Annual Report for the year ended 31 December 2008

principal risks and uncertainties
The Audit Committee reviewed the key risks facing the Group and the
controls that have been put in place to mitigate them. Changes to the
risk environment were highlighted, as were improvements to the control
structure: most notably in the restructuring of the Compliance Function,
the introduction of an Annual Compliance plan, approved by the Board
and the introduction of enhanced governance structures below Board
level at WdB.
Reputational risk
Reputational risk is the risk of damage to the Group’s image as a result
of the inability to retain and generate business due to adverse public
opinion. The Board has established policies and procedures that provide
direction on managing reputational risk focusing on reducing loss of
confidence amongst existing and potential customers, investors,
suppliers, and supervisors.
Retention of staff
The retention of highly skilled staff, as well as the ability to attract new
staff with the right capabilities and experience is central to the efficiency
and sustainability of the Groups’ operations. The Group mitigates the
risk of loss of key staff through its employment policies, remuneration
and benefits packages which are designed to be competitive with other
companies, as well as providing staff with motivating and fulfilling career
opportunities. The Group supports the principles set out in the FsA’s
code of best practice on remuneration policies issued in February 2009.
Major infrastructure incident
There is a risk that any incident the Group is involved in, directly or
indirectly could cause possible damage to the Group’s or key vendors
infrastructure which in turn would also affect the Group’s reputation or
cause financial loss. The Group has in place controls to maintain the
integrity and efficiency of its systems, while ensuring the sustainability
of operations despite a significant disruption. The Group continuously
reviews its business continuity planning, and has disaster recovery
facilities in order to mitigate any substantial disruption to its operations
caused by events such as acts of terrorism and natural disasters.
Financial crime
This is the risk that the Group suffers a loss from fraud. This could be
through the deliberate over-riding of internal controls or through an
external party successfully overcoming the Group’s controls (eg through
identity theft). The FsA in its annual financial risk outlook highlighted
that firms may be at greater risk of financial crime due to the current
economic stresses at the individual and corporate level. The Group
believes that it has sufficient controls in place to mitigate the risk of
financial crime. Nevertheless, the compliance department is undertaking
a review of the current controls in place throughout the Group to ensure
controls are robust and to determine where improvements can be made.
Regulatory risk
The Group’s principal business subsidiaries are all regulated entities.
Recent statements by the FsA, the results of the Turner report and the
likely outcome of the forthcoming Walker report all point to a financial
services regulatory environment that is becoming increasingly challenging.
The Group’s philosophy is to ensure compliance at all times. There is,
however, always a risk of regulatory action given the markets in which
the Group operates including its private client business which is expanding
its client base and where the FsA is demonstrating an increasing focus
on the fair treatment of customers and the governance arrangements
surrounding this. Furthermore, there are regulatory risks relating to the
FsA increasing focus on regulatory reporting within our securities business.
The Audit Committee considered whether there had been any material
failings or weaknesses in the internal controls of the Group and in doing
so considered the results of the FsA ARROW visit in september 2008.
The visit focused upon certain matters already under review by the Group
and with our internal auditors including the governance and committee
structures below Board level. in line with the FsA’s continuing treating
customers fairly (TCF) initiative, the ARROW visit also focused on treating
customers fairly and portfolio suitability within WdB.
Detailed discussions with the FsA on the results of the ARROW visit are
continuing. However, the Group has increased the resources employed
in and accelerated its review and remediation work on customer files
with third party help. in line with the continuing project to enhance
systems and reporting in WdB it has also committed to considerable
investment in a bespoke management information system.
Market risk
The Group, through Esl, holds positions in equities which are subject to
price fluctuation. There is therefore a risk that Esl will suffer a loss in
the event of a significant market correction. positions are subject to
limits that are independently monitored by the risk department. Further
details on financial risk management can be found in note 2 – financial
instruments and risk management to the accounts.
results and dividends
During the year the Group made a loss after tax from continuing
operations of £13,496,000 (2007: profit £3,202,000).
The profit for the year ended 31 December 2008 of the Company amounted
to £2,167,000 (2007: profit £762,000). The Directors recommend the
payment of a final dividend for the year of 1.27p per ordinary share (2007:
1.25p). if approved, the final dividend will make the total dividends for
the year 2.02p (2007: 1.92p) following the payment of the interim dividend
of 0.75p per ordinary share on 24 October 2008. The dividend is payable
on 22 May 2009 to shareholders on the register on 24 April 2009.
post balance sheet events
Details of significant post Balance sheet events are set out in note 36
to the accounts and in the principal activities and business review
section of this Directors’ Report.
Directors
The Directors of the Company, who held office since 1 January 2008
(there were no appointments or resignations of Directors during the
year up to the date of this report), unless otherwise stated, are as
shown below:
Martin Gray (Non-executive Chairman)
Alex snow (Chief Executive Officer)
Andrew umbers (Executive Director)
lord Maclaurin of Knebworth, Dl (senior Non-executive)
Nicholas irens (Non-executive)
Mark Nicholls (Non-executive)
peter Gibbs (Non-executive)
We have made very good progress
WiTh The inTegraTion and developmenT
of each of our businesses.
19