next reporting
periods. Consideration of this source of e
stimation uncertainty
has been set out in the notes below (as applic
able).
Critical accounting policy
Note
Deferred tax
7
Fair value
-
financial instruments
10
Loan impairment provisions
14
Provisions for liabilities and
charges
20
Future accounting developments
International Financial Reporting Standards
Effective 1 January 2022

Onerous Contracts – Cost of Fulf
illing a Contract
(Amendments to IAS 37);

Property, Plant and Equipment: Proceeds before
Intended
Use (Amendments to IAS 16);

Reference to Conceptual Framework (A
mendments 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 20
23, with earlier
application permitted, are set out below.
Effective 1 January 2023

IFRS 17 Insurance Contracts (Amend
ments to IFRS 17
Insurance Contracts);

Classification of Liabilities as Current or Non-cu
rrent
(Amendments to IAS 1);

Deferred Tax related to Assets
and Liabilities arising from a
Single Transaction (Amendmen
ts to IAS 12);

Definition of Accounting Estimates
(Amendments to IAS 8)
and

Disclosure of Accounting Policie
s (Amendments to IAS 1 and
IFRS Practice Statement 2).
NWM Group is assessing the effect of adopting these s
tandards
and amendments on its financial statemen
ts but does not
expect the effect to be material.
N
ot
es
t
o the f
inancial st
a
t
ements
NWM Group
Annu
al Report an
d Accounts 202
1
115
1 Net interest income
2021
2020
£m
£
m
Loans to banks - amortised cost
39
86
Loans to customers - amortised cost
207
277
Amounts due from holding company and fe
llow subsidiaries
14
—
Other financial assets
83
168
Interest receivable
343
531
Balances with banks
64
81
Customer deposits
7
34
Amounts due to holding company and fellow subsi
diaries
169
282
Other financial liabilities
95
194
Interest payable
335
591
Net interest income
8
(60)
Interest income on financial instruments measured
at amortised cost and debt instruments cl
assified as FVOCI is measured u
sing
the effective interest rate which allocates the in
terest income or interest expense over
the expected life of the asset or liabili
ty at
the rate that exactly discounts all estimated future cash flo
ws to equal the instru
ment's initial carrying amount. Calculati
on of the
effective interest rate takes into
account fees payable or receivable that are
an integral part of the instrument's yield, p
remiums or
discounts on acquisition or issue, early redemption fe
es and transaction costs. All contractual
terms of a financial instrument are
considered when estimating future cash flows.
For accounting policy information se
e Accounting policies note 2.
2 Non-interest income
2021
2020
£m
£m
Net fees and commissions
158
99
Income from trading activities
Foreign exchange
191
425
Interest rate
(17)
648
Credit
83
3
Changes in fair value of own de
bt attributable to own credit risk
- debt securities in issue and d
erivative liabilities
6
(24)
Equities and other
—
36
263
1,088
Other operating income
Loss on redemption of own debt
(26)
(16)
Operating lease and other rental income
2
2
Changes in fair value of financial assets and liabilities des
ignated at fair value through profit or loss
(1)
(8)
(54)
Hedge ineffectiveness
(10)
(5)
Profit/(loss) on disposal of amortised cost assets
10
(2)
Loss on disposal of fair value th
rough other comprehensive inc
ome assets
(1)
(13)
Dividend income
4
29
Profit/(loss) on disposal of subsidiaries and associates
—
64
Other income
(2)
1
26
(28)
31
Total
393
1,218
(1)
Including related derivatives.
(2)
Includes income from activities other than banking.
For accounting policy information se
e Accounting policies note 2.
Notes to the fin
ancial state
ments continue
d
NWM Group
Annu
al Report an
d Accounts 202
1
116
3 Operating expenses
2021
2020
£m
£m
Wages, salaries and other staff c
osts
358
476
Temporary and contract costs
12
17
Social security costs
36
54
Bonus awards
72
93
Pension costs
20
30
- defined benefit schemes (see
Note 5)
4
10
- defined contribution schemes
16
20
Staff costs
498
670
Premises and equipment
110
107
Depreciation and amortisation
20
25
Other administrative expenses
(1,2)
522
629
Administrative expenses
652
761
1,150
1,431
(1)
Includes recharges from other NatWest Group ent
ities, mainly NWB Plc which provides the majority of shared services (including technology) and operational processes.
(2)
Includes litigation and other regulatory costs. Further details are p
rovided in Note 20.
For accounting policy information se
e Accounting policies note 4.
The average number of persons e
mployed, rounded to the nearest hundred, in continuing ope
rations during the year, excluding
temporary staff, was 1,900 (202
0 – 3,600). The number of persons employed by NWM G
roup in continuing operations at 31
December 2021, excluding temporary staff, was
as follows:
2021
2020
UK
1,000
1,100
USA
300
300
India
—
100
Poland
—
300
Rest of the World
300
300
Total
(1)
1,600
2,100
(1)
During the year, as part of the transformation programme, the front office and support functions ope
rating models were reorganised to focus on NatWest Group’s customers and
some roles have been transferred from NWM Group t
o NatWest Holdings Limited.
Bonus awards
The following tables analyse NWM Group's bonus
awards.
2021
2020
Change
£m
£
m
%
Non-deferred cash awards
(1)
3
4
(25)
Deferred cash awards
52
39
33
Deferred share awards
22
47
(53)
Total deferred bonus awards
74
86
(14)
Total bonus awards
(2)
77
90
(14)
2021
2020
Reconciliation of bonus awards to income statement
charge
£m
£
m
Bonuses awarded
77
90
Less: deferral of charge for amounts a
warded for current year
(30)
(38)
Income statement charge for amoun
ts awarded in current year
47
52
Add: current year charge for amounts deferred f
rom prior years
36
45
Less: forfeiture of amounts deferred from
prior years
(11)
(4)
Income statement charge for amoun
ts deferred from prior years
25
41
Income statement charge for bonus aw
ards
(2)
72
93
(1)
Non-deferred cash awards are limited to £2,000 for a
ll employees.
(2)
Excludes other performance related compensat
ion.
Notes to the fin
ancial state
ments continue
d
NWM Group
Annu
al Report an
d Accounts 202
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117
4 Segmental analysis
Reportable operating segments
The reportable operating segments are as follows:
NatWest Markets
offers its customers global market access,
providing them with trading, risk
management and financing
solutions through its trading hubs in London, Ams
terdam,
Singapore and Stamford and sales off
ices across key locations
in the UK, EU, US and Asia.
Central items & other
includes corporate functions and other
activity not managed in the Nat
West Markets segment. In 2021
and 2020, this substantially comprised of litig
ation and conduct
costs.
NatWest
Central items
Markets
& other
Total
2021
£m
£m
£m
Interest receivable
343
—
343
Interest payable
(335)
—
(335)
Net fees and commissions
158
—
158
Other non-interest income
243
(
8)
235
Total income
409
(
8)
401
Depreciation and amortisation
(20)
—
(20)
Other operating expenses
(1,137)
7
(1,130)
Impairment release
35
—
35
Operating loss
(713)
(
1)
(714)
2020
Interest receivable
529
2
531
Interest payable
(591)
—
(591)
Net fees and commissions
99
—
99
Other non
-
interest income
1,081
38
1,119
Total income
1,118
40
1,158
Depreciation and amortisation
(25)
—
(
25)
Other operating expenses
(1,292)
(114)
(1,406)
Impairment losses
(40)
(2)
(
42)
Operating loss
(239)
(
76)
(315)
Total revenue (1
)
2021
2020
Central
Central
NatWest
items
NatWest
items
Markets
& other
Total
Markets
& other
Total
£m
£m
£m
£m
£m
£m
Total
848
(8)
840
1,995
41
2,036
(1)
Total revenue comprises interest receivable, fees and commissions receivable, income from trad
ing activities and other operating income.
31 December
31 December
2021
2020
Analysis of net fees and commissions
£m
£m
Fees and commissions receivable
- Lending and financing
74
86
- Brokerage
41
93
-
Underwriting fees
127
183
- Other
20
24
Total
262
386
Fees and commissions payable
(104)
(287)
Net fees and commissions
158
99
2021
2020
Central
Central
NatWest
items
NatWest
items
Markets
& other
Total
Markets
& other
Total
Total assets and liabilities
£m
£m
£m
£m
£m
£m
Assets
203,010
1
203,011
273,124
14
273,138
Liabilities
195,560
(1)
195,559
263,773
23
263,796
Notes to the fin
ancial state
ments continue
d
NWM Group
Annu
al Report an
d Accounts 202
1
118
4 Segmental analysis continu
ed
Geographical segments
The geographical analysis in the tables below has been co
mpiled on the basis of location of of
fice where the transactions are
recorded.
UK
USA
Europe
RoW
Total
2021
£m
£m
£m
£m
£m
Total revenue
594
91
132
23
840
Interest receivable
262
20
56
5
343
Interest payable
(269)
(2)
(
62)
(2)
(335)
Fees and commissions receivable
168
17
77
—
262
Fees and commissions payable
(236)
11
79
42
(104)
Income from trading activities
190
53
2
18
263
Other operating income
(27)
2
(3)
—
(28)
Total income
88
101
149
63
401
Operating (loss)/profit before tax
(802)
48
39
1
(714)
Total assets
158,100
21,823
20,668
2,420
203,011
Total
liabilities
158,137
23,330
12,820
1,272
195,559
Contingent liabilities and commitments
6,482
—
5,450
18
11,950
2020
Total revenue
1,405
211
291
129
2,036
Interest receivable
418
—
95
18
531
Interest payable
(488)
—
(103)
—
(591)
Fees and commissions receivable
29
63
191
103
386
Fees and commissions payable
(208)
(31)
(
42)
(6)
(287)
Income from trading activities
923
170
(15)
10
1,088
Other operating income
35
(22)
20
(2)
31
Total income
709
180
146
123
1,158
Operating (loss)/profit before tax
(313)
(84)
35
47
(315)
Total assets
225,345
25,452
20,108
2,233
273,138
Total liabilities
223,405
26,942
12,332
1,117
263,796
Contingent liabilities and commitments
6,768
—
6,299
—
13,067
Notes to the fin
ancial state
ments continue
d
NWM Group
Annu
al Report an
d Accounts 202
1
119
5 Pensions
Defined contribution schemes
NWM Group sponsors a number of defined con
tribution pension
schemes in different territories, which new employee
s are
offered the opportunity to join.
Defined benefit schemes
NWM Group sponsors a number of pension sche
mes in the UK
and overseas, including the AA
and NatWest Markets (NWM)
sections of the NatWest Group Pension Fund whic
h operate
under UK trust law and are managed
and administered on
behalf of their members in accordance with the
terms of the
trust deed, the scheme rules and UK legislation.
Pension fund trustees are appointed to operate eac
h fund and
ensure benefits are paid in accordance with the sche
me rules
and national law. The trustees are the
legal owner of a
scheme’s assets, and have a duty to act in the best in
terests of
all scheme members.
The schemes generally provide a pension of one-si
xtieth of final
pensionable salary for each year of service
prior to retirement
up to a maximum of 40 years and a
re contributory for current
members. These have been close
d to new entrants for over ten
years, although current members continue to buil
d up
additional pension benefits, currently subject
to 2% maximum
annual salary inflation, while they remain employed by NW
M
Group.
The corporate trustee is NatWest Pension Trus
tee Limited (the
Trustee), a wholly owned subsidiary of NWB Plc. T
he Board of
the Trustee comprises four member trus
tee directors selected
from eligible active staff, deferr
ed and pensioner members who
apply and six appointed by Nat
West Group. Under UK
legislation, a defined benefit pensi
on scheme is required to
meet the statutory funding objec
tive of having sufficient and
appropriate assets to cover its liabilities (
the pensions that have
been promised to members).
Investment strategy
The assets of the AA section, which is typical of othe
r group
schemes, represent 78% of all p
lan assets at 31 December 2021
(2020 – 77% of plan assets) and
are invested as shown below.
The AA and NWM sections employ both physical
and derivative
instruments to achieve a desired asset class expos
ure and to
reduce the schemes’ interest rate, inflation and currency risk.
This means that the net funding positions a
re considerably less
sensitive to changes in market conditions than
the value of the
assets or liabilities in isolation.
In particular, the Trustee hedges
movements in interest rates and inflation.
Swaps have been executed at prevailing
market rates and
within standard market bid/offer spreads with a num
ber of
counterparty banks, including NWB Plc.
2021
2020
Major classes of plan
assets as
a percentage of total pl
an assets
Quoted
Unquoted
Tota
l
Quoted
Unquoted
Total
of the AA sectio
n
%
%
%
%
%
%
Equities
2.4
0.6
3.0
2.1
1.1
3.2
Index linked bonds
40.8
—
40.8
39.0
—
39.0
Government bonds
4.3
—
4.3
5.2
—
5.2
Corporate and other bonds
15.5
10.1
25.6
20.0
11.0
31.0
Real estate
—
2.0
2.0
—
1.9
1.9
Derivatives
—
6.5
6.5
—
5.8
5.8
Cash and other assets
—
17.8
17.8
—
13.9
13.9
63.0
37.0
100.0
66.3
33.7
100.0
Notes to the fin
ancial state
ments continue
d
NWM Group
Annu
al Report an
d Accounts 202
1
120
5 Pensions continued
The schemes do not invest dire
ctly in NWM Group but can have exposure to NWM
Group. The trustees are responsible f
or
ensuring that indirect investments in NWM G
roup do not exceed the 5% regulato
ry limit.
AA section
All schemes (3)
Present
Present
value
Net
value
Asset
Net
Fair
of defined
pension
Fair
of defined
ceiling/
pension
value of
benefit
(asset)/
value of
benefit
minimum
(asset)/
plan assets
obligation (1)
liability
plan assets
obligation (1)
funding
(2)
liability
Changes in value of net pension (asset)/li
ability
£m
£
m
£m
£m
£
m
£m
£m
At 1 January 2020
1,088
825
(263)
1,419
1,116
95
(
208)
Currency translation and other adjustments
—
—
—
—
(9)
—
(9)
Income statement
22
18
(4)
27
36
1
10
Statement of comprehensive income
96
107
11
114
148
(13)
21
Contributions by employer
2
—
(2)
11
—
—
(11)
Contributions by plan participants and other scheme
members
Benefits paid
(44)
(44)
—
(68)
(68)
—
—
Transfers to/from fellow subsidiaries
—
—
—
—
(4)
—
(4)
At 1 January 2021
1,164
906
(258)
1,503
1,219
83
(
201)
Currency translation and other adjustments
(1)
—
1
(
11)
(13)
2
—
Income statement
Net interest expense
16
12
(4)
21
19
1
(1)
Current service cost
—
1
1
—
5
—
5
16
13
(3)
21
24
1
4
Statement of comprehensive income
Return on plan assets excluding recognised inte
rest income
21
—
(21)
18
—
—
(18)
Experience gains and losses
—
12
12
—
16
—
16
Effect of changes in actuarial
financial assumptions
—
(28)
(28)
—
(35)
—
(35)
Effect of changes in demographic assumptions
—
—
—
—
7
—
7
Asset ceiling adjustments
—
—
—
—
—
(6)
(
6)
21
(16)
(37)
18
(
12)
(6)
(36)
Contributions by employer
1
—
(1)
7
—
—
(7)
Benefits paid
(48)
(48)
—
(65)
(65)
—
—
Transfers to/from fellow subsidiaries
—
—
—
—
—
—
—
At 31 December 2021
1,153
855
(298)
1,473
1,153
80
(
240)
(1)
Defined benefit obligations are subject to annual va
luation by independent actuaries.
(2)
In recognising the net surplus or deficit of a pension s
cheme, the funded status of each scheme is adjusted to reflect any minimum funding requirement imposed on the sponsor and
any ceiling on the amount that the sponsor has an unconditiona
l right to recover from a scheme.
(3)
Includes the NWM Section which has a net pension asset of
nil at 31 December 2021 (2020: net pension asset of nil). This scheme has plan assets of £287 million, a defined benefit
obligation of £208 million and an asset ceiling of £8
0 million (2020: £308 million, £225 million and £83 million respectively).
(4)
NWM Group expects to make contributions to the AA s
ection of £2.2 million and to the NWM section of £4.5 million in 2022.
All schemes
2021
2020
Amounts recognised on the balance sheet
£m
£m
Fund assets at fair value
1,473
1,503
Present value of fund liabilities
1,153
1,219
Funded status
320
284
Asset ceiling/minimum funding
80
83
240
201
2021
2020
Net pension asset/(liability) com
prises
£m
£
m
Net assets of schemes in surplu
s (included in Other assets, Note 1
7)
306
264
Net liabilities of schemes in deficit (included in Othe
r liabilities, Note 20)
(66)
(63)
240
201
Notes to the fin
ancial state
ments continue
d
NWM Group
Annu
al Report an
d Accounts 202
1
121
5 Pensions continued
Funding and contributions by NWM Group
In the UK, the trustees of defined benefit pension sc
hemes are
required to perform funding valu
ations at least every three
years. The trustees and the sponsoring com
pany, with the
support of the Scheme Actuary, agree the assum
ptions used to
value the liabilities and determi
ne future funding requirements.
The funding assumptions incor
porate a margin for prudence
over and above the expected cost of providing the bene
fits
promised to members, taking into accou
nt the sponsor’s
covenant and the investment st
rategy of the scheme. Similar
arrangements apply in the other territories w
here NWM Group
sponsors defined benefit pension schemes.
The triennial funding valuation of
the AA and NWM sections as
at 31 December 2020 was completed during 2021. T
his
determined the funding level to be 1
08% and 111% respectively,
based on pension liabilities of £1
,071 million and £267 million.
No further deficit contributions
are due.
The key assumptions used to determine the fundin
g liabilities
were the discount rate, which is determined base
d on a gilt
yield curve plus 0.4% per annu
m, and mortality assumptions,
which result in life expectancies of 28
.3/30.1 years for
males/females who are currently age 60
and 30.2/31.8 years
from age 60 for males/females who are cur
rently aged 40.
Accounting assumptions
Placing a value on NWM Group’s define
d benefit pension
schemes’ liabilities requires NWM Group’s man
agement to
make a number of assumptions, with
the support of
independent actuaries. The ultimate cost of the def
ined benefit
obligations depends upon actu
al future events and the
assumptions made are unlikely
to be exactly borne out in
practice, meaning the final cost may be hi
gher or lower than
expected.
The most significant assumptions use
d for the AA section are shown below:
Principal IAS 19 a
ctuarial assumptions
2021
2020
%
%
Discount rate
1.8
1.4
Inflation assumption (RPI)
3.3
2.9
Rate of increase in salaries
1.8
1.8
Rate of increase in deferred pensions
2.9
2.2
Rate of increase in pensions in paymen
t
2.9
2.8
Lump sum conversion rate at re
tirement
18
18
Longevity at age 60:
years
years
Current pensioners
Males
27.9
28.2
Females
29.7
29.8
Future pensioners, currently aged 40
Males
29.5
29.5
Females
31.1
31.5
Discount rate
The IAS 19 valuation uses a single discount rate s
et by
reference to the yield on a baske
t of ‘high quality’ sterling
corporate bonds.
Significant judgment is required when se
tting the criteria for
bonds to be included in the baske
t of bonds that determines the
discount rate used in the IAS 19
valuations. The criteria include
issue size, quality of pricing and the exclusion
of outliers.
Judgment is also required in determining the sha
pe of the yield
curve at long durations: a constant credit spread rela
tive to
gilts is assumed. Sensitivity to the main assu
mptions is
presented below.
Notes to the fin
ancial state
ments continue
d
NWM Group
Annu
al Report an
d Accounts 202
1
122
5 Pensions continued
The table below shows how th
e present value of the net pension asset of t
he AA section would change if the key assump
tions used
were changed independently. In practice t
he variables have a degree of cor
relation and do not move completely in isola
tion.
(Decrease)/
(Decrease)/
Increase in
increase in
increase in
net pension
value of
value of
(obligations)/
assets
liabilities
assets
2021
£m
£m
£m
0.25% increase in interest rates/discount rate
(55)
(35)
(20)
0.25% increase in inflation
44
25
19
0.25% increase in credit spreads
—
(35)
35
Longevity increase of one year
—
37
(37)
0.25% additional rate of increase
in pensions in payment
—
32
(32)
Increase in equity values of 10%
(1)
4
—
4
2020
0.25% increase in interest rates/discount rate
(55)
(47)
(8)
0.25% increase in inflation
52
31
21
0.25% increase in
credit spreads
—
(47)
47
Longevity increase of one year
—
43
(43)
0.25% additional rate of increase
in pensions in payment
—
36
(36)
Increase in equity values of 10%
(1)
4
—
4
(1)
Includes both quoted and private equity.
The funded status is most sensitive to move
ments in credit spreads and longevity. The table b
elow shows the combined chan
ge in
the funded status of the AA section as a result of
larger movements in these assumptions,
assuming no changes in other
assumptions.
Change in life expecta
ncies
-2 years
-1 years
No change
+1 year
+2 years
2021
£m
£m
£m
£m
£
m
Change in credit spreads
+50 bps
135
102
7
0
37
(4)
No change
75
37
—
(37)
(76)
-50 bps
4
(39)
(82)
(127)
(172)
2020
Change in
credit spreads
+50 bps
159
124
8
8
52
15
No change
83
42
—
(43)
(86)
-50 bps
(2)
(50)
(99)
(149)
(201)
The defined benefit obligation i
s attributable to the different classes of A
A section members in the following propor
tions:
2021
2020
Membership category
%
%
Active members
0.2
2.8
Deferred members
56.2
64.1
Pensioners and dependants
43.6
33.1
100.0
100.0
The experience history of the AA s
ection is shown below:
2021
2020
History of defined benefit schemes
£m
£
m
Fair value of plan assets
1,153
1,164
Present value of plan obligations
855
906
Net surplus
298
258
Experience gains/(losses) on plan liabilities
(12)
10
Experience gains/(losses) on plan assets
21
96
Actual return on plan assets
37
118
Actual return on plan assets
3.2%
10.8%
Notes to the fin
ancial state
ments continue
d
NWM Group
Annu
al Report an
d Accounts 202
1
123
6 Auditor’s remuneration
Amounts payable to the NWM Group’s audito
rs for statutory audit and other services are set
out below:
2021
2020
£m
£m
Fees payable for:
- the audit of the NWM Group’s annual accoun
ts
6.4
6.6
-
the audit of NWM Plc’s subsidiaries
2.9
3.0
- audit-related assurance service
s
0.6
0.6
Total audit and audit-related as
surance services fees
9.9
10.2
Corporate finance services
0.3
0.1
Total other services
0.3
0.1
Fees payable to the auditor for non-audit service
s are disclosed in the consolidated fin
ancial statements of NatWest Group pl
c.
7 Tax
2021
2020
£m
£
m
Current tax
Credit/(charge) for the year
171
(92)
Over/(under) provision in respect of prior yea
rs
1
(36)
172
(128)
Deferred tax
Credit for the year
17
150
UK tax rate change impact
(1)
(21)
(22)
Net increase/(decrease) in the car
rying value of deferred tax assets in respect
of UK and Netherlands
losses
39
(22)
Over provision in respect of prior years
(2)
16
10
Tax credit/(charge) for the year
223
(12)
(1)
It was announced in the UK Government’s budget on 3 March 2021 that the main UK corporation tax rate will increase f
rom 19% to 25% from 1 April 2023. This legislative change
was enacted on 10 June 2021.
(2)
Prior year tax adjustments incorporate refinements to tax computations made on submission
and agreement with the tax authorities and adjustments to provisions in respect of
uncertain tax positions.
The actual tax credit differs from the expected tax c
redit, computed by applying the standa
rd rate of UK corporation tax of 19%
(2020 – 19%), as follows:
2021
2020
£m
£
m
Expected tax credit
136
60
Losses and temporary differen
ces in year where no deferred tax asset recognised
(18)
(1)
Foreign profits taxed at other rates
(5)
(12)
Items not allowed for tax:
- losses on disposal and write-downs
—
(2)
-
UK bank levy
(3)
(6)
- regulatory and legal actions
(1)
(20)
- other disallowable items
(7)
(18)
Non-taxable items
12
15
Unrecognised losses brought forward and utilised
8
12
(Decrease)/increase in the carrying value of defer
red tax assets in respect of:
- UK losses
(9)
(22)
- Netherlands losses
48
—
Banking surcharge
54
20
Tax on paid-in equity
12
10
UK tax rate change impact
(21)
(22)
Adjustments in respect of prior ye
ars
17
(26)
Actual tax credit/(charge)
223
(12)
For accounting policy information se
e Accounting policies note 7.
Judgment: tax contin
gencies
NWM Group’s corporate income
tax credit and its provisions for corporate income
taxes necessarily involve a significant degree of
estimation and judgment. The tax treatment of some
transactions is uncertain and
tax computations are yet to be agreed wi
th the
tax authorities in a number of jurisdictions. N
WM Group recognises
anticipated tax liabilities based on all available e
vidence and,
where appropriate, in the light of external advice. Any dif
ference between the final outco
me and the amounts provided will af
fect
current and deferred corporate income tax cha
rges in the period when the matter is
resolved.
Notes to the fin
ancial state
ments continue
d
NWM Group
Annu
al Report an
d Accounts 202
1
124
7 Tax continued
Deferred tax
NWM Group
NWM Plc
2021
2020
2021
2020
£m
£m
£m
£m
Deferred tax asset (included in Other assets, Note 1
7)
(48)
(2)
—
(2)
Deferred tax liability (included i
n Other liabilities, Note 20)
374
417
352
380
Net deferred tax liability
326
415
352
378
Net deferred tax liability/(asset) comprised:
NWM Group
T
ax
Accelerated
losses
capital
Expense
Financial
carried
Pension
allowances
provisions
instruments
forward
Other
Tota
l
£m
£m
£m
£m
£m
£m
£m
At 1 January 2020
72
399
(39)
132
(75)
11
500
Acquisitions and disposals of su
bsidiaries
—
3
1
—
—
—
4
Charge/(credit) to
income statement:
1
(142)
15
(4)
13
1
(116)
Charge/(credit) to other compre
hensive income
6
—
—
30
—
(8)
28
Currency translation and other adjustments
—
—
—
—
—
(1)
(1)
At 31 December 2020
79
260
(23)
158
(62)
3
415
Charge/(credit) to
income statement
1
(1)
(2)
(5)
(43)
(1)
(51)
Charge/(credit) to other compre
hensive income
18
—
(4)
(53)
—
—
(39)
Currency translation and other adjustments
—
—
—
—
1
—
1
At 31 December 2021
98
259
(29)
100
(104)
2
326
NWM Plc
Tax
Accelerated
losses
capital
Expense
Financial
carried
Pension
a
llowances
provisions
instruments
forward
Other
Tota
l
£m
£m
£m
£m
£m
£m
£m
At 1 January 2020
73
388
(
39)
117
(75)
(2)
462
Acquisitions and disposals of su
bsidiaries
—
3
—
—
—
—
3
(Credit)/charge to
income statement
—
(144)
16
(5)
13
6
(114)
Charge/(credit) to other compre
hensive income
6
(1)
—
30
—
(7)
28
Currency translation and other adjustments
—
—
—
—
—
(1)
(1)
At 31 December 2020
79
246
(
23)
142
(62)
(4)
378
Charge/(credit) to
income statement
1
4
(2)
2
6
2
13
Charge/(credit) to other compre
hensive income
18
—
(4)
(53)
—
—
(39)
At 31 December 2021
98
250
(
29)
91
(56)
(2)
352
Deferred tax assets in respect of unus
ed tax losses are recognised if the losse
s can be used to offset probable future
taxable profits
after taking into account the ex
pected reversal of other temporary diffe
rences. Recognised deferred tax assets in respec
t of tax
losses are analysed below.
2021
2020
£m
£
m
UK tax losses carried forward
- NWM Plc
56
62
Total
56
62
Overseas tax losses carried for
ward
- NWM N.V.
48
—
104
62
Notes to the fin
ancial state
ments continue
d
NWM Group
Annu
al Report an
d Accounts 202
1
125
7 Tax continued
Critical accounting policy: Deferred tax
The deferred tax liability of £374 million at 31 Decembe
r 2021
(2020 – liability of £417 million) includes a defe
rred tax asset on
losses of £56 million. The def
erred tax asset recognised on UK
and overseas tax losses is recognised to the exten
t that it is
probable that there will be future taxable profits to
recover it.
Judgment
- NWM Group has considered the carrying value of
deferred tax assets and manage
ment considers that sufficient
taxable profits will be generated in future yea
rs to recover the
remaining deferred tax asset.
Estimate
– These estimates ar
e partly based on forecast
performance beyond the horizon for management’s det
ailed
plans. They have regard to inhe
rent uncertainties, such as
climate change and the impact of C
OVID. The deferred tax
asset in NWM Plc is supported by way of future reversin
g
taxable temporary differences
on which deferred tax liabilities
are recognised at 31 December 2
021.
UK tax losses
Under UK tax rules, tax losses can be carrie
d forward
indefinitely. As the recognised tax losses in NWM
Plc arose
prior to 1 April 2015, credit in future periods is given ag
ainst
25% of profits at the main rate of
UK corporation tax, excluding
the Banking Surcharge 8% rate
introduced by The Finance (No.
2) Act 2015.
It was announced in the UK Government’s budget o
n 3 March
2021 that the main UK corpora
tion tax rate will increase from
19% to 25% from 1 April 2023. T
his legislative change was
enacted on 10 June 2021
. NWM Group’s closing deferred tax
assets and liabilities have therefore been recalcul
ated taking
into account this change of rat
e and the applicable period the
deferred tax assets and liabilities
are expected to crystallise. As
a result, the net deferred tax liability pos
ition in NWM Group
has increased by £25 million, w
ith a £21 million tax charge
included in the income stateme
nt (refer to reconciling item
above), and a £4 million tax charge included in other
comprehensive income.
It was subsequently announced in the UK Govern
ment’s budget
on 27 October 2021 that the U
K banking surcharge will
decrease from 8% to 3% from 1 April 2023
. This legislative
change was substantively enacted on 2 Feb
ruary 2022. Had
this rate reduction been substantively e
nacted as at the
balance sheet date, the estimate
d rate change impact would
not have been material.
NWM Plc
- NWM Plc expects th
at the balance of recognised
deferred tax asset at 31 December 202
1 of £56 million (2020 -
£62 million) in respect of tax losse
s amounting to £254 million
will be recovered by the end of 2
027. The movement in the
current financial year reflects a £1
3 million decrease in the
carrying value of the deferred tax asset, offse
t by a £7 million
increase due to the UK tax rate change imp
act. Of the losses
remaining, £5,311 million have not been recognised in
the
deferred tax balance at 31 Dec
ember 2021; such losses will be
available to offset 25% of future taxable profits in
excess of
those forecast in the closing defe
rred tax asset.
Overseas tax losses
NWM N.V.
– A deferred tax asset of £48 million has been
recognised in respect of previously
unrecognised tax losses and
credits of £187 million of total tax losses and credi
ts of £2,785
million carried forward at 31 Dece
mber 2021. NWM N.V. Group
expects the deferred tax asset to be utilised
against future
taxable profits by the end of 202
6. NWM N.V. Group’s Dutch
fiscal unit has reported taxable profits in the period since
the
adoption of the new business model and
repurposing of NWM
N.V.’s banking license in 2019. In addition, NatWes
t Group
strategic review of NWM Group has been la
rgely completed in
2021, which has removed material uncertainties around t
he
future business of NWM N.V.. As a result, NWM N.V.
Group now
considers it to be probable, based on its 5 ye
ar budget forecast,
that future taxable profit will be available agains
t which the tax
losses and tax credits can be partially utilised.
NWM N.V. Group’s evaluation o
f alternative assumptions
revealed that the recognition of the deferred tax asset is hi
ghly
sensitive to the significant assumptions used in t
he assessment
and therefore subject to high estimation unce
rtainty. Due to the
uncertainty associated with the underlying fo
recast of probable
taxable income, the final outcome of the utilis
ation of the
deferred tax asset may vary si
gnificantly. This can lead to a
material increase or decrease of the deferred tax assets
depending on the result of the s
trategic decisions made in 2021
and to be made in future periods.
Unrecognised deferred tax
Deferred tax assets of £3,340 million (2020
- £3,078 million)
have not been recognised in res
pect of tax losses and other
deductible temporary difference
s carried forward of £12,125
million (2020 - £12,171 million) in jurisdicti
ons where doubt
exists over the availability of future tax
able profits. Of these
losses and other deductible temporary diffe
rences, £77 million
expire within five years and £4,288
million thereafter. The
balance of tax losses and other
deductible temporary
differences carried forward has no expiry date.
There are no unrecognised def
erred tax liabilities in respect of
retained earnings of overseas subsidia
ries and held-over gains
on the incorporation of certain overseas branche
s.
8 Profit/(loss) dealt with in
the accounts of NWM Plc
As permitted by section 408(3) of the Companies Act 200
6, no income statement for NWM
Plc has been presented as a primary
financial statement.
Notes to the fin
ancial state
ments continue
d
NWM Group
Annu
al Report an
d Accounts 202
1
126
9 Financial instruments - classification
The following tables analyse NWM Group’s financial
assets and liabilities in accordance with the c
ategories of financial instruments
in IFRS 9.
NWM Group
Amortised
Other
MFVTPL
FVOCI
cost
as
sets
Tot
al
£m
£m
£m
£m
£m
Assets
Cash and balances at central banks
16,645
16,645
Trading assets
59,101
59,101
Derivatives
(1)
105,550
105,550
Settlement balances
2,139
2,139
Loans to banks
-
amortised cost
(2)
962
962
Loans to customers - amortised cost
7,471
7,471
Amounts due from holding company and fe
llow subsidiaries
649
—
731
99
1,479
Other financial assets
80
5,590
3,116
8,786
Other assets
878
878
31 December 2021
165,380
5,590
31,064
977
203,011
Cash and balances at central banks
15,771
15,771
Trading assets
68,689
68,689
Derivatives
(1)
165,619
165,619
Settlement balances
2,296
2,296
Loans to banks - amortised cost
(2)
1,003
1,003
Loans to customers - amortised cost
8,444
8,444
Amounts due from holding company and fe
llow subsidiaries
766
—
754
67
1,587
Other financial assets
166
6,300
2,575
9,041
Other assets
688
688
31 December 2020
235,240
6,300
30,843
755
273,138
NWM Group
Held
-
for
-
Amortised
Other
trading
DFV
cost
liabilities
Total
£m
£m
£m
£m
£m
Liabilities
Bank deposits
(3)
1,808
1,808
Customer deposits
2,268
2,268
Amounts due to holding company and fellow subsi
diaries
348
—
5,607
171
6,126
Settlement balances
2,068
2,068
Trading liabilities
64,482
64,482
Derivatives
(1)
98,497
98,497
Other financial liabilities
2,374
16,881
19,255
Other liabilities
57
998
1,055
31 December 2021
163,327
2,374
28,689
1,169
195,559
Bank deposits
(3)
1,808
1,808
Customer deposits
2,618
2,618
Amounts due to holding company and fellow subsi
diaries
636
—
7,240
258
8,134
Settlement balances
2,248
2,248
Trading liabilities
72,252
72,252
Derivatives
(1)
157,332
157,332
Other financial liabilities
3,196
14,974
18,170
Other liabilities
81
1,153
1,234
31 December 2020
230,220
3,196
28,969
1,411
2
63,796
(1)
Includes net hedging derivative assets of £132 million (2020 - £267
million) and net hedging derivative liabilities of £119 million (2020 - £107 million).
(2)
Includes items in the course of collection from other
banks of £38 million (2020 - £119 milli
on).
(3)
Includes items in the course of transmission to other banks
of £28 mill
ion (2020 - £10 million).
Notes to the fin
ancial state
ments continue
d
NWM Group
Annu
al Report an
d Accounts 202
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127
9 Financial instruments – classification continued
Judgment: classification of financial assets
Classification of financial assets be
tween amortised cost and fair value through other co
mprehensive income requires a degr
ee of
judgment in respect of business models a
nd contractual cashflows.

The business model criteria is as
sessed at a portfolio level to determine whether assets are cl
a
ssified as held to collect or hel
d
to collect and sell. Information t
hat is considered in determining the applic
able business model includes the portfolio’s policie
s
and objectives, how the performance and risks of the p
ortfolio are managed, evaluated
and reported to management; and the
frequency, volume and timing of s
ales in prior periods, sales expectation for future periods,
and the reasons for sales.

The contractual cash flow characteris
tics of financial assets are asses
sed with reference to whether the cash flows rep
resent
solely payments of principle and interest. A le
vel of judgment is made in assessing terms t
hat could change the contrac
tual
cash flows so that it would not meet the co
ndition for solely payments of principle a
nd interest, including contingent and
leverage features, non-recours
e arrangements and features that could m
odify the time value of money.
For accounting policy information se
e Accounting policies notes 8, 1
1, 12 and 14.
Amounts due from/to holding c
ompany and fellow subsidiaries are as below:
NWM Group
2021
2020
Holding
Fellow
Holding
Fellow
company
subsidiaries
Total
company
subsidiaries
Total
£m
£m
£m
£m
£m
£m
Assets
Trading assets
252
397
649
542
224
766
Loans to banks
-
amortised cost
—
612
612
—
624
624
Loans to customers - amortised cost
113
6
119
112
18
130
Other assets
—
99
99
—
67
67
Amounts due from holding company and fe
llow
subsidiaries
365
1,114
1,479
654
933
1,587
Derivatives
(1)
407
529
936
594
774
1,368
Liabilities
Bank deposits
-
amortised cost
—
120
120
—
145
145
Customer deposits - amortised cos
t
—
155
155
—
144
144
Trading liabilities
—
348
348
—
636
636
Other financial liabilities - subo
rdinated liabilities
1,464
—
1,464
1,753
—
1,753
MREL instruments issued to NatWest Grou
p plc
3,858
—
3,858
5,181
—
5,181
Other liabilities
—
181
181
—
275
275
Amounts due to holding company and fellow subsi
diaries
5,322
804
6,126
6,934
1,200
8,134
Derivatives
(1)
658
339
997
1,120
425
1,545
(1)
Intercompany derivatives are included within d
erivative classification on the balance sheet.
Notes to the fin
ancial state
ments continue
d
NWM Group
Annu
al Report an
d Accounts 202
1
128
9 Financial instruments - classification continued
The following tables show the bank’s fin
ancial assets and financial liabilities in accordance wi
th the categories of financial
instruments in IFRS 9.
NWM Plc
Amortised
Other
MFVTPL
FVO
CI
cost
assets
Total
£m
£m
£m
£m
£m
Assets
Cash and balances at central banks
12,294
12,294
Trading assets
41,222
41,222
Derivatives
(1)
103,042
103,042
Settlement balances
795
795
Loans to banks - amortised cost
(2)
712
712
Loans to customers - amortised cost
6,810
6,810
Amounts due from holding company and fe
llow subsidiaries
2,965
3,646
112
6,723
Other financial assets
79
4,650
3,014
7,743
Investment in group undertakings
2,481
2,481
Other assets
732
732
31 December 2021
147,308
4,650
27,271
3,325
182,554
Cash and balances at central banks
11,736
11,736
Trading assets
52,169
52,169
Derivatives
(1)
164,104
164,104
Settlement balances
1,084
1,084
Loans to banks - amortised cost
(2)
701
701
Loans to customers - amortised cost
7,477
7,477
Amounts due from holding company and fe
llow subsidiaries
3,459
3,970
177
7,606
Other financial assets
161
5,347
2,535
8,043
Investment in group undertakings
2,600
2,600
Other assets
562
562
31 December 2020
219,893
5,347
27,503
3,339
256,082
NWM Plc
Held
-
for
-
Amortised
Other
trading
DFV
cost
liabilities
Total
£m
£m
£m
£m
£m
Liabilities
Bank deposits
(3)
1,808
1,808
Customer deposits
1,510
1,510
Amounts due to holding company and fellow subsi
diaries
3,335
7,471
172
10,978
Settlement balances
1,028
1,028
Trading liabilities
47,119
47,119
Derivatives
(1)
95,096
95,096
Other financial liabilities
1,321
15,556
16,877
Other liabilities
15
774
789
31 December 2021
145,550
1,321
27,388
946
175,205
Bank deposits
(3)
1,762
1,762
Customer deposits
1,469
1,469
Amounts due to holding company and fellow subsi
diaries
5,375
10,393
421
16,189
Settlement balances
604
604
Trading liabilities
56,916
56,916
Derivatives
(1)
153,754
153,754
Other financial liabilities
1,792
13,578
15,370
Other liabilities
24
842
866
31
December 2020
216,045
1,792
27,830
1,263
246,930
(1)
Includes net hedging derivative assets of £132 million (2020 - £266
million) and net hedging derivative liabilities of £119 million (2020 - £107 million).
(2)
Includes items in the course of collection from other
banks of £23 million (2020 - £118 milli
on).
(3)
Includes items in the course of transmission to other banks
of £28 mill
ion (2020 - £11 million).
Notes to the fin
ancial state
ments continue
d
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al Report an
d Accounts 202
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129
9 Financial instruments - classification continued
Amounts due from/to holding c
ompany and fellow subsidiaries are as below:
NWM Plc
2021
2020
Holding
Fellow
Holding
Fe
llow
company
subsidiaries
Subsidiaries
Total
company
subsidiaries
Subsidiaries
Total
£m
£m
£m
£m
£m
£m
£m
£m
Assets
Trading assets
252
397
2
,316
2,965
542
224
2,693
3,459
Loans to banks - amortised cost
—
480
998
1,478
—
519
1,024
1,543
Loans to customers - amortised cost
—
5
1,121
1,126
—
5
1,487
1,492
Settlement balances
—
—
546
546
—
—
222
222
Other financial assets
—
—
496
496
—
—
713
713
Other assets
—
87
25
112
—
32
145
177
Amounts due from holding company and fe
llow subsidiaries
252
969
5
,502
6,723
542
780
6,284
7,606
Derivatives
(1)
407
529
1
,845
2,781
594
774
2,056
3,424
Liabilities
Bank deposits - amortised cost
—
119
51
170
—
132
240
372
Customer deposits - amortised cos
t
—
151
1,421
1,572
—
144
2,098
2,242
Trading liabilities
—
348
2,987
3,335
—
636
4,739
5,375
Settlement balances
—
—
397
397
—
—
830
830
Other financial liabilities - subo
rdinated liabilities
1,464
—
—
1,464
1,753
—
—
1,753
MREL instruments issued to NatWest Grou
p plc
3,858
—
—
3,858
5,181
—
—
5,181
Other liabilities
—
169
13
182
—
270
166
436
Amounts due to holding company and fellow subsi
diaries
5,322
787
4
,869
10,978
6,934
1,182
8,073
16,189
Derivatives
(1)
658
339
2
,240
3,237
1,120
425
2,782
4,327
(1)
Intercompany derivatives are included within d
erivative classification on the balance sheet.
Notes to the fin
ancial state
ments continue
d
NWM Group
Annu
al Report an
d Accounts 202
1
130
9 Financial instruments - classification continued
Interest rate benchmark reform
The NatWest Group IBOR programme su
ccessfully delivered the conversion of
the vast majority of the IBOR exposures
to risk free
rates (RFR) in advance of the ce
ssation date. This encompasses loans, deposits, capi
tal instruments and derivatives, which have
been converted using fallback provisions, switch p
rovisions or as part of market-wide con
version events in the case of deriv
atives
subject to clearing. These instruments will conver
t at the first repricing date post cess
ation.
The total amount of exposure for NWM G
roup at 31 December 2021 subject to above conver
sion provisions is £1,904 million
of
assets, £425 million of liabilities, £72
6 million of loan commitments and £460.8 billion of derivative notionals. T
he exposure for NWM
Plc at 31 December 2021 subject to above conversio
n provisions is £1,91
2 million of assets, £916 million of liabilities, £720
million of
loan commitments and £456.4 billion of deri
vative notionals.
Despite the significant conversion le
vels achieved, certain instruments
remain in discussion with customers
and counterparties to
achieve consensual conversion.
If consensual conversion is not achieved thes
e instruments will default to synthetic LIBOR in li
ne
with relevant legislation.
The level of exposures without explicit o
r agreed conversion provisions as of 31
December 2021 is as follows:
NWM Group
Rates subject t
o IBOR reform
GBP LIBOR
USD IBOR (1
)
Other
IBOR
Total
2021
£m
£m
£m
£m
Trading assets
62
90
—
152
Loans to banks - amortised cost
—
11
—
11
Loans to customers - amortised cost
36
1,390
—
1,426
Other financial assets
120
730
—
850
Bank deposits
—
37
—
37
Customer deposits
—
—
—
—
Trading liabilities
31
166
—
197
Other financial liabilities
—
56
33
89
Subordinated liabilities
—
—
—
—
Amounts due to holding company and fellow subsi
diaries
—
2,700
—
2,700
Loan commitments
(3)
133
1,506
—
1,639
Derivatives notional (£bn)
3.6
1,141.0
—
1,144.6
For the notes to this table refer to page 132
.
At 31 December 2021 NWM Group held certain cu
rrency swaps with both legs subject to IBO
R r
eform, for which only the
GBP
LIBOR leg has an explicit or agreed conve
rsion provisions as of 31 Dece
mber 2021, but not the entire contract. These include
currency swaps of GBP LIBOR of £8
.4 billion, USD IBOR £7.9 billion and Other IBOR £0
.5 billion; currency swaps of USD IBOR of
£117.1 billion, GBP LIBOR £91.9
billion and Other IBOR £25.2 billion; currency s
waps of EUR LIBOR of £0.1
billion and GBP LIBOR
£0.1 billion; currency swaps of O
ther IBOR of £0.4 billion and USD IBOR £0.4 billion.
Notes to the fin
ancial state
ments continue
d
NWM Group
Annu
al Report an
d Accounts 202
1
131
9 Financial instruments - classification continued
NWM Group
Rates subject to IBOR reform
GBP LIBOR
USD IBOR (1)
EURIBOR (2)
Other IBOR
Total
2020
£m
£m
£m
£m
£m
Trading assets
75
60
348
1
484
Loans to banks - amortised cost
—
—
—
—
—
Loans to customers - amortised cost
1,017
1,266
566
6
2,855
Other financial assets
1,504
266
304
—
2,074
Bank deposits
—
367
—
107
474
Customer deposits
—
—
—
4
4
Trading liabilities
54
414
269
2
739
Other financial liabilities
—
361
314
88
763
Subordinated liabilities
—
—
268
—
268
Amounts due to holding company and fellow subsi
diaries
—
3,890
2,823
—
6,713
Loan commitments
(3)
1,163
1,811
5,253
—
8,227
Derivatives notional (£bn)
1,309.0
1,359.9
2,345.3
288.9
5,303.1
For the notes to this table refer to page 132
.
At 31 December 2020 NWM Group held currency swa
ps with corresponding legs subject
to IBOR reform of GBP LIBOR of £5.2
billion, USD IBOR £2.0 billion, EURIBO
R £2.9 billion and Other IBO
R £0.3 billion. Currency swaps of USD IBOR of £23
1.7 billion, GBP
LIBOR £98.5 billion, EURIBOR £
85.8 billion and Other IBOR £47.4
billion. Currency swaps of EURIBOR of £
5.1 billion with GBP
LIBOR £2.3 billion, USD IBOR £1.8
billion and Other IBOR £1.0 billion. Currency swaps of
Other IBOR of £2.2 billion,
EURIBOR £0.7
billion, USD IBOR £1.2 billion and Other IBO
R £0.3 billion.
Additionally, NWM Group held
basis swaps for GBP LIBOR of £97 billion, USD IBO
R of £81 billion, EURIBOR of £49 billion and Other
IBOR of £10 billion.
Notes to the fin
ancial state
ments continue
d
NWM Group
Annu
al Report an
d Accounts 202
1
132
9 Financial instruments - classification continued
NWM Plc
Rates subject t
o IBOR reform
GBP LIBOR
USD IBOR (1
)
Other IBOR
Total
2021
£m
£m
£m
£m
Trading assets
62
87
—
149
Loans to banks - amortised cost
—
11
—
11
Loans to customers - amortised cost
36
1,287
—
1,323
Other financial assets
120
730
—
850
Amounts due from holding company and fe
llow subsidiaries
—
—
—
—
Bank deposits
—
37
—
37
Customer deposits
—
—
—
—
Trading liabilities
31
166
—
197
Other financial liabilities
—
56
33
89
Subordinated liabilities
—
—
—
—
Amounts due to holding company and fellow subsi
diaries
—
2,700
—
2,700
Loan commitments
(3)
28
1,448
—
1,476
Derivatives notional (£bn)
3.5
1,140.9
—
1,144.4
At 31 December 2021 NWM Plc held certain cu
rrency swaps with both legs subject to IBO
R reform, for which only the GBP LIB
OR
leg has an explicit or agreed conversion
provisions as of 31 December 2021, but not t
he entire contract. These include cur
rency
swaps of GBP LIBOR of £8.6 billion, US
D IBOR of £8.0 billion and Other IBOR of £0.6 billion; c
urrency swaps of USD IBOR of
£117.2
billion, GBP LIBOR of £91.9 billion and Other
IBOR of £25.3 billion; currency swaps of
EURIBOR of £0.2 billion with GBP LIBO
R of
£0.2 billion; currency swaps of O
ther IBOR of £0.3 billion with USD IBOR of £0.3 billion.
NWM Plc
Rates subject to IBOR reform
GBP LIBOR
USD IBOR (1)
EURIBOR (2)
Other IBOR
Total
2020
£m
£m
£m
£m
£m
Trading assets
75
58
348
1
482
Loans to banks - amortised cost
—
—
—
—
—
Loans to customers - amortised cost
903
1,130
185
—
2,218
Other financial assets
1,504
266
254
—
2,024
Amounts due from holding company and fe
llow subsidiaries
—
—
1,107
477
1,584
Bank deposits
—
367
—
107
474
Customer deposits
—
—
—
4
4
Trading liabilities
54
409
269
2
733
Other financial liabilities
—
361
314
88
763
Subordinated liabilities
—
—
268
—
268
Amounts due to holding company and fellow subsi
diaries
499
3,890
2,823
528
7,740
Loan commitments
(3)
1,071
1,690
469
—
3,230
Derivatives notional (£bn)
1,035.0
1,359.2
1,707.9
195.8
4,297.9
(1)
In 2021 the FCA declared that USD IBOR will be n
on-representative post 30 June 2023; at the time of publishing NWM Plc’s Annual Report & Accounts, this date was expected to
be 31 December 2021.
(2)
In 2021 management concluded that EU
IBOR 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. Wh
ere 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 a
lloc
ated to the currency with the larg
est drawn amount.
At 31 December 2020 NWM Plc held currency s
waps with corresponding legs subjec
t to IBOR reform of GBP LIBOR of £5.2 bi
llion,
USD IBOR of £2.0 billion, EURIBOR of £
2.9 billion and Other IBOR of £0.3 billion. Currency sw
aps of USD IBOR of £231.9 billion,
GBP LIBOR of £98.6 billion, EURIBOR of £
85.8 billion and Other IBOR of £47
.4 billion. Currency swaps of EURIBOR of
£5.1 billion
and GBP LIBOR of £2.3 billion, USD IBOR of £1.8
billion and Other IBOR of £1
billion. Currency swaps of Other IBOR of £2
.2 billion,
EURIBOR of £0.7 billion, USD IBOR of £
1.2 billion and Other IBOR of £0.3 billon.
Notes to the fin
ancial state
ments continue
d
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9 Financial instruments - classification continued
Additionally, NWM Plc held basis
swaps for GBP LIBOR of £79.3 billion, USD IBOR of £8
0.6 billion, EURIBOR of £39.2
billion and
Other IBOR of £9.7 billion.
AT1 Issuances
NWM Plc has issued certain capital instruments (AT
1) under which reset clauses are linked
to IBOR rates subject to refor
m. Where
under the contractual terms of the inst
rument the coupon subject to IBOR rates and are sho
wn in Note 21. As part of its capital
management activities NWM Plc has acquired
an equity instrument ($250 million EURIBOR) issu
ed by its subsidiary. EURIBOR has
been reformed however this instru
ment has been reported within the scope of
the IBOR reform in 2020 in invest
ment in group
undertakings.
Financial instruments – financial assets and liabiliti
es that can be o
ffset
The tables below present information on financi
al assets and liabilities that are offse
t on the balance sheet under IFRS or subject to
enforceable master netting agre
ements together with financial collateral
received or given.
NWM Group
Instruments which
can be offset
Potential to
offset not recognised by IFRS
Net amount
after the
Effect of
effect of
master
netting
Instruments
netting
agreements and
outside
IFRS
Balance
and similar
Cash
and related
netting
Balance
Gross
offset
sheet
agreements
collatera
l
Sec
urities
collateral
agreements
sheet total
2021
£m
£m
£m
£m
£m
£m
£m
£m
£m
Derivative assets
104,691
—
104,691
(84,226)
(15,282)
(2,428)
2,755
859
105,550
Derivative liabilities
97,733
—
97,733
(84,226)
(10,304)
(1,070)
2,133
764
98,497
Net position
6,958
—
6,958
—
(4,978)
(1,358)
622
95
7,053
Trading reverse repos
44,529
(24,422)
20,107
(900)
—
(19,136)
71
635
20,742
Trading repos
42,664
(24,422)
18,242
(900)
—
(17,341)
1
1,147
19,389
Net position
1,865
—
1,865
—
—
(1,795)
70
(512)
1,353
Non trading reverse repos
332
—
332
—
—
(331)
1
15
347
Non trading repos
522
—
522
—
—
(522)
—
—
522
Net position
(190)
—
(190)
—
—
191
1
15
(175)
2020
Derivative assets
164,766
—
164,766
(
135,711)
(20,174
)
(5,053)
3,828
853
165,619
Derivative liabilities
156,754
—
156,754
(
135,711)
(15,523
)
(2,487)
3,033
578
157,332
Net position
8,012
—
8,012
—
(4,651
)
(2,566)
795
275
8,287
Trading reverse repos
43,907
(24,866)
19,041
(929)
—
(18,039)
73
363
19,404
Trading repos
42,202
(24,866)
17,336
(929)
—
(16,407)
—
1,700
19,036
Net position
1,705
—
1,705
—
—
(1,632)
73
(1,337)
368
Non trading reverse repos
1,899
—
1,899
—
—
(1,899)
—
—
1,899
Non trading repos
200
—
200
—
—
(200)
—
—
200
Net position
1,699
—
1,699
—
—
(1,699)
—
—
1,699
Notes to the fin
ancial state
ments continue
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9 Financial instruments - classification continued
NWM Plc
Instruments which
can be offset
Potential to
offset not recognised by IFRS
Net amount
after the
Effect of
effect of
master
netting
Instruments
netting
agreements and
outside
IFRS
Balance
and
similar
Cash
and related
netting
Balance
Gross
offset
sheet
ag
reements
collateral
Securities
co
llateral
agreements
sheet total
2021
£m
£m
£m
£m
£m
£m
£m
£m
£m
Derivative assets
106,616
(4,361)
102,255
(83,716)
(14,121)
(1,979)
2,439
787
103,042
Derivative liabilities
100,191
(5,751)
94,440
(83,716)
(
8,069)
(764)
1,891
656
95,096
Net position
(1)
6,425
1,390
7,815
—
(6,052)
(1,215)
548
131
7,946
Trading reverse repos
21,970
(13,071)
8,899
(580)
—
(8,319)
—
347
9,246
Trading repos
16,865
(13,071)
3,794
(580)
—
(3,214)
—
1,146
4,940
Net position
5,105
—
5,105
—
—
(5,105)
—
(799)
4,306
Non trading reverse repos
332
—
332
—
—
(331)
1
15
347
Non trading repos
522
—
522
—
—
(522)
—
—
522
Net position
(190)
—
(190)
—
—
191
1
15
(175)
2020
Derivative assets
167,067
(3,801)
163,266
(135,490)
(19,291)
(5,003)
3,482
838
164,104
Derivative liabilities
159,329
(6,186)
153,143
(135,490)
(13,284)
(1,641)
2,728
611
153,754
Net position
(1)
7,738
2,385
10,123
—
(6,007
)
(3,362)
754
227
10,350
Trading reverse repos
24,951
(13,972)
10,979
(604)
—
(
10,373)
2
92
11,071
Trading repos
18,200
(13,972)
4
,228
(604)
—
(3,624)
—
1,700
5,928
Net position
6,751
—
6,751
—
—
(6,749)
2
(1,608)
5,143
Non trading reverse repos
1,898
—
1,898
—
—
(1,898)
—
—
1,898
Non trading repos
200
—
200
—
—
(200)
—
—
200
Net position
1,698
—
1,698
—
—
(1,698)
—
—
1,698
(1)
The net IFRS offset balance of £1,390 million (2020 - £2,385 million) relates t
o variation margin netting reflected on other balance sheet lines.
Notes to the fin
ancial state
ments continue
d
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135
10 Financial instruments - valuation
Critical accounting policy: Fair val
ue - financial
instruments
Financial instruments classified as mand
atory fair value
through profit or loss; held-for-trading; des
ignated fair value
through profit or loss and fair v
alue through other
comprehensive income are rec
ognised in the financial
statements at fair value. All derivatives are
measured at fair
value.
Fair value is the price that would be received to sel
l an asset or
paid to transfer a liability in an orderly transaction
between
market participants at the mea
surement date. A fair value
measurement considers the characteris
tics of the asset or
liability and the assumptions that a market partici
pant would
consider when pricing the asse
t or liability.
NWM Group manages some portfolios of fin
ancial assets and
financial liabilities based on its net exposu
re to either market or
credit risk. In these cases, the fair value is
derived from the net
risk exposure of that portfolio with por
tfolio level adjustments
applied to incorporate bid-offer s
preads, counterparty credit
risk, and funding costs (see ‘Valuation Adjust
ments’).
Where the market for a financial instrumen
t is not active, fair
value is established using a valuation technique. These
valuation techniques involve a degree of estim
ation, the extent
of which depends on the instrument’s co
mplexity and the
availability of market-based data. The complexity and
uncertainty in the financial instrumen
t’s fair value is
categorised using the fair value hierarchy.
For accounting policy information se
e Accounting policies notes
8 and 14.
Page
Financial instrument
s
Critical accounting policy: Fair value
135
Valuation
Fair value hierarchy
(D)
136
Valuation techniques
(D)
13
6
Inputs to valuation models
(D)
136
Valuation control
(D)
137
Key areas of judgment
(D)
137
Tables of assets and liabilities split by fair value
hierarchy level
(T)
138
Valuation adjustments
Table of fair value adjustments made
(T)
140
Funding valuation adjustments (FVA)
(D)
140
Credit valuation adjustments
(CVA)
(D)
140
Bid-offer
(D)
1
40
Product and deal specific
(D)
140
Own credit
(D)
140
Level 3 additional information
Level 3 ranges of unobservable i
nputs
(D)
141
Table of level 3 instruments, valuation
techniques and inputs
(T)
141
Level 3 sensitivities
(D)
143
Alternative assumptions
(D)
143
Other considerations
(D)
143
Table of high and low range of fair value of
level 3 assets and liabilities
(T)
143
Movement in Level 3 assets and liabilities
over the reporting period
(D)
144
Table of the movement in level 3
assets and liabilities
144
Fair value of financial instruments me
asured
at amortised cost
Table showing the fair value
of financial instruments
measured at amortised cost on the balance s
heet
(T)
145
(D) = Descripti
ve; (T) = Table
Notes to the fin
ancial state
ments continue
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10 Financial instruments – valuation continued
Fair value hierarchy
Financial instruments carried at f
air 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 ca
nnot be made at a
global product level as a single product type c
an be in more
than one level. For example, a si
ngle name corporate credit
default swap could be in level 2 or level 3 dependi
ng on the
level of market activity for the re
ferenced entity
.
Level 1 – instruments valued usi
ng unadjusted quoted prices in
active and liquid markets, for id
entical financial instruments.
Examples include government bonds, listed e
quity shares and
certain exchange-traded derivatives.
Level 2 - instruments valued usi
ng valuation techniques that
have observable inputs. Observable inputs a
re those that are
readily available with limited adjus
tments required. Examples
include most government agency
securities, investment-grade
corporate bonds, certain mortgage products - includin
g CLOs,
most bank loans, repos and rev
erse repos, state and municipal
obligations, most notes issued, ce
rtain money market securities,
loan commitments and most OT
C derivatives.
Level 3 - instruments valued usi
ng a valuation technique where
at least one input which could have a significan
t effect on the
instrument’s valuation, is not base
d on observable market data.
Examples include non-derivativ
e instruments which trade
infrequently, certain syndicated and comme
rcial mortgage
loans, private equity, and derivatives with unobserv
able model
inputs.
Valuation techniques
NWM Group derives the fair value of
its instruments differently
depending on whether the instrument is a non-mo
delled or a
modelled product.
Non-modelled products
are valued directly from a price input,
typically on a position-by-position basis. Examples inclu
de
equities and most debt securities
.
Non-modelled products can fall into any fair value levelling
hierarchy depending on the obs
ervable market activity,
liquidity, and assessment of val
uation 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 sectio
n.
Modelled products
valued using a pricing model range in
complexity from comparatively
vanilla products such as interest
rate swaps and options (e.g. inte
rest rate caps and floors)
through to more complex derivatives (e.g. bal
ance 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. M
odel inputs are taken either
directly or indirectly from available data, where so
me inputs
are also modelled.
Fair value classification of modelled instruments is eithe
r level 2
or level 3, depending on the product/
model combination, the
observability and quality of input paramete
rs and other factors.
All these must be assessed to c
lassify a position. The modelled
product is assigned to the lowest fair value hierarc
hy level of
any significant input used in that valuation.
Most derivative instruments, for
example vanilla interest rate
swaps, foreign exchange swaps and liquid single n
ame credit
derivatives, are classified as level 2
. This is because they are
vanilla products valued using standard m
arket models and with
observable inputs. Level 2 prod
ucts range from vanilla to more
complex products, where more complex pro
ducts remain
classified as level 2 due to the materiality of any un
observable
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, incorpor
ating both
funding and credit risk. Values between and beyond
available
data points are obtained by int
erpolation and extrapolation.
The principal inputs to these valuation techniques
are as
follows:
Bond prices - quoted prices are gene
rally available for
government bonds, certain corporate securities,
and some
mortgage-related products.
Credit spreads - these express the return require
d over a
benchmark rate or index to compensate for
the referenced
credit risk. Where available, thes
e are derived from the price of
credit default swaps or other cr
edit-based instruments, such as
debt securities. When direct price
s are not available; credit
spreads are determined with reference to available prices of
entities with similar characteris
tics.
Interest rates - these are principally based on in
terest rate
swap prices referencing benchmark interest rates. Be
nchmark
rates include Interbank Offered Rates (IBOR)
and the Overnight
Index Swap (OIS) rate, including SONIA (Sterlin
g Overnight
Interbank Average Rate). Other quoted interest
rates may also
be used from both the bond, and futures marke
ts.
Foreign currency exchange rates - there are obser
vable prices
both for spot and forward contracts and futures in
the world's
major currencies.
Equity and equity index prices - quoted prices a
re generally
readily available for equity share
s listed on the world's major
stock exchanges and for major indices on such sha
res.
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 va
riables are observed
to move together. Variables that move in the s
ame direction
show positive correlation; those that m
ove in opposite
directions are negatively correl
ated.
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 diff
ers from that of an
instrument that cannot be prepaid. When valui
ng prepayable
instruments, the value of this pre
payment option is considered.
Recovery rates/loss given defa
ult - these are used as an input
to valuation models and reserv
es for asset-backed securities
and other credit products as an indicator of se
verity of losses
on default. Recovery rates are prima
rily sourced from market
data providers, the value of the underlying collate
ral, or
inferred from observable credit spreads.
Notes to the fin
ancial state
ments continue
d
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10 Financial instruments – valuation continued
Valuation control
NWM Group's control environment for the dete
rmination of the
fair value of financial instruments includes for
malised
procedures for the review and validation of fair values. T
his
review is performed by an independent
price verification (IPV)
team.
IPV is a key element of the control envi
ronment. Valuations are
first performed by the business which entered in
to the
transaction. These valuations are then reviewed by
the IPV
team, independent of those trading the financi
al instruments, in
light of available pricing evidence
.
Independent pricing data is collated from a range of sou
rces.
Each source is reviewed for quality and the independen
t data
applied in the IPV processes using a formalise
d input quality
hierarchy. Consensus services are one sou
rce of independent
data and encompass interest rate, currency, credi
t, 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 exce
eds defined
thresholds, an adjustment is made to bring the valu
ation to
within the independently calcul
ated fair value range.
IPV takes place at least monthly, for all fair value f
inancial
instruments. The IPV control inclu
des 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 liquidi
ty and
valuation uncertainty of an inst
rument and forms part of the
information considered when de
termining fair value hierarchy
classifications.
Initial fair value level classification of a fin
ancial instrument is
carried out by the IPV team. These
initial classifications are
subject to senior management review. P
articular attention is
paid to instruments transferring fro
m one level to another, new
instrument classes or products,
instruments where the
transaction price is significantly diff
erent from the fair value
and instruments where valuation uncertain
ty is high.
Valuation Committees are made u
p of valuation specialists and
senior business representatives f
rom various functions and
oversee pricing, reserving and valuations issues. T
hese
committees meet monthly to review an
d ratify any
methodology changes. The Executive Valuation Com
mittee
meets quarterly to address key material an
d subjective
valuation issues, to review items
escalated by Valuation
Committees and to discuss other relevant indust
ry matters.
The Group model risk policy se
ts the policy for model
documentation, testing and review. Governa
nce 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 Ris
k
Policy.
Key areas of judgment
Over the years the business ha
s simplified, with most products
classified as level 1 or 2 of the fair value hier
archy. However,
the diverse range of products h
istorically traded by NWM
Group means some products remain classifi
ed as level 3. Level
3 indicates a significant level of
pricing uncertainty, where
expert judgment is used. As su
ch, 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 judgmen
t 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 v
olumes of
trading can be seen, but for an over the counte
r (OTC)
derivative, assessing the liquidity of
the market with no central
exchange is more challenging.
A key related matter is where a market moves fr
om liquid to
illiquid or vice versa. Where this movement is conside
r
ed
temporary, the fair value level is
not changed. For example, if
there is little market trading in a product on a repo
rting date
but at the previous reporting date and during the in
tervening
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 transfe
rs between levels
are driven by genuine changes
in market liquidity and do not
reflect short term or seasonal e
ffects. Material movements
between levels are reviewed quarterly by the B
usiness and IPV.
The breadth and depth of the IPV data allows fo
r a rules-based
quality assessment to be made of
market activity, liquidity, and
pricing uncertainty, which assists with the process of alloc
ation
to an appropriate level. Where s
uitable independent pricing
information is not readily available, the quality assess
ment will
result in the instrument being ass
essed as level 3.
Notes to the fin
ancial state
ments continue
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10 Financial instruments – valuation continued
The table below shows the asse
ts and liabilities held by NWM Group split by fair value hier
archy level. Le
vel 1 are considered the
most liquid instruments, and level 3
the most illiquid, valued using expert judgmen
t and hence carry the most significant price
uncertainty.
NWM Group
2021
2020
Level 1
Level 2
Level 3
T
otal
Level 1
Level 2
L
evel 3
Total
£m
£m
£m
£m
£m
£m
£m
£m
Assets
Trading assets
Loans
—
33,425
721
34,146
—
39,249
225
39,474
Securities
19,563
5,371
21
24,955
21,535
7,599
81
29,215
Derivatives
—
104,484
1,066
105,550
—
164,296
1,323
165,619
Amounts due from holding company
and fellow subsidiaries
—
649
—
649
—
766
—
766
Other financial assets
Loans
—
19
118
137
—
21
71
92
Securities
4,507
988
38
5,533
5,107
1,247
20
6,374
Total financial assets held at fair value
24,070
144,936
1,964
170,970
26,642
213,178
1,720
241,540
As a % of total fair value assets
14%
85%
1%
11%
88%
1%
Liabilities
Amounts due to holding company and
fellow subsidiaries
—
348
—
348
—
636
—
636
Trading liabilities
Deposits
—
38,542
2
38,544
—
44,058
7
44,065
Debt securities in issue
—
974
—
974
—
1,408
—
1,408
Short positions
20,508
4,455
1
24,964
19,045
7,734
—
26,779
Derivatives
—
97,883
614
98,497
—
156,384
948
157,332
Other financial liabilities
Deposits
—
568
—
568
—
796
—
796
Debt securities in issue
—
1,103
—
1,103
—
1,607
—
1,607
Subordinated liabilities
—
703
—
703
—
793
—
793
Total financial liabilities held at fair value
20,508
144,576
617
165,701
19,045
213,416
955
233,416
As a % of total fair value liabilities
12%
88%
0%
8%
92%
0%
Notes to the fin
ancial state
ments continue
d
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10 Financial instruments – valuation continued
NWM Plc
2021
2020
Level 1
Level 2
Level 3
T
otal
Level 1
Level 2
L
evel 3
Total
£m
£m
£m
£m
£m
£m
£m
£m
Assets
Trading assets
Loans
—
19,115
652
19,767
—
27,749
208
27,957
Securities
16,272
5,165
18
21,455
16,640
7,494
78
24,212
Derivatives
—
102,052
990
103,042
—
162,878
1,226
164,104
Amounts due from holding company
and fellow subsidiaries
—
2,965
—
2,965
—
3,459
—
3,459
Other financial assets
Loans
—
19
118
137
—
21
71
92
Securities
3,942
614
36
4,592
4,709
694
13
5,416
Total financial assets held at fair value
20,214
129,930
1,814
151,958
21,349
202,295
1,596
225,240
As a % of total fair value assets
13%
86%
1%
9%
90%
1%
Liabilities
Amounts due to holding company and
fellow subsidiaries
—
3,335
—
3,335
—
5,375
—
5,375
Trading liabilities
Deposits
—
22,856
2
22,858
—
29,988
7
29,995
Debt securities in issue
—
974
—
974
—
1,408
—
1,408
Short positions
18,908
4,378
1
23,287
17,955
7,558
—
25,513
Derivatives
—
94,513
583
95,096
—
152,839
915
153,754
Other financial liabilities
Deposits
—
75
—
75
—
—
—
—
Debt securities in issue
—
875
—
875
—
1,372
—
1,372
Subordinated liabilities
—
371
—
371
—
420
—
420
Total financial liabilities held at fair value
18,908
127,377
586
146,871
17,955
198,960
922
217,837
As a % of total fair value liabilities
13%
87%
0%
8%
92%
0%
(1)
Transfers between levels are deemed to have occurred at t
he beginning of the quarter in which the instrument was transferred.
(2)
For an analysis of debt securities held at mandatory fair value through prof
it or loss by issuer as well as ratings and derivatives, by type and contract, refer to Risk and capital
management – Credit risk.
Notes to the fin
ancial state
ments continue
d
NWM Group
Annu
al Report an
d Accounts 202
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140
10 Financial instruments – valuation continued
Valuation adjustments
When valuing financial instruments in the tradin
g book,
adjustments are made to mid-market valua
tions to cover bid-
offer spread, funding and credit risk. These adjust
ments are
presented in the table below:
NWM Group
2021
£m
2020
£m
Funding
–
FVA
59
121
Credit
–
CVA
389
388
Bid
–
Offer
81
122
Product and deal specific
120
172
649
803
NWM Plc
2021
£m
2020
£m
Funding
–
FVA
75
140
Credit
–
CVA
283
275
Bid
–
Offer
79
118
Product and deal specific
120
172
557
705
There was a reallocation of FVA to CVA during
the period
following an update to the risk manageme
nt of certain
exposures. The net decrease across CVA an
d FVA was driven
by reduced exposures, due to increases in interest
rates and
trade exit activity. The reduction in bid-off
er and product deal
specific reserves followed reduced risk due to trade exi
t activity
and LIBOR cessation.
Funding valuation adjustments (FVA)
FVA represents an estimate of the adjustmen
t that a market
participant would make to incorporate funding cos
ts and
benefits that arise in relation to derivative exposures. FVA is
calculated as a portfolio level adjustment and can result i
n
either a funding charge (positive) or funding benefit (
negative).
Funding levels are applied to estimated poten
tial future
exposures. For uncollateralised derivatives, the e
xposure
reflects the future valuation of the deriv
ative. For collateralised
derivatives, the exposure reflects the difference bet
ween the
future valuation of the derivativ
e 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 manage
d by a credit and
market risk hedging process, and the
refore movements in CVA
are partially offset by trading revenue
on the hedges.
The CVA is calculated on a portfolio basis refle
cting an
estimate of the amount a third party would cha
rge to assume
the credit risk.
Collateral held under a credit support agreemen
t is factored
into the CVA calculation. In such cases
where NWM Group
holds collateral against counterparty exposu
res, CVA is held to
the extent that residual risk remains.
Bid-offer
Fair value positions are required to be marked to e
xit,
represented by bid (long positions) or offer (short pos
itions)
levels. Non-derivative positions
are typically marked directly to
bid or offer prices. However de
rivative exposures are adjusted
to exit levels by taking bid-offer
reserves calculated on a
portfolio basis. The bid-offer approach is b
ased on current
market spreads and standard market bucketing of
risk.
Bid-offer spreads vary by maturity and risk type to ref
lect
different spreads in the market.
For positions where there is no
observable quote, the bid-offer spreads are wi
dened in
comparison to proxies to reflect reduced li
quidity or
observability.
Netting is applied on a portfolio basis to refle
ct the value at
which NWM Group 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 i
s applied where the asset and
liability positions are managed as a portfolio for risk an
d
reporting purposes.
Product and deal specific
On initial recognition of financial assets and lia
bilities valued
using valuation techniques which have
a significant
dependence on information othe
r 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 ove
r the life of the
transaction; when market data becomes observable; o
r when
the transaction matures or is close
d out as appropriate. On 31
December 2021, net gains of £7
1 million (2020 - £63 million)
were carried forward. During the y
ear, net gains of £103 million
(2020 - £75 million) were deferr
ed and £94 million (2020 - £100
million) were recognised in the i
ncome statement.
Where system generated valuations do not accur
ately recover
market prices, manual valuation adjustmen
ts are applied either
at a position or portfolio level. Manual adjustmen
ts are subject
to the scrutiny of independent c
ontrol teams and are subject to
monthly review by senior management.
Own Credit
NWM Group considers the effec
t of its own credit standing
when valuing financial liabilities recorded a
t fair value. Own
credit spread adjustments are made when valuing issued deb
t
held at fair value, including issue
d structured notes. An own
credit adjustment is applied to positions where it is
believed
that counterparties would consi
der NWM Group’s
creditworthiness when pricing trades.
Notes to the fin
ancial state
ments continue
d
NWM Group
Annu
al Report an
d Accounts 202
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141
10 Financial instruments – valuation continued
Level 3 additional information
For illiquid assets and liabilities, classifie
d as level 3, additional information is provide
d on the valuation techniques used a
nd price
sensitivity of the products to those inputs. This is to en
able the reader to gauge the level of un
certainty that arises from positions
with significant unobservable in
puts or modelling parameters.
Level 3 ranges of unobservable inputs
The table below provides additional information on level 3 ins
t
ruments and inputs. This shows the valuation techni
que used for the
fair value calculation, the unob
servable input or inputs and input range.
NWM Group
2021
2020
Financial instrument
Valuation technique
Unobservable
inputs
Units
Low
High
Low
High
Trading assets and Other financi
al assets
Loans
Price-based
Price
%
—
106
—
105
Discount cash flow
Credit spreads
bps
40
102
69
119
Discount cash flow
Discount margin
bps
46
55
49
57
Debt securities
Price-based
Price
%
—
240
—
232
Equity Shares
Price-based
Price
GBP
—
30,378
—
27,737
Price
%
—
7
88
112
Net asset valuation
Fund NAV
%
80
120
80
120
Derivative assets and liabilities
Credit derivatives
Credit d
erivative pricing
Credit spreads
bps
6
635
2
500
Option pricing
Correlation
%
(
15)
95
(50)
95
Volatility
%
30
108
27
80
Upfront points
%
—
100
—
100
Recovery rate
%
—
60
10
40
Interest rate & FX
Option pricin
g
Correlation
%
(50)
100
(50)
100
derivatives
Volatility
%
17
77
17
60
Constant
prepayment rate
%
2
16
2
18
Mean reversion
%
—
92
—
92
Basis volatility
bps
8
18
15
21
Inflation volatility
%
1
2
1
2
Inflation rate
%
2
3
1
2
Equity derivatives
Option pricing
Correlation
%
—
—
(53)
87
(1)
Valuation: for private equity investments, values may b
e estimated by looking at past prices of similar stocks and from valuation statements where valuations are usually derived
from earnings measures such as EBITDA or net asset value (NAV). Similarly for equity or b
ond fund investments, prices may be estimated from valuation or credit statements using
NAV or similar measures.
(2)
NWM Group does not have any material liabilities measured
at fair value that are issued with an inseparable third party credit enhancement.
Notes to the fin
ancial state
ments continue
d
NWM Group
Annu
al Report an
d Accounts 202
1
142
10 Financial instruments – valuation continued
NWM Plc
2021
2020
Financial instrument
Valuation technique
Unobservable
inputs
Units
Low
High
Low
High
Trading assets and Other financi
al assets
Loans
Price-based
Price
%
—
106
—
105
Discount cash flow
Credit spreads
bps
40
102
69
119
Discount cash flow
Discount margin
bps
46
55
49
57
Debt securities
Price-based
Price
%
—
240
—
232
Equity Shares
Price-based
Price
GBP
—
4,793
—
4,897
Price
%
—
7
—
80
Net asset valuation
Fund NAV
%
80
120
80
120
Derivative assets and
liabilities
Credit derivatives
Credit d
erivative pricing
Credit spreads
bps
6
635
2
500
Option pricing
Correlation
%
(15)
(95)
(50)
95
Volatility
%
30
108
2
7
80
Upfront points
%
—
100
—
100
Recovery rate
%
—
60
10
40
Interest rate & FX
Option pricin
g
Correlation
%
(50)
100
(50)
100
derivatives
Volatility
%
17
77
17
60
Constant
prepayment rate
%
2
16
2
18
Mean reversion
%
—
92
—
92
Basis volatility
bps
8
18
15
21
Inflation volatility
%
1
2
1
2
Inflation rate
%
2
3
1
2
Equity derivatives
Option pricing
Correlation
%
—
—
(53)
87
(1)
Valuation: for private equity investments, values may b
e estimated by looking at past prices of similar stocks and from valuation statements where valuations are usually derived
from earnings measures such as EBITDA or net asset value (NAV). Similarly for equity or b
ond fund investments, prices may be estimated from valuation or credit statements using
NAV or similar measures.
(2)
NWM Plc does not have any material liabilities measured at fair va
lue that are issued with an inseparable third party credit enhancement.
Notes to the fin
ancial state
ments continue
d
NWM Group
Annu
al Report an
d Accounts 202
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143
10 Financial instruments – valuation continued
Level 3 sensitivities
The level 3 sensitivities presente
d below are calculated at a
trade or low-level portfolio basi
s rather than an overall portfolio
basis. As individual sensitivities
are aggregated with no
reflection of the correlated natu
re between instruments, the
overall portfolio sensitivity may not be
accurately reflected. For
example, some portfolios may be negatively cor
related to
others, where a downwards movement in one asse
t would
produce an upwards movement in another. However,
due to
the additive presentation of the above figures this co
rrelation
impact cannot be displayed. As such, the actual poten
tial
downside sensitivity of the total portfolio may be le
ss 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 specif
ied target level of
certainty of 90%.
Alternative assumptions are determined wi
th reference to all
available evidence including consideration of the followin
g:
quality of independent pricing information conside
ring
consistency between different s
ources, 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 holdin
g of position;
and market intelligence.
Other considerations
Whilst certain inputs used to ca
lculate CVA, FVA and own
credit adjustments are not base
d on observable market data,
the uncertainty of these inputs i
s 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 po
rtfolios and
issued debt is not determined by
CVA, FVA or own credit
inputs. In addition, any fair value s
ensitivity driven by these
inputs is not included in the level 3 s
ensitivities presented.
The table below shows the high and low
range of fair value of the level 3 assets an
d liabilities. This range incorporates the range of
fair value inputs as described in the p
revious table.
NWM Group
2021
2020
Level 3
Favourab
le
Unf
avourable
Level 3
Favourable
Unfavourable
£m
£
m
£m
£m
£m
£m
Assets
Trading assets
Loans
721
10
(10)
225
10
—
Securities
21
—
—
81
—
—
Derivatives
1,066
90
(110)
1,323
120
(100)
Other financial assets
Loans
118
10
(10)
71
10
(10)
Securities
38
—
—
20
—
—
1,964
110
(130)
1,720
140
(110)
Liabilities
Trading liabilities
Deposits
2
—
—
7
—
—
Short positions
1
—
—
—
—
—
Derivatives
614
30
(30)
948
50
(40)
Other financial liabilities - debt sec
urities in issue
—
—
—
—
—
—
617
30
(30)
955
50
(40)
NWM
Plc
2021
2020
Level 3
Favourab
le
Unf
avourable
Level 3
Favourable
Unfavourable
£m
£
m
£m
£m
£m
£m
Assets
Trading assets
Loans
652
10
(10)
208
10
—
Securities
18
—
—
78
—
—
Derivatives
990
80
(110)
1,226
100
(90)
Other financial assets
Loans
118
10
(10)
71
10
(10)
Securities
36
—
—
13
—
—
1,814
100
(130)
1,596
120
(100)
Liabilities
Trading liabilities
Deposits
2
—
—
7
—
—
Short positions
1
—
—
—
—
—
Derivatives
583
30
(30)
915
50
(40)
Other financial liabilities - debt sec
urities in issue
—
—
—
—
—
—
586
30
(30)
922
50
(40)
Notes to the fin
ancial state
ments continue
d
NWM Group
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144
10 Financial instruments – valuation continued
Movement in Level 3 assets and liabilities over the re
porting period
The following table shows the movement in level 3 asse
ts and liabilities in the year.
NWM Group
2021
2020
Trading
Other finan
cial
Total
T
otal
Trad
ingOther financial
Total
Tot
al
assets (2)
assets (3)
assets
liabilities
assets (2)
assets (3)
assets
liabilities
£m
£m
£m
£
m
£m
£m
£m
£m
At 1 January
1,629
91
1,720
955
2,415
88
2,503
1,389
Amounts recorded in the income
statement
(1)
(184)
(28)
(212)
(
117)
192
(14)
178
(68)
Amounts recorded in the statement of co
mprehensive
income
—
11
11
—
—
2
2
—
Level 3 transfers in
125
—
125
20
165
—
165
188
Level 3 transfers out
(104)
—
(104)
(168)
(139)
(3)
(142)
(
368)
Purchases/originations
(4)
966
449
1,415
305
441
259
700
128
Settlements/other decreases
(48)
(363)
(411)
(28)
(293)
(153)
(446)
(59)
Sales
(574)
(4)
(578)
(
347)
(1,154)
(88)
(1,242)
(256)
Foreign exchange and other
(2)
—
(2)
(3)
2
—
2
1
At 31 December
1,808
156
1,964
617
1,629
91
1,720
955
Amounts recorded in the income
statement in respect
of balances held at year end:
- unrealised
(184)
(28)
(212)
(
117)
194
(15)
179
(69)
NWM Plc
2021
2020
Trading
Other finan
cial
Total
T
otal
Trad
ingOther financial
Total
Tot
al
assets (2)
assets (3)
assets
liabilities
assets (2)
assets (3)
assets
liabilities
£m
£m
£m
£
m
£m
£m
£m
£m
At 1 January
1,512
84
1,596
922
2,239
76
2,315
1,361
Amounts recorded in the income
statement
(1)
(189)
(23)
(212)
(
111)
257
(15)
242
(71)
Amounts recorded in the statement of co
mprehensive
income
—
12
12
—
—
5
5
—
Level 3 transfers in
119
—
119
20
165
—
165
187
Level 3 transfers out
(102)
—
(102)
(162)
(135)
—
(135)
(362)
Purchases/originations
(4)
912
412
1,324
280
365
106
471
115
Settlements/other decreases
(38)
(328)
(366)
(26)
(229)
—
(229)
(59)
Sales
(554)
(3)
(557)
(
337)
(1,150)
(88)
(1,238)
(248)
Foreign exchange and other
—
—
—
—
—
—
—
(1)
At 31 December
1,660
154
1,814
586
1,512
84
1,596
922
Amounts recorded in the income
statement in respect
of balances held at year end:
- unrealised
(189)
(23)
(212)
(
111)
257
(14)
243
(72)
(1)
For NWM Group, net losses on trading assets and liabilities of £67 million (2020
– £260 milli
on gains)
were recorded in income from trading activities. Net losses on other
instruments of £28 million (2020
- £14 million losses) were recorded in other operating income and interest income as appropriate. For NWM Plc, net
losses on trading assets and
liabilities of £78 million (2020
– £328 million gains) were recorded in income from trading activities. Net losses on other instruments of £
23 million (2020 - £15 million losses) were
recorded in other operating income and interest income as appropriate.
(2)
Trading assets comprise assets held at fair value in t
rading portfolios.
(3)
(4)
Other financial assets comprise fair value through ot
her
comprehensive income, designated as at fair value through profit or loss and other fa
ir value through profit or loss.
Movement in the period includes new loan originations classified as HT
C&S under IFRS 9 and fair valued through other comprehe
nsive income. 2021 purchases include a new
leveraged finance loan of £450 million. As a result of
its composition and illiquid nature, pricing is based on unobservable
inputs and the judgment of valuation experts.
Notes to the fin
ancial state
ments continue
d
NWM Group
Annu
al Report an
d Accounts 202
1
145
10 Financial instruments – valuation continued
Fair value of financial instruments measured at amortised cost on the balance sheet
The following table shows the carrying value an
d fair value of financial instrumen
ts measured at amortised cost on the b
alance
sheet:
NWM Group
NWM Plc
Items where
Items where
fair value
Fair value
fair value
Fair value
approximates
Carrying
Fair
hierarchy level
approximates
Carrying
Fair
hierarchy level
carrying value
value
value
Level 2
Level 3
carrying value
value
value
Level 2
Level 3
2021
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
Financial assets
Cash and balances at central banks
16.6
12.3
Settlement balances
2.1
0.8
Loans to banks
0.1
0.9
0.9
0.4
0.5
—
0.7
0.7
0.3
0.4
Loans to customers
7.5
7.5
0.4
7.1
6.8
6.8
0.3
6.5
Amounts due from holding company and
fellow subsidiaries
0.7
0.7
—
0.7
—
3.6
3.6
—
3.6
Other financial assets
-
securities
3.1
3.1
—
3.1
3.0
3.0
—
3.0
2020
Financial assets
Cash and balances at central banks
15.8
11.7
Settlement balances
2.3
1.1
Loans to banks
0.1
0.9
0.9
0.3
0.6
0.1
0.6
0.6
0.1
0.5
Loans to customers
8.4
8.4
1.9
6.5
7.5
7.4
1.9
5.5
Amounts due from holding company and
fellow subsidiaries
0.8
0.8
—
0.8
0.2
3.7
3.7
—
3.7
Other financial assets - securities
2.6
2.6
—
2.6
2.5
2.6
—
2.6
NWM Group
NWM Plc
Items where
Items where
fair value
Fair value
fair value
Fair value
approximates
Carrying
Fair
hierarchy level
approximates
Carrying
Fair
hierarchy level
carrying value
value
value
Level 2
Level 3
carrying value
value
value
Level 2
Level 3
2021
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
Financial liabilities
Bank deposits
1.8
1.8
—
1.8
1.8
1.8
—
1.8
Customer deposits
—
2.2
2.2
—
2.2
—
1.5
1.5
—
1.5
Amounts due to holding company and
fellow subsidiaries
—
5.6
5.7
5.4
0.3
0.1
7.4
7.5
5.4
2.1
Settlement balances
2.1
1.0
Other financial liabilities
Debt securities in issue
16.6
16.8
13.9
2.9
15.5
15.7
13.2
2.5
Subordinated liabilities
0.3
0.4
0.4
—
—
—
—
—
2020
Financial liabilities
Bank deposits
1.8
1.8
—
1.8
1.8
1.8
—
1.8
Customer deposits
0.1
2.5
2.6
—
2.6
—
1.5
1.4
—
1.4
Amounts due to holding company and
fellow subsidiaries
0.1
7.1
7.2
7.1
0.1
0.9
9.5
9.6
7.1
2.5
Settlement balances
2.2
0.6
Other financial liabilities
Debt
securities in issue
14.7
15.0
9.4
5.6
13.5
13.8
8.6
5.2
Subordinated liabilities
0.3
0.4
0.4
—
0.1
0.1
0.1
—
The assumptions and methodol
ogies underlying the calculation
of fair values of financial instru
ments at the balance sheet date
are as follows:
Short-term financial instruments
For certain short-term financial instruments: c
ash and balances
at central banks, items in the course of colle
ction from other
banks, settlement balances, items in the c
ourse of transmission
to other banks, customer dema
nd deposits and notes in
circulation, carrying value is de
emed a reasonable
approximation of fair value.
Loans to banks and customers
In estimating the fair value of net loans to custo
mers and banks
measured at amortised cost, NWM Group’s loans
are
segregated into appropriate portfolios
reflecting the
characteristics of the constituent loans. Two p
rincipal methods
are used to estimate fair value:
(a)
Contractual cash flows are discounted using a
market
discount rate that incorporates the cur
rent spread for the
borrower or where this is not obse
rvable, the spread for
borrowers of a similar credit standing. This met
hod is used
for portfolios where counterpar
ties have external ratings:
institutional and corporate lend
ing.
(b)
Expected cash flows (unadjusted for c
redit losses) are
discounted at the current offer rate for the same or simil
ar
products.
Debt securities and subordinated liabili
ties
Most debt securities are valued
using quoted prices in active
markets or from quoted prices of similar financi
al instruments
in active markets. Fair values of the remaining po
pulation are
determined using market standard valu
ation techniques, such
as discounted cash flows, adjusting for own credi
t spreads
where appropriate.
Bank and customer deposits
Fair values of deposits are estima
ted using discounted cash
flow valuation techniques.
Notes to the fin
ancial state
ments continue
d
NWM Group
Annu
al Report an
d Accounts 202
1
146
11 Financial instruments - maturity analy
sis
Remaining maturity
The following table shows the r
esidual maturity of financial instruments, based on c
ontractual date of maturity:
NWM Group
2021
2020
Less than
More than
Total
Less than
More than
Total
12 months
12 months
12 months
12 months
£m
£m
£m
£m
£m
£m
Assets
Cash and balances at central banks
16,645
—
16,645
15,771
—
15,771
Trading assets
40,206
18,895
59,101
41,736
26,953
68,689
Derivatives
34,423
71,127
105,550
46,232
119,387
165,619
Settlement balances
2,139
—
2,139
2,296
—
2,296
Loans to banks - amortised cost
714
248
962
891
112
1,003
Loans to customers
-
amortised cost
3,707
3,764
7,471
4,535
3,909
8,444
Amounts due from holding company and fe
llow subsidiaries
(1)
705
675
1,380
1,295
225
1,520
Other financial assets
3,848
4,938
8,786
3,152
5,889
9,041
Liabilities
Bank deposits
1,244
564
1,808
1,294
514
1,808
Customer deposits
2,161
107
2,268
2,526
92
2,618
Amounts due to holding company and fellow subsi
diaries
(2)
1,571
4,384
5,955
942
6,934
7,876
Settlement balances
2,068
—
2,068
2,248
—
2,248
Trading liabilities
41,548
22,934
64,482
45,033
27,219
72,252
Derivatives
34,606
63,891
98,497
47,138
110,194
157,332
Other financial liabilities
8,715
10,540
19,255
8,310
9,860
18,170
Lease liabilities
13
40
53
21
50
71
NWM Plc
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
12,294
—
12,294
11,736
—
11,736
Trading assets
22,355
18,867
41,222
29,985
22,184
52,169
Derivatives
34,259
68,783
103,042
46,739
117,365
164,104
Settlement balances
795
—
795
1,084
—
1,084
Loans to banks - amortised cost
464
248
712
589
112
701
Loans to customers
-
amortised cost
3,641
3,169
6,810
4,440
3,037
7,477
Amounts due from holding company and fe
llow subsidiaries
(1)
3,862
2,749
6,611
4,720
2,709
7,429
Other financial assets
3,092
4,651
7,743
2,632
5,411
8,043
Liabilities
Bank deposits
1,244
564
1,808
1,248
514
1,762
Customer deposits
1,448
62
1,510
1,406
63
1,469
Amounts due to holding company and fellow subsi
diaries
(2)
5,407
5,399
10,806
6,714
9,054
15,768
Settlement balances
1,028
—
1,028
604
—
604
Trading liabilities
24,204
22,915
47,119
30,794
26,122
56,916
Derivatives
34,547
60,549
95,096
47,670
106,084
153,754
Other financial liabilities
7,109
9,768
16,877
6,513
8,857
15,370
Lease liabilities
7
3
10
10
6
16
(1)
Amounts due from holding company and fellow subsidiaries relating to non-financial
instrum
ents of £9
9 million (2020 – £67 million) for NWM Group and £112 million (2020 - £177
million) for NWM Plc have been excluded f
rom the tables.
(2)
Amounts due to holding company and fellow subsidiaries relating t
o non-financial instruments of £171 millio
n (2020
- £258 million) for NWM Group and £172 million (2020 - £421
million) for NWM Plc have been excluded f
rom the tables.
Notes to the fin
ancial state
ments continue
d
NWM Group
Annu
al Report an
d Accounts 202
1
147
11 Financial instruments - maturity analy
sis
continued
Assets and liabilities by contractual cash flows up to 20
years
The tables below show the contractual undiscoun
ted cash flows
receivable and payable, up to a period of 20 y
ears, 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 consolida
ted balance
sheet, as the tables include all cash flows rel
ating to principal
and future coupon payments, p
resented on an undiscounted
basis. The tables have been prepared on the f
ollowing basis:
Financial assets have been reflected in the time b
and of the
latest date on which they could be repaid, unless e
arlier
repayment can be demanded by NWM G
roup. Financial
liabilities are included at the earliest date on which
the
counterparty can require repay
ment, regardless of whether or
not such early repayment results in a pe
nalty. If repayment is
triggered by, or is subject to, specific
criteria such as market
price hurdles being reached, the asse
t 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 earlie
st possible date on which the
conditions could be fulfilled, without consi
dering the probability
of the conditions being met.
For example, if a s
tructured note
is automatically prepaid when an equity index excee
ds 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 secu
rities in issue, issued by certain
securitisation vehicles consolid
ated by NWM Group depends on
when cash flows are received from the securitise
d assets.
Where these assets are prepayable, the timing of t
he cash
outflow relating to securities assumes that each
asset will be
prepaid at the earliest possible date. As t
he 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 use
d for liabilities.
The principal amounts of financial liabilities th
at are repayable
after 20 years or where the counterparty has no righ
t to
repayment of the principal, are excluded from the ta
ble along
with interest payments after 20 years.
The maturity of guarantees and com
mitments is based on the
earliest possible date they would be drawn in o
rder to evaluate
NWM Group’s liquidity position.
MFVTPL assets of £165 billion (202
0 - £235 billion) for NWM
Group, £147 billion (2020 - £22
0 billion) for NWM Plc, HFT
liabilities of £163 billion (2020 - £23
0 billion) for NWM Group
and £145 billion (2020 - £216 billion) for NWM Plc
have been
excluded from the following tables.
NWM Group
0
-
3 months
3
-
12
months
1
-
3 years
3
-
5 years
5
-
10 years
10
-
20 years
2021
£m
£m
£m
£m
£m
£m
Assets by contractual maturity up to 20 ye
ars
Cash and balances at central banks
16,645
—
—
—
—
—
Derivatives held for hedging
60
7
63
1
3
—
Settlement balances
2,139
—
—
—
—
—
Loans to banks - amortised cost
691
23
12
—
—
—
Loans to customers - amortised cost
1,689
2,094
2,830
660
327
70
Amounts due from holding company and fe
llow subsidiaries
(1)
459
3
24
7
14
100
Other financial assets
(2)
1,872
1,986
2,885
335
560
732
Finance lease
2
8
9
4
12
24
23,557
4,121
5,823
1,007
916
926
2021
Liabilities by contractual maturity up to 20 ye
ars
Bank deposits
825
421
566
—
—
—
Customer deposits
1,279
876
36
69
1
19
Amounts due to holding company and fellow subsi
diaries
(3)
1,057
166
3,743
—
195
—
Settlement balances
2,068
—
—
—
—
—
Derivatives held for hedging
—
10
93
26
—
—
Other financial liabilities
2,948
5,541
5,405
4,368
345
546
Lease
liabilities
4
10
12
9
18
—
8,181
7,024
9,855
4,472
559
565
Guarantees and commitments notional amoun
t
Guarantees
(4)
595
—
—
—
—
—
Commitments
(5)
9,921
—
—
—
—
—
10,516
—
—
—
—
—
For notes to the above table ref
er to page 149.
Notes to the fin
ancial state
ments continue
d
NWM Group
Annu
al Report an
d Accounts 202
1
148
11 Financial instruments - maturity analy
sis continued
NWM Group
0-3 months
3-12 months
1-
3 years
3-5 years
5-10 years
10-
20 years
2020
£m
£
m
£m
£m
£m
£m
Assets by contractual maturity up to 20 ye
ars
Cash and
balances at central b
anks
15,771
—
—
—
—
—
Derivatives held for hedging
52
44
137
27
6
—
Settlement balances
2,296
—
—
—
—
—
Loans to banks - amortised cost
876
16
—
—
1
110
Loans to customers - amortised cost
1,476
3,139
2,541
872
262
126
Amounts due from holding company and fe
llow subsidiaries
(1)
528
1
23
1
4
85
Other financial assets
(2)
1,439
2,004
2,871
908
882
525
Finance lease
2
7
8
6
13
46
22,440
5,211
5,580
1,814
1,168
892
2020
Liabilities by contractual maturity up to 20 ye
ars
Bank deposits
458
819
498
37
—
—
Customer deposits
1,664
863
84
1
1
20
Amounts due to holding company and fellow subsi
diaries
(3)
103
204
5,181
889
204
—
Settlement balances
2,248
—
—
—
—
—
Derivatives held for hedging
—
(1)
92
11
—
—
Other financial liabilities
2,419
5,931
5,371
3,371
463
195
Other liabilities- notes in circulation
4
15
21
8
21
2
Lease liabilities
6,896
7,831
11,247
4,317
689
217
Guarantees and commitments notional amoun
t
Guarantees
(4)
638
—
—
—
—
—
Commitments
(5)
11,348
—
—
—
—
—
11,986
—
—
—
—
—
NWM Plc
0-3 months
3-12 months
1-3 years
3-5 years
5-10 years
10-20 years
2021
£m
£m
£m
£m
£m
£m
Assets by contractual maturity up to 20 ye
ars
Cash and balances at central banks
12,294
—
—
—
—
—
Derivatives held for hedging
60
7
63
1
3
—
Settlement balances
795
—
—
—
—
—
Loans to banks - amortised cost
452
12
11
—
—
—
Loans to customers - amortised cost
1,630
2,087
2,478
454
323
70
Amounts due from holding company and fe
llow subsidiaries
(1)
1,396
72
1,327
549
222
80
Other financial assets
(2)
1,790
1,556
2,640
247
530
696
Finance lease
1
4
—
—
—
—
18,418
3,738
6,519
1,251
1,078
846
2021
Liabilities by contractual maturity up to 20 ye
ars
Bank deposits
825
421
566
—
—
—
Customer deposits
826
619
11
55
1
3
Amounts due to holding company and fellow subsi
diaries
(3)
2,367
197
4,047
—
416
—
Settlement balances
1,028
—
—
—
—
—
Derivatives held for hedging
—
10
93
26
—
—
Other financial liabilities
2,522
4,365
5,291
4,364
189
148
Lease liabilities
2
6
2
—
—
—
7,570
5,618
10,010
4,445
606
151
Guarantees and commitments notional
amount
Guarantees
(4)
197
—
—
—
—
—
Commitments
(5)
6,152
—
—
—
—
—
6,349
—
—
—
—
—
For notes to the above table ref
er to the following page.
Notes to the fin
ancial state
ments continue
d
NWM Group
Annu
al Report an
d Accounts 202
1
149
11 Financial instruments - maturity analy
sis continued
NWM Plc
0-3 months
3-12 months
1-3 years
3-
5 years
5-10 years
10
-20 years
2020
£m
£
m
£m
£m
£m
£m
Assets by contractual maturity up to 20 ye
ars
Cash and balances at central banks
11,736
—
—
—
—
—
Derivatives held for hedging
52
44
137
27
6
—
Settlement balances
1,084
—
—
—
—
—
Loans to banks - amortised cost
574
16
—
—
1
110
Loans to customers - amortised cost
1,412
3,090
2,091
483
256
127
Amounts due from holding company and fe
llow subsidiaries
(1)
1,029
738
1,209
689
220
85
Other financial
assets
(2)
1,429
1,490
2,723
778
765
498
Finance lease
1
4
5
—
—
—
17,317
5,382
6,165
1,977
1,248
820
2020
Liabilities by contractual maturity up to 20 ye
ars
Bank deposits
456
775
498
37
—
—
Customer deposits
878
529
61
1
1
3
Amounts due to holding company and fellow subsi
diaries
(3)
1,67
2
365
6,379
889
427
—
Settlement balances
604
—
—
—
—
—
Derivatives held for hedging
—
(1)
92
11
—
—
Other financial liabilities
2,086
4,458
5,049
3,276
307
195
Lease liabilities
2
7
7
—
—
—
5,698
6,133
12,086
4,214
735
198
Guarantees and commitments notional amoun
t
Guarantees
(4)
195
—
—
—
—
—
Commitments
(5)
6,678
—
—
—
—
—
6,873
—
—
—
—
—
(1)
Amounts due from holding company and fellow subsidiaries relating to non-financial
instrum
ents have b
een excluded from the tables.
(2)
Other financial assets excludes equity shares.
(3)
Amounts due to holding company and fellow subsidiaries relating t
o non-financial instruments have been excluded from the tables.
(4)
NWM Group is only called upon to satisfy a guaran
tee when the guaranteed party fails to meet its obligations. NWM Group expects most guarantees it provides to exp
ire unused.
(5)
NWM Group has given commitments to provide funds t
o customers under undrawn formal facilities, credit lines and other commitments to lend subject to certain conditions being
met by the counterparty. NWM Group does not expect all facilities to be drawn, and some may laps
e before drawdown.
12 Trading assets and liabili
ties
Trading assets and liabilities comprise asse
ts and liabilities held at fair value in trading portfol
ios.
NWM Group
NWM Plc
2021
2020
2021
2020
Assets
£m
£m
£m
£m
Loans
Reverse repos
20,742
19,404
9,246
11,071
Collateral given
11,990
18,459
9,332
15,389
Other loans
1,414
1,611
1,189
1,497
Total loans
34,146
39,474
19,767
27,957
Securities
Central and local government
- UK
6,919
4,184
6,919
4,184
-
US
3,329
5,149
145
498
- Other
10,929
16,436
10,929
16,390
Financial institutions and Cor
porate
3,778
3,446
3,462
3,140
Total securities
24,955
29,215
21,455
24,212
Total
59,101
68,689
41,222
52,169
Liabilities
Deposits
Repos
19,389
19,036
4,940
5,928
Collateral received
17,619
23,226
16,386
22,267
Other deposits
1,536
1,803
1,532
1,800
Total deposits
38,544
44,065
22,858
29,995
Debt securities in issue
974
1,408
974
1,408
Short positions
24,964
26,779
23,287
25,513
Total
64,482
72,252
47,119
56,916
For accounting policy information se
e Accounting policies note 8.
Notes to the fin
ancial state
ments continue
d
NWM Group
Annu
al Report an
d Accounts 202
1
150
13 Derivatives
NWM Group uses derivatives as part of its
trading activities or to manage its own risk such
as interest rate, foreign excha
nge, or
credit risk.
NWM Group
2021
2020
Notional
Assets
Liabilities
Notional
A
ssets
Liabilities
£bn
£m
£m
£bn
£m
£
m
Exchange rate contracts
3,162
38,546
39,275
3,331
52,524
54,863
Interest rate contracts
8,601
66,850
58,879
10,412
112,926
102,073
Credit derivatives
14
154
343
15
161
388
Equity and commodity contracts
—
—
—
1
8
8
105,550
98,497
165,619
157,332
NWM Plc
2021
2020
Notional
Assets
Liabilities
Notional
Assets
Liabilities
£bn
£m
£m
£
bn
£m
£m
Exchange rate contracts
3,169
38,692
39,427
3,362
53,182
55,514
Interest rate contracts
7,383
64,196
55,335
8,606
110,753
97,850
Credit derivatives
14
154
334
15
161
382
Equity and commodity contracts
—
—
—
1
8
8
103,042
95,096
164,104
153,754
For accounting policy information se
e Accounting policies 8 and 14.
Refer to Note 9 for amounts due
from/to fellow NatWest Group subsidiaries.
NWM Group applies hedge accounting to
reduce the accounting
mismatch caused in the income statement by u
sing derivatives
to hedge the following risks: inte
rest rate, foreign exchange and
net investment in foreign operations.
NWM Group’s interest rate hedging relates to the
management
of NWM Group’s non-trading structural interest
rate risk, caused
by the mismatch between fixed interest
rates and floating
interest rates on its financial ins
truments. NWM Group manages
this risk within approved limits. Re
sidual risk positions are
hedged with derivatives, principally interest rate sw
aps.
Suitable larger fixed rate financial instruments a
re subject to fair
value hedging; the remaining exposure, where possible, is
hedged by derivatives designated as cash flow hedges.
Cash flow hedges of interest rate risk relate to exposu
res to the
variability in future interest payments and
receipts due to the
movement of benchmark interest rates on fo
recast transactions
and on financial assets and financial lia
bilities. This variability in
cash flows is hedged by interest rate swaps, whic
h convert
variable cash flows into fixed. For these cash flow hed
ge
relationships, the hedged items are actual and fo
recast variable
interest rate cash flows arising f
rom financial assets and
financial liabilities with interest rates linked to the relev
ant
benchmark rates, most notably LIBO
R, EURIBOR, SONIA and
the Bank of England Official Bank Rate. The v
ariability in cash
flows due to movements in the
relevant benchmark rate is
hedged; this risk component is identified using
the risk
management systems of NWM Group and e
ncompasses the
majority of cash flow variability risk.
Fair value hedges of interest rate risk invol
ve interest rate
swaps transforming the fixed interest rate risk in fin
ancial assets
and financial liabilities to floating. The hedged
risk is the risk of
changes in the hedged item’s fair value att
ributable to changes
in the benchmark interest rate
risk component of the hedged
item. The significant benchmarks identified as risk co
mponents
are LIBOR, EURIBOR and SONIA. The
se risk components are
identified using the risk management systems of NW
M Group
and encompass the majority of the hedged item’s fai
r value risk.
NWM Group hedges the exchange rate risk of i
ts net investment
in foreign currency denominated operations with cur
rency
borrowings and forward foreign exchange c
ontracts. NWM
Group reviews the value of the investmen
ts’ net assets,
executing hedges where appropriate to reduce t
he sensitivity of
capital ratios to foreign exchange rate movement.
Hedge
accounting relationships will be designated whe
re required.
Exchange rate risk also arises in NWM Grou
p where payments
are denominated in currencies other than the fu
nctional
currency. Residual risk positions are hedged wit
h forward
foreign exchange contracts, fixing the exc
hange rate the
payments will be settled in. The
derivatives are documented as
cash flow hedges.
For all cash flow hedging and fair value hedge
relationships
NWM Group determines that there is an adequa
te level of
offsetting between the hedged item and hed
ging instrument at
inception and on an ongoing basis.
This is achieved by
comparing movements in the fair value of the ex
pected highly
probable forecast interest cash f
lows/fair value of the hedged
item attributable to the hedged risk with movements i
n the fair
value of the expected changes in cash flows fr
om the hedging
interest rate swap. Hedge effectiveness is asse
ssed on a
cumulative basis over a time period management
determines to
be appropriate. NWM Group use
s either the actual ratio
between the hedged item and hedging inst
rument(s) or one that
minimises hedge ineffectiveness to establish the he
dge ratio for
hedge accounting. Hedge ineffe
ctiveness is measured and
recognised in the income statement
as it arises.
IBOR reform - NWM Group in the y
ear continued to apply, for
relationships directly affected b
y interest rate benchmark
reform, Interest Rate Benchmark Reform Amen
dments to IAS 39
and IFRS 7 issued September 20
19 (“Phase 1 relief”) and
Interest Rate Benchmark Refor
m – Phase 2 Amendments to IAS
39 and IFRS 7 issued August 202
0 (“Phase 2 relief”).
Significant transitions in the year we
re the GBP, JPY and CHF
derivatives subject to cash flow and fair v
alue hedging
transitioned as part of the Liquidity Cle
aring House ‘big bang’
conversion in December 2021. The
swaps were restructured to
reprice off the appropriate risk free rate from the nex
t repricing
date post 31 December 2021 plus a spread adjustmen
t. All
impacted hedge accounting relationships ha
d their designations
updated to reflect this transition.
USD cash flow and fair value he
dges of interest rate risk that
mature past 30 June 2023 continue
to be directly affected by
interest rate benchmark reform.
Notes to the fin
ancial state
ments continue
d
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Annu
al Report an
d Accounts 202
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151
13 Derivatives continued
Included in the table below are
derivatives held for hedging as
follows:
NWM Group
2021
2020
Changes in fa
ir
Changes in fair
value used for
value used for
hedge
hedge
Notional
Assets
L
iabilities
ineffectiveness
(1)
Notiona
l
Assets
Liabilities
ineffect
iveness (1)
£bn
£m
£m
£m
£bn
£m
£m
£m
Fair value hedging
- interest rate contracts
15.9
179
156
(173)
14.8
392
170
42
Cash flow hedging
-
interest rate contracts
4.8
36
59
(188)
5.6
288
—
61
- exchange rate contracts
1.1
1
109
1
1.2
1
107
(
3)
Net investment hedging
- exchange rate contracts
0.3
6
—
—
—
—
—
—
22.1
222
324
(360)
21.6
681
277
100
Clearing house settlements
(90)
(205)
(414)
(170)
132
119
267
107
NWM Plc
2021
2020
Changes in fa
ir
Changes in fair
value used for
value used for
hedge
hedge
Notional
Assets
Liabilities
ineffectiveness
(1)
Notiona
l
Assets
Liabilities
ineffectiveness (1)
£bn
£m
£m
£m
£bn
£m
£m
£m
Fair value hedging
Interest rate contracts
15.8
174
156
(170)
14.7
383
170
39
Cash flow hedging
Interest rate contracts
4.8
36
59
(188)
5.6
288
—
61
Exchange rate contracts
1.1
1
109
1
1.2
1
107
(3)
Net investment hedging
Exchange rate contracts
0.3
6
—
—
—
—
—
—
22.0
217
324
(357)
21.5
672
277
97
Clearing house settlements
(85)
(205)
(406)
(170)
132
119
266
107
(1)
The change in fair value per hedge ineffectiveness
includes instruments that were derecognised in the year.
The notional of hedging instruments fo
r NWM Group affected by interest rate benchmark
reform is as follows:
2021
2020
£bn
£bn
Fair value hedging
- EURIBOR
(1)
—
6.8
-
GBP LIBOR
—
0.3
- USD LIBOR
(2)
3.9
7.2
- Other currency LIBOR
—
1.0
Cash flow hedging
- EURIBOR
(1)
—
0.1
-
GBP LIBOR
—
5.1
- USD LIBOR
(2)
0.9
0.9
(1)
In 2021 management concluded that EURIBOR is not expected to be significantly ref
ormed further and therefore any uncertainty due to interest benchmark rate reform for
EURIBOR has ended.
(2)
In 2021 the FCA declared that USD LIBOR will be non-
representative post 30 June 2023; at the time of preparing the 2020 disclosures this date was expected to be 31 December
2021.
(3)
The notional of hedging instruments for NWM plc affected b
y interest rate benchmark reform were as above (2020: Fair value hedging £0.1 billion notional less).
(4)
The notional of £1 billion cross currency derivative
contracts in cash flow hedge relationships will convert to repricing using the relevant risk-free rate at the first repricing date post
cessation.
Notes to the fin
ancial state
ments continue
d
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Annu
al Report an
d Accounts 202
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152
13 Derivatives continued
The following table shows the period in which
notional of the hedging contract ends:
NWM Group
0
-
3 months
3
-
12 months
1
-
3 years
3
-
5 years
5
-
10 years
10
-
20 years
20+ years
Total
2021
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
Fair value hedging
Hedging assets - interest rate risk
0.1
0.7
2.1
0.2
—
0.1
0.1
3.3
Hedging liabilities - interest rate risk
1.5
1.6
5.5
2.8
1.0
0.2
—
12.6
Cash flow hedging
Hedging assets - interest rate risk
0.4
0.5
1.0
1.6
1.3
—
—
4.8
Average fixed interest rate (%)
2.64
0.26
0.95
0.87
0.66
—
—
0.91
Hedging liabilities
-
exchange rate risk
—
—
0.9
0.2
—
—
—
1.1
Net investment hedging
Exchange rate risk
0.3
—
—
—
—
—
—
0.3
2020
Fair value hedging
Hedging assets - interest rate risk
—
0.5
2.0
0.3
—
0.1
0.2
3.1
Hedging liabilities - interest rate risk
—
0.3
8.0
2.7
0.7
—
—
11.7
Cash flow hedging
Hedging assets - interest rate risk
0.5
0.2
1.5
2.5
0.9
—
—
5.6
Average fixed interest rate (%)
2.11
3.31
2.27
1.55
0.90
—
—
1.75
Hedging assets - exchange rate
risk
—
—
0.1
—
—
—
—
0.1
Hedging liabilities - exchange rate risk
—
—
0.9
0.2
—
—
—
1.1
Net investment hedging
Exchange rate risk
—
—
—
—
—
—
—
—
NWM Plc
0
-
3 months
3
-
12 months
1
-
3 years
3
-
5 years
5
-
10 years
10
-
20 years
20+ years
Total
2021
£bn
£bn
£bn
£bn
£bn
£bn
£bn
£bn
Fair value hedging
Hedging assets - interest rate risk
0.1
0.7
2.1
0.2
—
0.1
0.1
3.3
Hedging liabilities - interest rate risk
1.5
1.6
5.4
2.8
1.0
0.2
—
12.5
Cash flow hedging
Hedging assets - interest rate risk
0.4
0.5
1.0
1.6
1.3
—
—
4.8
Average fixed interest rate (%)
2.64
0.26
0.95
0.87
0.66
—
—
0.91
Hedging liabilities - exchange rate risk
—
—
0.9
0.2
—
—
—
1.1
Net investment hedging
Exchange rate risk
0.3
—
—
—
—
—
—
0.3
2020
Fair value hedging
Hedging assets - interest rate risk
—
0.5
2.0
0.3
—
0.1
0.2
3.1
Hedging liabilities - interest rate risk
—
0.3
7.9
2.7
0.7
—
—
11.6
Cash flow hedging
Hedging assets - interest rate risk
0.5
0.2
1.5
2.5
0.9
—
—
5.6
Average fixed interest rate (%)
2.11
3.31
2.27
1.55
0.90
—
—
1.75
Hedging assets - exchange rate
risk
—
—
0.1
—
—
—
—
0.1
Hedging liabilities - exchange rate risk
—
—
0.9
0.2
—
—
—
1.1
Net investment hedging
Exchange
rate risk
—
—
—
—
—
—
—
—
For cash flow hedging of exchange rate risk, the a
verage foreign exchange rates applic
able across the relationships were
USD/GBP 1.22 (2020: 1
.22),
JPY/GBP 132.93
(2020: 132.93), JPY/EUR: n/a
(2020: 12
0.21) and CNH/GBP 8.74 (2020
: n/a) for the
main currencies hedged.
For net investment hedging of e
xchange risk, the average foreign exchange r
ates applicable were AED/USD 3.67 (20
20: n/a) and
USD/GBP 1.32 (2020: n/a) for the main cur
rencies hedged.
Notes to the fin
ancial state
ments continue
d
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Annu
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d Accounts 202
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153
13 Derivatives continued
The table below analyses assets and liabilities includi
ng intercompany, subject to hedging de
rivatives:
2021
2020
Impact
Change in
Impact
Change in
Carrying
on
fair value
Carrying
on
fair value
value (CV)
hedged
used as a
value (CV)
hedged
used as a
of hedged
items
basis to
of hedged
items
basis to
assets and
included
determine
assets and
included
determine
liabilities
in CV
ineffectiveness
(1)
liabilities
in CV
ineffectiveness (1)
NWM Group
£m
£m
£m
£m
£m
£m
Fair value hedging – interest rate
Loans to banks and customers -
amortised cost
33
—
—
33
—
—
Other financial assets - securities
3,353
92
(61)
3,165
152
89
Total
3,386
92
(61)
3,198
152
89
Other financial liabilities -
debt securities in issue
14,604
55
231
13,245
322
(139)
Subordinated liabilities
102
2
3
104
5
(3)
Total
14,706
57
234
13,349
327
(142)
Cash flow hedge – interest rate
Loans to banks and customers -
amortised cost
4,648
172
5,068
(50)
Other financial assets
-
securities
159
6
571
(5)
Total
4,807
178
5,639
(55)
Cash flow hedge – exchange r
ate
Loans to banks and customers
-
amortised cost
21
—
112
1
Other financial assets - securities
2
—
30
—
Total
23
—
142
1
Other financial liabilities
-
debt securities in issue
1,036
(1)
1,036
2
Total
1,036
(1)
1,036
2
NWM Plc
Fair value hedging – interest rate
Loans to banks and customers
-
amortised cost
33
—
—
33
—
—
Other financial assets - securities
3,353
92
(61)
3,165
152
89
Total
3,386
92
(61)
3,198
152
89
Other financial liabilities
-
debt securities in issue
14,604
55
231
13,245
322
(139)
Total
14,604
55
231
13,245
322
(139)
Cash flow hedge – interest rate
Loans to banks and customers -
amortised cost
4,648
172
5,068
(50)
Other financial assets - securities
159
6
571
(5)
Total
4,807
178
5,639
(55)
Cash flow hedge – exchange r
ate
Loans to banks and customers
-
amortised cost
21
—
112
1
Other financial assets - securities
2
—
30
—
Total
23
—
142
1
Other
financial liabilities
-
debt securities in issue
1,036
(1)
1,036
2
Total
1,036
(1)
1,036
2
(1)
The change in fair value per hedge ineffectiveness
includes instruments that were derecognised in the year.
Notes to the fin
ancial state
ments continue
d
NWM Group
Annu
al Report an
d Accounts 202
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154
13 Derivatives continued
The following risk exposures for NWM Group will
be affected by interest rate benchma
rk reform (notional, hedge adjustment):
2021
2020
Hedged
Hedged
Notional
adjustment
Notional
a
djustment
£bn
£m
£bn
£m
Fair value hedging
-
EURIBOR
(1)
—
—
6.8
(85)
- GBP LIBOR
—
—
0.3
(8)
- USD LIBOR
(2)
4.1
7
7.2
(89)
- Other currency LIBOR
—
—
1.0
—
Cash flow hedging
-
EURIBOR
(1)
—
—
0.1
3
- GBP LIBOR
—
—
2.5
(30)
- USD LIBOR
(2)
0.9
(16)
0.9
(51)
- BOE base rate
(3)
—
—
2.6
(126)
(1)
In 2021 management concluded that EURIBOR is not expected to be significantly ref
ormed further and therefore any uncertainty due to interest benchmark rate reform for
EURIBOR has ended.
(2)
In 2021 the FCA declared that USD LIBOR will be non-
representative post 30 June 2023; at the time of preparing the 2020 disclosures this date was expected to be 31 December
2021.
(3)
Hedge relationships subject to reform are those whe
re either the hedged item or the hedging instrument is subject to the IBOR reform.
(4)
The above risk exposures for NWM Plc were the sa
me as above (2020: Fair value hedging £0.1 billion notional and £5 million Hedged adjustment less).
(5)
Notional of £150 million GBP LIBOR hedged items will convert to
repricing off SONIA at the first repricing date post cessation in NWM Plc.
The following table shows a pre
-tax analysis of the cash flow hedge reserve and foreign exc
hange hedge reserve:
NWM Group
2021
2020
Cash flow
Foreign
exchange
Cash flow
Foreign exchange
hedge reserve
hedge reserve
hedge reserve
hedge reserve
£m
£m
£m
£m
Continuing
Interest rate risk
(37)
—
229
—
Foreign exchange risk
(4)
8
(4)
4
De-designated
Interest rate risk
111
—
52
—
Foreign exchange risk
—
(141)
—
(150)
Total
70
(133)
277
(146)
NWM Plc
2021
2020
Cash flow
Foreign excha
nge
Cash flow
Foreign exchange
hedge reserve
hedge reserve
hedge reserve
hedge reserve
£m
£m
£m
£m
Continuing
Interest
rate risk
(37)
—
229
—
Foreign exchange risk
(4)
1
(4)
—
De
-
designated
Interest rate risk
111
—
52
—
Foreign exchange risk
—
33
—
33
Total
70
34
277
33
Notes to the fin
ancial state
ments continue
d
NWM Group
Annu
al Report an
d Accounts 202
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155
13 Derivatives continued
NWM Group
2021
2020
Foreign
Foreign
Cash
flow
exchange
Cash flow
exchange
hedge reserve
hedge reserve
hedge reserve
hedge reserve
£m
£m
£m
£m
Amount recognised in equity
Interest rate risk
(207)
—
18
—
Foreign exchange risk
—
20
—
(31)
Total
(207)
20
18
(31)
Amount transferred from equity
to earnings
Interest rate risk to net interest income
1
—
73
—
Interest rate risk to non-interest inco
me
—
—
—
—
Foreign exchange risk to net interest inco
me
—
—
1
—
Foreign exchange risk to non-interest income
—
—
—
1
Foreign exchange risk to operating expenses
—
—
—
—
Total
1
—
74
1
NWM Plc
2021
2020
Foreign
Foreign
Cash flow
exchange
Cash flow
exchange
hedge reserve
hedge reserve
hedge
reserve
hedge reserve
£m
£m
£m
£m
Amount recognised in equity
Interest rate risk
(208)
—
18
—
Foreign exchange risk
—
1
—
—
Total
(208)
1
18
—
Amount transferred from equity
to earnings
Interest rate risk to net interest income
1
—
73
—
Interest rate risk to non-interest inco
me
—
—
—
—
Foreign exchange risk to net interest inco
me
—
—
1
—
Foreign exchange risk to non-interest income
—
—
—
—
Foreign exchange risk to operating expenses
—
—
—
—
Total
1
—
74
—
Hedge ineffectiveness recognised in othe
r operating income in continuing operations co
mprised:
NWM Group
2021
2020
£m
£m
Fair value hedging
Gains/(losses) on the hedged items attributable to the hed
ged risk
173
(53)
(Losses)/gains on the hedging instruments
(173)
42
Fair value hedging ineffectiveness
—
(11)
Cash flow hedging
Interest rate risk
(10)
6
Cash flow hedging ineffectiveness
(10)
6
Total
(10)
(5)
The main sources of ineffectiveness
for interest rate risk hedge accounting relationships a
re:

The effect of the counterparty
credit risk on the fair value of the interest rate swap which is
not reflected in the fair value of
the
hedged item attributable to the change in inte
rest rate (fair value hedge);

Differences in the repricing basis between the hedging i
nstrument and hedged cash flows (cas
h flow hedge); and

Upfront present values on the hedging derivative
s where hedge accounting relationships ha
ve been designated after the tr
ade
date (cash flow hedge and fair value hedge).
Notes to the fin
ancial state
ments continue
d
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Annu
al Report an
d Accounts 202
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156
14 Loan impairment provisions
Loan exposure and impairment metri
cs
The table below summarises loans and rel
ated credit impairment measures within the
scope of ECL framework.
NWM Group
NWM Plc
31
December
31 December
31 December
31 December
2021
2020
2021
2020
£m
£m
£m
£m
Loans - amortised cost
- Stage 1
8,301
7,799
7,444
6,819
- Stage 2
147
1,566
104
1,253
- Stage 3
99
171
61
99
Of which: individual
91
162
53
90
Of which: collective
8
9
8
9
- Inter-Group
731
755
2,605
3,039
Total
9,278
10,291
10,214
11,210
ECL provisions
(1)
- Stage 1
6
12
6
11
- Stage 2
3
49
2
12
- Stage 3
75
132
36
65
Of which: individual
68
124
29
57
Of which: collective
7
8
7
8
- Inter-Group
—
1
1
5
Total
84
194
45
93
ECL provision coverage
(2)
- Stage 1 (%)
0.07
0.15
0.08
0.16
- Stage 2 (%)
2.04
3.13
1.92
0.96
- Stage 3 (%)
75.76
77.19
59.02
65.66
- Inter-Group (%)
—
0.13
0.04
0.16
Total
0.98
2.02
0.58
1.08
Impairment (releases)/losses
ECL (release)/charge
- Stage 1
(14)
(2)
(11)
1
- Stage 2
(11)
55
—
16
- Stage 3
(9)
(12)
(11)
(13)
Of which: individual
(6)
(3)
(8)
(4)
Of which: collective
(3)
(9)
(3)
(9)
-
Third party
(34)
41
(22)
4
- Inter-Group
(1)
1
(1)
13
Total
(35)
42
(23)
17
Amounts written off
67
11
13
6
Of which: individual
43
11
10
6
(1)
NWM Group’s intercompany assets were classified as Stage 1. The
ECL for these loans was £0.2 million at 31 December 2021.
(2)
ECL provisions coverage is calculated as total ECL provisions divided by t
hird party loans – amortised cost and FVOCI.
(3)
The table shows gross loans only and excludes amounts that are outside th
e scope of the ECL framework. Refer to page 76 for Financial instruments within the scope of the IFRS 9
ECL framework for further details. Other financial a
ssets within the scope of the IFRS 9 ECL framework were cash and balances at central banks totalling £16.6 billion (2020 – £15.8
billion) and debt securities of £8.4 billion (2020 – £8.7 billion).
Notes to the fin
ancial state
ments continue
d
NWM Group
Annu
al Report an
d Accounts 202
1
157
14 Loan impairment provisions continu
ed
Credit risk enhancement and mi
tigation
For information on Credit risk enhance
ment and mitigation held
as security, refer to Risk and capital managemen
t – Credit risk
enhancement and mitigation section.
Critical accounting policy: Loan impairmen
t
provisions
Accounting policies note 9 sets out how the ex
pected loss
approach is applied. At 31 December 2021
, customer loan
impairment provisions amounted to £84 million (202
0 - £194
million). A loan is impaired whe
n there is objective evidence that
the cash flows will not occur in
the manner expected when the
loan was advanced. Such evidence includes, chan
ges in the
credit rating of a borrower, the failure to make p
ayments in
accordance with the loan agree
ment, significant reduction in the
value of any security, breach of limits o
r 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 e
stimated future cash
flows at the loan's original effective inte
rest rate.
The measurement of credit impairment unde
r the IFRS expected
loss model depends on management’s
assessment of any
potential deterioration in the cr
editworthiness of the borrower,
its modelling of expected performance and the ap
plication of
economic forecasts. All three elements require judgments
that
are potentially significant to the estimate of impair
ment losses.
For further information and sen
sitivity analysis, refer to Risk and
capital management – Measurement unce
rtainty and ECL
sensitivity analysis section.
IFRS 9 ECL model design prin
ciples
Refer to Credit risk – IFRS 9 ECL model design pri
nciples 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 s
cenarios section for further
details.
Notes to the fin
ancial state
ments continue
d
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al Report an
d Accounts 202
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158
15 Other financial assets
NWM Group
Debt securities
Central and
local government
Other
Equity
UK
US
Other
debt
Total
shares
Loans
Total
2021
£m
£m
£m
£m
£m
£m
£m
£m
Mandatory fair value through profit or loss
—
—
—
1
1
1
78
80
Fair value through other comprehensive income
360
3,357
884
794
5,395
136
59
5,590
Amortised cost
—
—
—
3,116
3,116
—
—
3,116
Total
360
3,357
884
3,911
8,512
137
137
8,786
2020
Mandatory fair value through profit or loss
—
—
—
84
84
5
77
166
Fair value through other comprehensive income
212
3,372
1,691
891
6,166
119
15
6,300
Amortised cost
—
—
—
2,575
2,575
—
—
2,575
Total
212
3,372
1,691
3,550
8,825
124
92
9,041
NWM Plc
Debt securities
Central and
local government
Other
Equity
UK
US
Other
debt
Total
shares
L
oans
Total
2021
£m
£m
£m
£m
£m
£m
£m
£m
Mandatory fair value through profit or loss
—
—
—
1
1
—
78
79
Fair value through other comprehensive income
86
3,209
794
459
4,548
43
59
4,650
Amortised cost
—
—
—
3,014
3,014
—
—
3,014
Total
86
3,209
794
3,474
7,563
43
137
7,743
2020
Mandatory fair value through profit or loss
—
—
—
84
84
—
77
161
Fair value through other comprehensive income
108
3,298
1,497
376
5,279
53
15
5,347
Amortised cost
—
—
—
2,535
2,535
—
—
2,535
Total
108
3,298
1,497
2,995
7,898
53
92
8,043
During 2020 NWM Group dispose
d of SABB shares valued at £383
million, and a dividend of £15 million was received in the ye
ar.
Dividends on FVOCI equity shares include
£4 million (2020: £5 million) in relation to
the equity holding in OTC Derivative Limit
ed.
For accounting policy information se
e Accounting policies note 8.
Notes to the fin
ancial state
ments continue
d
NWM Group
Annu
al Report an
d Accounts 202
1
159
16 Investments in group undertakings
Investments in group undertakings a
re carried at cost less impairment losses. Move
ments during the year were as follows:
NWM Plc
2021
2020
£m
£
m
At 1 January
2,600
2,905
Currency translation and other adjustments
(20)
42
Additional investments in Group undertakings
(4)
—
Disposals
—
(97)
Impairment of investments
(1)
(95)
(250)
At 31 December
2,481
2,600
(1)
Net of impairment reversals.
The 2021 impairment charge consists primarily of im
pairment of NatWest Markets plc’s in
vestments in RBS Asia Financial Se
rvices
Limited and RBS Holdings NV. T
he impairment of investments in 2020 was related mainly to RB
S Netherlands Holdings BV. £4
million additional investment was driven by f
air value hedge designations on existing US
D denominated investments. The 20
20
disposal was due to the liquidation of RB
S Bank (Polska) S.A. in August 202
0.
NatWest Markets plc’s subsidiaries are
assessed for potential impairment of investment b
ased on NAV. Fair value measureme
nt for
this purpose was categorised a
s Level 3 of the fair value hierarchy.
The principal subsidiary undertakings of the com
pany are shown below. Their capital consist
s of ordinary shares and additi
onal
Tier 1 notes which are unlisted. A
ll of these subsidiaries are included in NWM Group’s consoli
dated financial statements and
have
an accounting reference date of 3
1 December.
Nature of business
Country of incorporation and
principal area of operation
Group
interest
NatWest Markets Securities Inc.
Broker dealer
US
100%
NatWest Markets N.V.
Banking
Netherlands
100%
For accounting policy information se
e Accounting policies note 15.
Full information on all related undertakings is inclu
ded in Note 3
4.
17 Other assets
NWM Group
NWM Plc
2021
2020
2021
2020
£m
£m
£m
£m
Property, plant and equipment
66
106
13
19
Pension schemes in net surplus (Note 5)
306
264
306
264
Assets of disposal groups
20
—
—
—
Accrued income
34
25
27
19
Tax recoverable
332
221
330
207
Deferred tax (Note 7)
48
2
—
2
Other assets
72
70
56
51
Total
878
688
732
562
18 Other financial liabilities
NWM Group
NWM Plc
2021
2020
2021
2020
£m
£m
£m
£m
Customer deposits - designated as at fair value t
hrough profit or loss
568
796
75
—
Debt securities in issue
- designated as at fair value through profit or loss
1,103
1,607
875
1,372
- amortised cost
16,621
14,662
15,512
13,482
Subordinated liabilities
-
designated as at fair value through profit o
r loss
703
793
371
420
- amortised cost
260
312
44
96
Total
19,255
18,170
16,877
15,370
For accounting policy information se
e Accounting policies notes 8 and 13.
Notes to the fin
ancial state
ments continue
d
NWM Group
Annu
al Report an
d Accounts 202
1
160
19 Subordinated liabilities
NWM Group
NWM Plc
2021
2020
2021
2020
£m
£m
£m
£m
Dated loan capital
919
1,009
371
420
Undated loan capital
44
96
44
96
Total
963
1,105
415
516
(1)
Excludes amounts due to holding company and fellow subsidiaries of £1,464 million (2020 – £1
,753 million) for both NWM Group and NWM Plc which are analysed in the tables
below.
The following tables analyse NWM Plc third p
arty subordinated liabilities:
Capital
2021
2020
Dated loan capital
treatment
£m
£m
€300 million floating rate notes
2022
(3)
Tier 2
252
268
€145.6 million floating rate notes 20
23
(3)
Tier 2
119
152
Total
371
420
(1)
In the event of certain changes in tax laws, dat
ed loan capital issues may be redeemed in whole, but not in part, at the option of the issuer, at the principal amount thereof plus
accrued interest, subject to prior regulatory approva
l.
(2)
Except as stated above, claims in respect of NWM Plc’s dated loan capital a
re subordinated to the claims of other creditors. None of NWM Plc’s dated loan capital is secured.
(3)
Interest on all floating rate subordinated notes is calculated by reference to market rates.
Capital
2021
2020
Undated loan capital
treatment
£m
£m
£31 million 7.38% notes (not cal
lable)
Tier 2
1
31
£21 million 6.20% notes (callable March 2022)
Tier 2
22
23
£16 million 5.63% (callable Sept
ember 2026)
Tier 2
20
22
£19 million 5.63% notes (callable June 2
032)
Tier 2
1
20
Total
44
96
(1)
The Company can satisfy interest payment obligations by iss
uing ordinary shares to appointed Trustees to enable them, on selling these shares, to settle the interest payment.
(2)
Except as stated above, claims in respect of NWM Plc’s undated loan capital a
re subordinated to the claims of other creditors. None of NWM Plc’s undated loan capital is secured.
(3)
In the event of certain changes in tax laws, undat
ed loan capital issues may be redeemed in whole, but not in part, at the option of NWM Plc, at the principal amount thereof plus
accrued interest, subject to prior regulatory approva
l.
Capital
2021
2020
Third party redemptions in the period
(values as at date of transaction)
treatment
£m
£m
US$125.6 million floating rate notes 202
0
Tier 2
—
97
€15 million 6.00% notes 2020
Tier 2
—
11
€145.6 million floating rate dated notes 202
3 (partial redemption)
Tier 2
20
—
£31 million 7.38% notes (partial
redemption)
Tier 2
29
—
£19 million 5.63% notes (partial
redemption)
Tier 2
20
—
Total
69
108
(1) There were no third party issuances in 2021
or 2020.
The following tables analyse intercompany subo
rdinated liabilities:
NWM Group and
Bank
2021
2020
£m
£m
Dated loan capital
1,019
1,093
Undated loan capital
445
440
Preference shares
—
220
Total
1,464
1,753
Capital
2021
2020
Dated loan capital
treatment
£m
£m
€950 million 3.26% (redeemable Marc
h 2024)
Tier 2
823
889
US$250 million subordinated notes 202
9
Tier 2
196
204
1,019
1,093
Undated loan capital
US$600 million floating rate perpetual notes (call
able every 5 years from 201
3)
Tier 2
445
440
Preference shares
US$300 million 7.25% Series H (callable anyti
me)
Tier 1
—
220
Redemptions in the period
(values as at date of
transaction)
US$389 million 6.10% notes 2023
Tier 2
—
285
US$300 million 7.25% series H (callable
anytime)
Tier 1
220
—
220
285
Notes to the fin
ancial state
ments continue
d
NWM Gr
oup
Annual Report and Accou
nts 202
1
161
20 Other liabilities
NWM
Group
NWM Plc
2021
2020
2021
2020
£m
£m
£m
£m
Lease liabilities
53
71
10
16
Provisions for liabilities and charges
342
448
220
238
Retirement benefit liabilities (No
te 5)
66
63
57
54
Accruals
123
108
92
79
Deferred income
22
25
16
16
Current tax
11
54
2
16
Deferred tax (Note 7)
374
417
352
380
Other liabilities
64
48
40
67
1,055
1,234
789
866
NWM Group
Litigation and
other regulatory
Other (1)
Total
Provisions for liabilities and charges
£m
£m
£m
At 1 January 2021
334
114
448
Currency translation and other movements
—
(13)
(13)
Charge to income statement
38
39
77
Releases to income statement
(72)
(12)
(84)
Provisions utilised
(38)
(48)
(86)
At 31 December 2021
262
80
342
NWM Plc
Litigation and
other regulatory
Other (1)
Total
Provisions for liabilities and charges
£m
£m
£m
At 1 January 2021
158
80
238
Currency translation and other movements
—
(10)
(10)
Charge to income statement
29
23
52
Releases to income statement
(2)
(7)
(9)
Provisions utilised
(19)
(32)
(51)
At 31 December 2021
166
54
220
(1)
Materially comprises provisions relating to restructuring costs.
For accounting policy information se
e Accounting policies note 6.
Critical accounting policy: Provisi
ons for liabilities
The key judgment is involved in determining whet
her a present obligation exists. There is ofte
n a high degree of uncertainty and
judgment is based on the specific facts and circu
mstances relating to individual events in dete
r
mining whether there is a prese
nt
obligation. Judgment is also involved in esti
mation of the probability, timing and amount of a
ny outflows. Where NWM Group can
look to another party such as an insurer
to pay some or all of the expenditure requi
red to settle a provision, any reimbu
rsement is
recognised when, and only whe
n, it is virtually certain that it will be received.
Estimates
-
Provisions are liabilities of uncertain timin
g or amount and are recognised when
there is a present obligation as
a result
of a past event, the outflow of e
conomic benefit is probable and the outflow c
an be estimated reliably. Any difference betw
een the
final outcome and the amounts provided will aff
ect the reported results in the period w
hen the matter is resolved.

Litigation and other regulatory: NWM G
roup is engaged in various legal proceedings, b
oth in the UK and in overseas
jurisdictions, including the US. For fu
rther information in relation to legal proceedings
and discussion of the associated
uncertainties, refer to Note 25.

Other provisions: These materially c
omprise provisions for onerous contracts a
nd restructuring costs. Onerous co
ntract
provisions comprise an estimate of the costs involve
d in fulfilling the terms and condi
tions of contracts net of any expected
benefits to be received. Redundancy and restructu
ring provisions comprise the estimated cost
of restructuring, including
redundancy costs where an obligation exists.
Notes to the fin
ancial state
ments continue
d
NWM Gr
oup
Annual Report and Accou
nts 202
1
162
21 Share capital and reserves
Number of shares
2021
2020
2021
2020
Allotted, called up and fully pai
d
£m
£m
000s
000s
Ordinary shares of £1
400
400
399,517
399,517
Non-cumulative preference shares of US$0.0
1
—
—
—
12,000
Ordinary shares
No ordinary shares were issued during 2021
or 2020.
In 2021, NWM plc paid ordinary dividends of £1 billio
n (2020 –
Nil).
Paid-in equity
Comprises equity instruments i
ssued by NWM Plc other than
those legally constituted as sha
res.
Additional Tier 1 instruments iss
ued by NWM Plc having the
legal form of debt are classified
as equity under IFRS. The
coupons on these instruments
are non-cumulative and payable
at NWM Plc’s discretion.
2021
20
20
£m
£m
Additional Tier 1
instruments
US$950 million
7.9604% instru
ments callable
August 2025
749
155
749
US$200 million
5.540% instrum
ents callable Au
gust 2025
155
904
904
Capital recognised for regulatory purposes canno
t be
redeemed without Prudential Regulation Autho
rity consent. This
includes ordinary shares, preference shares and addition
al Tier
1
instruments.
On 30 September 2021, NWM Plc redeemed all 12
,000,000
Non-cumulative preference shares of US$0.0
1 in issue,
following approval from the Board of Directors and the
Prudential Regulation Authority
.
Reserves
NWM Plc optimises capital efficie
ncy by maintaining reserves in
subsidiaries, including regulated e
ntities. Certain preference
shares and subordinated debt
are also included within
regulatory capital. The remittance of rese
rves to the parent or
the redemption of shares or subordinated capit
al by regulated
entities may be subject to maintaining the capi
tal resources
required by the relevant regulator.
For accounting policy information se
e Accounting policies note
13.
Notes to the fin
ancial state
ments continue
d
NWM Gr
oup
Annual Report and Accou
nts 202
1
163
22 Structured entities
A structured entity (SE) is an e
ntity that has been designed
such that voting or similar rights are not the dominan
t 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 mean
s of contractual arrangements.
SEs are usually established for a specific, limited pur
pose, they
do not carry out a business or trade and typically h
ave no
employees. They take a variety of le
gal forms - trusts,
partnerships and companies - and fulfil m
any different
functions. As well as being a key e
lement of securitisations, SEs
are also used in fund managem
ent activities to segregate
custodial duties from the fund manageme
nt advice.
Consolidated structured entities
Securitisations
In a securitisation, assets, or interests in a pool of asse
ts, are
transferred generally to an SE which then is
sues liabilities to
third party investors. The majority of se
curitisations are
supported through liquidity facilities or other c
redit
enhancements. The NWM Group arranges securitis
ations to
facilitate client transactions an
d undertakes own-asset
securitisations to sell or to fund portfolios of f
inancial assets.
NWM Group also acts as an underwriter an
d depositor in
securitisation transactions in bo
th client and proprietary
transactions. NWM Group’s involvement i
n client securitisations
takes a number of forms. It may
: sponsor or administer a
securitisation programme; provide liquidity facili
ties or
programme-wide credit enhancement; and purch
ase securities
issued by the vehicle.
Covered debt programme
NWM Group has assigned cert
ain loans to customers and othe
r
debt instruments to bankruptcy remote limite
d liability
partnerships to provide security
for issues of debt securities by
NWM Group. NWM Group retains all of the
risks and rewards of
these assets and continues to r
ecognise them. The partnerships
are consolidated by the NWM Group and the
related covered
debt included within other financial lia
bilities. At 31 December
2021, £698 million (2020 - £1,064 million) of lo
ans and other
debt instruments provided security for £626 million (20
20 –
£1,085 million) debt securities in issue and other bor
rowing by
NWM Plc and NWM Group.
Lending of own issued securities
NWM Plc has issued, retained, and lent debt se
curities under
securities lending arrangements
. Under standard terms in the
UK and US markets, the recipient h
as an unrestricted right to
sell or re-pledge collateral, subje
ct to returning equivalent
securities on maturity of the transaction.
NWM
Plc retains all of
the risks and rewards of own is
sued liabilities lent under such
arrangements and does not recognise the
m.
At 31 December
2021, £1,494 million (2020 - £1
,893 million) of secured own
issued liabilities have been retained and le
nt under securities
lending arrangements. At 31 Dece
mber 2021, £1,564 million
(2020 - £2,029
million) of loans and other debt instruments
provided security for secured own issued liabili
ties that have
been retained and lent under securities lending arr
angements.
Unconsolidated structured entitie
s
NWM Group’s interests in unconsolidated st
ructured entities are analysed below.
2021
2020
Asset backed
Investment
Asset backed
Investment
securitisation
funds
securitisation
funds
vehicles
and oth
er
Total
vehicles
a
nd other
Total
£m
£m
£m
£m
£m
£m
Trading assets and derivatives
Trading assets
490
117
607
319
46
365
Derivative assets
251
18
269
441
16
457
Derivative liabilities
(170)
(
1)
(171)
(319)
(21)
(340)
Total
571
134
705
441
41
482
Non trading assets
Loans to customers
1,680
24
1,704
1,376
145
1,521
Other financial assets
2,681
379
3,060
2,409
170
2,579
Total
4,361
403
4,764
3,785
315
4,100
Liquidity facilities/loan commitments
1,402
73
1,475
1,481
132
1,613
Maximum exposure
6,334
610
6,944
5,707
488
6,195
Notes to the fin
ancial state
ments continue
d
NWM Gr
oup
Annual Report and Accou
nts 202
1
164
23 Asset transfers
Transfers that do not qualify for
derecognition
NWM Group enters into securiti
es financing, reverse
repurchase and total return 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 h
as an unrestricted right to
sell or repledge collateral, subject to returning e
quivalent
securities on maturity of the transaction.
Securities sold under repurchase
transactions and transactions
with the substance of securities repurc
hase agreements are not
derecognised if the NWM Group retains substan
tially all the
risks and rewards of ownership. T
he fair value (and carrying
value) of securities transferred under such transac
tions
included on the balance sheet, are set out below. All of
these
securities could be sold or repledged by the holde
r.
For accounting policy information se
e Accounting policies note
11.
NWM Group
NWM Plc
2021
2020
2021
2020
The following assets have failed derecognition
(1)
£m
£
m
£m
£
m
Trading assets
13,084
20,526
9,034
12,614
Other financial assets
677
104
552
104
13,761
20,630
9,586
12,718
(1)
Associated liabilities were £13,706 million for the NWM Group (2020 - £20,541 million) and £
9,523 million for NWM Plc (2020 - £12,660 million).
Assets pledged as collateral
NWM Group pledges collateral
with its counterparties in respect of derivative
liabilities and bank and stock borrowings.
NWM Group
NWM Plc
2021
2020
2021
2020
Assets pledged against liabilitie
s
£m
£m
£m
£
m
Trading assets
23,544
28,426
20,886
26,067
Other financial assets
(1)
1,252
2,557
601
1,453
24,796
30,983
21,487
27,520
(1)
Includes pledges for stock borrowing.
The following table analyses as
sets that have been transferred but have failed
the derecognition rules under IFRS 9 and ther
efore
continue to be recognised on NWM Plc’s balance sheet.
2021
2020
Asset type
£m
£m
Loans and other debt instrume
nts - covered debt programme
(1)
698
746
Loans and other debt instrume
nts - own issued retained lent se
curities
(2)
1,564
2,029
(1)
The associated liabilities for covered debt programme were £
626 milli
on (2020 - £8
57 million).
(2)
The associated own issued securities that were retained and
lent under securities lending arrangements were £1,494 million (2020 - £1,893 million).
Notes to the fin
ancial state
ments continue
d
NWM Gr
oup
Annual Report and Accou
nts 202
1
165
24 Capital resources
Regulatory capital for NWM Plc legal enti
ty is assessed against minimum require
ments that are set out under the Capital
Requirements Regulation.
Transitional arrangemen
ts on the phasing in of end-point capi
tal resources are set by the PRA.
The capital resources under the
PRA transitional basis for NWM Plc are se
t out below.
2021
2020
Shareholders’ equity
£m
£m
Shareholders’ equity
7,349
9,152
Other equity instruments
(904)
(904)
6,445
8,248
Regulatory adjustments and deductions
Own credit
47
43
Defined benefit pension fund adjustment
(202)
(174)
Cash flow hedging reserve
(46)
(201)
Prudential valuation adjustments
(227)
(251)
Expected losses less impairments
(11)
(1)
Instruments of financial sector
entities where the institution has
a significant investment
(1,685)
(1,624)
Adjustments under IFRS 9 transitional arrangements
1
7
Foreseeable ordinary dividends
(250)
(500)
(2,373)
(2,701)
CET1 capital
4,072
5,547
Additional Tier 1 (AT1) capital
Qualifying instruments and related sh
are premium
904
904
Qualifying instruments and related sh
are premium subject to phase out
—
219
904
1,123
Tier 1 deductions
Instruments of financial sector
entities where the institution has
a significant investment
(221)
(237)
Tier 1 capital
4,755
6,433
Qualifying Tier 2 capital
Qualifying instruments and related sh
are premium
1,490
1,704
Tier 2 deductions
Instruments of financial sector
entities where the institution has
a significant investment
(401)
(406)
Other regulatory adjustments
26
22
(375)
(384)
Tier 2 capital
1,115
1,320
Total regulatory capital
5,870
7,753
In the management of capital re
sources, NWM Plc is governed
by NatWest Group's policy to maintain a strong c
apital base
and to utilise it efficiently throughout its activities to op
timise
the return to shareholders while maintaining a prudent
relationship between the capital base and the un
derlying risks
of the business. In carrying out this policy, Na
tWest Group has
regard to the supervisory requirements of the PRA. The P
RA
uses capital ratios as a measure
of capital adequacy in the UK
banking sector, comparing a bank's capital resou
rces with its
risk-weighted assets (the assets and off-balance
sheet
exposures are weighted to refle
ct the inherent credit and other
risks); by international agreement, the Pillar 1 capi
tal ratios,
excluding capital buffers, should be not less than 8
% with a
Common Equity Tier 1 component of not les
s than 4.5%. NWM
Plc has complied with the PRA’s capital requiremen
ts
throughout the year. NWM Plc is also subje
ct to a Pillar 2
requirement.
Subsidiaries and sub-groups wi
thin NWM Group, principally
banking entities, are subject to various individual
regulatory
capital requirements in the UK and overseas. Fu
rthermore, the
payment of dividends by subsidiaries and the abili
ty of
members of NatWest Group to lend money to othe
r members
of NatWest Group is subject to restrictions such
as local
regulatory or legal requirements
, the availability of reserves
and financial and operating per
formance.
Notes to the fin
ancial state
ments continue
d
NWM Gr
oup
Annual Report and Accou
nts 202
1
166
25 Memorandum items
Contingent liabilities and commitments
The amounts shown in the table
below are intended only to provide an indication of the volu
me of business outstanding at 3
1
December 2021. Although the NWM Group is exposed to
credit risk in the event of a custome
r’s failure to meet its obligations
, the
amounts shown do not, and are
not intended to, provide any indication of NW
M Group’s expectation of future losses.
For accounting policy information se
e Accounting policies note 6.
NWM Group
NWM Plc
2021
2020
2021
2020
£m
£
m
£m
£
m
Contingent liabilities and commitments
Guarantees and assets pledged as collateral security
595
638
197
195
Other contingent liabilities
110
137
109
136
Standby facilities, credit lines and other co
mmitments
11,245
12,292
7,363
7,534
11,950
13,067
7,669
7,865
(1)
In the normal course of business, NWM Plc guarante
es specified third party liabilities of certain subsidiaries; it also gives undertakings that individual subsidiaries will fulfil their
obligations to third parties under contractual or ot
her arrangements which are excluded from the table above.
Banking commitments and contingent obligations, whic
h have
been entered into on behalf of customers and fo
r which there
are corresponding obligations from customers, are no
t included
in assets and liabilities. NWM Group’s
maximum exposure to
credit loss, in the event of its obligation c
rystallising and all
counterclaims, collateral or security proving valuele
ss, is
represented by the contractual nominal amoun
t of these
instruments included in the table
above. These commitments
and contingent obligations are subject to NWM G
roup’s normal
credit approval processes.
Guarantees - NWM Group gives guarantee
s on behalf of
customers. A financial guarantee
represents an irrevocable
undertaking that NWM Group
will meet a customer’s specified
obligations to a third party if the cus
tomer fails to do so. The
maximum amount that NWM G
roup could be required to pay
under a guarantee is its principal amount as in the t
able above.
NWM Group expects most guarantees it provides to ex
pire
unused.
Other contingent liabilities - the
se include standby letters of
credit, supporting customer debt issues and contin
gent
liabilities relating to customer trading activities su
ch as those
arising from performance and customs bonds, w
arranties and
indemnities.
Standby facilities and credit line
s - under a loan commitment
NWM Group agrees to make funds available to
a customer in
the future. Loan commitments, which are usu
ally 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 com
mercial standby
facilities and credit lines, liquidit
y facilities to commercial paper
conduits and unutilised overdraft facilities.
Other commitments - these include documen
tary credits, which
are commercial letters of credit providing for p
ayment by NWM
Group to a named beneficiary against prese
ntation of specified
documents, forward asset purchases, forward deposi
ts placed
and undrawn note issuance and revolving underw
riting
facilities, and other short-term trade rel
ated transactions.
Risk-sharing arrangements
During 2019 NWM Plc and NWM N.V. established limi
ted risk-
sharing arrangements that facilitated the s
mooth provision of
services to NatWest Markets’ c
ustomers. The arrangements
include:

The provision of a funded guarantee of up
to £1.0 billion by
NWM Plc to NWM N.V. that limits NWM N.V.’s ex
posure to
large individual customer credits to 10% of NWM N.V.’s
capital. Funding is provided by NWM Plc deposits pl
aced
with NWM N.V. of not less than the guaranteed
amount.
At
31 December 2021, the deposit
s amounted to £0.8 billion
and the guarantee fees in the y
ear were £5.5 million.

The provision of funded and unfunded guarantees by
NWM
Plc in respect of NWM N.V.’s Legacy po
rtfolio. At 31
December 2021 the exposure at default covered
by the
guarantees was approximately £0
.2 billion (of which £37
million was cash collateralised). Fees of £
6.6 million in
relation to the guarantees were recognised in the yea
r.
Indemnity deed

In April 2019, NWM Plc and NWB Plc e
ntered into a cross
indemnity agreement for losses
incurred within the entities
in relation to business transferred to or fro
m the ring-
fenced bank under the NatWest Group’s structural re-
organisation. Under the agreement, N
WM Plc is indemnified
by NWB Plc against losses relating to the NWB Plc
transferring businesses and ring-fenced bank obligati
ons
and NWB Plc is indemnified by
NWM Plc against losses
relating to NWM Plc transferring businesse
s and non ring-
fenced bank obligations with eff
ect from the relevant
transfer date.
Contractual obligations for future expenditure not provided for in the accounts
The following table shows contractual obligations fo
r future expenditure not provided for in th
e accounts at the year end.
NWM Group
NWM Group
2021
2020
£m
£
m
Contracts to purchase goods or services
(1)
4
5
4
5
(1)
Of which due within 1 year: £2 million (2020 - £3 million).
Notes to the fin
ancial state
ments continue
d
NWM Gr
oup
Annual Report and Accou
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25 Memorandum items continued
Litigation and regulatory matters
NWM Plc and its subsidiary and associated u
ndertakings (NWM
Group) are party to legal proce
edings and involved in
regulatory matters, including as the subject of investi
gations
and other regulatory and governmental ac
tion (Matters) in the
United Kingdom (UK), the United States (US), the
European
Union (EU) and other jurisdictions.
NWM Group recognises a provis
ion for a liability in relation to
these Matters when it is probable that an outflo
w of economic
benefits will be required to settle an obligation resul
ting from
past events, and a reliable estimate can be made of
the amount
of the obligation.
In many of these Matters, it is n
ot possible to determine
whether any loss is probable, or to estimate reli
ably the amount
of any loss, either as a direct consequence of the relev
ant
proceedings and regulatory matters or as
a result of adverse
impacts or restrictions on NWM
Group’s reputation, businesses
and operations. Numerous legal and factual issue
s may need to
be resolved, including through potentially leng
thy discovery and
document production exercises and deter
mination of important
factual matters, and by addressing novel or unset
tled legal
questions relevant to the proceedings in question, before
a
liability can reasonably be estima
ted for any claim. NWM Group
cannot predict if, how, or when such claims will be resolved o
r
what the eventual settlement, damages, fine, penal
ty or other
relief, if any, may be, particularly for claims that are a
t an early
stage in their development or where clai
mants seek substantial
or indeterminate damages.
There are situations where NW
M Group may pursue an
approach that in some instances le
ads to a settlement
agreement. This may occur in order to
avoid the expense,
management distraction or reputational implic
ations of
continuing to contest liability, or in order to
take account of the
risks inherent in defending claims or regulato
ry matters, even
for those Matters for which NWM Group believes
it has credible
defences and should prevail on the merits. The unce
rtainties
inherent in all such Matters affect the amount a
nd timing of
any potential outflows for both Matters with
respect to which
provisions have been established and other contingen
t
liabilities. It is not practicable to provide an
aggregate estimate
of potential liability for our legal proceedin
gs 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 th
an or less than
the aggregate provision that NWM G
roup has recognised.
Where (and as far as) liability cannot be re
asonably estimated,
no provision has been recognised. NWM G
roup expects that in
future periods, additional provis
ions, settlement amounts and
customer redress payments will be nece
ssary, in amounts that
are expected to be substantial in some inst
ances. Please refer
to Note 20 for information on ma
terial provisions.
We have provided information below on
the procedural history
of certain Matters, where we be
lieve appropriate, to aid the
understanding of the Matter.
For a discussion of certain risks associated
with NWM Group’s
litigation and regulatory matters, s
ee the Risk factor relating to
legal, regulatory and governmental actio
ns and investigations
set out on page 198.
Litigation
Residential mortgage-backed securities (RMBS) litigation in
the US
NatWest Markets Securities Inc. (NWMSI) and cer
tain affiliates
continue to defend RMBS-relate
d claims in the US in which the
plaintiff, the Federal Deposit Insurance Co
rporation (FDIC),
alleges that certain disclosures made in connecti
on with the
relevant offerings of RMBS contained materi
ally false or
misleading statements and/or omissions reg
arding the
underwriting standards pursuant to which
the mortgage loans
underlying the RMBS were issued. In Q4 2021, N
WMSI settled
RMBS claims by the State of New Mexico for an
amount that
was covered by an existing provision. In
addition, NWMSI
previously agreed to settle a purported RMB
S class action
entitled New Jersey Carpenters Health Fun
d v. Novastar
Mortgage Inc. et al. for US$55.3 million. This was
paid into
escrow pending court approval of the se
ttlement, which was
granted in March 2019, but whic
h remains the subject of an
appeal by a class member who
does not want to participate in
the settlement.
London Interbank Offered Rate (LIBOR) and other rates
litigation
NWM Plc and certain other members of NatWes
t Group,
including NatWest Group plc, are defendants in a
number of
class actions and individual claims pendin
g in the United States
District Court for the Southern District of New Yo
rk (SDNY)
with respect to the setting of LI
BOR and certain other
benchmark interest rates. The complaints allege th
at the NWM
Group defendants and other panel banks violate
d various
federal laws, including the US c
ommodities and antitrust laws,
and state statutory and common law, as well as con
tracts, by
manipulating LIBOR and prices of
LIBOR-based derivatives in
various markets through various
means.
Several class actions relating to USD LIBO
R, as well as more
than two dozen non-class actions concernin
g USD LIBOR, are
part of a co-ordinated proceeding in the SDNY.
In December
2021, the United States Court of Appeals for the Second Ci
rcuit
(US Court of Appeals), reversing a Dece
mber 2016 decision of
the SDNY, held that plaintiffs in
these cases have adequately
asserted the court’s personal jurisdiction ove
r NWM Plc and
other non-US banks, including with respec
t to antitrust class
action claims on behalf of over-the-counter plain
tiffs and
exchange-based purchaser plaintiffs. In the
same decision, the
appellate court affirmed the SD
NY’s prior decision that plaintiffs
who purchased LIBOR-based in
struments from third parties (as
opposed to the defendants) lack antitrust standin
g to pursue
such claims. The appellate court remanded these m
atters to
the SDNY for further proceedings in light of its
rulings. A
separate appeal concerning th
e SDNY’s dismissal of a fraud
class action on behalf of lender plaintiffs remains pendin
g in the
US Court of Appeals. In March
2020, NWM Group defendants
finalised a settlement resolving the class ac
tion on behalf of
bondholder plaintiffs (those who held bon
ds issued by non-
defendants on which interest was paid from 20
07 to 2010 at a
rate expressly tied to USD LIBOR).
The amount of the settlement (which was covered
by an
existing provision) has been paid into escr
ow pending court
approval of the settlement.
The non-class claims filed in th
e SDNY include claims that the
FDIC is asserting on behalf of certain failed US
banks. In July
2017, the FDIC, on behalf of 39 of those failed US
banks,
commenced substantially similar claims against NWM Plc,
NatWest Group plc and others in the Hi
gh Court of Justice of
England and Wales. The action alleges collu
sion with regard to
the setting of USD LIBOR and that the defendants b
reached UK
and European competition law, as well as asserting com
mon
law claims of fraud under US law. T
he defendant banks
consented to a request by the
FDIC for discontinuance of the
claim in respect of 20 failed US banks, leaving 19 failed US
banks as claimants. The UK pr
oceedings are at the disclosure
stage.
Notes to the fin
ancial state
ments continue
d
NWM Gr
oup
Annual Report and Accou
nts 202
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168
25 Memorandum items continued
Litigation and regulatory matters
In addition, there are two class actions rela
ting to JPY LIBOR
and Euroyen TIBOR. The first class action, which rela
tes to
Euroyen TIBOR futures contracts, was dismisse
d by the SDNY
in September 2020 on jurisdictional and other
grounds, and the
plaintiffs have commenced an appeal to
the US Court of
Appeals. The second class action, which rela
tes to other
derivatives allegedly tied to JPY
LIBOR and Euroyen TIBOR,
was dismissed by the SDNY in relation to NWM Plc
and other
NWM Group companies in Septe
mber 2021. That dismissal may
be the subject of a future appeal.
In addition to the above, five other class ac
tion complaints were
filed against NWM Group defendants in the
SDNY, each relating
to a different reference rate. In February 2017
, the SDNY
dismissed the case relating to Euribor for lack of perso
nal
jurisdiction and in August 2019, the S
DNY dismissed the case
relating to Pound Sterling for various reasons. Plain
tiffs’
appeals in both cases remain pe
nding. In July 2019, the SDNY
dismissed the case relating to the Singapo
re Interbank Offered
Rate and Singapore Swap Offer Rate (‘S
IBOR / SOR’) but in
March 2021, the US Court of Appeals reve
rsed the SDNY’s
decision, such that the case has
returned to the SDNY, where it
is the subject of a further motion to dismiss. In
the class action
relating to the Australian Bank B
ill Swap Reference Rate, the
SDNY in February 2020 declined to dismiss the
amended
complaint as against NWM Plc
and certain other defendants,
but dismissed it as to other members of N
WM Group (including
NatWest Group plc). The claims against non-dis
missed
defendants (including NWM Plc) are now p
roceeding in
discovery. In June 2021, NWM Plc and the plain
tiffs in the Swiss
Franc LIBOR class action finalis
ed a settlement resolving that
case. The amount of the settlement (which
was covered by an
existing provision) has been paid into escr
ow pending court
approval of the settlement.
NWM Plc is also named as a def
endant in a motion to certify a
class action relating to LIBOR in the Tel Aviv Dis
trict Court in
Israel. NWM Plc filed a motion for cancellatio
n of service
outside the jurisdiction, which was g
ranted in July 2020. The
claimants appealed that decision and in Nove
mber 2020 the
appeal was refused and the claim dismissed by
the Appellate
Court. The claim could in futur
e be recommenced depending
on the outcome of an appeal to Israel’s Supre
me Court in
respect of dismissal of the substantive case agains
t banks that
had a presence in Israel.
In January 2019, a class action
antitrust complaint was filed in
the SDNY alleging that the defendants (USD ICE LIBOR p
anel
banks and affiliates) have conspired to supp
ress USD ICE
LIBOR from 2014 to the present by submitti
ng incorrect
information to ICE about their borrowing costs. The def
endants
include NatWest Group plc, NWM Plc, NWMSI
and NWB Plc.
The defendants made a motion to dismiss this case, w
hich was
granted by the court in March 20
20. One plaintiff sought to
appeal the dismissal, but on 14 February 202
2, the US Court of
Appeals dismissed the appeal b
ecause that plaintiff lacks
standing to maintain the appeal.
In August 2020, a complaint was f
iled in the United States
District Court for the Northern
District of California by several
United States consumer borrowers against the USD IC
E LIBOR
panel banks and their affiliates, alleging
that the normal
process of setting USD ICE LIBO
R amounts to illegal price-
fixing, and also that banks in the United States have ille
gally
agreed to use LIBOR as a component of price in
variable
consumer loans. The NatWest Group defendants a
re NatWest
Group plc, NWM Plc, NWMSI and NWB Plc. The pl
aintiffs seek
damages and to prevent the enf
orcement of LIBOR-based
instruments through injunction. Defe
ndants have filed a motion
to dismiss, which remains pending.
FX litigation
NWM Plc, NWMSI and/or NatWe
st Group plc are defendants in
several cases relating to NWM Plc’s foreign exc
hange (FX)
business. In 2015, NWM Plc pai
d US$255 million to settle the
consolidated antitrust class acti
on filed in the SDNY on behalf
of persons who entered into over-the-counte
r FX transactions
with defendants or who traded FX inst
ruments on exchanges.
In 2018, some members of the settlement class who
opted out
of that class action settlement filed their own non-class
complaint in the SDNY asserting antitrust claims a
gainst NWM
Plc, NWMSI and other banks. Those
opt-out claims are
proceeding in discovery.
In April 2019, some of the sam
e claimants in the opt-out case
described above, as well as othe
rs, served proceedings (which
are ongoing) in the High Court of Ju
stice of England and Wales,
asserting competition claims ag
ainst NWM Plc and several
other banks. The claim was transferred from
the High Court of
Justice of England and Wales in December 2021 an
d registered
in the Competition Appeal Trib
unal in January 2022.
An FX-related class action, on behalf of ‘consu
mers and end-
user businesses’, is proceeding in the SDNY against N
WM Plc
and others. Plaintiffs have filed a motion fo
r class certification,
which defendants are opposing
.
In May 2019, a cartel class action was filed in the Fede
ral Court
of Australia against NWM Plc and four other ba
nks on behalf of
persons who bought or sold currency through FX spots o
r
forwards between 1 January 200
8 and 15 October 2013 with a
total transaction value exceeding AUD $0.5 millio
n. The
claimant has alleged that the banks, including NWM
Plc,
contravened Australian competition law by sh
aring information,
coordinating conduct, widening s
preads and manipulating FX
rates for certain currency pairs during this period. Nat
West
Group plc and NWMSI have been named in the action as ‘o
ther
cartel participants’, but are not respondents. The claim
was
served in June 2019 and, after a number of interlocu
tory
pleading disputes, NWM Plc is preparing its defence
.
In July and December 2019, two se
parate applications seeking
opt-out collective proceedings orders we
re filed in the UK
Competition Appeal Tribunal against NatWes
t Group plc, NWM
Plc and other banks. Both appli
cations have been brought on
behalf of persons who, between 18
December 2007 and 31
January 2013, entered into a re
levant FX spot or outright
forward transaction in the EEA with a relevant fin
ancial
institution or on an electronic communica
tions network. A
hearing to determine class certif
ication and which of the
applications should be permitted to represent the class
took
place in July 2021 and judgment is awaited.
In November 2020, proceedings were iss
ued in the High Court
of Justice of England and Wales against NWM Plc by a cl
aimant
who sought an account of profits and/or da
mages in respect of
alleged historical FX trading misc
onduct. The claim was served
on NWM Plc in March 2021 and discontinued in
December
2021.
Two motions to certify FX-relat
ed class actions were filed in the
Tel Aviv District Court in Israel i
n September and October 2018,
and were subsequently consolidated into one motion. The
consolidated motion to certify, which n
ames The Royal Bank of
Scotland plc (now NWM Plc) and several other banks
as
defendants, was served on NW
M Plc in May 2020. NWM Plc has
filed a motion challenging the pe
rmission to serve the
consolidated motion outside the Israeli juris
diction, which
remains pending.
Notes to the fin
ancial state
ments continue
d
NWM Gr
oup
Annual Report and Accou
nts 202
1
169
25 Memorandum items continued
Litigation and regulatory matters
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 declar
ation from the court that
anti-competitive FX market conduct descri
bed in decisions of
the European Commission of 16 May 2
019 is unlawful, along
with unspecified damages. The c
laimant has indicated that it
may seek to amend its claim to also refer to the Dece
mber
2021 decision by the EC (described below under “F
oreign
exchange related investigations”
). A hearing is scheduled for
June 2022.
Certain other foreign exchange transaction
related claims have
been or may be threatened. NWM Group cannot p
redict
whether all or any of these claims will be pu
rsued.
Government securities antitrust litigation
NWMSI and certain other US broke
r-dealers are defendants in
a consolidated antitrust class ac
tion pending in the SDNY on
behalf of persons who transacte
d in US Treasury securities or
derivatives based on such instruments, including futu
res and
options. The plaintiffs allege that defendants rig
ged the US
Treasury securities auction bidding process to
deflate prices at
which they bought such securities and colluded to inc
rease the
prices at which they sold such se
curities to plaintiffs. The
complaint was dismissed in Ma
rch 2021. Plaintiffs have filed an
amended complaint, which defe
ndants are again seeking to
have dismissed.
Class action antitrust claims commenced in Ma
rch 2019 are
pending in the SDNY against NWM Plc, NW
MSI and other banks
in respect of Euro-denominated bonds issued by
European
central banks (EGBs). The complaint alleges a co
nspiracy
among dealers of EGBs to widen the bid-ask spreads
they
quoted to customers, thereby increasing the prices
customers
paid for the EGBs or decreasing the p
rices at which customers
sold the bonds. The class consists of those wh
o purchased or
sold EGBs in the US between 20
07 and 2012. The defe
ndants
filed a motion to dismiss this m
atter, which was granted by the
court in respect of NWM Plc and NWMSI in July 2
020. Plaintiffs
have filed an amended complai
nt which defendants are seeking
to have dismissed.
Swaps antitrust litigation
NWM Plc, NWMSI and NatWest Group plc,
as well as a number
of other interest rate swap dealers, are defe
ndants in several
cases pending in the SDNY alleging violations of the U
S
antitrust laws in the market for
interest rate swaps. There is a
consolidated class action complaint on behalf of persons
who
entered into interest rate swaps with the defendants, as
well as
non-class action claims by thre
e swap execution facilities
(TeraExchange, Javelin, and trueEx). The pl
aintiffs allege that
the swap execution facilities would have s
uccessfully
established exchange-like trading of interest rate sw
aps if the
defendants had not unlawfully conspired to p
revent that from
happening through boycotts and other means. Disco
very in
these cases is complete, and the
plaintiffs’ motion for class
certification remains pending.
In June 2021, a class action antitrust complaint w
as filed
against a number of credit default swap dealers in Ne
w Mexico
federal court on behalf of persons who, fr
om 2005 onwards,
settled credit default swaps in the United States by
reference to
the ISDA credit default swap auction protocol. The com
plaint
alleges that the defendants conspired to manipul
ate that
benchmark through various means in violation of t
he antitrust
laws and the Commodity Exch
ange Act. The defendants
include several NatWest Group companies, includin
g NatWest
Group plc. Defendants are seeking dismiss
al.
Odd lot corporate bond trading antitrust litigation
In October 2021, the SDNY gra
nted defendants’ motion to
dismiss the class action antitrust com
plaint alleging that, from
August 2006 onwards various sec
urities dealers, including
NWMSI, conspired artificially to widen sp
reads for odd lots of
corporate bonds bought or sold in the United Sta
tes secondary
market and to boycott electronic trading platfor
ms that would
have allegedly promoted pricing compe
tition in the market for
such bonds. Plaintiffs have com
menced an appeal of the
dismissal.
Spoofing litigation
In December 2021, three substantially s
imilar class actions
complaints were filed in federal court in the United S
tates
against NWM Plc and NWMSI alle
ging Commodity Exchange
Act and common law unjust enrichment clai
ms arising from
manipulative trading known as
spoofing. The complaints refer
to NWM Plc’s December 2021 spoofing-rela
ted guilty plea
(described below under “US inv
estigations relating to fixed-
income securities”) and purport to asser
t claims on behalf of
those who transacted in US Treasury se
curities and futures and
options on US Treasury securities between 20
08 and 2018.
The three complaints are pending in the United St
ates District
Court for the Northern District
of Illinois.
Madoff
NWM N.V. is a defendant in two actions f
iled by the trustee for
the bankruptcy estates of Bernard L. Mad
off and Bernard L.
Madoff Investment Securities L
LC, in bankruptcy court in New
York, which together seek to clawback more than U
S$298
million that NWM N.V. allegedly received fro
m certain Madoff
feeder funds and certain swap counterpa
rties. The claims were
previously dismissed, but as a re
sult of an August 2021 decision
by the US Court of Appeals, the
y will now proceed in the
bankruptcy court subject to NWM N.V.’s legal and factu
al
defences.
Interest rate hedging products and similar litigation
NWM Group continues to deal with a small number of
active
litigation claims in the UK relating to the allege
d mis-selling of
interest rate hedging products.
Separately, NWM Plc is defending claims file
d in France by two
French local authorities relating to structu
red interest rate
swaps. NWM N.V. is also a defendant in one of the clai
ms. The
plaintiffs allege, among other things, that the sw
aps are void
for being illegal transactions, th
at they were mis-sold, and that
information / advisory duties were breached. B
oth claims have
been remitted from the Supreme Court to the Court of
Appeal.
EUA trading litigation
NWM Plc was a named defendant in civil p
roceedings before
the High Court of Justice of England an
d Wales brought in 2015
by ten companies (all in liquidation) (the ‘Li
quidated
Companies’) and their respective l
iquidators (together, ‘the
Claimants’). The Liquidated Companies previously
t
raded in
European Union Allowances (E
UAs) in 2009 and were alleged
to be VAT defaulting traders within (or otherwise connected
to)
EUA supply chains of which N
WM Plc was a party.
In March 2020, the court held that NWM Plc
and Mercuria
Energy Europe Trading Limited (‘Mercuria’) were lia
ble for
dishonestly assisting and knowingly being
a party to fraudulent
trading during a seven busines
s day period in 2009.
Notes to the fin
ancial state
ments continue
d
NWM Gr
oup
Annual Report and Accou
nts 202
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170
25 Memorandum items continued
Litigation and regulatory matters
In October 2020, the High Court quantified tot
al damages
against NWM Plc and Mercuria
at £45 million plus interest and
costs, and permitted the defendants to appeal to
the Court of
Appeal. In May 2021 the Court of A
ppeal set aside the High
Court’s judgment and ordered that a retrial t
ake place before a
different High Court judge. The claimants have soug
ht
permission from the Supreme Court to appeal. The Cou
rt of
Appeal also dismissed an appeal by Mercu
ria against the
finding by the High Court that N
WM Plc and Mercuria were
both vicariously liable. Mercuria has sought pe
rmission from the
Supreme Court to appeal that decision.
US Anti-Terrorism Act litigation
NWM N.V. and certain other financial institu
tions are
defendants in several actions filed by a number of
US nationals
(or their estates, survivors, or he
irs), 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 def
endants 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 te
rror cells that
committed the attacks, in violation of the US Anti-Ter
rorism
Act, by agreeing to engage in ‘stripping’ of transac
tions
initiated by the Iranian banks so that the I
ranian nexus to the
transactions would not be detected.
The first of these actions was filed in the United S
tates District
Court for the Eastern District of New York in Nove
mber 2014.
In September 2019, the district court dismissed t
he case,
finding that the claims were def
icient for several reasons,
including lack of sufficient allegations as to
the alleged
conspiracy and causation. The plaintiff
s are appealing the
decision to the US Court of Appeals. Another action, filed i
n the
SDNY in 2017, was dismissed in March 2019
on similar
grounds, but remains subject to appeal to the US Cou
rt of
Appeals. Other follow-on actions that are subst
antially similar
to the two that have now been dismisse
d are pending in the
same courts.
Securities underwriting litigation
NWMSI is an underwriter defen
dant in securities class actions
in the US in which plaintiffs gene
rally allege that an issuer of
public securities, as well as the underwriters of the sec
urities
(including NWMSI), are liable to purchasers for
misrepresentations and omissions made i
n connection with the
offering of such securities.
1MDB litigation
A claim for a material sum has
been issued, but not served,
recently in Malaysia by 1MDB against Cout
ts & Co Ltd for
alleged losses in connection wit
h the 1MDB fund. Coutts & Co
Ltd is a company registered in
Switzerland and is in wind-down
following the announced sale of its business asse
ts in 2015.
Regulatory matters (including investigations)
NWM Group’s financial condition can be
affected by the actions
of various governmental and regulatory au
thorities in the UK,
the US, the EU and elsewhere. NWM Group companies ha
ve
engaged, and will continue to engage, in discussions wi
th
relevant governmental and reg
ulatory authorities, including in
the UK, the US, the EU and elsewhere, on
an ongoing and
regular basis, and in response to infor
mal and formal inquiries
or investigations, regarding operational, sys
tems and control
evaluations and issues including those
related to compliance
with applicable laws and regulations, includi
ng consumer
protection, investment advice, business
conduct,
competition/anti-trust, VAT recovery, anti-bribe
ry, anti-money
laundering and sanctions regime
s.
NWM Group companies have be
en providing information
regarding a variety of matters, including, fo
r example, offering
of securities, the setting of benchmark rates and
related
derivatives trading, conduct in the foreign e
xchange market,
product mis-selling and various issue
s relating to the issuance,
underwriting, and sales and trading of fixed-i
ncome securities,
including structured products and government securi
ties, some
of which have resulted, and oth
ers of which may result, in
investigations or proceedings.
Any matters discussed or identif
ied during such discussions and
inquiries may result in, among
other things, further inquiry or
investigation, other action bein
g taken by governmental and
regulatory authorities, increased costs being i
ncurred by NWM
Group, remediation of systems and controls, public
or private
censure, restriction of NWM Group’s business acti
vities and/or
fines. Any of the events or circumstances
mentioned in this
paragraph or below could have a m
aterial adverse effect on
NWM Group, its business, authorisations and licence
s,
reputation, results of operations or the price of securities issu
ed
by it, or lead to material additional provisions
being taken.
NWM Group is co-operating fully
with the matters described
below.
US investigations relating to fixed-income securities
In December 2021, NWM Plc pl
ed guilty in the United States
District Court for the District of Connecticut to one cou
nt of
wire fraud and one count of secu
rities fraud in connection with
historical spoofing conduct by former empl
oyees in US
Treasuries markets between January 2008 and May 20
14 and,
separately, during approximately
three months in 2018.
The 2018 trading occurred duri
ng the term of a non-
prosecution agreement (NPA) be
tween NWMSI and the United
States Attorney's Office for the District of Conne
cticut (USAO
CT), under which non-prosecution was co
nditioned on NWMSI
and affiliated companies not en
gaging in criminal conduct
during the term of the NPA. The relevant t
rading in 2018 was
conducted by two NWM traders in Singapore an
d breached
that NPA.
The plea agreement reached with the US Dep
artment of
Justice and the USAO CT resolves
both the spoofing conduct
and the breach of the NPA.
Notes to the fin
ancial state
ments continue
d
NWM Gr
oup
Annual Report and Accou
nts 202
1
171
25 Memorandum items continued
Litigation and regulatory matters
As required by the resolution a
nd sentence imposed by the
court, NWM Plc is subject to a three-year period of
probation
and has paid a US$25.2 million criminal fine, a
pproximately
US$2.8 million in criminal forfeiture and app
roximately US$6.8
million in restitution out of exist
ing provisions. The plea
agreement also imposes an ind
ependent corporate monitor. In
addition, NWM Plc has committed to co
mpliance programme
reviews and improvements and
agreed to reporting and co-
operation obligations.
Other material adverse collateral consequence
s may occur as
a result of this matter, as furthe
r described in the Risk factor
relating to legal, regulatory and
governmental actions and
investigations set out on page
198.
Foreign exchange related investigations
In recent years, NWM Plc paid significant penal
ties to resolve
investigations into its FX business by
the FCA, the Commodity
Futures Trading Commission, the US Dep
artment of Justice, the
Board of Governors of the Fede
ral Reserve System, the
European Commission (EC) and others. In Decembe
r 2021, the
EC announced that a settlement had been re
ached with
NatWest Group plc, NWM Plc and other banks in
relation to its
investigation into past breaches
of competition law regarding
spot foreign exchange trading.
NatWest Group plc and NWM
Plc were fined EUR 32.5 million in total relating t
o conduct that
took place between 2011 and 201
2. The fine was covered by
existing provisions. This concludes
the EC’s investigations into
NatWest Group’s past spot foreign exchange trading
activity.
FCA investigation into NatWest Group’s compliance with the
Money Laundering Regulations 2007
Following an FCA investigation, commenced in 201
7, into
potential breaches of the UK Money Laundering Regul
ations
2007 (‘MLR 2007
’), NWB Plc pled guilty in October 2021 to
three offences under regulation 45
(1) of the MLR 2007 for
failure to comply with regulation 8(1) between 7 Nove
mber
2013 and 23 June 201
6, and regulations 8(3) and 14(1) between
8 November 2012 and 23 June 20
16. These regulations
required the firm to determine, conduct and demons
trate risk
sensitive due diligence and ongoing monit
oring of its
relationships with its customers f
or the purposes of preventing
money laundering. The offences
relate to operational
weaknesses between 2012 and 2
016, during which period NWB
Plc did not adequately monitor the accoun
ts of a UK
incorporated customer. In December 2021, NWB Plc w
as fined
£264.8 million, incurred a confiscation order and w
as ordered
to pay costs. This was met by NWB Plc fro
m existing provisions,
with a small additional provisio
n taken in Q4 2021.
Systematic Anti-Money Laundering Programme assessment
In December 2018, the FCA commenced a Systematic A
nti-
Money Laundering Programme
assessment of NatWest Group.
In August 2019, the FCA instru
cted NatWest Group to appoint a
Skilled Person under section 166 of the Financial
Services and
Markets Act 2000 to provide assurance on financi
al crime
governance arrangements in relation to two financial c
rime
change programmes. The Skilled Person’s final re
port was
received in January 2022.
26 Analysis of the net investment in business interests
NWM Group
NWM Plc
2021
2020
2021
2020
£m
£m
£m
£m
Net assets sold
—
288
—
274
Loss on disposal of net
assets
—
(5)
—
(5)
Sale of subsidiaries and associates
4
32
4
—
Profit on sale of subsidiaries
—
43
—
—
Net inflow of cash in respect of disposals
4
358
4
269
Net inflow of cash
4
358
4
269
Notes to the fin
ancial state
ments continue
d
NWM Gr
oup
Annual Report and Accou
nts 202
1
172
27 Analysis of changes in finan
cing during the year
NWM Group
Share capita
l, share
premium
and
paid in equity
Subordinated liabilities
MREL
2021
2020
2021
2020
2021
2020
£m
£m
£m
£m
£m
£m
At 1 January
3,063
3,063
2,858
3,156
5,181
5,120
Redemption of subordinated liabilities
(316)
(409)
Interest on subordinated liabilities
(62)
(139)
Maturity/redemption of MRELs
(1,082)
Interest on MRELs
(152)
(191)
Net cash outflow from financing
—
—
(378)
(548)
(1,234)
(191)
Effects of foreign exchange
—
—
(78)
31
(115)
(6)
Changes in fair value of subordinated liabili
ties and MRELs
(61)
65
(119)
67
Loss on sale of subordinated liabilities and MRELs
—
16
—
—
Interest on subordinated liabilities
and MRELs
60
138
144
191
Loss on redemption of own debt
—
—
26
—
—
—
Redemption of preference shar
es
187
—
—
—
—
—
At 31 December
3,250
3,063
2,427
2,858
3,857
5,181
NWM Plc
Share capita
l, share
premium
and paid in
equity
Subordinated liabilities
MREL
2021
2020
2021
2020
2021
2020
£m
£m
£m
£m
£m
£m
At 1 January
3,063
3,063
2,269
2,610
5,181
5,120
Redemption of subordinated liabilities
(315)
(398)
Interest on subordinated liabilities
(24)
(117)
Maturity/redemption of MRELs
(1,082)
—
Interest on
MRELs
(152)
(191)
Net cash outflow from financing
—
—
(339)
(515)
(1,234)
(191)
Effects of foreign exchange
—
—
(71)
29
(115)
(6)
Changes in fair value of subordinated liabili
ties and MRELs
(28)
13
(119)
67
Loss on sale of subordinated liabilities and MRELs
—
16
—
—
Interest on subordinated liabilities
and MRELs
22
116
144
191
Loss on redemption of own debt
—
—
26
—
—
—
Redemption of preference shar
es
187
—
—
—
—
—
At 31 December
3,250
3,063
1,879
2,269
3,857
5,181
28 Analysis of cash and cash equivalents
In the cash flow statement, cash and cash equiv
alents comprises
cash, loans to banks and treasury bills with an o
riginal maturity
of less than three months that are readily conve
rtible to known amounts of cash and subject
to insignificant risk of change in value.
NWM
Group
NWM Plc
2021
2020
2021
2020
£m
£
m
£m
£m
At 1 January
-
cash
15,771
12,729
11,736
9,953
- cash equivalents
10,609
14,314
9,549
13,005
26,380
27,043
21,285
22,958
Net decrease in cash and cash equivalents
(1,130)
(663)
(2,071)
(1,673)
At 31 December
25,250
26,380
19,214
21,285
Comprising:
Cash and balances at central banks
16,645
15,771
12,294
11,736
Trading assets
7,130
9,055
4,711
7,540
Other financial assets
16
173
16
173
Net loans to banks including int
ragroup balances
(1)
1,459
1,381
2,193
1,836
Cash and cash equivalents
25,250
26,380
19,214
21,285
(1)
NWM Group includes cash collateral posted with bank
counterparties in respect of derivative liabilities of £4,286 million (2020 - £7,427 million), and NWM Plc includes cash collateral
posted with bank counterparties in respect of derivative liabilities
of £3,561 million (2020 - £6,974 million).
Certain members of NatWest Group are
required by law or regulation to m
aintain balances with the central banks in the
jurisdictions in which they operate. Natwest M
arkets N.V. had mandatory rese
rve deposits with De Nederlandsche Bank N.V
of €60
million (2020 - €81 million).
Notes to the fin
ancial state
ments continue
d
NWM Gr
oup
Annual Report and Accou
nts 202
1
173
29 Directors' and key management remuneration
2021
2020
Directors' remuneration
£000
£000
Non-executive directors emoluments
394
368
Chairman and executive directors emoluments
2,268
1,877
2,662
2,245
Amounts receivable under LTIP
s, share option and other plans
271
269
Total
2,933
2,514
The total emoluments and amounts receivable under
long-term incentive plans and share op
tion plans of the highest paid director
were £1,662,000
(2020 - £1,428,000).
No directors accrued benefits under defined bene
fit schemes or defined contribution sche
mes during 2021 and 2020
.
The executive directors may pa
rticipate in NatWest Group’s long-te
rm incentive plans, executive share option and sha
resave
schemes. Where directors of the B
ank are also directors of NatWest Group, details of thei
r share interests can be found in the
2021
Annual Report and Accounts of the NatWest
Group, in line with regulations applying to Nat
West Group as a premium listed
company.
Compensation of key managemen
t
The aggregate remuneration of directors and o
ther members of key management duri
ng the year was as follows:
2021
2020
£000
£000
Short term benefits
15,245
16,922
Post employment benefits
595
278
Share based payments
703
2,789
16,543
19,989
30 Transactions with directors and key management
At 31 December 2021, amount
s outstanding in relation to transactions, arrangemen
ts and agreements entered in
to by authorised
institutions in NatWest Group, as
defined in UK legislation, were £4
93,712 in respect of loans to one director of the co
mpany at any
time during the financial period (2020
- £59,894).
For the purposes of IAS 24 Related pa
rty disclosures, key management co
mprises directors of the company and mem
bers of the
Executive Committee. Amounts in the table belo
w are attributed to each person at thei
r highest level of NatWest Group key
management.
2021
2020
£000
£000
Loans to customers - amortised cost
494
60
Customer deposits
1,743
765
Key management has banking relationships with N
atWest Group entities which are ente
red into in the normal course of busine
ss
and on substantially the same terms, including in
terest rates and security, as for comp
arable transactions with other persons
of a
similar standing or, where applicable, with other em
ployees. These transactions did not i
nvolve more than the normal risk of
repayment or present other unfavourable fea
tures. Key management had no reportable
transactions or balances with the ho
lding
company.
Notes to the fin
ancial state
ments continue
d
NWM Gr
oup
Annual Report and Accou
nts 202
1
174
31 Related parties
UK Government
The UK government through HM Treasury is the u
ltimate
controlling party of NatWest Gr
oup plc. The UK Government’s
shareholding is managed by UK Gove
rnment Investments
Limited, a company wholly own
ed by the UK Government. As a
result the UK government and UK Government cont
rolled
bodies are related parties of the Group.
At 31 December 2021, HM Treasury’s holding in N
atWest
Group’s ordinary shares was 52.9
6%.
NWM Group enters into transactions with many of t
hese
bodies. Transactions include the
payment of: taxes principally
UK corporation tax (refer to Note 7
) and value added tax;
national insurance contributions; local autho
rity rates; and
regulatory fees and levy; toget
her with banking transactions
such as loans and deposits unde
rtaken in the normal course of
banker-customer relationships.
Bank of England facilities
NWM Group may participate in a number of schemes o
perated
by the Bank of England in the normal course of busine
ss.
Members of NWM Group that a
re UK authorised institutions are
required to maintain non-interest bearing (cash
ratio) deposits
with the Bank of England amou
nting to 0.406% of their average
eligible liabilities in excess of £6
00 million. They also have
access to Bank of England reserve accounts: ste
rling current
accounts that earn interest at the B
ank of England base rate.
Other related parties
(a)
In their roles as providers of finance, NWM
Group
companies provide development and other type
s of capital
support to businesses. These
investments are made in the
normal course of business. In some instances
, the
investment may extend to ownership or con
trol over 20% or
more of the voting rights of the investee company.
(b)
In accordance with IAS 24, transactions or
balances
between NWM Group entities that have been eli
minated on
consolidation are not reported.
(c) NWM Group is recharged from other NatWes
t Group
entities, mainly NWB Plc which provides the
majority of
shared services (including technology) and oper
ational
processes.
(d) The captions in the primary financial statements of
the
parent company include amounts attributable
to
subsidiaries. These amounts have bee
n disclosed in
aggregate in the relevant notes
to the financial statements.
Other net income/(expenses) represents the s
hare of post-
tax results of associates and joint ventures, p
rofit (or loss)
on disposal of subsidiaries, associates and join
t ventures,
and gains on acquisitions.
The table below discloses transactions be
tween NWM Group and fellow subsidiaries of
NatWest Group.
2021
2020
£m
£m
Interest receivable
14
—
Interest payable
(169)
(282)
Fees and commissions receivable
16
13
Fees and commissions payable
(1)
(4)
Other administrative expenses
(33)
(13)
(173)
(286)
NWM N.V. loan purchases via NWM Plc
In Q4 2021 NWM N.V. started purchasing loans on
to the banking book as part of a larger initi
ative to increase its risk and po
rtfolio
diversity. NWM N.V. has identified a list of lo
ans it wishes to purchase which NWM Plc has purc
hased from market participants on
behalf of NWM N.V.. NWM N.V. subseque
ntly purchased the loans at the same price f
or which NWM Plc had purchased them for
and paid a fee to NWM Plc in re
spect of each loan purchased. As at 31 Decembe
r 2021, loans of €24
million have moved onto
NWM N.V. balance sheet.
32 Ultimate holding company
NWM Group’s ultimate holding company is NatWest G
roup plc which is incorporated in the Un
ited Kingdom and registered in
Scotland.
As at 31 December 2021, NatWest Group plc he
ads the largest group in which NWM Gr
oup is consolidated. Copies of the
consolidated accounts may be obtained from Leg
al, Governance & Re
gulatory Affairs, NatWest Group plc, Gogarburn, PO B
o
x
1000, Edinburgh EH12 1HQ,
the
Registrar of Companies or at natwestgroup.com.
Following placing and open offe
rs by NatWest Group plc in December 2008 and April 200
9, the UK Government, through HM
Treasury, currently holds
52.96% of the issued o
rdinary share capital of the holding com
pany and was therefore the NWM Group’s
ultimate controlling party.
33 Post balance sheet events
On 17 February 2022, the NWM Plc B
oard approved an interim dividend of £250
million, or £0.625
per share, to be declared and
payable to NatWest Group plc on 18 February 202
2. There has been no adjustment to the 31
D
ecember 2021 statutory financial
statements. For regulatory reporting purposes, a £250
million foresee
able dividend deduction has been applied to the y
ear-end
regulatory capital position.
Other than as disclosed in the accounts, there h
ave been no other significant eve
nts between 31 December 2021
and the date of
approval of these accounts whic
h would require a change to or additional
disclosure.
Notes to the fin
ancial state
ments continue
d
NWM Gr
oup
Annual Report and Accou
nts 202
1
175
34 Related undertakings
Legal entities and activities at 31 December 2021
In accordance with the Companies
Act 2006, NWM Plc’s related undertakin
gs and the accounting treatment for each
are listed
below. All undertakings are wholly-owned by NWM Plc o
r subsidiaries of NWM Plc and are co
nsolidated by reason of contractual
control (Section 1162(2) CA 200
6), unless otherwise indicated. NWM Group interest refers t
o ordinary shares of equal values
and
voting rights unless further ana
lysis is provided in the notes. Ac
tivities are classified in accordance with Annex I to the Ca
pital
Requirements Directive (“CRD IV”) and the definitions in A
r
ticle 4 of the Capital Requirements Re
gulation.
The following table details active related undertakin
gs incorporated in the UK which are 100% owned by NWM Group
and fully consolidated for accounting purposes
Regulatory
Entity name
Activity
treat
ment
Notes
280 Bishopsgate
Finance Ltd
INV
FC
(1)
Care Homes 1 Lt
d
B
F
FC
(1)
Care Homes 2 Lt
d
B
F
FC
(1)
Care Homes 3 Lt
d
B
F
FC
(1)
Care Homes Hol
dings Ltd
BF
FC
(1)
Churchill Manag
ement Ltd
BF
FC
(1)
Desertlands En
tertainment Ltd
BF
FC
(1)
Distant Planet P
roductions Lt
d
BF
FC
(1)
Lombard Corpor
ate Finance (6)
Ltd
BF
FC
(1)
Lombard Corpor
ate Finance (7)
Ltd
BF
FC
(1)
Lombard Corpor
ate Finance (11)
Ltd
BF
FC
(1)
Lombard Corpor
ate Finance (15)
Ltd
BF
FC
(1)
Nanny McPhee
Productions L
td
BF
FC
(1)
NatWest Mark
ets Secretarial Se
rvices Ltd
SC
FC
(1)
NatWest Mark
ets Secured Fun
ding LLP
BF
FC
(9)
P of A Produc
tions Ltd
BF
FC
(1)
Patalex Product
ions Ltd
BF
FC
(1)
Patalex V Produ
ctions Ltd
BF
FC
(1)
Price Productio
ns Ltd
BF
FC
(1)
Priority Sites Inv
estments Ltd
BF
DE
(1)
Priority Sites L
td
INV
DE
(
1)
Entity name
Activity
Regulatory
Notes
treatment
Property Ventur
e Partners Ltd
INV
FC
(2)
R.B. Equipment L
easing Ltd
BF
FC
(1)
R.B. Leasing (Ap
ril) Ltd
BF
FC
(1)
R.B. Leasing Co
mpany Ltd
BF
FC
(2)
R.B.S. Special
Investments Ltd
BF
FC
(1)
RB Investment
s 3 Ltd
OTH
FC
(1)
RBOS (UK) Ltd
BF
FC
(1)
RBS Manage
ment Services (UK
) Ltd
SC
FC
(1)
RBS Mezzanin
e Ltd
BF
FC
(2)
RBS Property De
velopments L
td
I
NV
FC
(2)
RBS Property V
entures Inves
tments Ltd
BF
FC
(2)
RBSM Capital Lt
d
BF
FC
(2)
RBSSAF (12) L
td
BF
FC
(1)
RoboScot Equity
Ltd
BF
FC
(2)
Royal Bank Inv
estments Ltd
BF
FC
(2)
Royal Bank Ve
ntures Investme
nts Ltd
BF
FC
(2)
West Register (Ho
tels Number 3)
Ltd
INV
DE
(2)
West Register (Pro
perty Invest
ments) Ltd
BF
DE
(2)
West Register (Re
alisations) L
td
INV
DE
(2)
Winchcombe Fi
nance Ltd
BF
FC
(1)
The following table details active related undertakin
gs incorporated outside the UK which are 100% owned by NWM
Group and fully consolidated for accounting purposes
Regulatory
Entity name
Activity
treatment
Notes
AA Merchant S
ervices B.V.
BF
FC
(
6)
Alcover A.G.
BF
DE
(23)
Alternative Inv
estment Fund B.
V.
BF
FC
(6)
Candlelight Acqu
isition LLC
BF
FC
(3)
Coutts & Co Lt
d
CI
FC
(
22)
Coutts General Pa
rtner (Cayma
n) V Ltd
BF
FC
(19)
Financial Asset S
ecurities Cor
p.
BF
FC
(
3)
KEB Investor
s, L.P.
BF
FC
(15)
NatWest Mark
ets Group Hol
dings Corporat
ion
BF
FC
(3)
NatWest Mark
ets N.V.
CI
FC
(
6)
NatWest Mark
ets Securities In
c.
INV
FC
(3)
NatWest Mark
ets Securities
Japan Ltd
INV
FC
(7)
R.B. Leasing B
DA One Ltd
BF
FC
(
25)
Random Proper
ties Acquisition Co
rp. III
INV
FC
(3)
RBS Acceptance
Inc.
BF
FC
(3)
Regulatory
Entity name
Activity
treatment
Notes
RBS Americas P
roperty Corp.
SC
FC
(3)
RBS Asia Finan
cial Services Lt
d
BF
FC
(7)
RBS Assessoria
Ltd
SC
FC
(12)
RBS Commerci
al Funding Inc.
BF
FC
(3)
RBS Employme
nt (Guernsey)
Ltd
SC
FC
(21)
RBS Financial P
roducts Inc.
BF
FC
(3)
RBS Group (Aus
tralia) Pty Ltd
BF
FC
(10)
RBS Holdings I
II (Australia) Pty
Ltd
BF
FC
(10)
RBS Holdings N.
V.
BF
FC
(6)
RBS Holdings USA
Inc.
BF
FC
(3)
RBS Hollandsch
e N.V.
BF
FC
(6)
RBS Investment
s (Ireland) Ltd
BF
FC
(4)
RBS Netherlan
ds Holdings B.
V.
BF
FC
(6)
RBS Nominees (
Ireland) Ltd
BF
FC
(4)
RBS Nominees (N
etherlands)
B.V.
BF
FC
(6)
The following table details active related undertakin
gs incorporated in the UK where NWM Group ownership is less
than 100%
Activity
Accounting
Regulatory
Group
Notes
Entity name
treatment
treatment
%
Higher Broug
hton (GP) Ltd
BF
AHC
PC
41
(18)
Higher Broug
hton Partnershi
p LP
BF
AHC
DE
41
(16)
Accounting
Regulatory
Group
Entity name
Activity
treatment
treatment
%
Notes
NatWest Mark
ets Secured
Funding (LM) Lt
d
BF
FC
PC
20
(9)
RBS Sempra Co
mmodities LLP
BF
FC
FC
51
(2)
Notes to the fin
ancial state
ments continue
d
NWM Gr
oup
Annual Report and Accou
nts 202
1
176
34 Related undertakings continued
The following table details active related undertakin
gs incorporated outside the UK where NWM Group ownership i
s
less than 100%
Accounting
Regulatory
Group
Entity name
Activity
treatment
treatment
%
Notes
Eris Finance S.
R.L.
BF
IA
PC
45
(14)
German Public S
ector
Finance B.V.
BF
EAJV
PC
50
(17)
Herge Holding
B.V.
BF
IA
PC
63
(24)
Lunar Funding V
III Ltd
BF
FC
FC
0
(5)
Lunar Luxembour
g SA
BF
FC
DE
0
(26)
Lunar Luxembour
g Series
2019- 04
BF
FC
DE
0
(26)
Lunar Luxembour
g Series
2019- 05
BF
FC
DE
0
(26)
Accounting
Regulatory
Group
Entity name
Activity
treatment
treatment
%
Notes
Lunar Luxembour
g Series
2020- 01
BF
FC
DE
0
(26)
Lunar Luxembour
g Series
2020- 02
BF
FC
DE
0
(26)
Maja Finance S
.R.L.
BF
FC
FC
98
(14)
Natwest Secur
ed Funding DAC
BF
FC
FC
0
(13)
Sempra Energy
Trading LLC
BF
FC
FC
51
(3)
Thames Asse
t Global
Securitization No
.1 Inc.
BF
FC
FC
0
(11)
The following table details related undertakin
gs that are not active (actively being dissolved)
Accounting
Regulatory
Group
Entity name
treatment
treatment
%
Notes
Lombard Corpor
ate Finance (13)
Ltd
FC
FC
100
(1)
Morar ICC Insu
rance Ltd
FC
DE
100
(20)
Accounting
Regulatory
Group
Entity name
treatment
treatment
%
Notes
RBSSAF (6) Lt
d
FC
FC
100
(1)
West Register
Hotels (Holding
s) Ltd
FC
FC
100
(2)
The following table details related undertakin
gs that are dormant
Accounting
Regulatory
Group
Entity name
treatment
treatment
%
Notes
Buchanan Hol
dings Ltd
FC
FC
100
(1)
Marigold Nomin
ees Ltd
FC
FC
100
(1)
Mulcaster Stre
et Nominees L
td
FC
FC
100
(8)
N.C. Head Offic
e Nominees Lt
d
FC
FC
100
(2)
Accounting
Regulatory
Group
Entity name
treatment
treatment
%
Notes
Project & Expo
rt Finance (No
minees) Ltd
FC
FC
100
(1)
RBOS Nominee
s Ltd
FC
FC
100
(1)
Sixty Seven No
minees Ltd
FC
FC
100
(1)
The Royal Ban
k of Scotland (
1727) Ltd
FC
FC
100
(2)
The following table details the overseas branches of NWM Group
Subsidiary
Geographic location
Coutts & Co Lt
d
Switzerland
France, Germ
any, Italy
Republic of
Ireland, Spai
n, Sweden
NatWest Mark
ets N.V.
United Kingdom
Subsidiary
Geographic location
Germany, Hong
Kong, Japan, S
ingapore
NatWest Mark
ets Plc
Turkey, Unite
d Arab Emirates
Notes to the fin
ancial state
ments continue
d
NWM Gr
oup
Annual Report and Accou
nts 202
1
177
34 Related undertakings continued
Key:
BF
Banking and fi
nancial institut
ion
CI
Credit ins
titution
INV
Investment (shar
es or prope
rty) holding com
pany
SC
Service compa
ny
TR
Trustee
OTH
Other
DE
Deconsolida
ted
FC
Full consolida
tion
PC
Pro-rata consoli
dation
AHC
Asso
ciate held at co
st
EAJV
Equity accounting – join
t venture
IA
Investment a
ccounting
NC
Not consolidate
d
Notes
Registered add
resses
Country of incor
poration
(1)
250 Bishopsgate, Lo
ndon, EC2M
4AA
UK
(2)
RBS Gogarburn, 1
75 Glasgow Ro
ad, Edinbur
gh, EH12 1HQ
UK
(3)
251, Little Falls
Drive, Wilmin
gton, DE, 1980
8
USA
(4)
Ulster Bank He
ad Office, Bloc
k B Central P
ark, Leopardsto
wn, Dublin 18, D
18 N153
RoI
(5)
Grand Pavilio
n Commercial C
entre, 802 West B
ay Road, P.O.
Box 31119
Cayma
n Islands
(6)
Claude Debu
ssylaan 94, Amst
erdam, 1082 MD
Netherlands
(7)
Level 54, Hope
well Centre, 183 Qu
een'
s Road East
Hong Ko
ng
(8)
Royal Bank Hou
se, 71 Bath St
reet, St Helier,
JE4 8PJ
Jersey
(9)
1 Bartholomew L
ane London EC
2N 2AX
UK
(10)
Ashurst L26, 181
William Stre
et, Melbou
rne, VIC, 3000
Australia
(11)
114 West 47th St
reet, New Yo
rk, 10036
USA
(12)
254, 13th Floor,
Rua Boa Vista,
Sao Paulo,
01014-907
Brazil
(13)
5 Harbourmast
er Place, Dublin
1, D01 E
7E8
RoI
(14)
Via Vittorio Alfi
eri 1, Conegli
ano TV, IT
-TN 31015
Italy
(15)
Clarendon Hou
se, Two Chur
ch Street, Suite
104, Reid Str
eet, Hamilton, HM
11
Bermuda
(16)
Cornwall Buil
dings, 45-51 N
ewhall Street,
Birmingham,
West Midlan
ds, B3 3QR
UK
(17)
De entree 99 -197,
1101HE
Amsterdam Zui
doost
Netherlands
(18)
Inpartnership Lt
d, 35 St Paul'
s Square, Birmin
gham, West M
idlands, B3 1QX
UK
(19)
c/o Maples Co
rporate Service
s Ltd, PO Box
309, 121 So
uth Church Str
eet, George Tow
n, Grand Cay
man, KY1-1
104
Cayman I
slands
(20)
PO Box 384, T
he Albany, Sout
h Esplanade, St P
eter Port, G
Y1 4NF
Guernsey
(21)
Regency Court,
Glategny Espla
nade, St Pe
ter Port, GY1
3AP
Guernsey
(22)
Schuetzengass
se 4, CH-8001
Zurich
Switzerland
(23)
Tirolerweg 8, Zu
g, CH- 6300
Switzerland
(24)
Verlengde Poo
lseweg 16, Br
eda, 4818
CL
Netherlands
(25)
Victoria Place, 5
th Floor, 31 Vi
ctoria Street, H
amilton, HM 1
0
Bermuda
(26)
46A Avenue J.F. K
ennedy 1855
Luxembourg
Non-IFRS m
easures
NWM Gr
oup
Annual Report and Accou
nts 202
1
178
NWM Group prepares its financial statemen
ts in accordance generally accepted accountin
g principles (GAAP). This documen
t
contains a number of adjusted or alternati
ve performance measures, also known
as non-GAAP or non-IFRS performance
measures. These measures are adjusted fo
r certain items which management
believe are not representative of the un
derlying
performance of the business and which distort period
-on-period comparison. These non-IFRS
financial measures are not mea
sures
within the scope of IFRS and ar
e not a substitute for IFRS measures. The
se measures include:

Management analysis of the operating expenses sho
ws strategic costs and litigation and cond
uct costs in separate lines on
pages 38. These amounts are included in staff, pre
mises and equipment and other administ
rative expenses in the statutory
analysis. The use of the other e
xpenses performance measure i
n non-statutory analysis aims to remove mo
re volatile items
within strategic costs and litigation and conduct cos
ts.

Funded assets are defined as total assets less
derivative assets. This measure allows review of balance s
heet trends exclusive
of the volatility associated with derivative fai
r values.

Management view of income by busines
s before revenue share and excluding own credi
t adjustments and asset
disposals/strategic risk reduction. This measure is used t
o show underlying income generatio
n in NWM excluding the impact of
disposal losses and own credit adjust
ments.

Revenue share refers to income gene
rated by NatWest Markets products from custome
rs that have their primary relationshi
p
with other NatWest Group segments, a proportion of whic
h is shared between NatWest Mark
ets and those segments.

Asset disposals/strategic risk reduction includes the costs of ex
iting positions, which includes changes in c
arrying value to align
to the expected exit valuation, and the impac
t of risk reduction transactions entered into
as part of the optimisation of the
entity’s capital usage, following the st
rategic announcements of 14
February 2020.

Own credit adjustments are applied to positions where i
t is believed that the counte
rparties would consider NWM
Group’s
creditworthiness when pricing trades. The fai
r value of certain issued debt securities, inclu
ding structured notes, is adjusted to
reflect the changes in own credit spreads and
the resulting gain or loss recognised in incom
e.
Operating expenses analysis
Non-statutory analysis
Year ended
31 December 2021
31 December 2020
Litigation
Other
Statutory
Litigation
Other
Statutory
Strategic
and conduct
operating
operating
Strategic
and conduct
operating
operating
Operating expenses
costs
costs
expenses
expenses
costs
costs
expenses
expenses
Staff expenses
135
—
363
498
121
—
549
670
Premises and equipment
40
—
70
110
19
—
88
107
Other administrative expenses
72
(17)
467
522
51
134
444
629
Depreciation and amortisation
1
—
19
20
—
—
25
25
Total
248
(17)
919
1,150
191
134
1,106
1,431
Risk Factors
NWM Gr
oup
Annual Report and Accou
nts 202
1
179
Principal Risks and Uncertainties
Set out below are certain risk factors
that could adversely affect NWM Group’s
future results, its financial cond
ition and
prospects and cause them to be
materially different from what i
s forecast
or expected, and directly or indirectly
impact the value of its securitie
s 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 Group. The COVID-19 pa
ndemic
may exacerbate any of the risks
described below.
Economic and political risk
The impact of the COVID-19 pandemic
and related uncerta
inties continue to
affect the UK, global economies and
financial markets and NWM Grou
p’s
customers, as well as its competitive
environment, which may continue t
o
have an adverse effect on NWM
Group.
In many countries, including the U
K
(NWM Group’s most significant market),
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 Group o
perates,
the proliferation of COVID-19 variants
continues to affect the UK and global
economies. Further waves of inf
ection or
the spread of new strains may resu
lt 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 and e
lsewhere
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 initiative
s. 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 environmen
t
and NWM Group. Moreover, it is
unclear
as to how any further measures, s
uch as
rising interest rates and inflation, may
affect NWM Group’s business and
performance.
The COVID-19 pandemic has prompted
many changes that may prove to be
permanent shifts in customer be
haviour
and economic activity, such as changes
in spending patterns and significantly
more people working from home. The
se
changes may have long-lasting impacts
on asset prices, the economic
environment and its customers’ financial
needs.
Uncertainties relating to the COVID-19
pandemic has made reliance o
n
analytical models, planning and
forecasting for NWM Group more
complex, and may result in uncertainty
impacting the risk profile of NWM Group
and/or that of the wider bankin
g
industry. The medium and long-term
implications of the COVID-19 pandemic
for NWM Group customers, and the UK
and global economies and financial
markets remain uncertain.
Any of the above may have a negative
impact on NWM Group.
NWM Group faces continued econ
omic
and political risks and uncertainty in
the UK and global markets.
The value of NWM Group’s financial
instruments may be materially affected
by market risk, including as a res
ult of
market fluctuations. Market volatility,
illiquid market conditions and di
sruptions
in the credit markets may mak
e it
extremely difficult to value certain of
NWM Group’s financial instruments,
particularly during periods of market
displacement. This could cause a decline
in the value of NWM Group’s financial
instruments. This may have an adverse
effect on NWM Group’s results of
operations in future periods, or cause
inaccurate carrying values for ce
rtain
financial instruments. Similarly, NWM
Group trades a considerable amoun
t of
financial instruments (including
derivatives) and volatile market
conditions could result in a signifi
cant
decline in NWM Group’s net trading
income or result in a trading los
s.
In addition, financial markets are
susceptible to severe events evi
denced
by rapid depreciation in asset values,
which may be accompanied by a
reduction in asset liquidity. Unde
r 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 partic
ipants
simultaneously and on a large scale,
increasing NWM Group’s count
erparty
risk. NWM Group’s risk management and
monitoring processes seek
to quantify
and mitigate NWM Group’s exposure to
extreme market moves. Howeve
r, severe
market events have historically bee
n
difficult to predict and NWM 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 terroris
t
acts or threats, efforts to destabilis
e
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 sy
stem
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 o
r
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 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 Group directly (for example, as a
result of credit losses) or indirectly (for
example, by impacting global economic
growth and financial markets and NWM
Group’s clients and their banking needs).
In addition, NWM Group is exp
osed 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.
Risk Factors con
tinued
NWM Gr
oup
Annual Report and Accou
nts 202
1
180
Furthermore, unfavourable political,
military or diplomatic events, inclu
ding
secession movements or the exit of othe
r
member states from the EU, armed
conflict, pandemics and widespread
public health crises (including the c
urrent
COVID-19 pandemic and any future
epidemics or pandemics), state and
privately sponsored cyber and terroris
t
acts or threats, and the responses
to
them by governments and markets,
could negatively affect the busi
ness and
performance of NWM Group, including as
a result of the indirect effect on regional
or global trade and/or NWM Gr
oup’s
customers.
NatWest Group faces political uncertainty
in Scotland as a result of a poss
ible
second Scottish independence
referendum. Independence may
impact
NWM Group since NatWest Group plc
and other NatWest Group entiti
es
(including NWM Plc) are incorporated in
Scotland. Any changes to Scotl
and’s
relationship with the UK or the EU would
impact the environment in which
NatWest Group and its subsidiaries
operate, and may require furthe
r
changes to NatWest Group (including
NWM Group’s structure), indepe
ndently
or in conjunction with other mandatory
or strategic structural and organisational
changes which, any of which could
adversely impact NWM Group.
Any of the above may have a negative
effect on NWM Group.
Continuing uncertaint
y regarding the
effects and exten
t of the UK’s post
Brexit divergence from EU laws and
regulation, and NWM Group’s post
Brexit EU operating model m
ay
continue to adversely affect
NWM
Group and its operating environm
ent.
The UK ceased to be a member of the
EU and the European Economic Area
(‘EEA’) on 31 January 2020 (‘B
rexit’) and
the 2020 EU-UK Trade and Cooperation
Agreement (‘TCA’) ended the transition
period on 31 December 2020. T
he 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 financi
al
services providers no longer have EU
passporting rights and there is no mutual
recognition regime. Financial se
rvices
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. 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. T
he
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 legis
lation
that would require non-EU firms to
establish a branch or subsidiary
in the
EU before providing “banking se
rvices”
in the EU. If these proposals become law
all “banking services” will be licensable
activities in each EU member state and
member states will not be permitted to
offer bilateral permissions to financial
institutions outside the EU allowing them
to provide “banking services” i
n the EU.
Uncertainty remains as to whet
her
“banking services” will also include
investment products. Furthermore,
failure to extend existing equivalence
determinations, exemptions an
d
derogations in relation to regulations
such as margin and clearing re
gulations
or capital regulations, may hav
e a
negative impact on customer
engagement and/or may significantly
negatively impact the operating model
and business operations of NW
M Group.
NatWest Group continues to ev
aluate its
post Brexit EU operating model, making
adaptations as necessary. NatWest
Group also co
ntinues to assess
where
NatWest Group com
panies can
ob
tain
bilateral regulatory
permissions to
facilitate intragroup transactions
and/or
to permit busi
ness to conti
nue from its
UK entities, transferring what cannot be
continued to be rendered from the UK to
an EEA
subsidiary or branch, w
here
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. T
here 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 NatWes
t
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 entitie
s. 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 (i
ncluding
the NWM Refocusing) and may
continue
to be subject to significant struct
ural 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 its business
operations, product offering an
d
customer engagement could result in
further costs and operating co
mplexity.
Any of the above could, in turn,
negatively impact NWM Group.
The long-term effects of Brexit and the
uncertainty regarding NWM Gr
oup’s EU
operating model may have a ne
gative
impact on NWM Group’s busines
s. These
may be exacerbated by wider global
macro-economic trends and events,
particularly COVID-19 pandemic related
uncertainties, which may significantly
impact NWM 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-ec
onomic
impacts on the UK, the Republic of
Ireland (‘ROI’) and the rest of the
EU/EEA.
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 propose
d
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 will operate. This divergence
could lead to further market
fragmentation. These risks and
uncertainties may require costly changes
to NWM 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 amende
d
rules, could have a significant adverse
impact on NWM Group’s busines
ses,
non-UK operations and/or legal entity
structure, including attendant operating,
compliance and costs, level of
Risk Factors con
tinued
NWM Gr
oup
Annual Report and Accou
nts 202
1
181
impairments, capital requirements,
changes to intragroup arrangements,
increased complexity, regulatory
environment and tax implications and as
a result may adversely impact NWM
Group’s profitability, competitive position,
business model and product off
ering.
Changes in interest rates ha
ve affected
and will continue to affect
NWM
Group’s business and results.
NWM Group is affected by intere
st rate
risk. Monetary policy has been
accommodative in recent years including
initiatives implemented by the Bank of
England and HM Treasury, such as the
Term Funding Scheme with additional
incentives for SMEs (‘TFSME’), which
have helped to support demand at a time
of pronounced fiscal tightening and
balance sheet repair. However, ma
rket
expectations are currently that
benchmark interest rates such as UK
base rate, could begin to rise furthe
r 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, s
harp
rises could have macroeconomic ef
fects
that lead to adverse outcomes for the
business or customers. For example, they
could lead to generally weaker
than
expected growth, or even contr
acting
GDP, reduced business confide
nce and
higher levels of unemployment or
underemployment, all of which could
have an adverse effect on NWM 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 N
WM
Group’s interest income and pr
ofitability.
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. Un
expected
movements in spreads between ke
y
benchmark rates could have adverse
impacts and also adversely affect NWM
Group’s financial position. Finally,
changes in interest rates and inflation
may adversely affect the income from
NWM Group’s dealing activity.
Changes in foreign currency ex
change
rates may affect NWM Gr
oup’s results
and financial position.
Decisions of major central banks
(including the Bank of England, the
European Central Bank and the US
Federal Reserve) and political o
r market
events which are outside NWM Group’s
control, may lead to sharp and
sudden
variations in foreign exchange rates.
As part of NatWest Group’s strategy,
NWM Group is now the markets business
for NatWest Group, and is enga
ged
principally in offering risk management,
trading solutions and debt financing to
financial institutions and UK and
European corporate customers. NWM
Group entities issue instruments in
foreign currencies that assist in meeting
their respective capital and/or
MREL
requirements. In addition, NWM
Plc has
exposure to foreign exchange
movements from the provision of foreign
currency products to its clients and
particularly to euro movements via its
subsidiary, NWM NV, USD via it
s
subsidiary NWMSI in addition to
further
investments in other currencies in
overseas operations. In its day-to-day
operations, NWM Group maintains
policies and procedures designed to
manage the impact of exposures to
fluctuations in currency rates.
Nevertheless, changes in curre
ncy rates,
particularly in the sterling-US dollar and
euro-sterling exchange rates, c
an
adversely affect the value of assets,
liabilities (including the total am
ount of
MREL-eligible instruments), foreign
exchange dealing activity, income and
expenses, RWAs and hence the reported
earnings and financial condition of NWM
Group.
HM Treasury (or UKGI on its behalf)
could exercise a significant degree o
f
influence over NatWest Group and
NWM Group is controlled by NatWest
Group.
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 obj
ective of
selling all of its remaining shares in
NatWest Group plc by 2025-2026. A
s 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-dow
ns 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 Group)
will
continue to have its own independent
board of directors and management
team determining their own str
ategy.
However, for as long as HM Tr
easury
remains NatWest Group plc’s, as the
largest single shareholder, and UKGI (as
manager of HM Treasury’s shareholding)
could exercise a significant degree of
influence over the election of directo
rs
and appointment of senior management,
NatWest Group’s (includi
ng NW
M
Group’s) capital stra
tegy, dividend policy,
remuneration policy
or the c
onduct of
NatWest Group’s operations, amongst
others. HM Treasury or UKGI’s app
roach
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 bu
siness
strategy of NWM
Group.
In addition, NWM Plc is a wholly owned
subsidiary of NatWest Group pl
c, and
NatWest Group plc therefore c
ontrols
NWM Group’s board of directors,
corporate policies and strategic directio
n.
The interests of NatWest Group plc as an
equity holder and as NWM Group’s
parent may differ from the interests of
NWM Group or of potential inve
stors in
NWM Group’s securities.
Strategic risk
NWM Group has been in a per
iod of
significant structura
l 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 Gro
up
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 require
d, and
continues to require, changes i
n 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
base and capital requirements. The
implementation of the NWM Refocusing
Risk Factors con
tinued
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oup
Annual Report and Accou
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182
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 Inter
national
businesses to form a single franchise to
best support its customers across
the full
non-personal customer lifecycle. T
he
transition is expected to begin over the
coming months and be effe
ctive from
July 2022. Any of
the above may result in
material execution, commercial and
operational (including compliance
with
the UK ring-fencing regime) ris
ks 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 t
o
emphasising and growing product
capability in the areas of impor
tance to
NatWest Group’s corporate and
institutional customers, includin
g the
Fixed Income and Capital Markets
businesses, and has refocused i
ts Rates
business to best serve its core customers.
As a result of focusing further on
NatWest Group core corporate
customers, NWM Group’s pros
pects are
becoming further dependent on the
success and strategy of NatWest Group.
In addition, to improve efficie
ncies and
best serve customers, including in light of
Brexit planning, NWM Group expects
that
certain assets, liabilities, transac
tions
and activities of NatWest Group
(including NatWest Group’s We
stern
European corporate portfolio, principally
including term funding and revolving
credit facilities) (the ‘Transfer Busines
s’),
will be transferred from the rin
g-fenced
subgroup of NatWest Group to NWM
Group on a rolling basis, subjec
t to
certain regulatory and custome
r
requirements. The timing and quantum
of such transfers remains uncertain and
NWM Group can give no assurance as t
o
the full impact of such transactions on its
go-forward results of operations. A
s 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, fo
r 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 achie
vement
of the anticipated targets and g
oals 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 affe
ct the
cost and scope of NatWest Group’s
provision of services to NWM Group,
which individually or collectively may
impact NWM 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 b
e 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 t
argets,
including through head-count re
ductions
and redirecting investment fro
m certain
business areas to others, which could
affect NWM 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 simpl
ification
of the IT systems and therefore may not
be realised in full if IT capabilitie
s are not
delivered in line with assumptions. T
hese
risks are expected to continue to last fo
r
at least the medium term.
The NWM Refocusing is expected to
result in, and the refocused NWM Group
continues to face,
increased pe
ople 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
culture and morale. The remaining p
arts
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 syste
ms.
There is a risk that NWM Grou
p 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 custome
rs,
regulators, rating agencies, stake
holders
and the wider market, how it impacts its
business, and NWM Group’s ability to
retain employees required to deli
ver its
go-forward strategic priorities.
NWM Group has implemented a sha
red
services model and entered into revenue
share agreements with some entities
within NatWest Group’s ring-fenced sub-
group (including NatWest Bank Plc, T
he
Royal Bank of Scotland Plc and Ulster
Bank Ireland DAC). NWM Group
therefore relies directly or indirec
tly 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,
‘
Operational risks (including reli
ance on
third party suppliers and outsourcing of
certain activities) are inherent i
n NWM
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
NV) or any of their respective debt
securities, which could adversely
affect
the availability and cost of funding for
NWM Group and negatively impact NWM
Group’s liquidity position.
Each of the risks identified in this
risk
factor, individually or collectively could
adversely impact NWM Group’s products
and services offering or office locations,
reputation with customers or busines
s
model and adversely impact NWM
Group’s ability to deliver its strategy and
the anticipated benefits thereof and meet
its targets and guidance. Any of
the
above could in turn have a material
adverse effect on NWM Group’s business
,
results of operations and outlook.
While NWM Group has made substantial
progress in implementing the NWM
Refocusing, 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 Re
focusing
and other structural change m
ay not be
successful, or that the business resulting
Risk Factors con
tinued
NWM Gr
oup
Annual Report and Accou
nts 202
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183
from the NWM Refocussing and
other
structural changes may not be a viable,
competitive or profitable busines
s.
Trends relating to the COVID-19
pandemic may adversely affect NWM
Group’s strategy and impair its ability
to meet its tar
gets and strategic
objectives.
The trajectory of the COVID-19
pandemic’s impact on the UK a
nd global
economy and NWM Group remain
uncertain. If trends relating to t
he
COVID-19 pandemic negatively
impact
the UK and global economy, NWM Group
may be unable to meet its financial,
capital and operational targets and
expectations.
Whilst NWM Group, as part of N
atWest
Group, remains committed to its c
ost
reduction targets, achieving the
planned
reductions in an environment affe
cted 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 Group and
which may have an adverse effe
ct on
NWM Group.
It is uncertain as to how the broader
macroeconomic business envir
onment
and societal norms may be impacted by
the COVID-19 pandemic, causing
significant wider societal changes. For
example, one of the most notable e
ffects
of the COVID-19 pandemic has
been its
disproportionate impact on the most
vulnerable groups of society an
d
concerns about systemic racial biases
and social inequalities.
In addition, the COVID-19 pand
emic has
accelerated existing economic
trends
that may radically change the way
businesses are run and people live
their
lives. These trends include digitalisation,
decarbonisation, automation, e-
commerce and agile working, e
ach 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, s
ocial,
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 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 Group’s
reputation, business, results of
operations, outlook and the value
of
NWM Group’s securities. See als
o, ‘
—
Any failure by NWM Group to impl
ement
effective and compliant climate chang
e
resilient systems, controls and procedures
could adversely affect NWM Group’s
ability to manage climate-relate
d risks
’
and ‘
— A failure to adapt NWM Group’s
business strategy, governance,
procedures, systems and controls t
o
manage emerging sustainability-related
risks and opportunities may have a
material adverse effect on NWM G
roup,
its reputation, business, results of
operations and outlook
’.
The COVID-19 pandemic may also result
in unexpected developments or c
hanges
in financial markets, the fiscal, tax and
regulatory frameworks and cons
umer
customer and corporate client be
haviour,
which could intensify competition in the
financial services industry. This could
negatively impact NWM Group if it is not
able to adapt or compete effe
ctively.
Financial resilience risk
NWM Group may not meet
the targets
it communicate
s, generate returns or
implement its strategy effectively.
As part of NatWest Group’s pur
pose-led
strategy and the NWM Refocusing, NWM
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 (fo
r
NWM Plc and NWM N.V.), targets in
relation to local regulation, funding plans
and requirements, employee
engagement, diversity and incl
usion as
well as ESG (including climate
and
sustainable funding and financing
targets) and customer satisfaction
targets.
NWM Group’s ability to meet its targets
and to successfully implement its
strategy is subject to various internal and
external factors and risks. These i
nclude
but are not limited to, the impa
ct 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 Group’s business model and
strategy (including risks associated with
climate, environmental, social,
governance and other sustainability-
related issues) and the NWM Refocus
ing.
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 (i
ncluding
the NWM Refocusing) and may
continue
to be subject to significant struct
ural and
other change
’.
A number of factors, including the
economic and other effects of the
COVID-19 pandemic, may impact NWM
Plc and NWM NV’s ability to m
aintain
their current CET1 ratio targets,
including impairments, the extent of
organic capital generation or the
reduction of RWAs. NWM Plc may incur
disposal losses as part of the process
of
exiting positions to reduce RWAs. Some
of these losses may be recognis
ed ahead
of the actual disposals and the
losses
overall may be higher than currently
anticipated.
NWM 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 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 Group’s business and may
adversely affect its ability to ac
hieve its
targets and execute its strateg
y.
There is a risk that NWM Grou
p’s
strategy may not be successfu
lly
executed, that it will not meet its targets
and expectations, or that it will
not be a
viable, competitive or profitable
banking
business.
NWM Plc and/or its regulated
subsidiaries may not meet th
e
prudential regulatory requirement
s for
capital.
NWM Group is required by regulators in
the UK, the EU and other jurisd
ictions in
which it undertakes regulated
activities
to maintain adequate financial resources.
Adequate capital provides NWM Group
with financial flexibility in the face
of
turbulence and uncertainty in the global
economy and specifically in its core UK
operations.
NWM Plc’s target CET1 ratio is
based on
regulatory requirements, intern
al
modelling and risk appetite (including
under stress). NWM NV’s target
CET1
ratio is based on expected regulatory
requirements, internal modelling and risk
appetite (including under stress). As at 31
December 2021, NWM Plc’s solo CET1
ratio was 17.9%. NWM Plc’s current
capital strategy is based on the
management of RWAs and other capital
management initiatives (including the
reduction of RWAs and the periodic
payment of dividends to NatWes
t Group
plc, NWM Plc’s parent company).
Risk Factors con
tinued
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oup
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nts 202
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Other factors that could influence NWM
Plc and NWM NV’s CET1 ratios include
,
amongst other things (See also, ‘
NWM
Group has been in a period of sig
nificant
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 t
o
significant structural and other
change
’):

a depletion of NWM Plc or NWM
NV’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
Plc’s or NWM NV’s RWAs,
stemming from exceeding targ
et
RWA levels, the NWM Refocusing,
regulatory adjustments (for
example, from additional marke
t
risk backtesting 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 (and
increase the amount of internal
MREL required for NWM Plc);

changes in prudential regulatory
requirements including the Total
Capital Requirement for NWM Plc
(as regulated by the Prudential
Regulation Authority (‘PRA’)) or
NWM NV (as regulated by the De
Nederlandsche Bank
(‘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
NV
Management actions taken under a
stress scenario may affect, among o
ther
things, NWM Group’s product o
ffering, 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 Group’s securities. See als
o, ‘—
NWM Plc and/or its regulated subsidiaries
may not manage their capital, li
quidity or
funding effectively which could t
rigger the
execution of certain management actions
or recovery options
’ and ‘
NatWest G
roup
(including NWM Group) may be
come
subject to the application of UK statutory
stabilisation or resolution powers which
may result in, among other actions, the
write-down or conversion of NWM Group
entities’ Eligible Liabilities
’.
NWM Group is reliant on acc
ess to the
capital markets to meet its funding
requirements, both directly throu
gh
wholesale markets, and indirec
tly
through its parent (NatWest Gro
up) for
the subscription to its internal
capital
and MREL. The inability to do so ma
y
adversely affect NWM Group.
NatWest Markets Plc’s funding plan
currently anticipates that in 2022
, it will
issue £4-5 billion of public benchmark
issuance in order to meet its ne
ar-term
debt refinancing and funding
requirements, based on its curre
nt and
anticipated business activities. NWM
Group therefore has significant
anticipated funding requirements and 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, r
egulatory
risk, risk of reduced commercial activi
ty,
risk of loss of market confidenc
e in the
NWM Group if it cannot finance its
activities and risk a ratings downgrade,
which could be impeded by a n
umber of
internal or external factors, including,
those referred to above in ‘
NWM G
roup
faces continued economic and p
olitical
risks and uncertainty in the UK and global
markets
’, ‘
Continuing uncertainty
regarding the effects and extent of the
UK’s post Brexit divergence from E
U laws
and regulation, and NWM Group’s post
Brexit EU operating model may conti
nue
to adversely affect NWM Group
and its
operating environment
’, ‘
Any reduction in
the credit rating and/or outlooks assig
ned
to NatWest Group plc, any of its
subsidiaries (including NWM Plc or NWM
Group subsidiaries) or any of their
respective debt securities could adve
rsely
affect the availability of funding for NWM
Group, reduce NWM Group’s liquidity
position and increase the cost of funding
’
and ‘
NWM Group is exposed to the risk of
various litigation matters, regul
atory and
governmental actions and investigat
ions
as well as remedial undertakings, the
outcomes of which are inherently difficult
to predict, and which could have an
adverse effect on NWM Group
’.
In addition, NWM Plc receives capital and
funding from NatWest Group pl
c. NWM
Plc has set target levels for different tiers
of capital and for the internal minimum
requirements for own funds and eligible
liabilities (‘MREL’), as percenta
ges of its
RWAs. The level of capital and f
unding
required for NWM Plc to meet its internal
targets is therefore a function of
the level
of RWAs and its leverage exposure in
NWM Plc and this may vary over time.
NWM Plc’s internal MREL comprises
the
regulatory value of capital instru
ments
and loss-absorbing senior funding issu
ed
by NWM Plc to its parent, NatW
est Group
plc, in all cases with a residual maturi
ty
of at least one year. The Bank
of England
has identified that the preferred
resolution strategy for NatWest Group is
as a single point of entry. As a
result,
only NatWest Group plc is able to issue
Group MREL eligible liabilities to third-
party investors, using the procee
ds to
fund the internal capital and MREL
targets and/or requirements of its
operating entities, including NWM Plc.
NWM Plc is therefore dependent not only
on NatWest Group plc to fund its internal
capital targets, but also on NatWes
t
Group plc’s ability to source appropri
ate
funding. NWM Plc is also dependent on
NatWest Group plc to continue to fund
NWM Plc’s internal MREL targets over
time and its ability to issue and maintai
n
sufficient amounts of external MREL
liabilities to support this. In turn, NWM Plc
is required to fund the internal capital
and MREL requirements of its
subsidiaries.
Any inability of NWM Group to
adequately access the capital
markets, to
manage its balance sheet in line with
assumptions in its funding plan
s, or to
issue internal capital and MREL may
adversely affect NWM Group, such that
NWM Group may not constitute
a viable
banking business and/or NWM Plc or
NWM NV may fail to meet their
respective regulatory capital and/or
MREL requirements (at present, NWM NV
does not yet have its own MREL
requirements) (see also, ‘
The effects of
the COVID-19 pandemic could affect
NWM 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
’).
Risk Factors con
tinued
NWM Gr
oup
Annual Report and Accou
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NWM Group may not be able to
adequately access sources of liqu
idity
and funding.
NWM 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 202
1,
NWM Group held £4.1 billion in deposits
from banks and customers. The level of
deposits and wholesale funding
may
fluctuate due to factors outside
NWM
Group’s control. These factors include:
loss of investor confidence (including in
individual NWM Group entities
or the UK
banking sector or the banking
sector as
a whole), sustained low or negative
interest rates, government support,
increasing competitive pressures f
or
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
Group has significant exposure to
counterparty and borrower risk
’.
An inability to grow, roll-over, or any
material decrease in, NWM 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 Group’s ability to satisfy its
liquidity needs.
NWM Group engages from time to time
in ‘fee based borrow’ transactions
whereby collateral (such as government
bonds) is borrowed from count
erparties
on an unsecured basis in return for a fee.
This borrowed collateral may be use
d by
NWM Group to finance parts of its
balance sheet, either in its repo f
inancing
business, derivatives portfolio or more
generally across its balance she
et. If
such ‘fee based borrow’ transactions a
re
unwound whilst used to support the
financing of parts of NWM Group
balance sheet, then unsecured f
unding
from other sources would be required
to
replace such financing. There is a risk
that NWM 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 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 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 Group.
The effects of the COVID-19 pandemic,
current economic uncertainties and any
significant market volatility, could affect
NWM Group’s ability to access s
ources of
liquidity and funding, which may resu
lt in
higher funding costs and failure to
comply with regulatory capital, fu
nding
and leverage requirements.
As a result,
NWM Group and its subsidiaries c
ould be
required to adapt their funding
plans.
This could exacerbate funding and
liquidity risk, which could have
a
negative effect on NWM Group.
As at 31 December 2021, NWM Group
reported a liquidity coverage ratio of
205%. If its liquidity position were to
come under stress and if NWM Group is
unable to raise funds through deposits or
wholesale funding sources on acc
eptable
terms or at all, its liquidity position could
be adversely affected. This wo
uld mean
that NWM Group might be una
ble to:
meet deposit withdrawals on d
emand or
satisfy buy back requests, repay
borrowings as they mature, mee
t its
obligations under committed fin
ancing
facilities, comply with regulatory
funding
requirements, undertake certain capital
and/or debt management activities, or
fund new loans, investments and
businesses. NWM Group may ne
ed to
liquidate unencumbered assets to meet
its liabilities, including disposals of assets
not previously identified for disposal to
reduce its funding commitment
s or
trigger the execution of certain
management actions or recovery
options. This could also lead to
higher
funding costs and/or changes to NWM
Group’s funding plans. In a time
of
reduced liquidity or market stress
, NWM
Group may be unable to sell some of its
assets or may need to sell assets at
depressed prices, which in eithe
r case
could negatively affect NWM Group’s
results.
NWM Group entities independently
manage liquidity risk on a stand-alone
basis, including through holding their
own liquidity portfolios. They have
restricted access to liquidity or funding
from other NatWest Group entities. NWM
Group entities’ management of their own
liquidity portfolios and the structure of
capital support are subject to opera
tional
and execution risk.
The effects of the
COVID-19 pandemic
could affect NWM 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 o
n capital
and RWAs, NWM Group and its
subsidiaries may be required to adapt
their funding plans in order to satisfy
their respective capital and funding
requirements, which may have
a
negative impact on NWM 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. 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 fun
ding to
NWM Plc.
Furthermore, significant fluctuation in
foreign currency exchange rat
es may
affect capital deployed in NWM Plc’s
foreign subsidiaries, branches and joint
arrangements, securities issued
by NWM
Plc and/or its subsidiaries in foreign
currencies or the respective val
ues of
assets, liabilities, income, RWAs, capital
base, expenses and reported earnings.
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 e
xposure.
Any downgrading to the credit ratings
and/or outlooks assigned to NWM Group,
its subsidiaries 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 ef
fect on
NWM Group.
NWM Plc and/or its regulated
subsidiaries may not manage their
capital, liquidity or funding effectively
which could trigger the execution of
certain mana
gement actions or
recovery options.
Under the EU Bank Recovery a
nd
Resolution Directives I and II (‘BRRD’), as
implemented in the UK, NatWest Group
must maintain a recovery plan
acceptable to its regulator, such that
a
breach of NWM Plc’s applicable
capital
or leverage, li
q
uidity
o
r funding
requirements would trigge
r consideration
of NWM Plc’s
recovery plan, and in turn
may prompt consideration of NatWest
Group’s recovery plan. If, under stresse
d
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 Plc could undertake that may
or may not be sufficient to restore
adequate liquidity, capital and leverage
ratios. Additional management options
relating to existing capital issua
nces,
asset or business disposals, capital
payments and dividends from NWM Plc
Risk Factors con
tinued
NWM Gr
oup
Annual Report and Accou
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to its parent, could also be unde
rtaken to
support NWM Plc’s capital and
leverage
requirements.
NatWest Group may also address
a
shortage of capital in NWM Plc by
providing parental support to NWM Plc.
NatWest Group’s (and NWM Plc’s)
regulator may also request that NWM
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 the UK resolution authority, the Bank
of England also has the power to execute
the ‘bail-in’ of certain securities of
NWM
Group without further action at NatWest
Group level.
Any capital management actions taken
under a stress scenario may affe
ct,
among other things, NWM Group’s
product offering, credit ratings, ability
to
operate its businesses and pursue its
current strategies and strategic
opportunities as well as negative
ly
impacting investor confidence and the
value of NWM Group’s securities. See
also, ‘—
NatWest Group (including NWM
Group) may become subject to the
application of UK statutory stabil
isation or
resolution powers which may re
sult in,
among other actions, the write-down or
conversion of NWM Group entities’
Eligible Liabilities
’. In addition, if NWM Plc
or NWM NV’s liquidity position were to
be
adversely affected, this may require
unencumbered assets to be liquidated or
may result in higher funding costs, which
may adversely impact NWM Group’s
operating performance.
Any reduction in the cre
dit rating
and/or outlooks assigned to Na
tWest
Group plc, any of its subsidiar
ies
(including NWM Plc or NWM
Group
subsidiaries) or any of their r
espective
debt securities could adversel
y affect
the availability of funding for NWM
Group, reduce NWM Group’s liquidity
position and increase the cost o
f
funding.
Rating agencies regularly review
NatWest Group plc, NWM Plc and other
NatWest Group entity credit rat
ings and
outlooks, which could be negative
ly
affected by a number of factors that can
change over time, including: the
credit
rating agency’s assessment of NWM
Group’s strategy and management’s
capability; its financial condition including
in respect of profitability, asset quality,
capital, funding and liquidity; th
e level of
political support for the industrie
s in
which NWM Group operates; the
implementation of structural reform; the
legal and regulatory frameworks
applicable to NWM Group’s legal
structure; business activities and the
rights of its creditors; changes i
n rating
methodologies; changes in the relative
size of the loss-absorbing buffers
protecting bondholders and deposito
rs;
the competitive environment, political
and economic conditions in NWM
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 ma
rket
uncertainty.
In addition, credit ratings agencie
s are
increasingly taking into accoun
t
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 or of
certain other NatWest Group entities,
including, in particular, downgr
ades
below investment grade, or a
deterioration in the capital markets’
perception of NWM Group’s financial
resilience could significantly aff
ect NWM
Group’s access to money markets,
reduce the size of its deposit base and
trigger additional collateral or other
requirements in derivatives con
tracts and
other secured funding arrangements or
the need to amend such arrangements,
which could adversely affect NWM
Group’s (and, in particular, NWM Plc’s)
cost of funding and its access to capital
markets which could limit the range of
counterparties willing to enter into
transactions with NWM Group (
and, in
particular, with NWM Plc). This could in
turn adversely impact NWM Group’s
competitive position and threaten its
prospects in the short to medium-term.
NWM Group operates in marke
ts that
are highly competitive, with incr
easing
competitive pressures and techn
ology
disruption.
The markets in which NWM Group
operates are highly competitive, and
competition may intensify in response to
various changes. These include: e
volving
customer behaviour, technological
changes (including digital currencie
s,
stablecoins and the growth of digital
banking, such as from fintech e
ntrants),
competitor behaviour, new entrants to
the market, industry trends resulting in
increased disaggregation or un
bundling
of financial services, the impact of
regulatory actions and other factors.
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 Group are, and
will become, more technology intensive.
NWM Group’s ability to develop
such
services (which also comply with
applicable and evolving regulati
ons) has
become increasingly important to
retaining and growing NWM Group’s
client businesses across its geo
graphical
footprint. There can be no cert
ainty that
NWM Group’s innovation strategy (which
includes investment in its IT capability
intended to improve its core
infrastructure and client interfac
e
capabilities as well as investments and
partnerships with third party te
chnology
providers) will be successful or that it will
allow NWM Group to continue to grow
such services in the future.
In addition, certain of NWM 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 bette
r able to
attract and retain clients and key
employees, may have better IT sys
tems,
and may have access to lower cost
funding and/or be able to attract deposits
or provide investment-banking se
rvices
on more favourable terms than NWM
Group. Although NWM Group invests in
new technologies and participates in
industry and research-led initiatives
aimed at developing new techn
ologies,
such investments may be insufficient or
ineffective, especially given NWM
Group’s focus on its cost savin
gs targets.
This may limit additional investment in
areas such as financial innovation and
could therefore affect NWM Gr
oup’s
offering of innovative products
or
technologies for delivering products or
services to clients and its comp
etitive
position. NWM 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. T
he
development of innovative products
depends on NWM Group’s abilit
y to
produce underlying high quality data,
failing which its ability to offer innovative
products may be compromised.
If NWM Group is unable to offer
competitive, attractive and innovative
products that are also profitable and
timely, it will lose share, incur losse
s on
some or all of its activities and l
ose
opportunities for growth. In this
context,
NWM 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 de
fective,
inadequate or is not fully integr
ated into
NWM Group’s current solutions
. There
can be no certainty that such initiatives
will deliver the expected cost savings and
investment in automated proces
ses will
Risk Factors con
tinued
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oup
Annual Report and Accou
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likely also result in increased short-term
costs for NWM Group.
In addition, NatWest Group’s purpose-led
strategy, as well as employee
remuneration constraints,
may also have
an impact on NWM Group’s ability to
compete effectively and intensifie
d
competition from incumbents,
challengers and new entrants could
affect NWM Group’s ability to p
rovide
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 o
r
technological or other developments in
certain sectors of the financial se
rvices
industry could result in NWM 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 Group.
NWM Group may be adversely af
fected
if NatWest Group fails to mee
t the
requirements of regulat
ory stress tests.
NatWest Group is subject to annual
stress tests by its regulator in t
he UK and
is also subject to stress tests by
European regulators with respect to
NWM NV and Ulster Bank Ireland DAC.
Stress tests are designed to ass
ess 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 tes
ts
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 me
et 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 confidenc
e.
The impact of the COVID-19 pandemic
on the credit quality of NWM Gr
oup’s
counterparties may negatively impact
NWM Group.
The effects of the COVID-19 pandemic
have adversely affected the credit quality
of some of NWM Group’s borrowers and
other counterparties, and government
support schemes may delay the
effects
of defaults by such counterpartie
s. As
government support schemes reduce
,
defaults are expected to rise wi
th more
customers moving from IFRS 9 Stage 2
to Stage 3. As a result, NWM Group may
continue to experience elevated
exposure to credit risk and demands on
its funding, and the long-term effe
cts
remain uncertain. If borrowers or
counterparties face increasing levels
of
debt and default or suffer deterioration in
credit, this increases impairment
charges, write-downs, regulato
ry
expected loss and impacts credit
reserves. An increase in drawings u
pon
committed credit facilities may also
increase NWM Plc’s and/or its
subsidiaries’ RWAs. If NWM Gro
up
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 Group.
NWM Group has significant e
xposure
to counterparty a
nd borrower risk.
NWM NV, a subsidiary of NWM Plc, has a
portfolio of loans and loan commitments
to Western European corporate
customers. As a result, through the NWM
NV business and NWM Group’s other
activities, NWM Group has exposu
re 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 Group’s business
es. These
risks may be concentrated for those
businesses for which client income is
heavily weighted towards a spe
cific
geographic region, industry or c
lient
base. 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 has been in a period of
significant structural and other
change,
including as a result of NatWest G
roup’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 va
riety 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 payme
nts to
NWM 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 cov
er the
loan repayment amount; posting margin
and/or collateral and other commitments
to clearing houses, clearing agencies
,
exchanges, banks, securities firms an
d
other financial counterparties; and
investing and trading in securitie
s 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 R
isk
’. Any
negative developments in the activities
listed above may negatively impact NWM
Group’s clients and credit expos
ures,
which may, in turn, adversely impact
NWM Group’s profitability.
The credit quality of NWM Group’s
borrowers and other counterparties may
be affected by a deterioration in
prevailing economic and marke
t
conditions (including those cause
d by the
COVID-19 pandemic) and by changes in
the legal and regulatory landscape in the
UK and countries where NWM Group is
exposed to credit risk (including the
extent of the UK’s post-Brexit divergence
from EU laws and regulation). The
se
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 loss
es
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 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 Group’s
potential loss. This systemic risk may also
adversely affect financial intermediaries,
such as clearing agencies, clea
ring
houses, banks, securities firms and
exchanges with which NWM Group
interacts on a daily basis. See also, ‘—
NWM Group is reliant on access
to the
capital markets to meet its funding
requirements, both directly thro
ugh
wholesale markets, and indirectl
y through
its parent (NatWest Group) for the
subscription to its internal capital
and
MREL. The inability to do so may
adversely affect NWM Group
’.
As a result of the above, adverse
changes in borrower and counte
rparty
credit risk may cause accelerate
d
impairment charges under IFRS 9
,
increased repurchase demands, higher
costs, additional write-downs and losses
for NWM Group and an inability to
engage in routine funding transactions.
NWM Group has applied an inte
rnal
analysis of multiple economic s
cenarios
(MES) together with the determi
nation of
Risk Factors con
tinued
NWM Gr
oup
Annual Report and Accou
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188
specific overlay adjustments to
inform its
IFRS 9 ECL (Expected Credit L
oss).
The recognition and measurement of
ECL is complex and involves the us
e 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. T
he
ECL provision is sensitive to the
model
inputs and economic assumptions
underlying the estimate. See al
so, ‘
Risk
and Capital Management — Credit Risk
’.
The assumptions and judgments use
d in
the MES and ECL assessment at 31
December 2021 may not prove to be
adequate resulting in incremental ECL
provisions for the NWM Group. As
government support schemes reduce
,
defaults are expected to rise wi
th more
ECLs cases moving from Stage 2 to
Stage 3.
NWM Group is exposed to the financial
industry, including sovereign debt
securities, banks, financial inter
mediation
providers (including providing f
acilities 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 asse
ts). Due
to NWM 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
Group is
requi
red to
identify
and m
onitor its
exposure to
shadow ba
nking e
ntities,
implement and maintain an internal
framework for the identification,
management, control and mitigation of
the risks associated with exposure to
shadow banking entities, and ensu
re
effective reporting and governance in
respect of such exposure. If NWM 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
Group.
NWM Group could incur losses or be
required to maintain higher levels of
capital as a result of limitatio
ns or
failure of various models.
Given the complexity of NWM Group’s
business, strategy and capital
requirements, NWM 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 stre
ss
testing). In addition, NWM Group utilises
models for valuations, credit approvals,
calculation of loan impairment charges
on an IFRS 9 basis, financial repor
ting
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 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 theref
ore
remain uncertain. Failure of mo
dels
(including due to errors in model desi
gn)
or new data inputs (including non-
representative data sets), for example, to
accurately reflect changes in the
micro
and macroeconomic environme
nt in
which NWM Group operates (for example
to account for the impact of the
COVID-
19 pandemic), to capture risks and
exposures at the subsidiary level, and to
update for changes to NWM Group’s
current business model or operations, or
for findings of deficiencies by NatWest
Group (and in particular, NWM Group’s)
regulators (including as part of NatWest
Group’s mandated stress testin
g) may
render some business lines uneconomic,
result in increased capital requirements,
may require management action or may
subject NWM Group to regulatory
sanction. NWM Group may also face
adverse consequences as a result of
actions based on models that a
re poorly
developed, implemented or used, models
that are based on inaccurate or
compromised data or as a result of the
modelled outcome being misun
derstood,
or by such information being u
sed for
purposes for which it was not de
signed.
NWM Group’s financial statement
s 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, expens
es,
exposures and RWAs. While esti
mates,
judgments and assumptions tak
e 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 u
se of
complex models).
The accounting policies deemed critical
to NWM Group’s results and fin
ancial
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 ac
counting
standards and interpretations that have
been issued by the International
Accounting Standards Board but which
have not yet been adopted by NWM
Group are discussed in ‘
Future
Accounting Developments
’.
Changes in accounting standa
rds may
materially impact NWM 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 Group having to recognis
e
additional liabilities on its balance
sheet,
or in further write-downs or impairments
to its assets and could also signif
icantly
impact the financial results, condition
and prospects of NWM Group.
NWM Group’s trading assets a
mounted
to £59.1 billion 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 Group relies on
quoted market prices or, where the
market for a financial instrument is no
t
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 Group’s internal
valuation models require NWM
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 Group
to recognise fair value losses which m
ay
have an adverse effect on NWM Group’s
income generation and financial position.
NatWest Group (including NWM Gr
oup)
may become subject to the
application
of UK statutory st
abilisation or
resolution powers which may resu
lt in,
among other act
ions, the write-down
or conversion of NWM Group en
tities’
Eligible Liabilities.
HM Treasury, the Bank of Engl
and and
the PRA and FCA (together, the
‘Authorities’) are granted subst
antial
powers to resolve and stabilise UK-
incorporated financial institutions. Five
stabilisation options exist: (i) transfer of
all of the business of a relevant entity o
r
the shares of the relevant entit
y 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
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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, righ
ts or
liabilities; (iv)
t
he write-
down, conversion,
transfer, modification, or suspe
n
sion 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 NatWes
t 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, the
re 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
NV in the
Netherlands by the relevant Dutch
regulatory
authorities.
Under the UK Banking Act, the
Authorities are generally requir
ed to
have regard to specified objectives in
exercising the powers provided for by
the Banking Act. One of the obje
ctives
(which is required to be balance
d as
appropriate with the other spe
cified
objectives) refers to the protection and
enhancement of the stability of the
financial system of the UK. Mor
eover, the
‘no creditor worse off’ safeguard
contained in the Banking Act (which
provides that creditors’ losses in
resolution should not exceed thos
e that
would have been realised in an
insolvency of the relevant instit
ution)
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
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.
If NatWest Group is at or is approaching
the point of non-viability such that
regulatory intervention is require
d, there
may correspondingly be an adverse
effect on the business, results of
operations and outlook of NWM Group.
NatWest Group is subject to Ba
nk of
England and PRA oversight in respect
of resolution, and NatWest Group cou
ld
be adversely affected should the
Bank
of England deem NatWest Grou
p’s
preparations to be inadequate.
NatWest Group is subject to regulatory
oversight by the Bank of Engla
nd and the
PRA, and is required (under the
PRA
rulebook) to carry out an asses
sment of
its preparations for resolution, s
ubmit a
report of the assessment to the PRA, and
disclose a summary of this rep
ort. The
initial report was submitted to the PRA
on 30 September 2021 and the B
ank of
England’s assessment of NatWest
Group’s preparations is schedule
d to be
released on 10 June 2022 although the
Bank of England may provide fe
edback
before then.
NatWest Group has dedicated significan
t
resources towards the preparation of
NatWest Group for a potential re
solution
scenario. However, if the Bank of
England assessment identifies a
significant gap in NatWest Grou
p’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 20
22,
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
Group) as, depending on the Bank of
England’s assessment, potential action
may include, but is not limited t
o,
resulting in restrictions on maxi
mum
individual and aggregate exposures, a
requirement to dispose of specifie
d
assets, a requirement to change le
gal 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 Group’s) strategic
plans and have an adverse effect on the
financial position of NWM Group or may
result in reputational damage a
nd/or loss
of investor confidence.
Climate and sustainability-relat
ed risks
NWM Group and its customers fa
ce
significant climate-related ris
ks,
including in transitioning to a net z
ero
economy, which may adversely impact
NWM Group.
Climate-related risks and uncertainties
are continuing to receive increasing
regulatory, judicial, political and societal
scrutiny.
Financial and non-financial risk
s from
climate change arise through p
hysical
and transition risks. Furthermor
e, NWM
Group may also face a variety of
climate-related legal risks, both physical
and transition, from potential lit
igation
and conduct liability. See also, ‘
NWM
Group may be subject to potential
climate, environmental and other
sustainability-related litigation,
enforcement proceedings, invest
igations
and conduct risk
’.
There are significant uncertaint
ies as to
the extent and timing of the
manifestation of the physical risks of
climate change, such as more se
vere
and frequent extreme weather events,
(flooding, subsidence, heat wave
s and
long-lasting wildfires), rising sea levels,
biodiversity loss and resource scarcity.
Damage to NWM customers’ properties
and operations could disrupt bus
iness,
impair asset values and negativ
ely
impact the creditworthiness of customers
leading to increased default rates,
delinquencies, write-offs and impairment
charges in NWM Group’s portfolios. In
addition, NWM Group premises and
operations, or those of its critical
outsourced functions may experience
damage or disruption leading t
o
increased costs and negatively
affecting
NatWest Group’s business continuity an
d
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 a
nd
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 N
WM
Group operates will be require
d to meet
the goals of the 2015 Paris Agree
ment,
the UK’s Net Zero Strategy and the
Glasgow Climate Pact of 2021. The
impact of the extensive commercial,
technological, policy and regulatory
changes required to achieve transitio
n
remains uncertain, but it is expected to
be significant and may be disruptive
across the global economy and ma
rkets,
especially if these changes do not occur
in an orderly or timely manner or are no
t
effective in reducing emissions
sufficiently. Some sectors such as
property, energy (including oil and gas),
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mining, infrastructure, transport
(including automotive and aviation) and
agriculture are expected to be
particularly impacted. The timing and
pace of the transition to 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 Group fails, to adapt its busines
s
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 ris
ks and
opportunities that NWM Group,
its
customers and value chain face, NWM
Group’s reputation, business, operations
or value chain and results of op
erations
and outlook may be impacted adversely.
NatWest Group’s purpose-led str
ategy
includes climate change as one of
its
three areas of focu
s. This is likely to
require material chan
ges to the
business and operating model of NWM
Group which entails significant
execution risk.
In February 2020, NatWest Gro
up
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 f
inancing
activity by 2030 and intending to do what
is necessary to achieve alignment with
the 2015 Paris Agreement. In a
ddition, 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 transitio
n
to a net zero economy, NatWes
t Group
has also announced its ambitions to
phase out of coal for UK and n
on UK
customers who have UK coal production,
coal fired generation and coal re
lated
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 cus
tomers
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 a
mbitions,
NatWest Group has also announced other
climate ambitions, targets and
commitments, and going-forward it m
ay
also announce other climate ambitions,
targets and commitments, including
science-based targets to be validated by
the Science Based Target Initia
tive.
Making the changes necessary to
achieving these ambitions may
materially
affect NWM Group’s business and
operations and may require significant
reductions to its financed emissions and
to its exposure to customers that do no
t
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 reductio
ns
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 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 Group’s ability to
achieve its financial targets and gener
ate
sustainable returns.
NWM Group’s ability to contribute to
achieving NatWest Group’s climate-
related ambitions, targets and
commitments through its own specif
ic
targets will depend to a large extent on
many factors and uncertainties beyond
NWM Group’s control. These include the
macroeconomic environment, the e
xtent
and pace of climate change, including
the timing and manifestation of physical
and transition risks, the effectiveness
of
actions of governments, legislat
ors,
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, ‘
N
atWest
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 Group which entail
s
significant execution risk
’ and ‘
There are
significant challenges in relation
to
climate-related data due to quality and
other limitations, lack of standar
disation,
consistency and incompleteness which
amongst other factors contribute to the
significant uncertainties inheren
t 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 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 Group’s to
contribute to setting, making pr
ogress
against or meeting NatWest Gr
oup’s
climate-related ambitions, targets and
commitments through its own specif
ic
targets may have a material adverse
impact on NWM Group, its reputation,
business, results of operations, outlook,
market and competitive position and m
ay
increase the climate-related ris
ks NWM
Group faces.
Any failure by NWM Group to
implement effective and compliant
climate change resilient system
s,
controls and procedures could
adversely affect NWM Group’s a
bility
to manage climate-relat
ed risks.
The prudential regulation of climate-
related risks is an important driver in
how NWM Group develops its ri
sk
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
publishing expectations as to how banks
should prudently manage and
transparently disclose climate-related and
environmental risks under prudential
rules.
In April 2019, the PRA published a
supervisory statement (the ‘SS 3
/19’) with
particular focus on the manage
ment of
financial risks from climate cha
nge with
respect to governance, risk management,
scenario analysis and disclosure
s.
Following the submission of initial plans by
UK banks in October 2019, in July 2
020
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 C
OVID-
19 pandemic had disrupted some
elements of NatWest Group’s origin
al plan
and, as a result, the updated plan would
require additional operating cycle
s
reaching into 2022 and beyond to prove
embedding. Subsequently the PRA issue
d
its ‘Climate Change Adaptation Re
port’ in
October 2021 advising firms of
the need
to continue to refine and innovate w
ays to
further integrate the financial risks
from
climate change within risk man
agement
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practices and it restated that by
the end
of 2021, firms should be able to
demonstrate that the expectations s
et out
in SS3/19 have been implemente
d and
embedded throughout the firm
s’
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 qualita
tive in
nature, approach to supervisor
y
requirements.
In June 2021, the Bank of Engla
nd
launched its 2021 Bie
nnial 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 ch
ange 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 natu
re.
The Bank of England guidance
for the
CBES confirmed that it is exploratory in
nature and not intended to be us
ed 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 r
egulatory
capital frameworks as they relate to
climate related financial risk. To suppo
rt
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 ste
ps and
internal analysis, the Bank of England is
expected to publish a follow-up repo
rt 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 NW
M
Group), may be required to hol
d
additional capital to enhance th
eir
resilience against systemic and/or
institution specific vulnerabilitie
s to
climate-related financial risks, which
could, in turn, negatively impact NWM
Group.
Any failure of NWM Group to fully and
timely embed climate-related risk
s into its
risk management practices and
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
Group’s regulatory compliance, prudential
capital requirements, liquidity position,
reputation, business, results of operations
and outlook.
There are significant challenges in
relation to climate-relat
ed data due to
quality and other limitations, la
ck of
standardisation, consistency an
d
incompleteness which amongst
other
factors contribute t
o the significant
uncertainties inherent in acc
urately
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 counterparti
es or
customers. These may not be ge
nerally
available or, if available, may n
ot be
accurate, verifiable, reliable, consistent,
or comparable. Any failure of NWM
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 cu
stomer
data, may have a material adve
rse
impact on NWM Group’s ability
to
prepare meaningful reporting of cli
mate-
related risks and opportunities, its
regulatory compliance, reputation,
business and its competitive pos
ition.
In the absence of other sources,
reporting of financed emissions by
financial institutions, including NWM
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 great
er number
and level of assumptions and es
timates
than many of our financial disclosu
res.
These assumptions and estimate
s are
highly likely to change over time
, and,
when coupled with the longer ti
me
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 counterpa
rty
or customer. There may also be data
gaps, particularly for private co
mpanies,
that are filled using proxy data, such as
sectoral averages, again developed in
different ways. As a result, our climate
related disclosures may be ame
nded,
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 Group’s ability to mak
e 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 a
nd
variables are inherent in the asses
sment,
measurement and mitigation of climate-
related risks. These include dat
a 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 c
hange
and the transition to a net zero economy
will unfold over the coming decades an
d
affect how and when climate-re
lated
risks will manifest. These timeframes are
considerably longer than NWM Group’s
historical strategic, financial, re
silience
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 e
conomic
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 incomplete
ness 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 de
pend 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 provid
e
a comprehensive description of all
possible future outcomes;

lack of specialist expertise in
banks such that NWM 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 y
ears;

the number of variables and
forward- looking nature of
climate scenarios which makes
Add
it
io
nal
in
fo
r
mat
i
on
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them challenging to back test and
benchmark;

the significant uncertainty as to
how the climate will evolve ove
r
time, how and when
g
overnme
nts,
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 signific
antly
longer timeframes make the ou
tputs of
climate-related risk modelling, including
emissions reductions targets an
d
pathways, inherently more unc
ertain
than outputs modelled for traditional
financial planning cycles based on
historical financial information.
Capabilities within NWM Group to
appropriately assess, model and mana
ge
climate-related risks and the su
itability of
the assumptions required to model and
manage climate-related risks
appropriately are developing. Even when
those capabilities are develope
d, 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 Group’s regulatory compliance,
reputation, business, results of operations
and outlook.
A failure to adapt NWM Group’s
business strategy, governance,
procedures, systems and controls to
manage emerging sustainability-
related risks and opportunities may
have a material adverse effect o
n
NWM Group, its reputation, business,
results of operations and out
look.
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 environme
ntal (
including biodiversity and loss of natu
ral
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
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, NatWe
st Group
(including NWM Group) accordingly
classified ‘Biodiversity and Nature Loss’
as an emerging risk for NatWest G
roup
(including NWM 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 i
mpacts
of financing activities on the
environment, biodiversity and n
ature as
well as supporting the growing
sector of
nature-based solutions, habitat
restoration and biodiversity markets.
NatWest Group, including NWM Group, is
in the early stages of developing its
approach and NatWest Group, including
NWM Group, recognises the need for
more progress.
There is also increased investor,
regulatory and customer scruti
ny
regarding how businesses addre
ss 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
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 socie
ty.
The
increased focus on these issues
may
create reputational and other risks
for
financial institutions, including NWM
Group. In addition to climate-related
risks, sustainability-related risks (i) may
also adversely affect economic
activity,
asset pricing and valuations of issu
ers’
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 indire
ctly (for
example through macro-financial
changes); (iii) may also affect the viabili
ty
or resilience of business models over the
medium to longer term, particu
larly those
business models most vulnerable to
sustainability-related risks; (iv) c
an
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 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 e
ffects on
our business.
Furthermore, sustainability-related risks
may be drivers of several different risk
categories simultaneously and may
exacerbate the risks described he
rein,
including credit risk, operationa
l risk
(business continuity), market risk (both
traded and non-traded), liquidit
y and
funding risk (for example, net cash
outflows or depletion of liquidity
buffers).
Accordingly, any failure or delay
by
NWM 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-r
elated
risks and opportunities may have a
material adverse impact NWM Group’s
reputation, liquidity position, business
,
results of operations, outlook and the
value of NWM Group’s securities.
Any reduction in the ESG ratings of
NatWest Group (including NWM Gr
oup)
or NWM Group could have a negat
ive
impact on NatWest Group’s (including
NWM Group) or NWM Group’s
reputation and on investors’ risk
appetite and customers’ willingness to
deal with NatWest Group (incl
uding
NWM Group) or NWM Group.
ESG ratings from agencies and data
providers which rate how NatWest Group
(including NWM Group) or NWM Group
manage 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) subjec
t
to the assessment and interpretation by
Risk Factors con
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the ESG rating agencies; (iii) provided
without warranty; (iv) not a spo
nsorship,
endorsement, or promotion of N
atWest
Group (including NWM Group)
or NWM
Group by the relevant rating agency
; and
(v) may depend on many factor
s some of
which are beyond NatWest Group’s
and/or NWM Group’s control (e.g. any
change in rating methodology). Any
reduction in the ESG ratings of NatWest
Group (including NWM Group)
could
have a negative impact on NW
M Group’s
reputation and could influence investors’
risk appetite for NWM Group’s and/or its
subsidiaries’ securities, particularly ESG
securities and could affect a cu
stomer’s
willingness to deal with NWM Group.
Increasing levels of climate,
environmental and sustainabil
ity-
related laws, regulation and oversight
may adversely affect NWM Gr
oup’s
business and expose NWM Group to
increased costs of compliance,
regulatory sanction a
nd reputational
damage.
There are an increasing number of EU,
UK 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. 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 focuse
d on
developing standardized definitions for
green and sustainable criteria of assets
and liabilities, integrating climat
e 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
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 adversel
y
affect NWM Group’s ability to ac
hieve its
climate strategy and climate and
sustainable funding and financing
ambitions.
In addition, NatWest Group and its
subsidiaries are and will be sub
ject to
increasing entity wide climate-re
lated
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 cli
mate-
related disclosures consistent with the
TCFD recommendations to comply wi
th
the FCA Policy Statement on the ne
w
Listing Rules (PS 20/17) that require
commercial companies with a UK
premium listing – such as NatWe
st Group
- to make climate related disclos
ures,
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 w
ould
include NatWest Group’ subsidiaries –
including NWM Group - as it moves
towards mandatory TCFD reporting
across the UK economy by 2025 (See
also, ‘
There are significant challenges i
n
relation to climate-related data due to
quality and other limitations, lack of
standardisation, consistency and
incompleteness which amongst other
factors contribute to the signific
ant
uncertainties inherent in accurately
modelling the impact of climate-related
risks.
’)
In addition, NWM Group’s EU su
bsidiaries
and branches are and will continue to be
subject to an increasing array of the
EU/EEA climate and sustainability-related
legal and regulatory requirements. These
requirements may be used as the
basis
for UK laws and regulations (such as the
UK Green Taxonomy) or regarded by
investors and regulators as best practice
standards whether or not they apply to
UK businesses. Any divergence between
UK, EU/EEA and US climate and
sustainability-related legal and regulatory
requirements may result in NWM Group
not meeting investors’ expectations, may
increase the cost of doing business
and
may restrict access of NWM Group’s UK
business to the EU/EEA market.
NatWest Group (including NWM Group) is
also participating in various vol
untary
carbon reporting and other standa
rd
setting initiatives for disclosing climate
and sustainability-related information,
many of which have differing objec
tives
and methodologies and are at diffe
rent
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 Group to implement significant
changes to its business models, pro
duct
and other governance, internal controls
over financial reporting, disclosure
controls and procedures, modelling
capability and risk management sys
tems,
which may increase the cost of doing
business, entail additional chan
ge risk
and compliance costs.
Failure to implement and comply
with
these legal and regulatory requirements
or emerging best practice expec
tations
may have a material adverse effe
ct on
NWM Group’s regulatory compliance and
may result in regulatory sanction,
reputational damage and investor
disapproval each of which could have an
adverse effect on NWM Group’s business
,
results of operations and outlook.
NWM Group may be subject to
potential climate, environment
al and
other sustainability-related litigat
ion,
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 litigati
on,
conduct, enforcement and contrac
t
liability risks related to climate c
hange,
environmental degradation and other
social, governance and sustain
ability-
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 clima
te
and/or sustainability related risk
s or
otherwise provide appropriate disclosure
to investors, customers, counterparties
and other stakeholders; (ii) conduct, mis-
selling and other customer prote
ction
type claims; (iii) marketing that portrays
products, securities, activities o
r 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; (vi) changes in unde
rstanding
of what constitutes positive climate,
environmental or sustainable outcomes
as a result of developing climate scie
nce,
leading to discrepancy between curren
t
product offerings and investor and/or
market and/or broader stakeholder
expectations; (vi) any weakness
es or
failures in specific systems or p
rocesses
associated particularly with climate,
environmental or sustainability linke
d
products, including any failure in timely
implementation, onboarding and/or
updating of such systems or process
es;
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 a
nd
product governance in a manner that
Risk Factors con
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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 environ
mental
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 scie
nce
develops and societal understanding of
climate science increases and deepens,
courts, regulators and enforcement
authorities may apply the then current
understandings of climate related
matters retrospectively when asse
ssing
claims about historic conduct or dealings
of financial institutions, including NWM
Group.
These potential litigation, conduct,
enforcement and contract liability risks
may have a material adverse effe
ct on
NatWest Group’s ability to achieve its
strategy, including its climate ambition,
and they could have an adverse
effect on
NWM Group’s reputation, business
,
financial results, position and prospects,
results of operations and outlook.
Operational and IT resilience r
isk
Operational risks (including reliance on
third party suppliers and outso
urcing of
certain activities) are inherent in NWM
Group’s businesses.
Operational risk is the risk of los
s
resulting from inadequate or failed
internal processes, procedures,
people or
systems, or from external events,
including legal risks. NWM 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 resu
lt,
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 Group i
s
exposed to the risk of various litigati
on
matters, regulatory and governmental
actions and investigations as wel
l as
remedial undertakings, the outcomes of
which are inherently difficult to predict,
and which could have an adverse effect
on NWM Group
’). These risks are also
present when NWM Group relies on
third-party suppliers or vendors to
provide services to it or its clients, as is
increasingly the case as NWM Group
outsources certain activities, including
with respect to the implementation of
new technologies, innovation and
responding to regulatory and market
changes.
Operational risks continue to b
e
heightened as a result of the NWM
Refocusing, NatWest Group’s purpose-led
strategy, NWM Group’s current c
ost-
reduction measures
and conditions
affecting the financial services i
ndustry
generally (including the COVID-19
pandemic and other geo-political
developments) and in particula
r the legal
and regulatory uncertainty res
ulting
therefrom. It is unclear as to how the
future ways of working may ev
olve,
including in respect of how working
practices may develop, or how N
WM
Group will evolve to best serve its
customers. Any of the above may place
significant pressure on NWM Group’s
ability to maintain effective internal
controls and governance frameworks.
In recent years, NWM Group has
materially increased its dependence on
NatWest Bank Plc for numerous critical
services and operations, including
without limitation, property, fin
ance,
accounting, treasury, risk, regulatory
compliance and reporting, human
resources, and certain other support and
administrative functions. A failu
re by
NatWest Bank Plc to adequately supply
these services may expose NWM Group
to critical business failure risk, increased
costs and other liabilities. These and any
increases in the cost of these se
rvices
may adversely impact NWM 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
Group has implemented risk controls and
mitigation actions, with resources and
planning having been devoted t
o mitigate
operational risk, such measures may not
be effective in controlling each of
the
operational risks faced by NWM Group.
Ineffective management of such risks
could adversely affect NWM Group.
NWM Group is subject to increasingly
sophisticated and frequent
cyberattacks.
NWM Group experiences a con
stant
threat from cyberattacks across the
entire NatWest Group (including NWM
Group) and against NatWest Gr
oup and
NWM Group’s supply chain, reinforcing
the importance of due diligence of
close
working relationship with, the third
parties on which NWM Group re
lies.
NWM 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 mo
re
sophisticated, NWM Group is re
quired to
continue to invest in additional capability
designed to defend against eme
rging
threats. In 2021, NWM Group a
nd 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 indus
try. The
focus is to manage the impact of
the
attacks and sustain availability of
services for NWM Group’s customers.
NWM Group continues to invest
significant resources in the development
and evolution of cyber security controls
that are designed to minimise t
he
potential effect of such attacks.
Hostile attempts
are made
b
y
third
parties to
gain access
to, int
roduce
malware (including
ransomware) into
and exploit vulnerabilities of NWM
Group’s IT systems. NWM Group has
information and cyber security c
ontrols
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
Group’s operations are highly dependent
on its complex IT systems (inclu
ding those
that enable remote working) and any IT
failure could adversely affect NWM
Grou
p’.
Any failure in NWM Group’s
cybersecurity policies, procedures or
controls, may result in significant
financial losses, major
business
disruption, inability
to deliver
custom
er
services, or loss
of data or ot
her sensitive
information (including as a result of an
outage) and may cause associated
reputational damage. Any of the
se
factors could increase costs (including
costs relating to notification of, or
compensation for clients and cre
dit
monitoring), result in regulatory
investigations or sanctions being imposed
or may affect NWM Group’s ability to
retain and attract clients. Regulators in
the UK, US, Europe and Asia continue to
recognise cybersecurity as an i
mportant
systemic risk to the financial sec
tor 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 appropr
iate.
Additionally, third parties may also
fraudulently attempt to induce
employees, customers, third party
providers or othe
r users w
ho have
access to NWM
Group’s
system
s to
disclose sensi
tive information in
order to
gain access
to NWM Group’s d
ata or that
of NWM Group’s clients or employe
es.
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Cybersecurity and information s
ecurity
events can derive from groups or factors
such as: internal or external threat
actors, human error, fraud or malice on
the part of NWM Group’s employee
s or
third parties, including third par
ty
providers, or may result from accidental
technological failure.
NWM Group expects greater regulatory
engagement, supervision and
enforcement to continue at a high level
in relation to its overall resilienc
e 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 Group. Due to NWM
Group’s reliance on technology and the
increasing sophistication, frequency and
impact of cyberattacks, such attacks
may adversely impact NWM Group.
In accordance with the Data Protection
Act 2018 and the European Uni
on
Withdrawal Act 2018, the Data
Protection, Privacy and Electro
nic
Communications (Amendments Etc.) (EU
Exit) Regulations 2019, as ame
nded by
the Data Protection, Privacy and
Electronic Communications
(Amendments Etc.) (EU Exit) Regulations
2020 (‘UK Data Protection Framework’)
and European Banking Authority (‘EBA’)
Guidelines on ICT and Security Risk
Management, NWM Group is required to
ensure it implements timely appropri
ate
and effective organisational and
technological safeguards against
unauthorised or unlawful access
to data
of NWM Group, its clients and its
employees. In order to meet this
requirement, NWM Group relies on the
effectiveness
of its internal
policies,
controls and p
rocedures to
prote
ct the
confidentiality, integrity
a
nd availability of
information held on its IT systems,
networks and devices as well as with
third parties with whom NWM 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.
NWM Group operations and str
ategy
are highly dependent on the a
ccuracy
and effective use of data.
NWM Group relies on the effective
use of
accurate data to support, monitor,
evaluate, manage and enhance its
operations and deliver its strategy. T
he
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 be
coming
a critical strategic asset, which is subjec
t
to increased regulatory focus. Failu
re to
have that d
ata or
the ineffectiv
e use,
governance or control of
t
hat d
ata could
result in
a failure to manage and
report
important risks and o
pportunities or
satisfy customers’ expectations including
the inability to deliver innovativ
e
products and services. This could also
result in a failure to deliver NWM Group’s
strategy and could place NWM
Group at
a competitive disadvantage by
increasing
its costs, inhibiting its efforts to reduce
costs or its ability to improve its sys
tems,
controls and processes which c
ould
result in a failure to deliver NWM 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 consequence
s
due to inappropriate models, systems,
processes, decisions or other
actions.
Any of the above may lead to ke
y
business processes being negatively
impacted by inappropriately managed
data, which could lead to material
financial, customer and regulatory
impacts.
NWM Group relies on attract
ing,
retaining, developing and
remunerating diverse senior
management and skilled person
nel
(such as market tra
ding specialists),
and is required to maintain go
od
employee relations.
NWM Group’s success depends on its
ability to attract, retain, through creating
an inclusive environment, and de
velop
and remunerate highly skilled and
qualified diverse personnel, incl
uding
senior management, directors, ma
rket
trading specialists and key employee
s,
especially for technology and data
focused roles, in a highly compe
titive
market, in an era of strategic change
and under internal cost reducti
on
pressures.
The inability to compensate employe
es
competitively and/or any reduc
tion 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 effe
ct on NWM
Group’s ability to hire, retain and engage
well qualified employees, es
pecially at a
senior level, which could have an
adverse effect on financial position and
prospects of NWM 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 i
ncrease
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 s
trategy,
and could also have a negative e
ffect on
its reputation with customers, investors
and regulators. The NWM Refo
cusing has
also reduced NWM Group’s ability to
engage in succession planning f
or 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 workf
orce
morale. Whilst NWM Group has
taken
measures seeking to maintain t
he health,
wellbeing and safety of its employe
es,
these measures may be ineffective.
Some of NWM Group’s employe
es are
represented by employee repres
entative
bodies, including trade unions and works
councils. Engagement with its employees
and such bodies is important to N
WM
Group in maintaining good em
ployee
relations. Any breakdown of the
se
relationships could have an adverse
effect on NWM Group.
NWM Group’s operations are highly
dependent on its complex IT systems
(including those that enable r
emote
working) and any IT failure could
adversely affect NWM Group.
NWM Group’s operations are hi
ghly
dependent on the ability to proces
s 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
Group’s) transactional and payment
systems, financial crime, fraud
systems
and controls, risk management, credit
analysis and reporting, accounting,
customer service and other IT sys
tems
(some of which are owned and operated
by other entities in NatWest Group or
third parties), is critical to NWM 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
Risk Factors con
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NWM 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 affec
t its
regulatory approvals, competiti
ve
position, business and brands, which
could undermine its ability to attract and
retain customers. This risk is heightened
as most of NWM Group’s emplo
yees
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 ‘
NW
M
Group’s current policy is that most
employees will work remotely
majority of
the time. This may adversely affect NWM
Group’s ability to maintain effectiv
e
internal controls
’).
In 2021, NWM 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 also continues
to develop and enhance digital se
rvices
for its customers and seeks to improve
its competitive position through
enhancing controls and procedures and
strengthening the resilience of se
rvices
including cyber security.
Any failure of
these investment and rationalisation
initiatives to achieve the expected
results, due to cost challenges
or
otherwise, could negatively affec
t 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 Group. See also, ‘
— NW
M 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 t
o
significant structural and other
change
’.
Remote working may adverse
ly affect
NWM Group’s ability to maintain
effective internal contr
ols.
From March 2020 to September 2021,
many of NWM Group’s employe
es
worked exclusively on a remot
e basis.
Following the lifting of government
restrictions, NWM Group will implement 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
Group employees continues to place
heavy reliance on the IT systems that
enable remote working and increased
exposure to fraud, conduct, ope
rational
and other risks and may place additional
pressure on NWM 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 activiti
es, and
compliance with regulatory req
uirements
and expectations, including requirements
to: meet threshold conditions fo
r
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 fina
ncial
crime. See also, ‘
A failure in NWM
Group’s risk management framework
could adversely affect NWM Group,
including its ability to achieve its st
rategic
objectives
’. Moreover
,
the IT sys
tems
that enable remote working interface
with third-party systems, and NWM
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 relate
d
reputational damage, significant
compensation costs, regulatory sanctions
and/or a breach of applicable
regulations. See also, ‘
NWM Gr
oup’s
operations are highly dependent on its
complex IT systems (including those that
enable remote working) and any IT failure
could adversely affect NWM Group
’.
Sustained periods of remote working
may also negatively affect workplace
morale. Whilst NWM Group has
taken
measures seeking to maintain t
he health,
wellbeing and safety of its employe
es
during the COVID-19 pandemic, these
measures may be ineffective.
Operational difficulties as a result of the
COVID-19 pandemic, which may affec
t
NWM 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
Group’s ability to hire, retain and engage
well-qualified employees, espec
ially at a
senior level, which in turn may adversely
impact NWM Group’s ability to se
rve its
clients efficiently, and impact productivity
across NWM Group. This could
adversely
affect NWM Group’s reputation and
competitive position and its ability to
grow its business.
A failure in NWM Group’s risk
management fr
amework could
adversely affect NWM Group, including
its ability to achieve its strat
egic
objectives.
Risk management is an integral
part of
all of NWM Group’s activities and
includes the definition and monitoring of
NWM Group’s risk appetite and reporting
on NWM Group’s risk exposure and the
potential impact thereof
on N
WM Group’s
financial condition.
Risk management is
highly dependent on
the use an
d
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 incentive
s, 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 unanticipa
ted
behaviour or performance in algorithmic
trading and management or ins
ufficient
challenges or assurance processes
.
Failure to manage risks effe
ctively could
adversely impact NWM 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 contr
ols. Weak
or ineffective financial crime proce
sses
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 Group) has made and continues to
make significant, multi-year inve
stments
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 Group’s financial crime controls
are operated by NatWest Group on
behalf of NWM Group.
NWM Group’s operations are in
herently
exposed to conduct risks, which include
business decisions, actions or re
ward
mechanisms that are not responsive to
or aligned with NWM Group’s re
gulatory
obligations, client needs or do not refle
ct
NWM 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, th
e
possibility of mis-selling of financial
Risk Factors con
tinued
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oup
Annual Report and Accou
nts 202
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197
products and mishandling of customer
complaints. Some of these risks have
materialised in the past and ineffe
ctive
management and oversight of conduct
risks may lead to further remediation an
d
regulatory intervention or enforce
ment.
NWM Group’s businesses are also
exposed to risks from employee
misconduct including non-compliance
with policies and regulations, ne
gligence
or fraud (including financial crimes and
fraud), any of which could resul
t in
regulatory fines or sanctions and se
rious
reputational or financial harm t
o NWM
Group.
These risks may be exacerbate
d as most
of NWM Group’s employees continue to
work remotely, which places additional
pressure on NWM Group’s ability to
maintain effective internal controls and
governance frameworks.
NWM 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 mi
tigate
conduct risk and expects to continue to
invest in its risk management framework.
However, such efforts may not insu
late
NWM Group from future instances of
misconduct and no assurance can be
given that NWM Group’s strategy and
control framework will be effe
ctive. See
also, ‘
NWM Group has been in a period of
significant structural and other
change,
including as a result of NatWest G
roup’s
purpose-led strategy (including the NWM
Refocusing) and may continue to be
subject to significant structural and other
change
’. Any failure in NWM Group’s risk
management framework could negatively
affect NWM Group and its financ
ial
condition through reputational and
financial harm and may result in the
inability to achieve its strategic objectives
for its clients, employees and wider
stakeholders.
NWM Group’s operations are subject to
inherent reputat
ional risk.
Reputational risk relates to stakeholder
and public perceptions of NWM Group
arising from an actual or perceived
failure to meet stakeholder expec
tations,
including with respect to the NWM
Refocusing and related targets, due to
any events, behaviour, action or inaction
by NWM Group, its employees or those
with whom NWM Group is associated.
See also, ‘
NWM Group’s businesses are
subject to substantial regulation and
oversight, which are constantly evolving
and may adversely affect NWM G
roup’
.
This includes brand damage, which may
be detrimental to NWM Group’s busine
ss,
including its ability to build or s
ustain
business relationships with clients, and
may cause low employee morale,
regulatory censure or reduced acces
s 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 Group’s ability to att
ract and
retain clients. In particular, NWM Group’s
ability to attract and retain clients may
be adversely
affected by, amon
gst
others: negative public o
p
inion
resulting
from
the ac
tual or
perceived manner in
which NWM 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
Group’s financial performance, IT
systems failures or cyberattack
s, 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 particul
ar online
social networks and other broadcast
tools that facilitate communication with
large audiences in short timeframes and
with minimal costs, may also significan
tly
increase and accelerate the impact of
damaging information and allegations.
Although NWM Group has implemented a
Reputational Risk Policy to improve the
identification, assessment and
management of customers and clients,
transactions, products and issu
es, which
represent a reputational risk, N
WM
Group cannot be certain that it will be
successful in avoiding damage to its
business from reputational risk.
Legal, regulatory and conduct
risk
NWM Group’s businesses are
subject to
substantial regulation and oversight,
which are constant
ly evolving and may
adversely affect NWM Group.
NWM Group is subject to extensi
ve laws,
regulations, corporate governa
nce
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. N
WM Group
expects government and regulatory
intervention in the financial service
s
industry to remain high for the
foreseeable future.
In recent years, regulators and
governments have focused on
reforming
the prudential regulation of the financial
services industry and the mann
er in
which the business of financial services is
conducted. Amongst others, me
asures
have included:
enhanced c
apital, liquidity
and funding requi
rements,
implementation of
the UK ring-f
encing
regime, implementation and
strengthening of the recovery a
nd
resolution framework applicable to
financial institutions in the UK, the EU
and the US, financial industry reforms
(including in respect of MiFID II),
corporate governance require
ments,
restrictions on the compensation of
senior management and other
employees, enhanced data prot
ection
and IT resilience requirements, financial
market infrastructure reforms (including
enhanced regulations in respec
t of the
provision of ‘i
n
vestment service
s and
activities’), enhanced
regulations
in
respect of
t
he provision
of ‘inves
tment
services and activities’, and increased
regulatory focus in certain areas,
including conduct, consumer pr
otection,
competition and disputes regimes, anti-
money laundering, anti-corruption, anti-
bribery, anti-tax evasion, payment
systems, sanctions and anti-terrorism
laws and regul
ations.
In addition, there is significant oversight
by competition authorities of the
jurisdictions in which NWM Gro
up
operates. The competitive landscape for
banks and other financial institu
tions in
the UK, EU/EEA and the US is rapidly
changing. Recent regulatory and legal
changes have and may continue
to result
in new market participants and changed
competitive dynamics in certain ke
y
areas. Competition authorities,
including
the CMA, are currently also looking a
t
and focusing more on how they can
support competition and innovation in
digital markets. Recent regulatory
changes, proposed or future
developments and heightened leve
ls of
public and regulatory scrutiny in the UK,
the EU and the US have resulted in
increased capital, funding and liquidity
requirements, changes in the competitive
landscape, changes in other regulatory
requirements and increased op
erating
costs, and have impacted, and
will
continue to impact, product offerings and
business models.
Risk Factors con
tinued
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oup
Annual Report and Accou
nts 202
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For example, NWM 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
Group be found to be non-compliant with
these regulatory requirements. Such
changes may also result in an increased
number of regulatory investigat
ions and
proceedings and have increased the
risks
relating to NWM 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, r
egulatory
and accounting changes and increased
public and regulatory scrutiny could ha
ve
an adverse impact (some of which could
be material) on NWM Group inclu
de, but
are not limited to:

general changes in governmen
t,
central bank, regulatory or
competition policy, or changes in
regulatory regimes that may
influence investor decisions in the
jurisdictions in which NWM Gro
up
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 UK
Data Protection Framework and
the impact of the Court of Justice
of the EU (CJEU) decision (known
as Schrems II), in which the CJ
EU
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 change
s
to, taxes, levies or fees applicable
to NWM Group’s operations, such
as the imposition of a financial
transaction tax, introduction of
global minimum tax rules,
changes in the scope and
administration of the Bank Levy
,
changes in tax rates, increases in
the bank corporation tax
surcharge in the UK, restrictions
on the tax deductibility of intere
st
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;

the potential introduction by the
Bank of England of a Central
Bank Digital Currency which
could result in deposit outflows,
higher funding costs, and/or other
implications for UK banks
including NWM Group; and

regulatory enforcement in the
form of PRA imposed financial
penalties for failings in banks’
regulatory reporting governance
and controls, and regulatory
scrutiny following the 2019 PRA
“Dear CEO letter” letter
regarding PRA’s ongoing focus
on: the integrity of regulatory
reporting, which the PRA
considers has equal standing with
financial reporting; the PRA’s
thematic reviews of the
governance, controls and
processes for preparing
regulatory returns of selected U
K
banks, including NatWest Group;
the publication of the PRA’s
common findings from those
reviews in September 2021; and
NatWest Group’s programme of
improvements to meet PRA
expectations.
These and other recent regulatory
changes, proposed or future
developments and heightened leve
ls of
public and regulatory scrutiny in the UK,
the EU and the US have resulted in
increased capital, funding and liquidity
requirements, changes in the competitive
landscape, changes in other regulatory
requirements and increased op
erating
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 Group’s authorisations and
licences, the products and servi
ces that
NWM Group may offer, its reputation and
the value of its assets, NWM Gr
oup’s
operations or legal entity structu
re, and
the manner in which NWM Gro
up
conducts its business. Material
consequences could arise should NWM
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
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
Group to comply with such laws, rules
and regulations, may adversely affe
ct
NWM Group’s business, results of
operations and outlook. In addition,
uncertainty and insufficient internation
al
regulatory coordination as enhanced
supervisory standards are developed and
implemented may adversely aff
ect NWM
Group’s ability to engage in effe
ctive
business, capital and risk management
planning.
NWM Group is exposed to the
risk of
various litigation matters, re
gulatory
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 eff
ect on
NWM Group.
NWM Group’s operations are di
verse and
complex and it operates in legal and
regulatory environments that expose it
to
potentially significant legal proce
edings,
and civil and criminal regulatory
and
governmental actions. NWM Group has
resolved a number of legal and
regulatory actions over the pas
t several
years but continues to be, and may in
the future be, involved in such actions in
the US, the UK, Europe and oth
er
jurisdictions.
NWM Group is currently, has re
cently
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 othe
r
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
mistreatment, anti-money laundering,
antitrust, VAT
recovery and various other
compliance issues. Legal and regulatory
actions are subject to many
uncertainties, and their outcom
es,
including the timing, amount of fines,
damages or settlements or the form of
any settlements, which may be ma
terial
and in excess of any related provisions,
are often difficult to predict, particularly
in the early stages of a case or
investigation.
Risk Factors con
tinued
NWM Gr
oup
Annual Report and Accou
nts 202
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199
NWM Group’s expectation for r
esolution
may change and substantial additional
provisions and costs may be recognised in
respect of any m
atter.
The resolution of significant
investigations include NWM Plc’
s
December 2021 spoofing-relate
d 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 ac
counts.
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 scrut
iny and
could have material collateral
consequences for NWM Group’s
business
and result in restrictions or limi
tations on
NWM Group’s operations.
These may include the effective
or actual
disqualification from carrying on certain
regulated activities and conseq
uences
resulting from the need to reapply f
or
various important licences or obtain
waivers to conduct certain existing
activities of NWM Group, partic
ularly but
not solely in the US, which may take a
significant period of time and the results
of which are uncertain. Disqualif
ication
from carrying on any activities,
whether
automatically as a result of the resolution
of a particular matter or as a resu
lt of
the failure to obtain such licenc
es or
waivers could adversely impact NWM
Group’s business, in particular in the US.
This in turn and/or any fines, settlement
payments or penalties could ad
versely
impact NWM Group’s reported financial
results and condition, capital p
osition or
reputation. Similar consequence
s could
result from legal or regulatory actions
relating to other parts of NatWes
t Group.
Failure to comply with undertakings made
by NWM Group to its regulators, or the
conditions of probation resulting from the
spoofing-related guilty plea, may
result in
additional measures or penalties being
taken against NWM Group.
NWM Group may not effec
tively
manage the tra
nsition of LIBOR and
other IBOR rat
es to alternative risk-
free rates.
UK and international regulators are
driving the transition from the us
e of
interbank offer rates (‘IBORs’), including
LIBOR, to alternative rates, pri
marily 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 use
d its powers
under the UK Benchmarks Reg
ulation
(‘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 LIBO
R
under certain circumstances w
here
contracts have not pro-actively
transitioned onto alternative ra
tes.
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-match
es
between positions in cleared derivatives
and the exposures they are he
dging
where those exposures are per
mitted 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 LIBO
R
tenors after 31 December 2021, other
than in a very limited range of
circumstances. NatWest Group will
continue to have ongoing expos
ure to
the remaining USD LIBOR tenors up until
they cease at the end of June 20
23.
Natwest Group had significant
exposures
to IBORs and has actively sought to
transition away from these during 202
1,
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 L
IBOR
exposures so that they cease to
reference LIBOR and instead ref
erence
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 LIBO
R
cleared derivatives to fully trans
ition all
outstanding LIBOR exposure to the
relevant RFR. Key Natwest Group
entities, along with many of their major
counterparties, have already a
dhered to
the ISDA IBOR fall-backs supplement and
protocol which establishes a cle
ar,
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 cus
tomers,
industry working groups and regulators,
to seek deliver transition in a transparent
and ec
onom
ically
ap
propr
iate
manne
r.
Any economic i
m
pacts will be de
pendent
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 ac
cept, and
transition to, these conventions.
Furthermore, certain IBOR obligations
may not be able to be pro-active
ly
changed which could, depending on
any
over-arching legislative transition
frameworks, potentially result i
n
fundamentally different economic
outcomes than originally intended. The
uncertainties around the manne
r of
transition to RFRs, and the ong
oing
broader acceptance and use of RFRs
across the market, expose NWM Group,
its clients and the financial service
s
industry more widely to risks.
Examples of these risks may include: (i)
legal (including litigation) risks relating to
documentation for new and the
majority
of existing transactions (including, bu
t
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 Group’s
performance, including its cost of funds,
and its risk management related financi
al
models; (iii) pricing, interest rate
or
settlement risks, such as chang
es 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 infrastructu
re
and operational processes, as
well as
ensuring compliance with restrictions on
new USD LIBOR usage after December
Risk Factors con
tinued
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oup
Annual Report and Accou
nts 202
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200
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 stat
es and the
EU, the UK has not provided a cle
ar and
robust safe harbour to protect against
litigation and potential liability arising out
of the switch to ‘synthetic LIBOR’.
Notwithstanding all efforts to date, un
til
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 c
ustomer
groups, it remains difficult to de
termine
to what extent the changes will affect
the NWM 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 af
fect
financial instruments originally
referencing LIBOR as the benchmarks.
The implementation of any alternative
RFRs may be impossible or impracticable
under the existing terms of cert
ain
financial instruments and could have an
adverse effect on the value of, return on
and trading market for, certain f
inancial
instruments and on the NWM Group’s
profitability.
Changes in tax legislation or f
ailure to
generate future taxa
ble profits may
impact the recoverability of c
ertain
deferred tax assets rec
ognised by
NWM Group.
In accordance with the accounting
policies set out in the section ‘
Critical
accounting policies and key sources of
estimation uncertainty
’, NWM Group has
recognised deferred tax assets
on losses
available to relieve future profits
from tax
only to the extent it is probable that they
will be recovered. The deferred tax
assets are quantified on the basis of
current tax legislation and accounting
standards and are subject to change in
respect of the future rates of tax or the
rules for computing taxable profits and
offsetting allowable losses.
Failure to generate sufficient future
taxable profits or further change
s in tax
legislation (including with respect to rates
of tax) or accounting standards may
reduce the recoverable amount of
the
recognised tax loss deferred tax assets,
amounting to £104 million as at 3
1
December 2021. Changes to the
treatment of certain deferred tax assets
may impact NWM Group’s capital
position. In addition, NWM Group’s
interpretation or application of relevant
tax laws may differ from those of the
relevant tax authorities and provisions
are made for potential tax liabilities that
may arise on the basis of the amounts
expected to be paid to tax authorities.
The amounts ultimately paid may diff
er
materially from the amounts pr
ovided
depending on the ultimate resol
ution of
such matters.
F
orwa
r
d-lo
o
king st
at
em
ent
s
NWM Gr
oup
Annual Report and Accou
nts 202
1
201
Cautionary statement regarding forw
ard-looking statements
Certain sections in this docume
nt contain ‘forward-looking
statements’ as that term is defined in the United Sta
tes Private
Securities Litigation Reform Act of 19
95, such as statements
that include the words ‘expect’, ‘e
stimate’, ‘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 t
hese expressions. In
particular, this document include
s forward-looking targets and
guidance relating to financial performance measures, suc
h as
income growth, operating expense
, cost reductions, impairment
loss rates, balance sheet reduction, including the reduc
tion of
RWAs, CET1 ratio (and key drivers of the CET1 r
atio, including
timing, impact and details), Pillar 2 and other regul
atory buffer
requirements and MREL and non-financial pe
rformance
measures, such as climate and ESG-related pe
rformance
ambitions, targets and metrics, including in
relation to initiatives
to transition to a net zero economy, Climate and Sus
tainable
Funding and Financing (CSFF) and fin
anced emissions. In
addition, this document includes
forward-looking statements
relating, but not limited to: the COVID-19 pandemic
and its
impact on NWM Group; planned cost re
ductions, disposal losses
and strategic costs; implementation of NatWest G
roup’s, NWM
Group’s strategy and other strategic priorities (includin
g in
relation to investment programmes relating to di
gital
transformation of their operations and services and ino
rganic
opportunities); the timing and outcome of litigation
and
government and regulatory investigations; funding pl
ans and
credit risk profile; managing its capital position; liquidity
ratio;
portfolios; net interest margin; and drive
rs related thereto;
lending and income growth, product share and g
rowth in target
segments; impairments and write-downs; rest
ructuring and
remediation costs and charges; NWM Group’s ex
posure to
political risk, economic assumptions and
risk, climate,
environmental and sustainability risk, operational
risk, conduct
risk, financial crime risk, cyber,
data and IT risk and credit
rating risk and to various types of market
risk, including interest
rate risk, foreign exchange rate risk and commodity an
d equity
price risk; customer experience, including our Net
Promotor
Score (NPS); employee engagement and gender
balance in
leadership positions.
Limitations inherent to forward-looking s
tatements
These statements are based on current plans, expect
ations,
estimates, targets and projections, and are subjec
t to significant
inherent risks, uncertainties and other factors, both e
xternal and
relating to NatWest Group’s and NWM Group’s st
rategy or
operations, which may result in NWM G
roup being unable to
achieve the current plans, expectations, estimates,
targets,
projections and other anticipat
ed outcomes expressed or
implied by such forward-looking statements. In
addition, certain
of these disclosures are dependent on choices
relying on key
model characteristics and assumptions and a
re subject to
various limitations, including assumptions and es
timates made
by management. By their natur
e, certain of these disclosures
are only estimates and, as a res
ult, actual future results, gains
or losses could differ materially from those that ha
ve been
estimated. Accordingly, undue
reliance should not be placed on
these statements. The forward-looking statements con
tained in
this document speak only as of the date we make the
m and we
expressly disclaim any obligation or under
taking to update or
revise any forward-looking stat
ements contained herein,
whether to reflect any change in our expecta
tions with regard
thereto, any change in events, conditions or ci
rcumstances on
which any such statement is based, or otherwise, excep
t to the
extent legally required.
Important factors that could affect the actual outco
me of the
forward-looking statements
We caution you that a large number of importan
t factors could
adversely affect our results or our ability to imple
ment our
strategy, cause us to fail to mee
t our targets, predictions,
expectations and other anticipated outcomes or affe
ct the
accuracy of forward-looking statements describe
d in this
document. These factors include
, but are not limited to, those
set forth in the risk factors and the other uncertai
nties described
in NatWest Markets Plc’s Annual Repo
rt and its other public
filings. The principal risks and uncertainties tha
t could adversely
NWM Group’s future results, its f
inancial condition and
prospects and cause them to be
materially different from what
is forecast or expected, include, but are no
t limited to: economic
and political risk (including in respect of: the impac
t of the
COVID-19 pandemic on NWM
Group and its customers; political
and economic risks and uncertainty in the UK and glob
al
markets; uncertainty regarding the effe
cts of Brexit; changes in
interest rates and foreign currency exchange rates
; and HM
Treasury’s ownership of NatWest Group plc); st
rategic risk
(including in respect of: the imple
mentation of NatWest Group’s
and NWM Group’s strategy and NWM Group’s
ability to achieve
its targets; the effect of the CO
VID-19 pandemic on NWM
Group’s strategic objects and targets); fina
ncial resilience risk
(including in respect of: NWM G
roup’s ability to meet targets;
the competitive environment; counterpa
rty risk; prudential
regulatory requirements for capital and MREL; fun
ding and
liquidity risk; changes in the credit ratings; the adequ
acy of
NatWest Group’s resolution plans; the requiremen
ts of
regulatory stress tests; model ri
sk; sensitivity to accounting
policies, judgments, assumptions
and estimates; changes in
applicable accounting standards; and the applica
tion of UK
statutory stabilisation or resolution powers); climate
and
sustainability risk (including in re
spect of: risks relating to
climate change and the transitioning to a net ze
ro economy; the
implementation of NatWest Group’s and NWM
Group’s climate
change strategy and climate change resilient sys
tems, controls
and procedures; climate-related data and model
risk; the failure
to adapt to emerging climate, environmental and sust
ainability
risks and opportunities; changes in ES
G ratings; increasing
levels of climate, environmental and sustain
ability related
regulation and oversight; and climate, environmen
tal and
sustainability related litigation, e
nforcement proceedings and
investigations); operational and IT resilience risk (includi
ng in
respect of: operational risks (including reliance on
third party
suppliers); cyberattacks; the accuracy and eff
ective use of data;
complex IT systems (including those that enable rem
ote
working); attracting, retaining and developing senio
r
management and skilled personnel; NWM G
roup’s risk
management framework; and reputational risk);
and legal,
regulatory and conduct risk (including in respect of: the
impact
of substantial regulation and ove
rsight; compliance with
regulatory requirements; the outcome of leg
al, regulatory and
governmental actions and inves
tigations; the transition of LIBOR
other IBOR rates to alternative risk-free r
ates;) and changes in
tax legislation or failure to generate future tax
able profits).
Caution about climate and sustainable funding and fin
ancing
(CSFF) information.
Climate and ESG disclosures in this report use a g
reater number
and level of judgments, assumptions a
nd estimates, including
with respect to the classification of climate an
d sustainable
funding and financing activities, than our repo
rting of historical
financial information. These judgments,
assumptions and
estimates are highly likely to change over time, an
d, when
coupled with the longer time fr
ames used in these disclosures,
make any assessment of materiality inhe
rently uncertain. In
addition, our climate risk analys
is and net zero strategy remain
under development, and the data underlying our
analysis and
strategy remain subject to evolution ove
r time. As a result, we
expect that certain climate and ESG disclosures made in
this
report are likely to be amended
, updated, recalculated or
restated in the future. This for
ward-looking statement should be
read together with the ‘Climate-related and othe
r forward-
looking statements and metrics’ of the NatWest
Group 2021
Climate-related Disclosures Report.
The information, statements and opinions contained i
n this
document do not constitute a public offer under any a
pplicable
legislation or an offer to sell or a solicitation of an offe
r to buy
any securities or financial instruments o
r any advice or
recommendation with respect to su
ch securities or other
financial instruments.
.
NatWest Group plc
36 St Andrew Square
Edinburgh, EH2 2YB
www.natwestgroup.com
NatWest Group plc
2021 Annual Report and Accounts
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