Final Results - Part 3 of 8

RNS Number : 7410X

Standard Life plc

24 February 2017

 

Standard Life plc

Full Year Results 2016

Part 3 of 8

2. Board of Directors Our business is managed by our Board of Directors. Biographical details (and shareholdings) of the Directors as at 24 February 2017 are listed below.
	Sir Gerry Grimstone Chairman		Keith Skeoch Chief Executive		Luke Savage Chief Financial Officer
Nationality:	British		British		British
Age:	67		60		55
Tenure:	Sir Gerry was appointed Chairman in May 2007, having been Deputy Chairman since March 2006. He has been a Director for 11 years.		Keith was appointed Chief Executive in August 2015, having been a Director since May 2006. He has been a Director for 10 years.		Luke was appointed Director and Chief Financial Officer in August 2014. He has been a Director for 2 years.
Background:	Sir Gerry has continued his excellent track record with the Group, leading the Board during a period of significant change and strategic development. His international experience, insight and firm advocacy of the benefits of strong governance are a great asset to the Board and to the Group. Sir Gerry is senior independent director and deputy chairman of Barclays PLC. He has continued in his role as an independent, public interest, non-executive board member of Deloitte LLP and as the lead non-executive at the Ministry of Defence. He is an adviser to the board of the Abu Dhabi Commercial Bank. Previously, he held senior positions within the Department of Health and Social Security and HM Treasury and with Schroders plc in London, Hong Kong and New York. He was vice chairman of Schroders' worldwide investment banking activities from 1998 to 1999. He holds an MA and MSc from the University of Oxford.		Keith's reputation and breadth of experience in the industry, his market insights and his extensive knowledge of Standard Life are of great benefit to the Board and to the Group. Keith joined Standard Life Investments Limited in 1999 as Chief Investment Officer, and has been its Chief Executive since 2004. Previously he spent nearly 20 years at James Capel & Company Limited in a number of roles, including chief economist and managing director international equities. He is a non-executive director of the Financial Reporting Council, where he is a member of the codes and standards committee. He has been awarded honorary doctorates from the University of Sussex and Teesside University for services to the financial services industry. He holds a BA from the University of Sussex and an MA from the University of Warwick. He is a Fellow of the Chartered Institute for Securities and Investment and a Fellow of the Society of Business Economists.		For 30 years Luke has provided corporate and financial support within the financial services sector and by bringing that experience to the Board, has continued to make an effective contribution to Board deliberations. Prior to joining Standard Life, Luke spent 10 years as director of finance and operations at Lloyd's of London. Previously, he held senior finance roles at Deutsche Bank (UK), Morgan Stanley & Company (UK) and Lloyds Bank plc. He is a member of the governing body of Queen Mary University of London. He holds an Electrical and Electronic Engineering degree (BEng), from the University of London. He is a Member of the Institute of Chartered Accountants in England and Wales.
Shareholding:	206,626		2,246,620		885
Committee memberships:	·  Nomination and Governance, Chairman (c)

	Colin Clark Executive Director		Paul Matthews Executive Director		Kevin Parry Senior Independent Director
Nationality:	British		British		British
Age:	57		56		55
Tenure:	Colin was appointed Director in November 2015. He has been a Director for 1 year.		Paul was appointed Director in November 2015. He has been a Director for 1 year. Paul is standing down from the Board on 1 March 2017.		Kevin was appointed Director in October 2014. He has been a Director for 2 years.
Background:	With his background in investment management and client services, both with Standard Life and elsewhere, Colin brings important skills to the Board. Colin was appointed to the Board of Standard Life Investments Limited in 2004 as a non-executive director. In 2010, he assumed executive responsibility for global client relationship activity, including client management, product development, distribution management and also brand management. Previously he spent 20 years with Mercury Asset Management/Merrill Lynch Investment Managers, becoming head of global marketing in 1999. He holds a BA (Hons) Philosophy, Politics and Economics degree from the University of Oxford.		Paul's appointment reflected his depth of knowledge of Standard Life and experience in the financial services industry spanning over 30 years. He brings a strong customer focus and significant marketing and distribution expertise to the Board. Paul joined Standard Life in 1989, working in a variety of roles before being appointed UK Chief Executive in 2011 and then UK and Europe Chief Executive in 2012. His senior management roles have included UK Take to Market Director, Managing Director of UK Distribution, and Head of IFA Sales. Paul started work straight from school, initially balancing his work with a rugby career, captaining the England U19s before a serious injury ended his sporting ambitions. Before joining Standard Life, Paul held a variety of sales and investments roles with National Mutual Life from 1979 to 1989. He is a board member of the Association of British Insurers and is a member of the Financial Conduct Authority Practitioner Panel.		Kevin's international commercial and acquisition experience is particularly valuable to the Board. He has extensive audit and regulatory knowledge gained in a 'Big 4' firm and a FTSE 100 asset management and private banking group. Kevin is chairman of Intermediate Capital Group plc (ICG) and a non-executive director of Nationwide Building Society (Nationwide) and Daily Mail and General Trust plc (DMGT). At ICG he is chairman of the nominations committee and a member of the remuneration committee. At Nationwide he chairs the audit committee and is a member of the risk and nominations committees. At DMGT he chairs the audit and risk committee. He is chairman of the Royal National Children's Foundation. He was formerly chairman of the Homes and Communities Agency, a non-executive board member of Knight Frank LLP, CFO of Schroders plc, CEO at Management Consulting Group PLC and a managing partner at KPMG. He holds an MA (Hons) in Management Studies from the University of Cambridge. He is a Fellow of the Institute of Chartered Accountants in England and Wales.
Shareholding:	757,766		237,039		50,000
Committee memberships:					·  Audit (c) ·  Nomination and Governance ·  Risk and Capital

	Pierre Danon Non-executive Director		John Devine Non-executive Director		Melanie Gee Non-executive Director
Nationality:	French		British		British
Age:	60		58		55
Tenure:	Pierre was appointed Director in October 2011. He has been a Director for 5 years.		John was appointed Director on 4 July 2016. He has been a Director for 8 months.		Melanie was appointed Director in November 2015. She has been a Director for 1 year.
Background:	With extensive experience in leading technology and customer-facing businesses, Pierre brings a strong combination of international commercial and customer skills to the Board. Pierre is vice chairman of TDC, executive chairman of Volia, independent director of CIEL Investment Limited and vice chairman of AgroGeneration. From 2000 to 2005, Pierre was chief executive officer of BT Retail and, subsequently, chief operating officer of Capgemini Group and chairman of Eircom. Until June 2012, he served as chief executive officer and then non-executive chairman of Numericable Completel in Paris. He holds a degree in Civil Engineering, École Nationale des Ponts et Chaussées, Paris, a Law degree from the Faculté de droit, Paris, together with an MBA from HEC Paris.		John joined the Board in July 2016.  He brings extensive financial and asset management experience to the Board. From April 2015 until August 2016, John was non-executive chairman of Standard Life Investments (Holdings) Limited. He is a non-executive director of GE Capital International Holdings Limited, Euroclear plc and Citco Custody Limited. From 2008 to 2010, John was chief operating officer of Threadneedle Asset Management Limited (Threadneedle). Prior to joining Threadneedle, John held a number of senior positions at Merrill Lynch in London and New York. He holds a BA (Hons) from Preston Polytechnic and is a Member of the Chartered Institute of Public Finance and Accounting.		Melanie brings deep understanding of investment banking and financial services to the Board. Melanie is a non-executive director of The Weir Group PLC where she chairs the remuneration committee and is a member of the audit and nomination committees. She has also served as a non-executive director of Drax Group plc. Melanie was appointed a managing director of Lazard and Co. Limited in 2008 and became a senior adviser in 2012. Previously, she held various roles with UBS, having been appointed a managing director in 1999 and served as a senior relationship director from 2006 to 2008. She holds an MA in Mathematics from the University of Oxford.
Shareholding:	49,656		1,321		20,000
Committee memberships:	·  Investment (c) ·  Nomination and Governance		·  Investment ·  Remuneration ·  Risk and Capital		·  Remuneration (c) ·  Investment ·  Risk and Capital
	Noel Harwerth Non-executive Director		Lynne Peacock Non-executive Director		Martin Pike Non-executive Director
Nationality:	British and American		British		British
Age:	69		63		55
Tenure:	Noel was appointed Director in July 2012. She has been a Director for 4 years.		Lynne was appointed Director in April 2012. She has been a Director for 4 years.		Martin was appointed Director in September 2013. He has been a Director for 3 years.
Background:	Noel's executive background is in international banking. She brings extensive knowledge of financial and governance issues to the Board. In January she was appointed chair of the UK Export Finance board. As part of this role she is also a non-executive member of the Department of International Trade board. Noel is outgoing chairman of GE Capital Bank Limited. She also holds non-executive director appointments with CHAPS Clearing Company Limited, the London Metal Exchange, the British Horseracing Authority and Sirius Minerals Plc. Noel was previously with Citicorp for 15 years, latterly as the chief operating officer of Citibank International. Her previous non-executive directorships include Alent plc, Logica PLC, RSA Insurance Group plc and Sumitomo Mitsui Bank. She holds a Law degree from the University of Texas.		With a successful career in the UK financial services industry and a strong focus on customer care, Lynne brings important skills to the Board. Her experience as a chief executive officer and in managing change in the financial services sector has been of great value to the Board. In April 2016, Lynne was appointed as non-executive chairman of Standard Life Assurance Limited. Lynne is a non-executive director of Scottish Water, where she chairs its audit committee. She is a non-executive director and senior independent director of Nationwide Building Society and chairs its remuneration committee. She is also a member of its audit, risk and nomination and governance committees. Lynne joined National Australia Bank Limited in 2003 and, from 2004 to 2011, she was chief executive officer, UK (Clydesdale Bank plc and Yorkshire Bank). Previously, Lynne was with Woolwich plc from 1983 to 2003, finishing her career there as chief executive officer. She holds a BA from North East London Polytechnic.		The Board continues to benefit from Martin's insight, based on his broad commercial and strategic risk experience.   Martin is a non-executive director of esure Group plc, where he chairs the remuneration committee and is a member of the audit and risk committees. He is a non-executive director of Faraday Underwriting Limited which manages a syndicate at Lloyds, where he is chair of the audit and risk committee and member of the remuneration committee. He is also a non-executive adviser to Travers Smith LLP. Martin spent nearly 30 years as a strategic risk consultant carrying out a wide range of strategic consulting projects and M&A assignments. His senior roles included managing director, risk consulting & software, EMEA at Towers Watson. He holds an MA in Mathematics from the University of Oxford. He is a Fellow of the Institute and Faculty of Actuaries.
Shareholding:	10,074		12,554		32,727
Committee memberships:	·  Audit ·  Nomination and Governance ·  Risk and Capital		·  Audit		·  Risk and Capital (c) ·  Audit ·  Remuneration

3. Directors' report

The Directors present their annual report on the affairs of the Standard Life group of companies (the Group), together with the audited International Financial Reporting Standards (IFRS) consolidated financial statements for the Group, financial information for the Group and financial statements for Standard Life plc (the Company) for the year ended 31 December 2016.

Reporting for the year ended 31 December 2016

The Company is the holding company of the Group. You can find out about the relevant activities of the Company's principal subsidiary undertakings and their overseas branches in the Strategic report. During 2016, the Company's principal undertakings operated branches in Germany, Hong Kong, India and Ireland.

The main trends and factors likely to affect the future development, performance and position of the Group are outlined in the Chief Executive's overview section of the Strategic report. Reviews of the operating and financial performance of the Group for the year ended
31 December 2016 are given in the Strategic report.

The Chairman's statement, the Directors' responsibility statement and the Corporate governance statement form part of the Directors' report. The Corporate governance statement is submitted by the Board.

Using the IFRS basis, the results of the Group are presented in the Group financial statements. A detailed description of the basis of preparation of the IFRS results (including operating profit) is set out in the Group financial statements section. More information about the Group's use of financial instruments and related financial risk management matters can be found in Note 23 and Note 41 to the Group financial statements.

This report was prepared by the executive team together with the Board and forms part of the management report.

Dividends

The Board recommends paying a final dividend for 2016 of 13.35p per ordinary share. This will be paid on 23 May 2017 to shareholders whose names are on the Register of members (the Register) at the close of business on 18 April 2017.

The total payment is estimated at £262m for the final dividend and together with the interim dividend of 6.47p per share totalling £127m paid on 19 October 2016, the total dividend for 2016 will be 19.82p per share (2015: 18.36p) totalling £389m (2015: £362m).

Share capital

You can find full details of the Company's share capital, including movements in the Company's issued ordinary share capital during the year, in Note 28 to the Group financial statements. You can also find an analysis of registered shareholdings by size, as at 31 December 2016, in the Shareholder information section.

As at 31 December 2016, there were 1,978,884,437 ordinary shares in issue held by 102,942 registered members. The Standard Life Share Account (the Company-sponsored nominee) held 746,304,323 of those shares on behalf of 1,060,964 participants. No person has any special rights of control over the Company's share capital and all issued shares are fully paid.

During the year, and until the date this report was signed, the Company received the following notifications in respect of major shareholdings and major proportions of voting rights in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority (FCA).

Shareholder	Date of transaction	Type of transaction	Number of voting rights following the transaction	Percentage of voting rights following the transaction
BlackRock, Inc.	23.09.2016	Acquisition	98,854,534	5.00%

In 2016, in accordance with the terms of the Standard Life Employee Trust Deed, the trustees of the Standard Life Employee Trust waived all entitlements to current or future dividend payments for shares they hold under option on behalf of participants in the Company's discretionary share plans between the grant and vest dates. Details of ordinary shares under option in respect of the Company's discretionary share plans are shown in Note 47 to the Group financial statements.

The trustees of the Standard Life (Employee) Share Plan voted the appropriate shares in accordance with any instructions received from participants in the plan. Details of the Company's employee share plan can be found in Note 47 to the Group financial statements.

Restrictions on the transfer of shares and securities

Except where listed below, there are no specific restrictions on the size of a holding or on the transfer of shares. Both are governed by the general provisions of the Company's articles of association (the Articles) and current legislation and regulation.

You can also obtain a copy from Companies House or by writing to the Company Secretary at our registered address (details of which can be found in the Contact us section). The Articles may only be amended by a special resolution passed by the shareholders.

You can read the Articles on our website www.standardlife.com/annualreport

The Board may decline to register the transfer of:

·   A share that is not fully paid

·   A certificated share, unless the instrument of transfer is duly stamped or duly certified and accompanied by the relevant share certificate or other evidence of the right to transfer, is in respect of only one class of share and is in favour of a sole transferee or no more than four joint transferees

·   An uncertificated share, in the circumstances set out in the uncertificated securities rules (as defined in the Articles) and, in the case of a transfer to joint holders, where the transfer is in favour of no more than four joint transferees

·   A certificated share by a person with a 0.25 per cent interest (as defined in the Articles) in the Company, if that person has been served with a restriction notice under the Articles, after failing to provide the Company with information about interests in those shares as set out in the Companies Act 2006 (unless the transfer is shown to the Board to be pursuant to an arm's length sale under the Articles)

These restrictions are in line with the standards set out in the FCA's Listing Rules and are considered to be standard for a listed company.

The Directors are not aware of any other agreements between holders of the Company's shares that may result in restrictions on the transfer of securities or on voting rights.

Rights attached to shares

Subject to applicable statutes, any resolution passed by the Company under the Companies Act 2006 and other shareholders' rights, shares may be issued with such rights and restrictions as the Company may decide by ordinary resolution, or (if there is no such resolution or if it does not make specific provision) as the Board may decide. Subject to the Articles, the Companies Act 2006 and other shareholders' rights, unissued shares are at the disposal of the Board.

Every member and duly appointed proxy present at a general meeting or class meeting has one vote on a show of hands, provided, that where a proxy is appointed by more than one shareholder entitled to vote on a resolution and is instructed by one shareholder to vote 'for' the resolution and by another shareholder to vote 'against' the resolution, then the proxy will be allowed two votes on a show of hands - one vote 'for' and one vote 'against'. On a poll, every member present in person or by proxy has one vote for every share they hold. For joint shareholders, the vote of the senior joint shareholder who tenders a vote, in person or by proxy, will be accepted and will exclude the votes of the other joint shareholders. For this purpose, seniority is determined by the order that the names appear on the Register for joint shareholders.

A member will not be entitled to vote at any general meeting or class meeting in respect of any share they hold if any call or other sum then payable by them for that share remains unpaid or if they have been served with a restriction notice (as defined in the Articles) after failing to provide the Company with information about interests in those shares required to be provided under the Companies Act 2006.

The Company may, by ordinary resolution, declare dividends up to the amount recommended by the Board. Subject to the Companies Act 2006, the Board may also pay an interim dividend, and any fixed rate dividend, whenever the financial position of the Company, in the opinion of the Board, justifies its payment. If the Board acts in good faith, it is not liable to holders of shares with preferred or 'pari passu' rights for losses that arise from paying interim or fixed dividends on other shares.

The Board may withhold payment of all or part of any dividends or other monies payable in respect of the Company's shares from a person with a 0.25 per cent interest (as defined in the Articles) if that person has been served with a restriction notice (as defined in the Articles) after failure to provide the Company with information about interests in those shares, which is required under the Companies Act 2006.

Subject to the Companies Act 2006, rights attached to any class of shares may be varied with the written consent of the holders of not less than three-quarters in nominal value of the issued shares of that class (excluding any shares held as treasury shares). These rights can also be varied with the sanction of a special resolution passed at a separate general meeting of the holders of those shares. At every separate general meeting (except an adjourned meeting) the quorum shall be two persons holding, or representing by proxy, not less than one-third in nominal value of the issued shares of the class (calculated excluding any shares held as treasury shares).

A shareholder's rights will not change if additional shares ranking 'pari passu' with their shares are created or issued - unless this is expressly provided in the rights attaching to their shares.

Power to purchase the Company's own shares

At the 2016 Annual General Meeting (AGM), shareholders granted the Directors limited powers to:

·   Allot ordinary shares in the Company up to a maximum aggregate amount of £80,259,685

·   Disapply, up to a maximum total nominal amount of £12,038,952 or 5% of its issued ordinary share capital, shareholders' pre-emption rights in respect of new ordinary shares issued for cash

·   Make market purchases of the Company's ordinary shares up to a maximum of 197,001,046 or 10% of its issued ordinary shares

The Company did not make any market purchases of its ordinary shares during the year ended 31 December 2016, and has not done so since then and up to the date of this report.

Significant agreements

There are a number of agreements to which the Company, or one of its subsidiaries, is party that entitle the counterparties to exercise termination or other rights in the event of a change of control of the Company. These agreements are noted in the paragraphs below.

Credit Facility - under a £400m revolving credit facility between the Company and the banks and financial institutions named therein as lenders (Lender) dated 22 May 2015 (the Facility), in the event that (i) any persons or group of persons acting in concert, gain control of the Company or (ii) Standard Life Assurance Limited ceases to be a member of the Group, then any Lender may elect within a prescribed time frame to cancel its outstanding commitment under the Facility and declare its participation in all outstanding loans, together with accrued interest and all amounts accrued immediately due and payable, whereupon the commitment of that Lender under the Facility will be cancelled and all such outstanding amounts will become immediately due and payable.

India - under a shareholders' agreement dated 15 January 2002 (as amended) which is now between Housing Development Finance Corporation Limited (HDFC) and Standard Life (Mauritius Holdings) 2006 Limited (SLMH06), being the relevant Group company which holds the interest in HDFC Standard Life Insurance Company Limited (HDFC Standard Life), upon a change of control of the Company which results in a change of control of SLMH06 (as described in the shareholders' agreement), HDFC potentially has the right to terminate the venture and to purchase, or nominate a third party to purchase, SLMH06's shares in HDFC Standard Life for a price determined in accordance with the agreement.

India - under a shareholders' agreement dated 10 June 2003 (as amended) between Standard Life Investments Limited and HDFC, pursuant to which the relevant Group company holds its interest in HDFC Asset Management Company Limited (HDFC AMC), upon a change in the ownership structure of Standard Life Investments Limited that results in the acquisition by a third party, either directly or indirectly, of more than 20% of the issued, subscribed and paid-up capital of Standard Life Investments Limited, HDFC will have 90 days from the date upon which Standard Life Investments Limited notifies it in writing of the occurrence of such a change to purchase the relevant Group company's shares in HDFC AMC for a price determined in accordance with an agreed pricing formula.

China - under a joint venture agreement dated 12 October 2009 (as amended) between the Company and Tianjin TEDA International Holding (Group) Co. Limited (TEDA), pursuant to which the Company holds its interest in Heng An Standard Life Insurance Company Limited (Heng An Standard Life), upon a change of control of the Company, TEDA has the right to terminate the venture and to purchase, or nominate a third party to purchase, the Company's shares in Heng An Standard Life for a price determined in accordance with the agreement.

A number of other agreements contain provisions that entitle the counterparties to exercise termination or other rights in the event of a change of control of the Company. However, these agreements are not considered to be significant in terms of their likely impact on the business of the Group as a whole.

The Directors are not aware of any agreements with any employee that would provide compensation for loss of office or employment resulting from a takeover bid. The Company also has no agreement with any Director to provide compensation for loss of office or employment resulting from a takeover.

Directors and their interests

The Directors who served throughout the year were:

·   Sir Gerry Grimstone (Chairman)

·   Keith Skeoch

·   Luke Savage

·   Colin Clark

·   Paul Matthews

·   Kevin Parry

·   Pierre Danon

·   John Devine (appointed 4 July 2016)

·   Melanie Gee

·   Noel Harwerth

·   Lynne Peacock

·   Martin Pike

·   Crawford Gillies (retired 17 May 2016)

·   Isabel Hudson (resigned 24 June 2016)

Biographies of the current Directors can be found on pages 50 to 53.

Details of the Directors' interests in the Company's ordinary shares, the Standard Life (Employee) Share Plan, the Standard Life Sharesave Plan and the share-based executive long-term incentive plans (LTIPs) are set out in the Directors' remuneration report together with details of the executive Directors' service contracts and non-executive Directors' appointment letters.

No Director has any interest in the Company's listed debt securities or in any shares, debentures or loan stock of the Company's subsidiaries. No Director has any material interest in any contract with the Company or a subsidiary undertaking which was significant in relation to the Company's business, except for the following:

·   The benefit of a continuing third party indemnity provided by the Company (in accordance with company law and the Articles)

·   Service contracts between each executive Director and subsidiary undertakings (Standard Life Employee Services Limited and Standard Life Investments Limited)

Copies of the following documents can be viewed at the Company's registered office (details of which can be found in the Contact us section) during normal business hours (9am to 5pm Monday to Friday) and will be available for inspection at the Company's AGM on 16 May 2017:

·   The Directors' service contracts or letters of appointment

·   The Directors' deeds of indemnity, entered into in connection with the indemnification of Directors provisions in the Articles

·   The rules of the Standard Life plc Executive Long-Term Incentive Plan

·   The Company's Articles

Appointment and retirement of Directors

The appointment and retirement of Directors is governed by the Articles, the Companies Act 2006, the UK Corporate Governance Code and related legislation.

The UK Corporate Governance Code recommends that directors of FTSE 350 companies should stand for election every year. In line with this, all our Directors as at the date of the AGM will retire at the AGM on 16 May 2017. Paul Matthews is standing down as Director on 1 March 2017 and Barry O'Dwyer will be appointed to the Board as Director on the same day.  John Devine and Barry O'Dwyer, having been appointed since the last AGM, will stand for election at the 2017 AGM. All remaining Directors who wish to continue in office will stand for re-election. 

The powers of the Directors can also be found in the Articles.

Directors' liability insurance

During 2016, the Company maintained directors' and officers' liability insurance on behalf of its directors and officers to provide cover should any legal action be brought against them. The Company also maintained a pension trustee liability indemnity policy (which includes third party indemnity) for the boards of trustees of the UK and Irish staff pension schemes. The trustees include individuals who are directors of subsidiaries within the Group.

Our people

Our people have always been central to delivering our strategy, and we remain focused on bringing out the best in them.

You can read more on our people strategy in the Sustainability section of the Strategic report

Diversity and Inclusion

Standard Life takes pride in the high achieving, diverse and healthy working environment it has created, where all employees are valued, empowered and treated as individuals. Our approach to diversity and inclusion is defined in its broadest sense including, for example, age, socio-economic background, gender, disability, sexual orientation, experience and ethnicity. We are committed to enabling all our people to fulfil their potential and to providing an inclusive workplace where all forms of diversity are valued. This covers our recruitment process, policies, working practices and our people networks.

We treat those with disabilities fairly in relation to job applications, training, promotion and career development. Adjustments are made to train and enable employees who become disabled whilst working at Standard Life to allow them to continue and progress in their role.

In recent years we have seen considerable progress in our gender balance within our talent pipeline particularly in our graduate, emerging leaders and senior high potentials. This year we have signed up to the Women in Finance Charter, supporting our aim for an inclusive workplace and in particular, to support actions which will improve the representation of senior women in our industry. We are committed to continuing to improve the gender balance split at a senior management level and in October 2016 we published our target ranges for gender balance. Although 25% of our leadership population is female, we appreciate that there is still more work to be done. We continue to run our Non-Executive Director curriculum to encourage female talent to develop executive team and board experience and are working with our female employees to focus career conversations on development. In addition, we are working with executive search partners who have signed up to providing an equal balance of men and women on shortlists provided.

In 2016 our established people networks continued to support our people across the business. At present we have a successful Women's Development Network, LGBT Network, Carers' Network, Armed Forces Network and Young Persons' Development Network. In addition, we have an LGBT+ Allies Group.

Talent

Since 2010 we have increased the number of employees aged 25 and under in the UK and Ireland from 0.5% to 8%. Through a series of initiatives and partnerships and by offering traineeships and apprenticeships, Standard Life demonstrates it is committed to youth employment. On our Edinburgh Guarantee programme we have, to date, taken on more than 140 school leavers, providing six-month placements across the business, paid at the living wage. Our experience has been good, with 98% of our placements leading to a positive destination - whether it be a role within Standard Life or progression to further education, training or other employment. This commitment extends to supporting young people through education, as we work with Career Ready to equip young people for better futures, with mentors and paid internships.

We are committed to retaining and attracting the best talent and our recruitment campaigns advertise our flexible approach to working patterns, capturing individuals at the beginning and middle years of their careers. Our veteran and 'returnship' programmes also support those in the middle and later years of their careers.

Engagement

There are several separate employee representation arrangements across the organisation aimed at providing insights from our people to help drive the business towards becoming a world-class investment company. In the UK, most employees are represented through partnership agreements with the Group's staff associations, Vivo and Bridge. In Ireland, there is an established agreement with Unite, and a works council was established in Germany in 2008.

We want to hear from our people about how to make things better, so we get insight from our employee engagement survey 'InterAction', as well as through our employee associations and conversations with leavers.  The InterAction survey gives our employees the chance to tell the leadership teams how they feel about working for Standard Life. In November 2016, 80% of our employees completed our most recent InterAction survey, which is up from 79% in 2015. The responses gave us a clear update on how our people feel about a range of topics.

We want our employees to be engaged in their work and give their best every day. We have collaborated with the voluntary movement Engage for Success to focus on the best ways to make this happen. Their aim - like ours - is to improve employee engagement.

As a result of these collaborations, we have launched our own engagement network which will begin work early in 2017 to focus on our group-wide engagement priorities.

To support our healthy body strategy, we took part in our fifth Global Corporate Challenge - a 100-day walking challenge.  We averaged 14,037 steps a day (well above World Health Organisation target of 10,000). We also work with our on-site caterers to provide healthy, nutritious lunch and snack choices for our people.

To help our people in work and home life, we provide a variety of support from our people networks to our family friendly policies, and we provide an employee assistance programme called Solutions. It is a free, confidential service available to our people and their families whenever they need it.

We also run free regular mindfulness and meditation sessions, where employees can get space and time to clear their minds in the middle of a working day.

Changes to the UK employee pension were implemented on 16 April 2016. From this date, pension scheme members build up future pension on a defined contribution basis rather than a career average defined benefit basis. In 2016 over 95% of our UK employees were in our pension scheme.

We believe that we provide a consistent and competitive level of support for our employees in their retirement savings provision, and that this is sustainable going forward to ensure that we remain competitive.

Our new Group intranet, Stan, launched in March 2016, enhances engagement, collaboration and communication across the whole business, helping employees to do their job more quickly and connect with each other more easily. In addition, independent analysis of Stan conducted by Digital Workplace Group highlighted that we are well positioned to build on the initial positive impact of the site. Stan achieved an extremely high score for its strategy and governance, ranking third in the global league tables compiled by Digital Workplace Group.

Reward

We rely on highly skilled employees.  We are committed to policies that are progressive and attract and retain the talent we need to continue to build a world-class investment company. We offer a range of benefits and financial rewards to our people. As we are all different, our people can tailor their package to suit their needs.

As part of our performance culture, employees and their managers have regular conversations together where they agree performance goals and how to develop and address the employee's aspirations, strengths and development areas. We believe great performance should be rewarded and our approach continues to support our reward principles and links pay to performance. This ensures our remuneration remains competitive in the market.

As at 31 December 2016, approximately 73% of the Group's employees were shareholders through participation in the Standard Life (Employee) Share Plan (the Plan). The Plan allows employees to buy ordinary shares in the Company directly from their earnings up to a market value of £150 per month, or an equivalent sum in a relevant currency. These are called partnership shares. For each partnership share that an employee buys under the Plan in the UK, the Company matches the purchase by allocating them ordinary shares up to a maximum total value of £50 per month. As at 31 December 2016, 68% of eligible employees in the UK were making a monthly average contribution of £58. A similar tax approved plan is used in Ireland, where the maximum monthly matched amount is €70, and has a 55% take-up. Even though the Plan cannot be structured on a tax favourable basis in Germany or Austria, at the end of the year, 35% of eligible employees were buying shares on a monthly basis.

The Group also encourages share ownership in the Company in the UK and Ireland through the Standard Life Sharesave Plan which was launched in August 2011. In September 2016, we launched a sixth invitation to UK employees and at the same time made a fifth invitation to employees in Ireland. On 1 November 2016, the 2013 three-year UK and Ireland Sharesave invitations matured. Participating employees have the opportunity, until 1 May 2017, to buy Standard Life plc shares at a price of £2.834 per share (UK) and €3.216 per share (Ireland) with their accumulated savings.  On 1 November 2016 the 2011 five-year Sharesave invitation also matured. Participating employees have the opportunity, until 1 May 2017, to buy Standard Life plc shares at a price of £1.576 per share (UK) with their accumulated savings.

As a result, there are now over 3,400 employees in the UK and Ireland participating in Sharesave plans.

Sustainability

The commercial aims of our business are linked to our environmental, social and governance responsibilities. You can find out more about how we run our business sustainably, including our greenhouse gas emissions, in the Sustainability section of the Strategic report.

Political donations

We did not make any political donations in the year ended 31 December 2016. The Company has limited authorisation from shareholders to make political donations and incur political expenditure (Resolution 14, 2016 AGM). We request this as a precaution against any inadvertent breach of political donations legislation. While Standard Life has regular interaction with government and elected politicians in the UK and other jurisdictions in which we operate, we are strictly apolitical. We have a long-standing policy of not making political donations and we have no plans to do so.

Auditors

The Audit Committee is responsible for considering the Group's external audit arrangements. PricewaterhouseCoopers LLP is not seeking re-appointment as auditors of the Company. Following the conclusion of the audit tender process, resolutions proposing the appointment of KPMG LLP as auditors of the Company and giving authority to the Audit Committee to determine their remuneration will be submitted at the AGM to be held on 16 May 2017.

Disclosure of information to the auditors

Each Director confirms that he or she has taken all reasonable steps necessary, in his or her role as a Director, to be made aware of any relevant audit information and to establish that PricewaterhouseCoopers LLP is made aware of that information.

As far as each Director is aware, there is no relevant audit information that PricewaterhouseCoopers LLP is not aware of as at the date this report was approved.

Annual General Meeting

Details of the meeting content can be found in our AGM guide 2017 which will be available online at www.standardlife.com from 22 March 2017. The AGM was held in London for the first time last year.  As it is intended to hold the AGMs in Edinburgh and London in alternate years, it will be held in Edinburgh in 2017.

Annual General Meeting - Tuesday 16 May 2017 at 2pm (UK time)

Edinburgh International Conference Centre
The Exchange
150 Morrison Street
Edinburgh
EH3 8EE
Scotland

Overview

·   Introduction - the Chairman will introduce the Directors and outline the business of the AGM

·   Presentations and question and answer session - the Chairman and the Chief Executive will review the business and provide an overview of Standard Life's plans for 2017. After this, there will be an opportunity to ask questions

·   Voting - shareholders will be asked to consider and vote on a number of resolutions

Other information

Under Listing Rule 9.8.4.CR, a listed company must include all information required by LR 9.8.4R in a single identifiable location or cross-reference table.  For the purposes of LR 9.8.4CR, the information required to be disclosed can be found in the following locations. All the relevant information cross-referenced below is hereby incorporated by reference into this Directors' report.

	Location
Topic	Directors' report	Directors' remuneration report	None/ Not applicable
Interest capitalised			x
Publication of unaudited financial information in a class 1 circular or in a prospectus, other than in accordance with Annexes 1 and 2 of the FCA's Prospectus Rules			x
Details of long-term incentive schemes		x
Waiver of emoluments by a director			x
Waiver of future emoluments by a director			x
Non pre-emptive issues of equity for cash			x
Non pre-emptive issues of equity for cash in relation to major subsidiary undertakings			x
Parent participation in a placing by a listed subsidiary			x
Contracts of significance			x
Provision of services by a controlling shareholder			x
Shareholder waivers of dividends	x
Shareholder waivers of future dividends	x
Agreements with controlling shareholders			x

The Directors' report was approved by the Board and signed on its behalf by

Kenneth A Gilmour

Company Secretary

24 February 2017

4. Corporate governance statement

4.1 Nomination and Governance Committee report

The Nomination and Governance Committee oversees the governance framework so the report on its activities is presented both in summary on this page and integrated in more detail into the relevant parts of the corporate governance statement.

Dear Shareholder

It is my pleasure to introduce the 2016 Corporate governance statement and Nomination and Governance Committee report, in line with my responsibility to ensure effective corporate governance throughout the Group. Your Board adheres to the highest standards of corporate governance and ethical behaviour in directing the Group's affairs and in its accountability to you as shareholders. As Directors, we believe these commitments are key to understanding and managing our business effectively, providing engaged leadership, and delivering shareholder value over the longer term. Your Board takes the quality of its performance seriously and strives to improve performance through annual reviews and continuing self-assessment.  As well as our key activities to oversee the composition of the Board and its effectiveness, during 2016 we:

·   Reviewed and revised the composition of the boards of our principal subsidiaries, Standard Life Assurance Limited (SLAL) and Standard Life Investments (Holdings) Limited (SLIH)

·   Established the Investment Committee to support the Board in its oversight role

Sir Gerry Grimstone

Chairman, Nomination and Governance Committee

Membership

The members of the Committee are the Chairman and independent non-executive directors. Their attendance at Committee meetings was:

Member	Attendance
Sir Gerry Grimstone, Chairman	6/6
Pierre Danon	5/6
Kevin Parry	5/5
Noel Harwerth	6/6
Former member
Crawford Gillies	1/1

Keith Skeoch, in his role as Chief Executive, was invited to Committee meetings to discuss relevant topics, such as talent development and management succession.

The Committee supports the composition and effectiveness of the Board, and oversees the Group's activities to strengthen its talent pipeline at all levels. It also oversees the development and implementation of the Group's governance framework.

In this statement you can read about the Committee's role in:

·   Identifying and recommending Directors to be appointed to the Board

·   Reviewing Board diversity, skills and experience

·   Supporting the review of the Board's effectiveness

·   Overseeing succession planning, leadership and talent development and diversity levels throughout the Group

Ultimate responsibility for these important topics rests with the Board and the Committee reports regularly to the Board so that all Directors can be involved as appropriate.

The Committee's work in 2016

An indicative breakdown as to how the Committee spent its time is shown below:

Jan - Mar	·   Reviewed compliance with the Corporate Governance Code ·   Reviewed the corporate governance statement ·   Reviewed the Board Charter ·   Committee Effectiveness review ·   Recommended appointment of Senior Independent Director (SID) ·   Reviewed membership of Committees
Apr - Jun	·   Reviewed executive succession and talent ·   Reviewed emerging talent and support and development programmes ·   Appointment of subsidiary board members ·   Reviewed preparation to support the Market Abuse Regulation (MAR) ·   Signed up to Women in Finance Charter ·   Recommended appointment of non-executive Director
Jul - Sep	·   Reviewed Organisation Design reshaping and output ·   Reviewed executive succession and talent
Oct - Dec	·   Reviewed results of Board Effectiveness ·   Recommended establishment of Investment Committee ·   Reviewed implementation of Senior Insurance Managers Regime (SIMR) requirements ·   Reviewed executive succession and talent ·   Reviewed subsidiaries' committees' terms of reference

The Committee's work in 2016 An indicative breakdown as to how the Committee spent its time is  shown below: Diagram removed for the purposes of this announcement. However it can be viewed in full in the pdf document.

Committee effectiveness The Committee reviews its remit and effectiveness each year. The 2016 review was carried out via an internal self-assessment questionnaire. The review concluded that the Committee: ·   Continued to focus Director and senior manager recruitment on the skills and experience required by the Board, reflecting the changing shape of the business ·   Continued to look for strength in the succession, talent and development, diversity and leadership programmes across the Group ·   Worked to deliver effective subsidiary board composition and processes to support changing governance requirements

Roles and responsibilities

The roles and responsibilities of the Board, Chairman and Chief Executive are outlined below: Diagram removed for the purposes of this announcement. However it can be viewed in full in the pdf document.

Code compliance

As well as covering the formal disclosure requirements of the UK Corporate Governance Code (the Code), this statement describes how the Board meets its governance responsibilities.

Throughout 2016, the Company complied with all of the provisions set out in the Code issued by the Financial Reporting Council (FRC) in September 2014, which is available at www.frc.org.uk 

Together with the Directors' remuneration report, this statement explains how our governance framework supports the way we apply the Code's principles of good governance.

Governance framework

The Group's governance framework is approved by the Board and documented in the Board Charter.

You can read the Board Charter on our website at www.standardlife.com/annualreport

The Group's Code of Conduct guides our people to do the right thing and complements the Board Charter. It sets out our standards of conduct and governing principles for operational excellence, compliance responsibilities, customer service, our people, and other stakeholders.

The Board expects the Group to be a leader in corporate governance activities through its own actions and through its stewardship activities. The Nomination and Governance Committee regularly reviews the Group's corporate governance framework against relevant generally accepted standards, guidance and best practice, and, as appropriate, recommends to the Board changes to the Board Charter.

During 2016, the Committee oversaw the implementation of the governance map and processes to support SIMR and the preparation for the introduction of MAR.

The governance framework sets out the Board's relationship with the boards of the principal subsidiaries in the Group. In particular, it specifies the matters which these subsidiaries are required to refer to the Board or to a Committee of the Board for approval. It also ensures that all decisions which require or would benefit from it, receive the independent input of the non-executive Directors.

The roles of the Chairman and the Chief Executive are separate. Each has clearly defined responsibilities, which are described in the Board Charter.

The heads of each business unit and the corporate centre functions manage their teams within authorities set out in the Board Charter and within an approved scheme of delegation. This includes reporting to the Chief Executive on how they are complying with Group policies and performing against approved plans and budgets.

The Company Secretary is responsible for advising the Board on governance matters.

Board composition, balance and diversity

The Board's policy is to appoint and retain non-executive Directors who bring relevant expertise as well as a wide perspective to the Group and its decision-making framework. The Directors believe that at least half of the Board should be made up of independent non-executive Directors. As at 24 February 2017, the Board comprises the Chairman, seven independent non-executive Directors and four executive Directors. The Board is made up of nine men (75%) and three women (25%) (2015: men 69%, women 31%). The Board continues to support its Board Diversity statement which states that the Board:

·   Believes in equal opportunities and supports the principle that due regard should be had for the benefits of diversity, including gender, when undertaking a search for candidates, both executive and non-executive

·   Recognises that diversity can bring insights and behaviours that may make a valuable contribution to its effectiveness

·   Believes that it should have a blend of skills, experience, independence, knowledge and gender amongst its individual members that is appropriate to its needs

·   Believes that it should be able to demonstrate with conviction that any new appointee can make a meaningful contribution to its deliberations

·   Is committed to maintaining its diverse composition

·   Supports the Chief Executive's commitment to achieve and maintain a diverse workforce, both throughout the Group, and within his executive team

You can read more about our Directors in their biographies in Section 2

The Nomination and Governance Committee receives updates on progress towards achieving and maintaining diversity throughout the Group. This includes reviewing statistics on age, gender and full/part time working at all levels. The Group also promotes initiatives and programmes to raise awareness of why diversity matters. During 2016, the Board signed up to the Women in Finance Charter and has published our progressive target ranges for our leadership population to represent the gender split of our workforce by 2025. You can read more about our diversity activities in the Sustainability section of the Strategic report.

Board changes during the period

Appointments

John Devine was appointed to the Board on 3 July 2016. John had served as the non-executive chairman of SLIH from 28 April 2015 until the end of August 2016. From 2008 to2010, John was chief operating officer of Threadneedle Asset Management Limited. Prior to joining Threadneedle, John held a number of senior positions at Merrill Lynch in London and New York. As recently announced, Barry O'Dwyer will be appointed as an executive Director to the Board on 1 March 2017, to replace Paul Matthews as CEO Pensions and Savings.

Retirements

Crawford Gillies retired from the Board at the conclusion of the 2016 AGM, having served for nine years.  Isabel Hudson stood down from the Board on 24 June 2016, having served for 18 months. As recently announced, Paul Matthews, CEO Pensions and Savings will stand down from the Board on 1 March 2017 prior to his retirement later this year.

Board appointment process, terms of service and role

Taking account of the Group's strategy, as well as industry and regulatory developments, the Nomination and Governance Committee evaluates the Board's balance of skills, diversity, knowledge and experience, in the context of the time served by non-executive Directors. The Committee uses the results of its analysis to direct its recruitment activities and appointment recommendations and reviews all recommendations to appoint independent non-executive Directors to the boards of subsidiary companies.

Taking account of the regulatory changes that have been or will be introduced to the responsibilities of the board of Standard Life Assurance Limited (SLAL), including:

·   The transition from the current Individual Capital Assessment regime to Solvency II

·   The Prudential Regulation Authority's (PRA) Position Paper on Corporate Governance: Board Responsibilities

·   SIMR regime changes

·   The role of the Independent Governance Committee

During 2016, the Committee considered and strengthened the oversight of the governance of key subsidiaries. Specifically, the Committee supported changes to the composition of the board of SLAL, in particular that a non-executive chairman and three independent non-executive directors should be appointed.

Recognising strategic developments and the impact of the change noted above, the Committee also supported changes to the composition of the board of SLIH, in particular that the independent non-executive Directors should stand down. Following this, to provide increased connectivity with Standard Life Investments, the Committee supported the proposal to establish an Investment Committee which will become operational in 2017 and which is discussed in more detail in the Other committees section on page 66.

After identifying the capabilities needed for Board roles, and the succession timeframe, the Committee considers the related role profile submitted to external search consultants along with the request to prepare a list of suitable candidates. The Group has used the services of JCA Group, Heidrick and Struggles, Odgers Berndtson, Zygos and Egon Zehnder to support its recent recruitment searches and Egon Zehnder has also provided executive development assessment support. Standard Life administers three active pension plans for Heidrick and Struggles and provides a group self-invested pension plan for The Zygos Partnership. In addition, Standard Life hold a fully paid-up executive pension plan for Egon Zehnder. The Board is not aware of any other connection between the Group and the aforementioned consultants,  JCA Group or Odgers Berndtson.

The Nomination and Governance Committee considers the potential suitable candidates and agrees a shortlist. Following interviews with potential candidates, the Committee then makes recommendations to the Board on any proposed appointment, subject always to the satisfactory completion of all background checks and regulatory approvals. The other Board members are also offered the opportunity to meet the recommended candidates. The Committee considers the external commitments of candidates to assess their ability to meet the necessary time commitment and whether there are any conflict of interest matters to address.

Each non-executive Director is appointed for a three-year fixed term and shareholders vote on whether to elect/re-elect him or her at every AGM. Once a three-year term has ended, a non-executive Director can continue for further terms if the Board is satisfied with the non-executive Director's performance, independence and ongoing time commitment. There is no specified limit to the number of terms that a non-executive Director can serve, although the Board recognises the Code provisions regarding length of service when considering whether or not their appointment should be continued. The current average length of service of the non-executive Directors (excluding the Chairman) is just over three years. The Nomination and Governance Committee oversees the process to recommend continued appointments, but members of the Committee do not take part in discussions when their own performance - or continued appointment - is being considered. During 2016, the Committee recommended to the Board that the appointment of Martin Pike should be continued for a second term.

The role of our non-executive Directors is to participate fully in the Board's decision-making work - advising, supporting and challenging management as appropriate.

You can see our standard letter of appointment on our website at www.standardlife.com/annualreport or by writing to the Company Secretary

The letter of appointment confirms that the amount of time we expect each non-executive Director to commit to each year, once they have met all of the approval and induction requirements, is around 35 days. Non-executive Directors are required to confirm that they can allocate sufficient time to carry out their duties and responsibilities effectively. You can read more about the induction and development programme later in this section.

Director election and re-election

At the 2017 AGM, all of the current Directors will retire. John Devine and Barry O'Dwyer, having been appointed since the previous AGM, will retire and stand for election. All the others, except Paul Matthews who will have resigned as at 1 March 2017, will stand for re-election.

You can read more background information about the Directors, including the reasons why the Chairman believes you should support their election or re-election, in our AGM guide 2017, which will be published online at www.standardlife.com from 22 March 2017, and in Section 2 - Board of Directors.

Director independence, external activities and conflicts of interest

The Board carries out a formal review of the independence of non-executive Directors annually. The review considers relevant issues including the number and nature of their other appointments, any other positions they hold within the Group, any potential conflicts of interest they have identified and their length of service. Their individual circumstances are also assessed against independence criteria, including those in the Code. Following this review, the Board has concluded that all the non-executive Directors are independent.

Sir Gerry Grimstone was Chairman of the Board throughout the year. He has retained his non-executive positions with Barclays PLC, where he serves as deputy chairman and senior independent director, Deloitte LLP and the UK Government's Ministry of Defence. He is also an adviser to the board of the Abu Dhabi Commercial Bank.

Crawford Gillies served as the Senior Independent Director (SID) until his retirement on 17 May 2016, and Kevin Parry was appointed as SID on that date. In this role, Kevin supports the Chairman, and often meets with him one-to-one. He is also available to talk with our shareholders about any concerns that they may not have been able to resolve through the channels of Chairman, Chief Executive or Chief Financial Officer, or where a shareholder considers these channels are inappropriate. As part of his induction we offered institutional shareholders the chance to meet with him, and one chose to do so.

The Directors continued to review and authorise Board members' actual and potential conflicts of interest on a regular and ad hoc basis in line with the authority granted to them in the Company's Articles. As part of the process to approve the appointment of a new Director, the Board considers and, where appropriate, authorises his or her potential or actual conflicts. The Board also considers whether any new outside appointment of any current Director creates a potential or actual conflict before, where appropriate, authorising it. All appointments are approved in accordance with the Group's Outside Appointments and Conflicts of Interest policies.

In January 2017, the Board reviewed all previously authorised potential and actual conflicts of interest of the Directors and their connected persons, and concluded that the authorisations should remain in place until January 2018. Under the terms of the approval, conflicted Directors can be excluded from receiving information, taking part in discussions and making decisions that relate to the potential or actual conflict. The Board and relevant Committees follow this process when appropriate. For example, during 2016, when considering the external audit tender, the Board recognised the Chairman's conflict resulting from his role with Deloitte LLP and he took no part in the tender process. The Audit Committee also considered Kevin Parry's previous employment with KPMG. As this ended in 1999, the Committee did not consider that it brought any potential conflict to the tender exercise or decision.

The Board's policy encourages executive Directors to take up one external non-executive director role. Keith Skeoch continued as a non-executive director of the Financial Reporting Council. Paul Matthews is a member of the Association of British Insurers board and of the FCA's practitioner panel.

You can read more about the Directors' outside appointments in their biographies in Section 2

Advice

Directors may sometimes need external professional advice to carry out their responsibilities. The Board's policy is to allow them to seek this where appropriate and at the Group's expense. Directors also have access to the advice and services of the Company Secretary, whose appointment and removal is a matter for the Board. No Directors sought external advice in 2016.

Board effectiveness

Review process

The Board has, with the help of the Nomination and Governance Committee, developed a formal review process to assess how well the Board, its Committees, the Chairman and the Directors are performing collectively and individually and how performance could be improved.

As well as planning the 2016 review, the Nomination and Governance Committee also considered how the themes from the previous reviews continued to be taken forward. In respect of engagement, the non-executive Directors continued their support for participants in the leadership programmes, and executive Directors held regular interactive sessions open to all employees.

The 2016 review was facilitated internally. It comprised an online self-assessment questionnaire, followed up by individual meetings between each Director and the Company Secretary and individual meetings between the Chairman and each Director. Directors completed questionnaires about the Board, each Committee they sit on, the Chairman's performance and their own individual performance. They were encouraged to provide open and honest feedback, explain the ratings they gave and suggest how the Board or Committee could improve.

Outcome

Following the review process, the Company Secretary analysed the self-assessment responses and prepared a summary report which also included the findings from his interviews and a series of related points for possible action. The report was discussed with the Chairman and then considered in detail by the Nomination and Governance Committee at its October meeting before being formally presented to the Board in December.

The key outputs from the review included:

·   Recognising the Directors' collective role in setting the 'tone from the top' and monitoring how culture was embedded across the Group

·   Recognising the Board's role in supporting effective behaviours in the Boardroom and constructive leadership and management across the Group

·   Acknowledging that there had been improvements to Board papers, but that there was still the need to focus on papers to support succinct decision-making

·   The Board's continuing desire to connect with and hear from people in the whole business to support future leaders and key role successors

Progress to implement the recommendations is monitored by the Company Secretary and reported to the Nomination and Governance Committee. Each Board Committee followed a similar questionnaire, reporting and discussion process and reviewed its own results and recommendations in detail.

Chairman

The review of the Chairman's performance was led by the SID, Kevin Parry. It was based on feedback given in the confidential online questionnaires and followed up by individual interviews between the SID and each Director. The questions covered:

·   The Chairman's role to lead the Board and encourage effective participation and consensus decision-making

·   How he informs the Board of stakeholders' views

·   His relationship with both executive and non-executive Directors

The feedback was summarised into a report which was reviewed by the SID and distributed to all Board members, except the Chairman. The report also contained the reflections from the SID's individual meetings. The Directors, led by the SID and without the Chairman being present, met to consider the report. They concluded that the Chairman had performed his role effectively, showed strong leadership of the Board, continued to devote significant time to the Group and continues to have sufficient time to carry out his duties. The SID met with the Chairman to pass feedback from the review directly to him.

Directors

The Chairman led the performance review of the Directors. He held one-to-one meetings to assess their individual performance and contribution against duties set out in the Board Charter and in their appointment letters.

Before these meetings, the Directors assessed their own performance by completing a confidential online questionnaire. Individual development and engagement schedules were prepared to support each meeting. These built on the responses to particular questions and areas of interest and training needs identified by each Director. The meetings were designed to review whether each Director was contributing effectively to the Board and to the Board Committees, meeting all of their statutory and regulatory duties, and continued to have sufficient time to commit to the role. The meetings also considered individual training, development and engagement opportunities for each Director. The schedules summarised the internal and external continuing development the non-executive Directors had undertaken during the year and considered the extent to which each non-executive Director had implemented the points raised in the previous year's review. Each Director takes forward the resulting actions, supported by the Chairman and the Company, using either internal or external resources.

Director induction and development

The Chairman, supported by the Company Secretary, is responsible for arranging a comprehensive preparation and induction programme for all new Directors. The programme is tailored to their individual requirements and takes their background knowledge and experience into account. All Directors are required to complete the Financial Conduct Authority's (FCA) approval process and, if relevant, the Prudential Regulation Authority's (PRA) SIMR notification or approval process before they are appointed and to self-certify annually that they remain competent to carry out this aspect of their role. These processes continue to adapt to meet evolving best practice in respect of SIMR.

The formal preparation and induction programme includes:

·   Meetings with the executive Directors, key members of senior management, the heads of the operating businesses and our corporate centre functions

·   Focused technical meetings with internal and external experts on specific areas including investments, Solvency II, conduct risk, risk and capital management, and financial reporting

·   Visits to business units to meet our people and gain a better insight into the operation of the business and its culture

·   Meetings with the External auditors and the FCA/PRA supervisory teams

·   Meetings with the Company Secretary on the Group's corporate governance framework and the role of the Board and its Committees, with the Chief Risk Officer on the risk management framework as well as meetings on their individual responsibilities both as Directors and as holders of a Controlled Function/SIMR role

Background information is also provided including:

·   Key Board materials and information, shareholder communications and financial reports

·   The Group's organisational structure, strategy, business activities and operational plans

·   The Group's key performance indicators, financial and operational measures and industry terminology

The induction programme provides the background knowledge new Directors need to perform to a high level as soon as possible after joining the Board and to support them as they build their knowledge and strengthen their performance further. As mentioned above, during 2016, John Devine was appointed to the Board. Given the strength of his asset management experience, the induction programme was tailored to complement this.

When a non-executive Director is appointed to one of the Board's Committees, they receive relevant induction training on the Committee's role and duties.

When Directors are appointed to the Board, they make a commitment to broaden their understanding of the Group's business. Our corporate centre monitors relevant external governance and financial and regulatory developments and keeps the ongoing Board training and information programme up to date. During 2016, specific Board sessions took place on the Group's balance sheet, Solvency II and conduct risk matters. Similarly, the relevant Board Committees received updates on developments in financial reporting, remuneration and corporate governance. Non-executive Directors are actively invited to all parts of the Group's business in order to familiarise themselves with how our business is conducted and to meet with our people.

Succession and talent management activities

The Nomination and Governance Committee regularly reviews the results of succession planning activities, including key person and retention risk, and talent development programmes at all levels across the Group.

At its meetings, the Committee discussed the future leadership and talent needs of the Group and how the current programmes would be revised to take account of the skills and expertise required by the Board and senior management. The programmes recognise the changing shape of the Group, and also identify both the talent available within the Group and the need for external recruitment. The programmes are led by the Chief People Officer, with input from the Chief Executive and supported by the Group Talent and Organisation Development team.

During the year, the Nomination and Governance Committee also received updates on how the programmes at graduate and emerging leader levels, as well as the accelerated programme for senior leaders, and overseas placements, have operated to deliver a more diverse leadership pipeline. In addition, they received updates on the specific individual development programmes in place for executive team members and their potential successors.

The results of the Committee's discussions are presented at least annually to the Board. During 2016, the non-executive Directors held specific discussions on Board and executive succession, the results of which fed into the overall plan.

The Board members are keen to interact with the members of the development schemes and have met with, and had presentations from, key talent across the Group.

Annual review of internal control

The Directors have overall responsibility for the Group's System of Governance (SoG), which includes the Enterprise Risk Management (ERM) framework and System of Internal Control, and for the ongoing review of their effectiveness.  The SoG is designed to manage, rather than eliminate, risk and can only provide reasonable, not absolute, assurance against material misstatement or loss. The SoG covers all of the Group's risks as set out in the ERM framework section in the Strategic report. Internal audit regularly audits the effectiveness of internal controls, which will include elements of the SoG. Internal audit reports its findings to the Audit Committee and the Risk and Capital Committee.

With regard to regular financial reporting and preparing consolidated accounts, Group Finance participates in the control self-assessment and policy compliance elements of the ERM framework. Group Finance sets formal requirements for financial reporting, defines the process and detailed controls for the IFRS consolidation, reviews and challenges business unit submissions and receives formal sign-off on financial reporting from business unit finance directors. In addition, Group Finance runs the technical review committee and the financial reporting executive review group which review external technical developments and detailed reporting disclosure and accounting policy issues.

In line with the Code and associated guidance, the Board has conducted ongoing monitoring and review of the SoG through the Risk and Capital Committee and the business unit Enterprise Risk Management Committees (ERMCs).  On behalf of the Board, the Risk function has also carried out an annual review of the effectiveness of the SoG. The SoG was in place throughout 2016 and up to the date of approval of the Annual report and accounts 2016.

The review included all elements of the SoG as follows:

·   General requirements - governance structure, Board decision making documentation, allocation of responsibilities, policy framework, contingency plans, internal review of system of governance, organisational and operational structure

·   Remuneration

·   Fit and proper requirements

·   Risk management including Own Risk and Solvency Assessment (ORSA)

·   Prudent person principle

·   Own fund requirements

·   Internal controls (covering strategic, financial, operational and compliance)

·   Internal audit function

·   Actuarial function plus opinion on technical provisions

·   Valuation of assets and liabilities other than technical provisions

·   Outsourcing

·   Group governance specific requirements  

In carrying out the annual effectiveness review of the SoG, the Risk function liaised with subject matter experts (SMEs) around the business and reviewed and challenged all elements of the SoG to ensure they were fit for purpose and had operated effectively during 2016. The Risk function also produced a report detailing the assurance activity which had been conducted throughout the year in relation to the System of Internal Control and a summary of the key risk items discussed at business unit ERMCs on an ongoing basis throughout the year.

Summaries of the evidence of the effectiveness review, assurance report and the key risk items were then presented for certification to the business unit Chief Executive Officer, Chief Financial Officer, Chief Risk Officer and Group function executive. Completed certifications and supporting documentation were also presented to the business unit ERMCs. 

The certification exercise asked the Chief Executive Officers, Chief Financial Officers, Chief Risk Officers and Group function executives to confirm the following:

·   An effectiveness review over each component of the SoG has been conducted

·   Where the effectiveness review of the processes related to the SoG has found material issues, recommendations have been made to restore process effectiveness

·   Significant control breakdowns identified through the risk management and internal control systems were reported during the year and necessary actions have been or are being taken to remedy these

·   Steps have been taken to identify any relevant audit information that the External auditors should be made aware of

The Risk function prepared a report combining the output from the business units and Group function executives. This was presented to the Chief Executive, Chief Financial Officer and Chief Risk Officer and they also completed the certification exercise. The results of the output from the effectiveness review of the SoG, which concluded that there had been no significant failings or weaknesses, were presented to the Audit Committee which subsequently reported this conclusion to the Board.

Communicating with investors

The Company continues to maintain and further develop a dialogue with its shareholders. As part of this, our investor relations and Group secretariat teams support communication with investors. During 2016, the Group continued its programme of domestic and international presentations and meetings between Directors and institutional investors, fund managers and analysts. The wide range of relevant issues discussed, in compliance with regulations, at investor presentations and meetings, includes business strategy, financial performance, operational activities and corporate governance. The Chairman has his own investor contact programme and brings relevant issues to the attention of the Board. The Remuneration Committee also consulted with major institutional investors regarding executive remuneration plans during the year. More information on this consultation can be found in the Directors' remuneration report.

The Board is equally committed to the interests of the Company's 1.2 million individual shareholders who hold approximately 52% of the Company's issued shares. Given this large shareholder base, it is impractical to communicate with all shareholders using the same direct engagement model we follow for our institutional investors. The Company has continued to gather and respond to shareholders' views on the services and means of communication available to them, mainly via the Shareholder Questions mailbox and surveys conducted with shareholders contacting the shareholder helpline. Around 430,000 shareholders receive all communications electronically helping to reduce our environmental impact. We encourage shareholders to use our share portal to access information relating to their personal shareholding and dividend history and around 300,000 have signed up to this service. Share portal participants can also change their details and dividend mandates online and receive tax information electronically. We also encourage our individual shareholders to hold their shares in the Standard Life Share Account where shares are held electronically in a secure environment and 86% of individual shareholders hold their shares in this way.

To give all shareholders access to the Company's announcements, all material information reported via the London Stock Exchange's regulatory news service is published on the Company's website. We have continued to host formal presentations to support the release of both the full year and half year financial results. These results-related events are also made available live on the Group's website, with the facility for all listeners to ask questions, as well as having a permanent replay facility. We also held a Capital Markets Day in May 2016 during which we took the opportunity to update investors on the developments at Standard Life Investments, the Group's principal asset management company, including our broad range of investment solutions and growing international reach. We also discussed the strength of our Pensions and Savings business and the ongoing focus on improving efficiency in our business.

We publish company profiles to provide a high level introduction to the Group and its divisions. We also distribute a quarterly newsletter featuring articles designed to give investors deeper insight into particular areas of our business including our sustainability strategy. Copies of our Company profiles and newsletters are available on the Investors section of the Group's website.

The Chairman's statement and the Strategic report in the Annual report and accounts aim to provide a balanced overall assessment of the Group's activities, performance and prospects. This information will be supported by a presentation at the 2017 AGM. Shareholders will be invited to ask questions during the meeting and have an opportunity to talk with the Directors after the formal part of the meeting. The voting results will be published on our website at www.standardlife.com after the meeting. These will include the number of votes withheld.

The 2016 AGM was held at etc venues St. Paul's on 17 May 2016 when Directors were available to answer shareholders' questions. In accordance with best practice, all resolutions were considered on a poll which was conducted by our registrars and monitored by independent scrutineers. The results, including proxy votes lodged prior to the meeting, were made available on our website the same day. 43% of the shares in issue were voted and all resolutions were passed. The formal results announcement also included an extract from the Chairman's script about the Board's continuing commitment to respond to feedback from shareholders.

Our 2016 AGM was held in London for the first time. To give more shareholders the opportunity to attend, we plan to hold the AGM in Edinburgh and London in alternate years.

Our role as an institutional investor

Standard Life Investments is a signatory to and a supporter of the UK Stewardship Code and the United Nations Principles for Responsible Investment. It understands and promotes the importance of good governance and stewardship including the management of broader aspects of risk relating to the environment, society and governance (ESG). In 2016, Standard Life Investments published a new climate change statement demonstrating how climate related factors are embedded in the investment process. Standard Life Investments believes that it is mutually beneficial for companies and the long-term investors it represents, to have a relationship based on accountability, engagement and trust. As a major asset manager, it monitors and analyses the long-term ESG investment factors relating to the companies it invests in and holds regular meetings with their senior management representatives. Standard Life Investments maintains principles and policy guidelines on ESG matters, stewardship and voting. These guidelines are applicable on a global basis. The guidelines support Standard Life Investments' approach to engaging and to voting at shareholder meetings. Standard Life Investments also makes voting reports available to clients and publishes summary information on its website. The policy guidelines are applied pragmatically, after all relevant information has been carefully considered. When assessing the Company's compliance with the principles and provisions of the Code, the Nomination and Governance Committee also reviewed the Company's compliance with the Standard Life Investments principles and policy guidelines. The Committee concluded that the Company complied with the guidelines during the year.

Standard Life Investments has made public its processes to comply with the Stewardship Code's seven best practice principles. In line with Principle 7 of the Stewardship Code, Standard Life Investments obtains appropriate independent assurance over the policies and procedures which underpin its stewardship policy statements.

You can read more about this and Standard Life Investments'  governance and stewardship annual review at www.standardlifeinvestments.com

Other information

You can find details of the following, as required by Disclosure and Transparency Rule 7.2.6, in the Directors' report and in the Directors' remuneration report:

Share capital

·   Significant direct or indirect holdings of the Company's securities

·   Confirmation that there are no securities carrying special rights with regard to control of the Company

·   Confirmation that there are no restrictions on voting rights in normal circumstances

·   How the Articles can be amended

·   The powers of the Directors, including when they can issue or buy back shares

Directors

·   How the Company appoints and replaces Directors

·   Directors' interests in shares

Board meetings and meeting attendance

The Board and its Committees meet regularly, operating to an agreed timetable. Meetings are usually held in Edinburgh or London and, on occasion, at the offices of one of our international businesses. In September 2016, the Board travelled to Boston to meet with key members of staff and hear presentations on developments in the North American business. During the year, the Board held specific sessions to consider the Group's strategy and business planning. The Chairman and the non-executive Directors also met several times during the year, formally and informally, without the executive Directors present. At these meetings, matters including executive performance and succession and Board effectiveness were discussed.

Directors are required to attend all meetings of the Board and the Committees they serve on, and to devote enough time to the Company to perform their duties. Board and Committee papers are distributed before meetings other than, by exception urgent papers which may need to be tabled at the meeting. The Board sometimes needs to call or rearrange meetings at short notice and it may be difficult for all Directors to attend these meetings. If Directors are not able to attend a meeting because of conflicts in their schedules, they receive all the relevant papers and have the opportunity to submit their comments in advance to the Chairman or to the Company Secretary. If necessary, they can follow up with the Chairman of the meeting. The Board has established the Standing Committee as a formal procedure for holding unscheduled meetings. The Standing Committee meets when, exceptionally, decisions on matters specifically reserved for the Board need to be taken urgently. During 2016, the Standing Committee did not meet.

The Chairman is not a member of the Audit, Risk and Capital, Remuneration or Investment Committees. He does, however, attend the meetings of all Committees, by invitation, in order to keep abreast of their discussions. Directors' attendance at the 2016 Board meetings is shown in the table below. The Board met nine times during the year.

Number of meetings	Board
Chairman
Sir Gerry Grimstone	9/9
Executive Directors
Keith Skeoch	9/9
Luke Savage	9/9
Paul Matthews	9/9
Colin Clark	8/9
Non-executive Directors
Pierre Danon	9/9
John Devine	4/4
Melanie Gee	9/9
Noel Harwerth	9/9
Kevin Parry	9/9
Lynne Peacock	9/9
Martin Pike	9/9
Former members
Crawford Gillies	3/4
Isabel Hudson	4/4

Board Committees

The Board has established Committees that oversee, consider and make recommendations to the Board on important issues of policy and governance. At each Board meeting, the Committee Chairmen provide reports of the key issues considered at recent Committee meetings, and minutes of Committee meetings are circulated to the appropriate Board members. The Committees operate within specific terms of reference approved by the Board and kept under review by the Nomination and Governance Committee.

These terms of reference are published within the Board Charter on our website at www.standardlife.com/annualreport

All Board Committees are authorised to engage the services of external advisers at the Company's expense, whenever they consider this necessary.

The Chairman of each Committee and of the Nomination and Governance Committee review Committee membership at regular intervals. The Nomination and Governance Committee considers all proposed appointments before they are recommended to the Board.

Investment Committee

The Board has established the Investment Committee to provide increased connectivity with, and Standard Life plc non-executive Director oversight of, the investment performance of Standard Life Investments, and to strengthen the Board's engagement with the fund management team. The Board recognises the value this will bring, both internally in terms of liaison with the Chief Investment Officer and his fund management team, and externally from the perspective of our clients. The Investment Committee has been operational from the beginning of 2017. It is chaired by Pierre Danon and the other members are John Devine and Melanie Gee. There will be an open invitation to the other non-executive Directors to attend the Committee's meetings.

Committee reports

This statement includes reports from each Committee Chairman other than the report on the responsibilities and activities of the Remuneration Committee which can be found in the Directors' remuneration report following this statement.

The Committee Chairmen are happy to engage with you on their reports.  Please contact them via [e-mail]

In the interests of transparency we have included the reports from the Chairmen of the key Committees of Standard Life Assurance Limited - the With Profits Committee and the Independent Governance Committee as well as a report from the chairman of the Standard Life Master Trust Co. Ltd. You can read more in Section 12.

4.2 Audit Committee report

The Audit Committee assists the Board in discharging its responsibilities for financial reporting, internal control and the relationship with the External auditors.

Dear Shareholder

During 2016, the activities of the Audit Committee increased once again.  We:

·   Undertook the external audit tender, resulting in the recommendation to appoint KPMG LLP for the 2017 financial year

·   Monitored the implementation of Solvency II, the new prudential regime that took effect from 1 January 2016, including preparing for external narrative reporting required in 2017

·   Recruited a new Chief Internal Auditor and spent more time discussing the work of Internal audit

·   Updated our approach to considering non-audit services from the External auditors

The Committee has also worked with executive management to continue to improve the financial reporting. In July 2016 we received a letter from the Financial Reporting Council (FRC) informing us that they had carried out a review of our Annual report and accounts 2015. I am pleased to report that the FRC letter noted that there were no questions or queries that the FRC wished to raise on our report and accounts. The FRC asked that we make clear the inherent limitations of their review, which we have set out in the financial reporting section of this report.

Our report to you is structured in four parts:

·   Governance

·   Report on the year

·   Internal audit

·   External audit

I look forward to engaging with you on the work of the Committee.

Kevin Parry

Chairman, Audit Committee

Governance

Membership

All members of the Audit Committee are independent non-executive Directors. Their attendance at Committee meetings was:

Member	Attendance
Kevin Parry, Chairman	8/8
Noel Harwerth	8/8
Lynne Peacock	8/8
Martin Pike	8/8
Former member
Isabel Hudson	5/5

The Board believes members have the necessary range of financial, risk, control and commercial expertise required to provide effective challenge to management. Kevin Parry is a former senior audit partner, was chief financial officer of Schroders plc and is an experienced audit committee chairman. For the business of the Committee, he is considered by the Board to have competence in accounting and auditing as well as recent and relevant financial experience.

The Committee schedules six meetings per annum, four of which are co-ordinated with external reporting timetables. In 2016, there were two extra meetings, of which one was focused solely on the external audit tender and the other on a presentation of Solvency II disclosures.

Invitations to attend Committee meetings are extended on a regular basis to the Chairman, the Chief Executive, the Chief Financial Officer, the Chief Executive UK and Europe, the Group Financial Controller and Treasurer, the Chief Internal Auditor and the Group Chief Risk Officer.

The Audit Committee meets privately for part of its meetings and also has regular private meetings separately with the External auditors, Chief Internal Auditor and Chief Financial Officer. These meetings address the level of co-operation and information exchange and provide an opportunity for participants to raise any concerns directly with the Committee.

Key responsibilities

The Audit Committee's responsibilities are to oversee and report to the Board on:

·   The appropriateness of the Group's accounting and accounting policies, including the going concern presumption and viability

·   The findings of its reviews of the financial information in the Group's annual and half year financial reports

·   The clarity of the disclosures relating to accounting judgements and estimates

·   Its view of the 'fair, balanced and understandable' reporting obligation

·   The findings of its review of key prudential returns and disclosures

·   Internal controls over financial reporting and procedures to prevent money laundering, financial crime, bribery and corruption

·   Outcomes of investigations resulting from whistleblowing

·   The appointment or dismissal of the Chief Internal Auditor, the approved internal audit work programme, key audit findings and the quality of internal audit work

·   The independence of the External auditors, the appropriateness of the skills of the audit team, the approved audit plan, the quality of the firm's execution of the audit, and the agreed audit and non-audit fees

·   Any external audit tender process and the outcome of the tender

During the year, the audit, risk and compliance committee of Standard Life Investments (Holdings) Limited was stood down as all important financial and regulatory reporting matters are considered at the Group Audit Committee from the overall perspective of the Group. To comply with new EU rules for public interest entities, a Standard Life Assurance Limited (SLAL) audit committee was established. Its work is to be closely co-ordinated with the Group Audit Committee. During 2016, this Committee considered all key financial and regulatory reporting issues in relation to SLAL. The Audit Committee chairman will regularly attend meetings of the SLAL audit committee and the SLAL audit committee chairman will be invited to report regularly to the Audit Committee.

In carrying out its duties, the Committee is authorised by the Board to obtain any information it needs from any Director or employee of the Group. It is also authorised to seek, at the expense of the Group, appropriate external professional advice whenever it considers this necessary. The Committee did not need to take any independent advice during the year.

In accordance with the Senior Insurance Manager's Regime, the Audit Committee Chairman is responsible for the oversight of the independence, autonomy and effectiveness of our policies and procedures on whistleblowing including the procedures for the protection of staff that raise concerns from detrimental treatment. Throughout the year the Audit Committee chairman met regularly with the Chief Internal Auditor and the Head of Financial Crime to discuss their work, findings and current developments.

Committee effectiveness

The Committee reviews its remit and effectiveness annually. The 2016 review was carried out using an internal self-assessment questionnaire. The review concluded that the Committee had:

·   Performed effectively during the year and conducted a robust process to appoint new auditors

·   Fulfilled its duties under its terms of reference, and kept its terms of reference up-to-date, recognising that in 2017 its regulatory reporting duties would continue to cover Solvency II

·   Received sufficient, reliable and timely information from management and the External auditors to enable it to fulfil its responsibilities, recognising a desire to provide focused information in the face of increasing obligations

The Board's review similarly confirmed its satisfaction with the performance of the Committee.

Report on the year

Audit agenda

The Audit Committee has a rolling agenda comprising recurring business, seasonal business and other business.

As recurring business, at every meeting the Committee reviews and discusses:

·   Updates from Group Finance on significant financial accounting, reporting and disclosure matters

·   Findings from Internal audit reports and how high priority findings are being followed up by management

·   Regular refreshes and updates to the Internal audit plan

·   Results of the monitoring of financial crime, fraud risk assessments and whistleblowing including calls to our dedicated Speak Up helpline

·   Reports from the chairmen of the subsidiary audit committees

·   Updates on work completed by the External auditors

·   Details of non-audit services requested of the External auditors by business units

Other agenda items

Other agenda items were aligned to the annual financial cycle as set out below.

Jan - Mar	·   Annual report and accounts 2015 ·   2015 Strategic report and financial highlights ·   Solvency II reporting ·   Audit tender
Apr - Jun	·   Completion of the 2015 external audit for all audited entities ·   2015 external audit fee and the proposed 2016 fee for all audited entities ·   Solvency II 'day one' reporting ·   Audit tender (including special meeting)
Jul - Sep	·   Half year results 2016 ·   External auditors' review of Half year results ·   External audit plan for 2016 for all audited entities ·   2016 external audit engagement letter for all audited entities ·   Solvency II reporting
Oct - Dec	·   Initial findings from the 2016 year end work ·   The Internal audit global charter and the Internal audit plan ·   Effectiveness of the External auditors ·   Group non-audit services provided by External auditors ·   Effectiveness of the Committee ·   Solvency II reporting and related assurance provisions and asset valuations ·   Liaison with the Remuneration Committee on targets and measures ·   External Financial Reporting Policy ·   Taxation policy and reporting ·   Audit transition

The indicative proportion of time spent on the business of the Committee is illustrated below: Diagram removed for the purposes of this announcement. However it can be viewed in full in the pdf document.

Detail of work

The focus of work in respect of 2016 is described below.

Financial reporting

The Committee supported the recommendation that International Financial Reporting Standards (IFRS) provide a clearer view of the performance and condition of the Group compared to other accounting conventions such as embedded value.

The Committee believes that some Alternative Performance Measures (APMs, which are also called non-GAAP measures) can add insight to the IFRS reporting and help to give shareholders a fuller understanding of the performance of the business. The Committee considered guidance on APMs issued during the year as discussed further in the 'Fair, balanced and understandable' section below.

The Committee reviewed the Group accounting policies and confirmed they were appropriate to be used for the 2016 Group financial statements. There are no important changes this year. The Committee also considered future changes to accounting standards (in particular, IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments) and ensured that the impact of these future changes was appropriately disclosed in the financial statements. The Committee also discussed that status of the new insurance contracts standard (IFRS 17) which is expected to be issued in 2017.   

The Committee reviewed the basis of accounting and in particular the appropriateness of adopting the going concern basis of preparation of the financial statements. In doing so, it considered the Group's cash flows resulting from its business activities and factors likely to affect its future development, performance and position together with related risks, as set out in more detail in the Strategic report. The Committee recommended the going concern statement to the Board.

In addition, the Committee considered the form of the viability statement and in particular whether the three-year period remained appropriate and concluded that it did. This reflects both our internal planning cycle and the timescale over which changes to major regulations and the external landscape affecting our business typically take place. In formulating the statement, the Committee used the same information it uses when considering the risks that are taken into account to determine regulatory capital. The Committee recommended the viability statement to the Board.

The Committee reviewed the Annual report and accounts 2015 and the Half year results 2016. For the half year it received written and/or oral reports from the Chief Financial Officer, subsidiary audit committee chairmen or boards, the Company Secretary, the Chief Internal Auditor and the External auditors. In addition for the year end it received a report from the Head of Group Actuarial. The Committee uses these reports to aid its understanding of the composition of the financial statements, to confirm verification and compliance with reporting standards and to justify accounting judgements and estimates. Following its reviews, the Committee was able to recommend the approval of each of the reports to the Board, being satisfied that the annual and half year financial statements complied with laws and regulations and had been appropriately compiled.

We received a letter from the Financial Reporting Council informing us that they had carried out a review of our Annual report and accounts 2015 and that there were no questions or queries that the FRC wished to raise. The FRC asked us to note that their letter provides no assurance that our report and accounts are correct in all material respects, and that the FRC's role is not to verify the information provided but to consider compliance with reporting requirements. The FRC noted that their review is based on our report and accounts and does not benefit from detailed knowledge of our business or an understanding of the underlying transactions entered into.

Accounting estimates and judgements

The Committee focused on the disclosure of key accounting estimates and judgements. 

In compiling a set of Group financial statements, it is necessary to make judgements and estimates about outcomes that are typically dependent on future events. This is particularly relevant to a life assurance business where profitability is inherently dependent on economic and health related outcomes. Further, we have a substantial defined benefit pension plan with liabilities that are also dependent on economic and health related outcomes. Estimates are not however limited to liabilities; our business and pension funds invest in some hard to value investments, such as over-the-counter derivatives, private equity, real estate and commercial mortgages.

The Audit Committee considered all estimates and judgements that Directors understood could be material to the financial statements. In particular, actuarial valuations were considered in the context of our experience over the short and medium term against base assumptions and future assessed improvements. We compared our actuaries' views with estimates made by other companies and pension funds drawing on available benchmark data and looked at the changes in outcomes attributable to a change in estimates determining that annuitant mortality was the most material estimate (see Note 33 of the Group financial statements for more detail).

We considered key assumptions determining the pension fund surplus: inflation (including the gap between the retail price index and the consumer price index), mortality and the discount rate. The assumptions were compared with market data and expert opinions. As with last year we also noted proposed new accounting guidance on recognising a pension surplus on the consolidated statement of financial position. Interpretation remains uncertain and so the Committee supported continuing with additional disclosures. Further details are set out in Note 37 of the Group financial statements.

We considered the carrying value of intangible assets in a number of areas including the acquisition of Ignis and agreed with management that it was necessary to write them down by £9m (2015: £5m) resulting from the loss of clients and associated revenues.  We also considered the valuation of intangibles relating to the acquisition of the Elevate platform and concluded that a customer contract asset should be recognised with a value of £6m. After challenge, we agreed with management that it was appropriate to recognise a 'bargain purchase' gain (where the purchase price of an acquisition is less than the net assets acquired) arising from near-term losses in the acquired business.  We also discussed capitalisation and useful lives for internally developed software. This software is generally amortised over a period of between 3 and 6 years. In respect of one major software development asset, we challenged management's view that a 10-year amortisation period was appropriate, concurring with their conclusion following review of supporting evidence. See Note 16 of the Group financial statements for further details relating to intangible assets.

In 2015, we determined that there was a need to disclose a contingent liability in relation to the sale of annuities in prior years. In 2016, taking account of further investigatory work and regulatory developments, we determined that we should book a provision in respect of past sales practices of annuities. We reviewed the estimate of the provision and considered sensitivities on its calculation. We were satisfied that the quantification of £175 million is an appropriate estimate at this time. In addition to the provision, there remain a number of uncertainties in respect of annuities sales practices so we continue to provide disclosures in the contingent liability note.

We carried out a detailed review of the processes and controls for valuing hard to value assets and were satisfied that we could rely on the procedures for determining valuations. See Note 43 of the Group financial statements. 

Principal risks are disclosed in the Strategic report and recommended to the Board by the Risk and Capital Committee. The Committee was satisfied that the estimates and quantified risk disclosures in the financial statements were consistent with the Strategic report. The Committee concluded that appropriate judgements had been applied in determining the estimates and that sufficient disclosure had been made to allow readers to understand the uncertainties surrounding outcomes.

Fair, balanced and understandable

The Committee supported the financial reporting team's continued review of the Annual report and accounts. Notable improvements in 2016 include the addition of a Supplementary Information section in this year's report, which provides more transparency around Standard Life's key alternative performance measures, and enhanced reporting of our business model and strategic objectives in the Strategic report.

The creation of a core set of fair, balanced and understandable principles for Standard Life has enhanced our approach towards engraining these concepts throughout our Annual report and accounts production and review process. These principles along with our enhanced approach are detailed below.

Standard Life's principles

To create clarity around what Standard Life means when it talks of being fair, balanced and understandable, a set of principles were developed, which can also act as an organisational definition for each aspect.

Fair "We are being open and honest in the way we present our discussions and analysis, and are providing what we believe to be an accurate assessment of business and economic realities"	·   The narrative contained in the report is honest and accurate ·   The key messages in the narrative in the 'front half' of the report reflect the financial reporting contained in the financial statements ·   The Key Performance Indicators (KPIs) results for the period are consistent with the key messages outlined in the Strategic report
Balanced "We are fully disclosing our successes, the challenges we have faced in the period, and the challenges and opportunities we anticipate in the future - all with equal importance and at a level of detail that's appropriate for our stakeholders"	·   The report presents the 'whole' story where both successes and challenges experienced during the year and expected in the future are covered ·   The level of prominence we give to successes in the year versus challenges faced is appropriate ·   The narrative and analysis contained in the report effectively balances the information needs and interests of each of our key stakeholder groups
Understandable "The language we use and the way we structure our report is helping us present our business and its performance clearly - in a way that someone with a reasonably informed knowledge of financial statements and our industry would understand"	·   There is a clear and easy to understand framework to the report which is effective in addressing Standard Life's objectives, vision, mission and values ·   The layout is clear and consistent and the language used is simple and easy to understand (industry specific terms are defined where appropriate) ·   There is a consistent tone across and good linkage between all sections in a manner that reflects a complete story and clear signposting to where additional information can be found

Prepare, Review and Challenge

The above principles and supporting statements are considered in each stage of the Annual report and accounts production process. They represent a set of key criteria that the Annual report and accounts are prepared, reviewed and challenged against. The financial reporting team are required to provide direct responses to any challenges raised by the Internal Review Group (see more below) in respect of the above principles and supporting statements.

Activities

·   An Internal Review Group (IRG) is in place which reviews the Annual report and accounts specifically from a fair, balanced and understandable perspective and provides feedback to our financial reporting team on whether it conforms to our standards. The members of the IRG are independent of the financial reporting team.

·   We provided fair, balanced and understandable training and guidance to all key stakeholders involved in the Annual report and accounts production process

·   We, as an Audit Committee, reviewed the messaging in the Annual report and accounts, taking into account material received and discussion taken place during the year

·   Three drafts of the Annual report and accounts 2016 were reviewed by the Audit Committee at three meetings. The Committee complemented its knowledge with that of executive management and the Internal and External auditors. An interactive process allowed each draft to embrace contributions. 

·   Our Annual report and accounts goes through an extensive internal verification process of all content to verify accuracy

The Committee also reviewed the use and presentation of Alternative Performance Measures (APMs) which complement the statutory IFRS results in order to give a more complete view of the performance of the business. This review considered guidelines issued by the European Securities and Markets Authority in the year. As noted previously an additional Supplementary Information section has been added to the Annual report and accounts to explain why we use these metrics and to provide reconciliations of these metrics to IFRS measures where relevant. This section also provides increased transparency over the calculation of reported financial ratios.

Operating profit is a key APM. The Committee particularly considered operating profit policies and ensured that the allocation of items to operating profit were in line with our established accounting policies and were consistent with previous practice. The Committee relied on the verification process for other financial metrics. Processes and controls relating to assets under administration and net flows were also reviewed by Internal audit during the year.

We agreed to recommend to the Board that the Annual report and accounts 2016, taken as a whole, is fair, balanced and can be understood by someone with a reasonably informed knowledge of financial statements and our industry. 

We are interested in feedback from stakeholders and will carefully consider any feedback received.

 

Prudential reporting

Solvency II reporting applied with effect from 1 January 2016. During 2016, the Group submitted regular reporting to the PRA. The Committee built on procedures established last year that allow it to adopt a compliance approach to Solvency II reporting drawing on work undertaken by management, Group Risk, Internal audit and the External auditors. The procedures are designed to give the Audit Committee a high degree of comfort that returns have been properly prepared.

The Committee considered actuarial assumptions used for year end 2016 Solvency II reporting, including mortality, persistency and expense assumptions. Similar work was undertaken as for financial reporting (see the Accounting estimates and judgements section above).The Committee reviewed disclosures relating to Solvency II results included in the Strategic report section of this Annual report and accounts, and related assurance reports and was satisfied with the disclosures.

Internal controls

As noted earlier, the Directors have overall responsibility for the Group's internal controls and for ensuring their ongoing effectiveness. Together with the Risk and Capital Committee, the Committee provides comfort to the Board of their ongoing effectiveness.

Internal audit regularly reviews the effectiveness of internal controls and reports to the Committee and the Risk and Capital Committee.

Group Finance sets formal requirements for financial reporting, defines the processes and detailed controls for the consolidation process and reviews and challenges reporting segment submissions. Further, Group Finance runs a technical review committee and is responsible for monitoring external technical developments.

The control environment around financial reporting will continue to be monitored closely.

Financial crime and whistleblowing

Staff are trained to detect the signs of possible fraudulent or improper activity and how to report concerns either directly or via our independent whistleblowing hotline. The Committee receives regular updates from the Head of Financial Crime who reports on compliance with the Group's Anti-Financial Crime and Anti-Bribery policy, and any other activities associated with financial crime, including fraud risk.

The Committee reviews the whistleblowing arrangements for employees to raise concerns, in confidence, about possible wrongdoing in financial reporting and other matters.

The Committee oversees the findings of investigations and required follow-up action. If there is any allegation against the Risk or Internal audit functions, the Committee directs the investigation. The Committee is satisfied that the Group's procedures are currently operating effectively.

Internal audit

The Group has an Internal audit function comprising of approximately 40 people. In addition, there was a co-sourcing agreement with KPMG LLP and this was used to support specific technical reviews. KPMG LLP were selected as External auditors for year end 2017 and have not undertaken any internal audit work after 30 September 2016. Ernst and Young have been engaged to provide co-source support for Internal audit until a tender process is undertaken in 2017. The Chief Internal Auditor reports to the Committee Chairman. 

Internal audit operates in accordance with a global charter which is reviewed by the Committee every year. Their work plan covers all businesses in the Group after holding risk based discussions with management, regulators, the External auditors and the Committee. Identified areas of focus are mapped to the key risks within the Own Risk and Solvency Assessment (ORSA), which is a dynamic forward looking tool for decision making and strategic analysis at the heart of the Solvency II prudential regime. Consistent with that methodology, our regulators request specific reviews as part of the Risk Mitigation Plan. The Committee approves the scope and content of the annual internal audit plan, which is updated on a rolling basis to allow Internal audit to address any emerging issues and reflect changes in the Group's organisation.

The Committee receives regular reports from the Chief Internal Auditor on:

·   The implementation of the approved plan and proposed changes to it

·   Key findings from completed reviews, including the impact on financial reporting processes and related applications

·   The status of management's implementation of agreed improvement actions, where dates have been rescheduled

·   The assessment of the internal control environment at each business unit

During 2016, approximately 70 internal audits were completed. The Committee considered the reports on:

·   Readiness for Solvency II reporting for the 2016 year end

·   Data governance, cyber security incident response and social media

·   Financial controls and end user applications

to be particularly insightful and contributed to the strengthening of the control environment.  

The Committee considers Internal audit's effectiveness annually, monitoring its independence, objectivity and resourcing in the context of the Institute of Internal Auditors' professional standards. During the year, Internal audit carried out its own internal effectiveness review as well as quality assurance processes and reported the satisfactory results back to the Committee.

During the year, Committee members increased the amount of time spent with senior team members, meeting them before most formal meetings to discuss emerging topics and to advise on the scope of work they would like undertaken. This enhanced the regular dialogue that takes place at least monthly between the Committee chairman and the Chief Internal Auditor. 

Following the succession process carried out in 2015, the new Chief Internal Auditor commenced his role in May 2016. This was an external appointment to broaden the experience of the senior team.

Based on its review, the Committee concluded that the function continued to be highly effective.

In accordance with the relevant independence standards, the External auditors do not place reliance on the work of Internal audit.

External auditors

The appointment

The Committee has responsibility for making recommendations to the Board on the reappointment of the External auditors, determining their independence from the Group and its management and agreeing the scope and fee for the audit.

Following its review of the quality and independence of the 2015 audit, the Committee recommended to the Board that PricewaterhouseCoopers (PwC) should be recommended to shareholders as the auditors for 2016. The shareholders voted in favour of the reappointment at the 2016 AGM.  

PwC has been the Group's auditors since 1994. A tender was held in 2016 to take effect for the year ending 31 December 2017. Whilst PwC could have continued as auditors for three more years under applicable law, a change of auditor has been co-ordinated with the PwC partner rotation.

The Committee complies with the UK Corporate Governance Code, the FRC Guidance on Audit Committees with regard to the external audit tendering timetable and the provisions of the EU Regulation on Audit Reform and the Competition and Markets Authority Statutory Audit Services Order with regard to mandatory auditor rotation and tendering. In compliance with those regulations, the Committee tendered the audit for the year ending 31 December 2017, as discussed in the audit tender section below.

Auditor independence

The Board has an established policy setting out what non-audit services can be purchased from the firm appointed as External auditors. The Committee monitors the implementation of the Policy on behalf of the Board. The aim of the Policy, which is reviewed annually, is to support and safeguard the objectivity and independence of the External auditors and to comply with the FRC Ethical standards for auditors (Ethical Standards). It does this by prohibiting the auditors from carrying out certain types of non-audit services to ensure that the audit services provided are not impaired. It also ensures that where fees for approved non-audit services are significant, they are subject to the Committee's prior approval.

The services prohibited by the Policy include:

·   Book-keeping or other services related to the accounting records or financial statements

·   Financial information system design

·   Appraisal or valuation services where the results would be material to the financial statements

·   Internal audit co-sourcing

·   Actuarial calculations

·   Management functions

·   Legal services

·   Forensic audit services

·   Temporary or permanent services as a director, officer or employee or performance of any decision-making, supervisory or monitoring function

·   Recruitment of senior management

·   Certain tax services including those related to Base Erosion and Profit Shifting

The Policy permits non-audit services to be purchased, following approval, when they are closely aligned to the external audit function and when the external audit firm's skills and experience make it the most suitable supplier.

These include:

·   Accounting consultations and audits in connection with acquisitions and sales of businesses

·   Due diligence related to mergers and acquisitions

·   Tax compliance and advisory services

·   Employee benefit plan audits

·   Attesting to services not required by statute or regulation

·   Assurance services relating to regulatory developments affecting the Group

·   Consultations concerning financial accounting and reporting standards not relating to the audit of the Group's financial statements

·   Sustainability audits/review

PwC has reviewed its own independence in line with these criteria and its own ethical guideline standards. PwC has confirmed to the Committee that following its review it is satisfied that it has acted in accordance with relevant regulatory and professional requirements and that its objectivity is not impaired.

Having considered compliance with our policy and the fees paid to PwC, the Committee is satisfied that PwC has remained independent.

During 2016, the Committee approved a revised non-audit services policy talking into account the revised Ethical Standards. The revised policy sets out an updated list of prohibited services which applies to KPMG LLP (subject to shareholder approval, our auditors for the 2017 financial year), in line with the Ethical Standards. This updated list of prohibited services is more restrictive than the current list and, in particular, prohibits KPMG LLP from providing almost all taxation services.

Audit and non-audit fees

The Group audit fee payable to PwC in respect of 2016 was £4.1m (2015: £3.7m). In addition fees payable were £0.8m (2015: £0.7m) in relation to the audit of investment funds which are not consolidated by the Group, and £0.8m (2015: £1.6m) was incurred on audit related services.  Fees for audit related services are primarily in respect of Solvency II regulatory reporting, client money reporting and the half year review. The reduction in these fees compared to 2015 largely relates to lower Solvency II assurance services and no longer also requiring audit reporting under the previous regulatory regime. The Committee is satisfied that the audit fee is commensurate with permitting PwC to provide a quality audit and monitors regularly the level of audit and non-audit fees.  Non-audit work can only be undertaken if the fees have been approved in advance in accordance with the Board's policy for non-audit fees. Unless fees are clearly trivial (which we have defined as less than £50,000), the approval of the whole Committee is now required.

Non-audit fees amounted to £1.4m (2015: £1.3 million). This includes tax compliance fees of £0.4m (2015: £0.4m) which are primarily services provided to Standard Life Investments' funds.  Tax advisory fees were £0.2m (2015: £0.1m) and related to areas that the Committee was comfortable did not impact auditor independence. Non-audit fees also included £0.5m (2015: £0.5m) relating to control assurance reports, in particular those provided to Standard Life Investments' clients, which are closely associated with audit work. Other non-audit services of £0.3m (2015: £0.3m) included a review of internal credit ratings and support provided to fund mergers. The External auditors were considered the most suitable supplier for these services taking into account the alignment of these services to the work undertaken by external audit and the firm's skill sets.

Further details of the fees paid to the External auditors for audit and non-audit work carried out during the year in are set out in Note 9 of the Group financial statements. 

The ratio of non-audit fees to audit and audit related assurance fees is 25% (2015: 22%).  The level of non-audit fees is expected to reduce in 2017 as a result of the revised non-audit services policy discussed above.

The Committee is satisfied that the non-audit fees do not impair PwC's independence.   

Audit quality and materiality

The Committee places great importance on the quality and effectiveness of the External audit. The Committee looks to the audit team's objectivity, professional scepticism, continuing professional education and its relationship with management, all in the context of regulatory requirements and professional standards. Specifically:

·   The Committee discussed the scope of the audit prior to its commencement

·   The Committee reviewed the annual findings of the Audit Quality Review team of the FRC in respect of PwC's audits.  We requested a formal report from PwC of the applicability of the findings to Standard Life both in respect of generally identified failings and failings specific to individual audits. We were satisfied insofar as the issues might be applicable to Standard Life's audit, that PwC had proper and adequate procedures in place for our audit.

·   PwC's transparency report for the year ended 30 June 2016 was reviewed

·   The Committee approved a formal engagement with the auditor and agreed its audit fee

·   The Committee Chairman had at least monthly meetings with the lead audit partner to discuss Group developments

·   The Committee received at nearly every meeting an update of PwC's work, compliance with independence and its findings

·   There was a detailed interview by the Committee Chairman with the audit partners on the subject of the work undertaken to support their opinion on the financial statements and the consistency of the remainder of the Annual report and accounts with their work

·   The Committee reviewed and discussed the audit findings including audit differences prior to the approval of the financial statements. See the discussion on materiality in the paragraph below for more detail.

·   Additional work was again undertaken on Solvency II reporting and the Committee also reviewed separate papers from PwC covering this specific work

We have discussed the accuracy of financial reporting (known as materiality) with PwC both as regards accounting errors that will be brought to the Committee's attention and as regards amounts that would need to be adjusted so that the financial statements give a true and fair view. Differences can arise for many reasons ranging from deliberate errors (fraud etc.) to good estimates that were made at a point in time that, with the benefit of more time, could have been more accurately measured. Overall audit materiality has been set at £34 million (2015: £31 million). This equates to approximately 5% of continuing pre-tax operating profit. This is within the range in which audit opinions are conventionally thought to be reliable. To manage the risk that aggregate uncorrected differences become material, we supported that audit testing would be performed to a lower materiality threshold for individual reporting units. Further, PwC agreed to draw the Committee's attention to all identified uncorrected misstatements greater than £2 million (2015: £2 million). The aggregated net difference between the reported pre-tax profit and the auditor's judgment of pre-tax profit was less than £8m which was significantly less than audit materiality.   The gross differences were attributable to various individual components of the consolidated income statement and balance sheet. No audit difference was material to any line item in either the income statement or the balance sheet. Accordingly, the Committee did not require any adjustment to be made to the financial statements as a result of the audit differences reported by the External auditors. Work that PwC perform on Solvency II reporting uses a higher level of materiality.

PwC has confirmed to us that the audit complies with their independent review procedures. Last year's audit was subject to an independent quality assurance process undertaken internally by PwC.

Audit tender

This section sets out the audit tender process followed since our announcement in last year's Annual report and accounts that we would commence a tender process for the appointment of the External auditors, through to the announcement to propose the appointment of KPMG LLP as the Group's auditor for the financial year ending 31 December 2017.

Introduction

In our Annual report and accounts 2015, we disclosed the decision to commence a process for the appointment of our External auditors to be completed by Q2 2016, with the chosen firm to be appointed for the 2017 financial year at the earliest. The external audit tender resulted in the proposal, subject to shareholder approval at the 2017 AGM, to appoint KPMG LLP as the External auditors for the 2017 financial year.

PwC was not invited to tender as the maximum time under the new regulations that they could serve as our auditor is three years. The business would be too disrupted by another audit tender in quick succession.

Scope

The scope of the tender consisted of the Standard Life Group audit and statutory audits of subsidiaries with effect from the 2017 financial year for a tenure of five years* with the option of an extension by another five years.  The audit tender also considered relevant fund audits, although recognising that these are also subject to separate governance and appointment arrangements.

* The appointment of KPMG LLP as External auditors for a financial year is subject to approval by the Annual General Meeting in that year.

Governance

The overall objective of the audit tender was to select the best auditor in terms of quality within a reasonable price range. To ensure a transparent and robust selection and evaluation process, the following governance model was applied. A Selection Committee, chaired by the Chairman of the Audit Committee and consisting of two members of the Audit Committee and co-opting the Chief Financial Officer (CFO) was formed to oversee the tender process.

A Steering Committee, chaired by the Group Financial Controller and Treasurer, and consisting of the Company Secretary and the Deputy Company Secretary, the Head of Group Reporting and the Strategic Procurement Manager was set-up to coordinate and execute the audit tender process. The main responsibilities of the different governance bodies were:

Governance body	Key responsibilities
Audit Committee	Ultimate authority over the tender process and audit firm evaluation
	Approve tender strategy
	Recommend selection of the audit firm to the Board
Selection Committee	Approve the detail of the audit tender
	Agree objectives and evaluation criteria
	Oversee the execution of the audit tender
Steering Committee	Approve Request for Proposal and Information Requirements
	Coordinate detailed assessment of individual audit firms
	Execute audit tender process

To avoid influencing or the perception of influencing the tender decision, a strict policy was agreed with the participants in the tender process prohibiting the provision of any gifts and hospitality and restricting other engagement with key decision makers to regular business matters only.

Market assessment and selection criteria

A desktop market assessment focusing on the audit market and firms' capabilities, network, experience in the financial services industry and findings of audit regulator reports, was completed in November 2015 and resulted in a shortlist of three audit firms.

In order to be successful in the audit tender, the participants were assessed on certain minimum requirements. In addition, a number of selection criteria were applied with specific weightings, as described below:

Minimum requirements were in respect of:

·   Willingness to bid

·   Audit firm and auditor independence

·   Commercial scoping, including price range

·   Ethics and compliance standards

·   Investigations by regulators

·   Acceptance of legal terms and conditions

Selection criteria:

·   Technical criteria, including the proposed audit plan, audit quality, structure of audit, innovative tools and the transition plan

·   Team quality, including lead partner and team, industry knowledge, access to specialists and mitigation of frequent team changes

·   Resources and organisation, including representation in industry and accounting bodies and conflict resolution mechanism in the audit firm

·   Value added, including access to accounting training and additional assurance obtained

·   Weight factors were applied to each of the selection criteria with the technical criteria and team quality being the most significant criteria

The selection criteria to evaluate each of the audit firms participating in the tender formed the basis for the questions included in the request for proposal.

Request for proposal

In December 2015, the request for proposal was issued to the three audit firms invited to the audit tender. Relevant information on Standard Life was shared with each of the firms through an electronic data room that was accessible during the tender period. In this period a structured Q&A process was in place where responses to clarification questions and additional information requests were shared with all participating firms through the electronic data room.

At this stage, one firm withdrew from the process and therefore two firms progressed to the next stages.

Engagement sessions

To promote a level playing field, Standard Life arranged a series of structured and targeted engagement sessions with Standard Life's key business and function leaders. These sessions provided participating firms the opportunity to understand Standard Life's business and discuss certain subject matter areas in greater depth.

In addition to the engagement sessions the participating firms were given the opportunity to meet with the Chief Executive, the CFO, the Audit Committee Chairman and all of the Audit Committee members.

Technical tests

Each of the participants in the tender was given the opportunity to demonstrate its differentiating technical capability relevant to the Standard Life audit in a presentation dedicated to that subject. This meeting was attended by the Audit Committee, the Steering Committee and selected functional specialists.

1 to 1 interviews

Each of the participating firms' lead engagement partners met with the Chairman of the Audit Committee and the CFO, with the Company Secretary in attendance, and answered a series of identical questions related to Standard Life's financial reporting and wider industry matters.

Final presentations and evaluation

Each firm provided a final presentation of their proposal to the Audit Committee in early May 2016, with the Chief Executive and the CFO in attendance.

The final proposals submitted were compliant with the minimum requirements set and the bids qualified and were assessed against the selection criteria. The Steering Committee reviewed each of the proposals and sought additional clarifications from the audit firms through a structured Q&A.

In early May 2016 the Audit Committee reviewed the evaluation conducted by the Steering Committee and concluded that KPMG LLP was the preferred firm to conduct the Standard Life audit engagement. The Audit Committee also considered the transition arrangements and concluded there were no significant blockers.

Conclusion

The Audit Committee during its May 2016 meeting considered the results of the tender and agreed to recommend to the Board that it would propose KPMG LLP for appointment as the External auditors of Standard Life plc at the Annual General Meeting (AGM) for the 2017 financial year. The Committee believed that the strength of the various presentations, and the interaction with the proposed engagement team during the course of the tender supported this decision. This advice resulted in a resolution by the Board to recommend KPMG LLP to shareholders at the 2017 AGM.

The Committee will continue to follow the annual appointment process but does not currently anticipate re-tendering the audit before 2026.

Transition

We are now working closely with both PwC and KPMG LLP to ensure an efficient transition of the external audit.  KPMG LLP are shadowing key meetings and regular reports on transition are provided to the Committee.

4.3 Risk and Capital Committee report

The Risk and Capital Committee supports the Board in the effective oversight and challenge of risk management and the use of capital across the Group.

Dear Shareholder

The work of the Risk and Capital Committee in 2016 continued to focus on ensuring the effective oversight and independent challenge of the use of capital and the management of risks, in particular the management of conduct risk. The year has been characterised by heightened uncertainty as a result of global economic and political developments as well as further regulatory focus on conduct risk and these factors have provided a keen focus for the Committee. Following regulatory approval for the Group to use an Internal Model for the purpose of calculating its capital requirements for Solvency II reporting, the Committee has also focused on ensuring the Group's Internal Model remains fit for purpose.

The report that follows provides further detail on the activities performed by the Committee in 2016 in discharging its responsibilities.

Martin Pike

Chairman, Risk and Capital Committee

Membership

All members of the Risk and Capital Committee are independent non-executive Directors. Their attendance at Committee meetings was:

Member	Attendance
Martin Pike, Chairman	7/7
John Devine	3/3
Melanie Gee	4/4
Noel Harwerth	7/7
Kevin Parry	7/7
Former member
Pierre Danon	3/3
Crawford Gillies	3/3
Isabel Hudson	3/3

The Committee meetings are attended by the Group Chief Risk Officer, the Deputy Group Chief Risk Officer and the UK and Europe Chief Risk Officer. Others invited to attend on a regular basis include the Chairman, the Chief Executive, the Chief Financial Officer, the Chief Executive Pensions and Savings, the Chief Investment Officer, the Company Secretary and the Chief Internal Auditor as well as the External auditors. During 2016, the Chief Investment Officer was invited to attend meetings on a regular basis reflecting the increased significance of Standard Life Investments within the business and the importance attached to the management of investment risk.

Regular private meetings of the Committee's members have been held during the year providing an opportunity to raise any issues or concerns with the Chairman of the Committee. The Committee's members have also been given access to management and subject matter experts outside of the Committee meetings in order to support them in gaining an in-depth understanding of specific topics.

Key responsibilities

Our ambition of being a world-class investment company results in exposure to a range of risks and uncertainties. Understanding and actively managing the sources and scale of these risks and uncertainties are key to fulfilling this ambition.

In supporting the Company's work to fulfil its ambition, the Risk and Capital Committee is responsible for overseeing, challenging and advising the Board on:

·   The Group's risk appetite, material risk exposures and the impact of these on the levels and allocation of capital

·   The structure and implementation of the Group's Enterprise Risk Management (ERM) framework and its suitability to react to forward-looking issues and the changing nature of risks

·   Changes to the risk appetite framework and quantitative risk limits

·   Risk aspects of major investments, major product developments and other corporate transactions

·   Regulatory compliance across the Group

Further detail on the work performed in each of these areas is set out in the report below.

In carrying out its duties, the Committee is authorised by the Board to obtain any information it needs from any Director or employee of the Group. It is also authorised to seek, at the expense of the Group, appropriate external professional advice whenever it considers this necessary. The Committee did not need to take any independent advice during the year.

The Committee's work in 2016

An indicative breakdown as to how the Committee spent its time is shown below: Diagram removed for the purposes of this announcement. However it can be viewed in full in the pdf document.

The Committee operates a rolling agenda which comprises both recurring items and items that are more ad hoc in nature. Recurring items that are reviewed and discussed in our meetings include:

·   Matters escalated from the Standard Life Enterprise Risk Management Committee

·   The Group Views on Risk report which provides a holistic view of the key risks and uncertainties across all of the Group's businesses and the actions being taken to manage these

·   Customer proposition developments

·   The Group's Own Risk and Solvency Assessment (ORSA)

In addition to these standing agenda items, the Committee also receives periodic reports from the Business Risk Review team. The Business Risk Review team is tasked with reviewing specific business activities and issues and providing independent assessments and reports that assist management to anticipate, manage and mitigate risk. Items subject to Business Risk Reviews are proposed by members of the executive team with the Committee also providing input into this process.

Other matters considered by the Committee during the year included:

Jan - Mar	·   Advised the Remuneration Committee regarding the delivery of performance in 2015 relative to risk appetites ·   Process used to manage IT obsolescence ·   Overview of the management awareness of risks (MARS) process ·   The impact of global risks on the nature and complexity of our business environment
Apr - Jun	·   Review of third party supplier management ·   Conduct risk in the context of Workplace pricing policy ·   Review stress test results ahead of the results of the UK referendum on EU membership ·   Overview of the triggers framework used to support the Internal Model ·   Update on the FCA thematic review: Meeting Investors' Expectations
Jul - Sep	·   Update on the market response to the results of the UK referendum on EU membership ·   Risk assessment relating to the proposed acquisition of Elevate ·   Overview of the EU General Data Protection Regulation ·   Proposed risk and capital disclosures in the half year financial statements
Oct - Dec	·   Update on the status of acquisitions within the 1825 advice business ·   Critical IT applications and services, hot spots and the framework used to manage associated risks ·   Managing risks relating to call volumes within Customer Operations ·   Principal risks proposed for disclosure in the Annual report and accounts ·   Review of material supporting the viability statement proposed for inclusion in the Annual report and accounts ·   Initial advice to the Remuneration Committee regarding the delivery of performance in 2016 ·   Plans to introduce a new governance, risk and compliance system ·   Proposed changes to the Committee's terms of reference relating to the governance of Standard Life Investments Limited, Standard Life Assurance Limited (SLAL), Standard Life Savings Limited and AXA Portfolio Services Limited.

After each meeting, the Committee Chairman reports to the Board, summarising the key points from the Committee's discussions and any specific recommendations.

Risk appetites, exposures and capital

The Group continues to use its risk appetite framework to provide a common framework to enable stakeholders to communicate, understand and control the risks that Standard Life is willing to accept in pursuing its business plan objectives and the associated capital required.

During the year we received the results of the Risk function's annual review of the framework. This concluded that the framework remained fit for purpose and recommended quantitative risk limits for use in managing the business during 2017. The Committee also reviewed minor changes proposed to the framework, including an update to the conduct risk appetite statement to reflect the increasing maturity of conduct risk management within Standard Life and to support further embedding of this through improving the articulation of behaviours considered unacceptable. The Committee supported the conclusions and recommendations from the Risk function and advised the Board accordingly.

The Group Views on Risk report includes dashboards on financial exposures, conduct and operational risks and capital. The Committee reviews this information at each meeting to monitor risks relative to quantitative and qualitative appetites and the resilience of the capital position under current and stressed conditions. The report also includes dashboards covering regulatory risk and financial crime providing the Committee with status updates on the regulatory outlook and the financial crime framework with the latter addressing risks related to money laundering, terrorist financing, market abuse, fraud and bribery and corruption. Environmental, social and governance risks are actively managed within the business and updates on this are also included within the report. Using this material, the Committee is able to oversee, challenge and advise the Board on the Group's risk appetite, material risk exposures and the impact of these on the levels and allocation of capital.

Specific items discussed in this context included the impact on the measurement of longevity risk exposure as a result of falling yields and narrowing credit spreads during the year, backlogs in the handling of customer calls, risks arising from material projects undertaken as part of the change programme and risks arising from the suspension of certain property funds during the year.

As highlighted in the table opposite, we received a number of one-off papers during the year which directly supported the Committee in our oversight of risk appetites, exposures and capital. One example of this was the review of third party supplier management provided by the Risk function which provided an assessment of Standard Life's capabilities relative to external benchmarking data. In reviewing this item the Committee noted the conclusion that Standard Life compared well against the external benchmark in its management of large suppliers and supported proposals for clarifying the ownership of governance, appetite setting and training.

Another paper which supported the Committee in discharging our responsibilities in this area was the paper regarding conduct risk in the context of Workplace pricing policy. This paper responded to a request from the Committee for information on the approach to pricing Workplace propositions and an assessment of why the business was comfortable that any differences in pricing did not give rise to conduct risk. The paper concluded that Workplace provided fair value to customers and highlighted that this conclusion was consistent with the independent views of the Standard Life Master Trust Co. Ltd. and the Independent Governance Committee.

We also received an update from the Standard Life Investments Chief Investment Officer on the market response to the results of the UK referendum on EU membership where we explored the potential impacts of this on investment performance and the risks posed to our fee based business. The results of the referendum were noted as having contributed to momentum-driven trading conditions with the expectation that these conditions would persist until US interest rates increased and there was a return to more cyclical investing conditions. One consequence of the referendum was that a number of UK property funds were temporarily suspended leading to certain unit linked funds being placed into deferral. The Committee received regular reporting on this matter including the additional steps being taken to protect customers' interests at that time.

The Group's stress and scenario testing programme has continued to support the Committee in understanding, monitoring and managing the Group's risk and capital profile under stressed conditions. The programme provides a forward-looking assessment of resilience to significant adverse events affecting key risk exposures and in 2016 comprised:

·   Univariate stresses - looking  at stresses to financial and demographic risks in isolation

·   Combined stresses - looking at simultaneous stresses to a combination of financial and demographic risks

·   Reverse stress testing - considering circumstances or severe events, including as a result of operational, conduct and reputational risks, that have the potential to cause the business plan to become unviable

·   Tail risk analysis - exploring the possible sequential development of a low likelihood but high impact scenario

The conclusion of the stress and scenario testing was that Standard Life had high quality regulatory capital and remained solvent under the stress scenarios considered. Furthermore the reverse stress testing exercise confirmed that Standard Life is resilient to extreme events as a result of the robust controls, monitoring and triggers in place to identify events quickly and to help mitigate their escalation.

The tail risk analysis performed by the Risk function investigated a severe financial stress prompted by falling oil prices and record low growth in China which, given the severity of the overall stress, was estimated as having a less than 0.5% likelihood of occurrence. The choice of scenario recognised the reliance of Standard Life's business plan on fee revenue from assets under management and that solvency is sensitive to changes in yields and credit spreads and sought to provide insight relating to this.

The analysis highlighted the triggers and actions that could be taken by the business to protect solvency and delivery of the business plan. Overall Standard Life remained solvent but was reliant on reducing expenses to protect profits and dividends under the assumed stressed conditions.

In addition to receiving information on liquidity risk through the dashboard reporting, the Committee received the results of the Group's annual quantitative assessment of liquidity risk. This highlighted the estimated realisable value of assets in a distressed market relative to requirements following significant adverse shifts in customer demand. This allowed the Committee to understand the extent of liquidity risk and indicated that the Company and its subsidiaries were able to meet customer demands in the scenarios considered.

Having reviewed the regular updates presented regarding developments affecting the ORSA processes, the Committee determined that these were well understood and there was no need for the full ORSA report to be updated outside of the routine annual cycle.

Enterprise Risk Management (ERM) framework

The ERM framework is used to identify, assess, control and model the Group's risks and consists of five elements:

·   Risk control processes

·   Strategic risk management

·   Risk and capital models

·   Emerging risks

·   Risk culture

During the year, the Committee has continued to monitor the structure and implementation of the Group's ERM framework to ensure the framework remains suitable for identifying, assessing and managing current and new risk types and for reacting to forward-looking risk issues and the changing nature of risks.

At a high level the Committee has gained assurance regarding operation of the ERM framework from its review of regular content within the Group Views on Risk report. In particular we have used our review of the various risk and capital dashboards, including the consolidated dashboard on key conduct risk indicators and conduct risk outcomes, to understand the Group's risk profile and the effectiveness of the framework in supporting the management of these risks.

Our view of the ERM framework is also informed by the Chief Internal Auditor's assessment of the internal control environment related to the management of risk and capital. The Committee receives semi-annual assessments for Standard Life Investments and our Pensions and Savings business with the most recent assessments highlighting both businesses had maintained a stable control environment in the face of challenging external conditions.

The Committee specifically monitors risk control processes through reviewing the results of policy compliance reporting and updates regarding action plans raised in response to risk events which is included within the Group Views on Risk report.

Strategic risk management within the context of the ERM framework refers to the process of optimising risk-adjusted returns and for evaluating and prioritising strategic options. This takes place as part of the Group's ORSA reporting process whereby the Risk function provides a forward-looking assessment of the Group's risk and capital position as a result of the business strategy and business plan. The operation of this process was observed during the year with the Committee reviewing this reporting when assessing the business plan. Aligned to this, the Committee also received a presentation from the Finance function in 2016 outlining work being undertaken to enhance the optimisation of the balance sheet and ensure the optimal use of capital.

Solvency II was implemented at the start of 2016. The Committee has continued to keep under review the methodology of the Group's Internal Model which was developed in response to the new regime and which represents a key component within the risk and capital models section of the ERM framework. This has included reviewing the key elements of design, the use of significant assumptions and expert judgements, key sensitivities, significant limitations and uncertainty in the model.

Emerging risks have been actively monitored and assessed during the year with regular reporting provided to the Committee through the Group Views on Risk report. This reporting focuses on the key geo-political, economic, societal, legal, regulatory, technological and economic risks that are emerging and provides an assessment of the relative likelihood and significance of these. In supporting the management of emerging risks, we also received a paper highlighting the potential impacts on the business of global risks identified by external organisations. Although we are not directly exposed to many of these risks, the increasing global footprint of Standard Life presents indirect exposures as a consequence of risks to financial markets and the environment of our customers and clients.

Recognising the importance of risk culture and good risk governance within the ERM framework, changes have been made to the governance arrangements within certain operating subsidiaries with effect from 2017. This includes the creation of risk and capital committees within SLAL, Standard Life Savings Limited and AXA Portfolio Services Limited with an audit committee also being established in SLAL. The terms of reference for the Committee were also refreshed to reflect the impact of the Standard Life Investments (Holdings) Limited (SLIH) audit, risk and compliance committee standing down in 2016.

Scrutiny of with profits risk and capital matters

The Committee is advised of relevant updates on with profits risk and capital matters through content in the Group Chief Risk Officer's regular risk reporting. In addition, mechanisms exist for the Chairman of the SLAL With Profits Committee to highlight specific matters to the Committee. No matters were highlighted to the Committee during the year.

Due to the timing of production of this year's annual report by the With Profits Committee on the management of SLAL's with profits business, it was considered that the Board was better placed to perform a timely review of the report. As a result this Committee was not required to review the report this year.

As part of the tail risk analysis looking into a possible severe financial stress prompted by falling oil prices and record low growth in China the Risk function explored the potential impact on the with profits funds. The analysis presented to the Committee highlighted that, in response to a tail risk event such as the one investigated, there were a range of triggers and actions available within the with profits funds to protect the solvency of these funds.

Regulatory compliance

During the year we reviewed and assessed the regulatory compliance plans detailing the planned assurance activities to be performed across the Group in 2016. Subsequent reporting presented to the Committee provided updates on the progress of this work and key findings from it.  In reviewing this reporting we noted improvements to the controls supporting regulatory compliance in both the Investment and Pensions and Savings businesses.

The Committee noted the enhanced data analytics capability developed in Standard Life Investments during the year relating to transactions monitoring and oversight of trading decisions. This enhanced capability helps support regulatory compliance through providing improved monitoring and detection of potential instances of conflicts of interest or market abuse.

The Committee also noted enhancements to the assurance processes within the Pensions and Savings business through improvements made to the framework for monitoring customer calls. Other improvements in this business resulted from the completion of internal thematic reviews performed to further support regulatory compliance and reflected:

·   Regulatory changes

·   External risk events

·   Components of the ERM framework

·   Results of regular compliance testing

·   Business changes

During the year the Committee received a dedicated training and challenge session on the Internal Capital Adequacy Assessment Process (ICAAP) for SLIH. This supported the Committee in discharging their responsibility to review the key assumptions and bases underlying the SLIH ICAAP document submitted to the FCA. The Committee also reviewed the ICAAP document for Standard Life Savings Limited during the year.

The regulatory agenda for the financial services sector in 2016 has been a busy one, prompted by numerous data requests and industry thematic reviews from regulators. As a Committee we have closely monitored these developments to understand and seek to anticipate potential implications for Standard Life and the wider financial services sector. One example of this was the FCA's Meeting Investors' Expectations thematic review which, amongst other things, prompted the Committee to consider the processes used by Standard Life Investments to monitor and control fund literature published on websites including those owned by third parties. To support us in understanding and anticipating the regulatory agenda, and to provide an independent perspective, we engaged an external consultant to provide a presentation on potential future developments relating to conduct risk regulatory activity.

Business Risk Reviews and other reporting

The Committee has continued to receive a number of reports from the Business Risk Review team in 2016. These reports provide the Committee with an independent assessment from the Risk function of aspects of the business that could have a material impact on long-term profitability or delivery of strategy, or that introduce a material new risk. Business Risk Reviews presented to the Committee in 2016 have included:

·   Standard Life Investments, liability aware insurance proposition - assessing the readiness of the business to provide third party insurance asset management

·   Pensions and Savings' guidance at retirement proposition - assessing the sustainability of the telephone and on-line journeys offered to non-advised customers

·   Strategy for the Pensions and Savings Workplace business - assessing the threats and uncertainty affecting the strategy

·   1825 business readiness review - assessing the defined target operating model and adequacy of the framework for managing risks including conduct risk

·   Pensions and Savings' non-advised income drawdown proposition - assessing the extent to which the proposition is commercially viable and risks are at an acceptable level

These Business Risk Reviews reports supported the Committee in allowing informed discussion regarding the progress of these propositions and businesses and included various recommendations aimed at supporting the businesses and propositions achieve their respective objectives. The Committee endorsed the recommendations that were presented.

During the year, the Committee has reviewed and challenged due diligence risk assessments relating to proposed material strategic transactions. This included considering the risks relating to the acquisition of Elevate and the risks associated with the proposed combination of the life insurance businesses of HDFC Life and Max Life.

Governance changes

As already highlighted in this report, with effect from 2017 risk and capital committees have been established within SLAL, Standard Life Savings Limited and AXA Portfolio Services Limited.

The responsibilities of the Committee remain largely unchanged as a result of the creation of these new committees, other than responsibility for scrutinising with profits risk and capital matters, which is transferred to the SLAL risk and capital committee. 

Governance arrangements have been put in place to ensure that the Committee retains appropriate oversight of material risk and capital matters following the introduction of the new committees. This includes this Committee being responsible for approving the terms of reference for the risk and capital committee of SLAL (being a direct subsidiary of the Company) and any subsequent material changes to those terms of reference.

This Committee receives and reviews minutes from the SLAL risk and capital committee and any other reports escalated by the chairman of that committee. Arrangements also exist for the Committee Chairman to attend the SLAL risk and capital committee. Corresponding arrangements have been put in place between the SLAL risk and capital committee and the risk and capital committees for Standard Life Savings Limited and AXA Portfolio Services Limited.

Given the Committee's existing responsibilities regarding oversight of Group companies, the decision to stand down the SLIH Audit, Risk and Compliance Committee in 2016 has not significantly impacted the responsibilities of this Committee.

Committee effectiveness

The Committee reviews its remit and effectiveness annually. In 2016 this review was completed via an internal self-assessment questionnaire.

The overall conclusion of the review was that the Committee operated effectively in 2016. In particular, comments highlighted the benefits of the Business Risk Review reports in highlighting and assessing risks and the role of the risk assessments in supporting consideration of proposed corporate transactions.

For 2017, the review highlighted an expectation that to continue to operate effectively the Committee would need to remain focused on evolving in response to a range of factors including the changing risk profile of the Group as well as the increased regulatory focus on matters such as conduct risk.

 

END

 

 

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