Role and work of the Nomination Committee

The role of the Committee, which comprises all the non-executive directors and is chaired by the Chairman of the Board, is to:

• keep under regular review the size, composition, experience and skill set of the Board and identify, against the challenges facing the Company, any recruitment needs;
• prepare for agreement by the Board the competency and experience specification for individual director searches;
• identify and recommend to the Board, against the agreed specification, candidates for Board appointments;
• review the senior management development and executive director succession planning process to ensure the continuity of appropriate executive resource at and immediately below Board level.

In May 2008 the Committee reviewed and recommended to the Board proposals to seek shareholder approval for the reappointment of directors retiring at the 2008 Annual General Meeting. At the beginning of 2009 the Committee reviewed and updated its terms of reference and agreed an annual meeting schedule for the conduct of its work. Most recently, the Committee's focus has been on non-executive director search. This has involved reaching agreement on candidate profile, reviewing long and short lists drawn up by executive search consultants, and considering the interview process. Prospective candidates are interviewed by the Chairman, Chief Executive and Senior Independent Director and feedback shared with the Committee to inform their selection and recommendation to the Board of a preferred candidate. All Committee members are able to meet a preferred candidate if they so wish prior to the formal recommendation to the Board.

Later this year, in line with the new annual work programme, the Committee's focus will be on the review of executive director and senior management succession planning to ensure the continuing appropriateness of executive resource at and just below Board level.

Role and work of the Audit and Risk Committee

The Committee comprises all the non-executive directors under the chairmanship of Dugald Eadie. Patrick O'Sullivan is considered to have recent and relevant financial experience.

The role of the Committee is to:

• review, prior to submission to the Board, the integrity of the Company's annual and interim results announcements and financial statements;
• make recommendations to the Board on the appointment and removal of the external auditors, agree the nature and scope of their work and review the effectiveness of their audit process;
• review annually the independence of the external auditors and the policy on their engagement to supply non-audit services;
• review and discuss with the external auditors their audit findings and recommendations and management's response;
• review Internal Audit reports and consider management's response to their recommendations; and
• review the effectiveness of the Company's internal control and risk management systems.

The Committee met six times during the year. All meetings were attended by the Chairman, Finance Director and Financial Controller. The Chief Executive attended the two meetings dedicated to the review of the draft Interim and Annual Reports. The Heads of Group Risk and Internal Audit and the external audit partner attended the other four meetings. A manager from within Group Risk acted as secretary to the Committee.

The Chairman of the Committee met separately with the Head of Internal Audit and with the external auditors on several occasions without the presence of any members of the executive management team and reported to the Committee on those discussions. The Committee met with the external auditors and the Head of Internal Audit once during the year without the presence of the executive management.

In addition to reviewing regular reports from the Finance Director, Financial Controller, Head of Internal Audit, Head of Compliance and Head of Risk as part of their routine work, other matters considered by the Committee during the year included:

• a review of the valuation and liquidity of fund positions;
• a review of the tax risk framework;
• a review of IT controls;
• a review of the accounting policy on the capitalisation of internal IT staff costs; and
• a review of the impairment of acquisition goodwill.

In relation to the Company's risk management processes, the Committee's focus during the year was on a number of key issues, including operational risks due to complexity of processes, valuation and liquidity of investments, governance of funds, organisation structure after the sale of MF Global, and capital and liquidity requirements of the Group.

The Committee considers the reappointment of the external auditors, including the rotation of audit partner, each year and also assesses their independence. As a safeguard to help avoid the objectivity and independence of the external auditors becoming compromised, the Committee has approved a formal policy governing the engagement of the external auditors to provide non-audit services. This policy precludes them from providing certain services (including book keeping, financial IT system design and implementation, financial appraisal and valuation, and internal audit work) and permits other limited services which are subject to low fee thresholds or which require prior approval from the Committee. Details of fees paid to the auditors for the year ended 31 March 2009 are set out in Note 4 (c) here.

The Chairman of the Committee reports to the Board on matters discussed by the Committee after each meeting and on any recommended actions.

Internal control and risk management

The Board has overall responsibility for the Company's systems of internal control and risk management and for reviewing their effectiveness. The Audit and Risk Committee provides oversight and independent challenge in relation to internal control and risk management systems.

The directors and senior managers of the Group are committed to maintaining high standards of control and a risk aware culture to safeguard the Company's assets, reputation and franchise. The Company's activities are subject to high levels of regulatory oversight in many jurisdictions and significant resources are allocated to ensure compliance.

The Board's role includes:

• setting the Company's risk appetite and overall risk management strategy;
• developing appropriate risk management and governance systems;
• establishing and maintaining effective monitoring of internal controls systems.

A fuller description of the Company's risk management processes, together with details of the principal risks faced, is given in the Risk Management section of this Annual Report. These processes have been in place throughout the year and up to the date of this Annual Report and have been regularly reviewed by the Board.

The Company's systems of internal control aim to safeguard assets, ensure that proper accounting records are maintained, and ensure that the financial information used in the business and published externally is robust and reliable. The systems are designed to manage key risks rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss. They comply with the guidance given in 'Internal Control: Revised Guidance for Directors on the Combined Code' (the 2005 Turnbull guidance).

Review of internal controls

The Board receives reports from the Risk Assurance Committee, Finance Committee and line management on the risks to the achievement of the Group's operational and financial objectives, together with assurance that the level of risk sustained is consistent with and being managed in accordance with the Company's risk appetite. Objective assurance on the operation and effectiveness of internal controls is provided by Internal Audit whose audit programme is targeted on the review and investigation of key risk controls. Further objective assurance on the effectiveness of risk controls is provided by other functions, including Group Risk, Legal and Compliance.

In addition to its ongoing monitoring of risk controls, the Board has conducted a specific year end review of the effectiveness of the Group's system of internal control and risk management during the year and for the period up to the date of this Annual Report. This review covered all controls - operational, financial and compliance - and risk management systems. As part of this, the Board received an overview from the Audit and Risk Committee on the internal control environment and in depth reports on specific incidents and circumstances of loss which had occurred during the year which might indicate a weakness in the control framework. The reports analysed the cause of the losses and explored the extent to which they represented a control failure. Measures to address significant weaknesses or failures in control suggested by the reports have been identified and confirmation has been received from management that the necessary remedial actions have been or are being implemented.